CJC Holdings, Inc. v. Wright & Lato, Inc.

Citation: Not availableDocket: 92-8032

Court: Court of Appeals for the Fifth Circuit; December 9, 1992; Federal Appellate Court

Original Court Document: View Document

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CJC Holdings, Inc., operating as ArtCarved, has been producing its Lyric wedding ring since 1955, which features a white gold shell and a yellow gold band with a floral design but lacks copyright or patent protection. Wright. Lato, Inc. copied the ring using a direct mold technique, selling it under its own trademark without labeling it as a "Lyric" ring. ArtCarved attempted to cease this production through multiple cease-and-desist letters, but W. L did not agree to stop. CJC subsequently filed a lawsuit, claiming trade dress infringement and other violations, including unfair competition and tortious interference, and sought various forms of relief such as injunctions, damages, and attorney fees.

The timeline leading to W. L's default shows that after receiving the complaint on June 26, 1990, W. L's president was occupied with business trips and a corporate vacation, delaying their response. CJC denied W. L's request for an extension to file an answer and moved for entry of default after the deadline passed.

On August 1, 1990, a court clerk entered a default against W. L. W. L filed a motion to set aside the default on August 6, 1990, and subsequently moved to dismiss the case on August 15, 1990, challenging aspects such as trade dress protection, personal jurisdiction, venue, and service of process under Federal Rule of Civil Procedure (Fed. R.Civ.P.) 12(b). On April 15, 1991, CJC filed for default judgment. The court denied W. L's motion to set aside the default on May 30, 1991, and took CJC's motion for default judgment under advisement. W. L sought reconsideration of the earlier ruling on June 20, 1991, and on November 20, 1991, the court denied this motion while granting CJC's motion for default judgment. The final judgment on December 9, 1991, required W. L to label its rings to prevent public confusion but did not award damages. CJC was awarded $115,000 in attorneys' fees, plus interest and costs.

W. L contended that the district court should have set aside the default judgment, which is reviewed under an abuse of discretion standard. The court considers factors such as whether the default was willful, potential prejudice to the opposing party, and whether a meritorious defense exists. The court held that W. L's default was willful, a finding reviewed for clear error. W. L argued that its default was not willful, citing claims from its president and outside counsel regarding a lack of awareness of service until after the deadline. They stated that a registered letter was misdirected to the accounting department, and the whole company was on vacation for two weeks, complicating the response.

Clapper contacted counsel immediately upon his return, which led to a request for an extension of time fourteen days after the deadline for filing an answer. W. L attributed the confusion to CJC, claiming that CJC sent only the complaint without the summons, which misled W. L into thinking it would not be served. However, the district court's finding that this was not clearly erroneous stands firm, as sending the complaint was a courtesy that sufficiently notified W. L of impending service. W. L's argument that it was misled lacks merit since federal rules do not mandate sending the complaint, and W. L should have anticipated service. Additionally, W. L received the certified letter three days before a company-wide vacation, and it is deemed reasonable for companies to read such letters promptly.

The district court's conclusion regarding W. L's willfulness was not clearly erroneous, and it did not abuse its discretion by refusing to set aside the default judgment. Regarding the award of attorneys' fees to CJC, the Lanham Act permits such awards in exceptional cases as outlined in 15 U.S.C. § 1117(a). The court should assess whether a case is exceptional by considering all relevant facts and circumstances. The standards for determining exceptional cases in trade dress and patent law are analogous, differing from the more lenient standards applicable in copyright cases. Generally, a prevailing party cannot recover attorneys' fees unless statutory authority exists, and the prevailing party must demonstrate the exceptional nature of the case by clear and convincing evidence for a fee award to be considered. After this showing, the district court may exercise discretion in awarding fees, which is subject to review for abuse of discretion, with factual findings evaluated under a clearly erroneous standard.

CJC contends that deliberate copying of its trade dress by the defendant, W. L, should automatically render the case exceptional. CJC cites Taco Cabana to support this argument; however, the court clarifies that Taco Cabana only established that the district court acted within its discretion in awarding fees due to Two Pesos' intent to deceive customers. The court rejects the notion of a per se rule that mere copying makes a case exceptional, emphasizing that CJC's ring lacked patent or copyright protection, allowing W. L to legally produce "knock-off" copies. W. L did not use the trademark "Lyric" in its advertising or on the ring and copied the design to compete, not to confuse customers. CJC failed to demonstrate any damages, a critical factor in determining whether a case is exceptional. Furthermore, W. L argued in good faith that its copying was legitimate and questioned the protectability of CJC’s trade dress based on functionality, a point the district court found plausible. The court noted that without explicit findings from the district court on why the case should be considered exceptional, appellate review is impeded. Consequently, the court vacated the award of attorneys' fees and remanded the case for the district court to make this determination. While the court affirmed the denial of W. L’s motion to set aside the default judgment, it instructed that any award of attorneys' fees should be reassessed if the district court finds the case exceptional upon remand.