Watec Co., Ltd., a Japanese Corporation, Plaintiff-Counter-Defendant-Appellee v. Chia C. Liu, a Resident of California Esa Chia L. Liu Watec Company America, a Nevada Corporation Esa Watec America Corporation, Defendants-Counter-Claimants-Appellants, Genwac Inc., a New York Corporation, Counter-Defendant-Appellee

Citations: 403 F.3d 645; 74 U.S.P.Q. 2d (BNA) 1128; 2005 U.S. App. LEXIS 5068Docket: 03-55823

Court: Court of Appeals for the Ninth Circuit; March 29, 2005; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Watec Company Limited, a Japanese manufacturer, is in a trademark dispute with its former distributor, Watec Company America, and its president, Chia C. Liu. Watec America and Liu appeal the district court's refusal to grant a new trial, arguing that a denial of their mid-trial motion for judgment as a matter of law effectively barred their defense against Watec Japan's trademark infringement claim. They also contest the jury's verdict, which found them in breach of an oral distribution agreement and liable for trademark infringement, claiming insufficient evidence supports these conclusions. Additionally, they assert that the jury's damages award was excessive and indicative of bias. They challenge the district court's classification of the case as "exceptional," which justified an award of attorneys' fees under the Lanham Act. The appellate court affirms the denial of a new trial and the jury verdict but vacates and remands the attorneys' fees issue for further consideration. Watec Japan, established in 1987, had previously used an international distributor until 1990, when it entered an oral agreement with Liu to establish Watec America as its exclusive U.S. distributor, providing initial funding and a license to use its trademarks.

Watec America and Liu represented Watec Japan and identified it as the holder of the WATEC and WAT trademarks in their marketing. Watec America registered these trademarks with the USPTO in 1992 and 1993, making them "incontestable" under 15 U.S.C. 1065. In 1995, Liu entered into a Stock Purchase Agreement with Watec Japan to buy its shares in Watec America, which did not mention the trademarks. By 1998, Watec America and Liu began selling cameras from other manufacturers under the WATEC and WAT marks, leading Watec Japan to claim violations of their exclusive distributorship agreements. Watec America and Liu ignored requests to cease this practice, prompting Watec Japan to stop supplying cameras to them in March 2000 and to initiate litigation in October 2000 for breach of contract and trademark infringement.

The case proceeded to trial in February 2003. Watec America and Liu filed a motion for judgment as a matter of law (JMOL) on the trademark infringement claim after Watec Japan's case-in-chief, which the district court initially reserved ruling on. After three days of defense presentation, the court granted the JMOL on the trademark claim, leaving only the breach of contract claim. Watec Japan sought reinstatement of its trademark claim, and the court considered this while Watec America and Liu continued their defense.

During the rebuttal phase of Watec Japan's case, the district court reversed its earlier JMOL decision, allowing the trademark claim to go to the jury. Watec Japan requested a brief continuance to assess the implications of this reversal, while Watec America and Liu did not express any objections or claims of prejudice at that time. Following a summary of remaining evidence by both parties, the trial concluded after Watec America and Liu called an additional witness, and both sides rested without presenting further evidence.

The jury found in favor of Watec Japan, rejecting Watec America and Liu's trademark claim and awarding Watec Japan $5.9 million for breach of contract and trademark infringement. The jury determined that Watec America's infringement was intentional, entitling Watec Japan to attorneys' fees. The district court upheld the jury's verdict but granted a new trial on the grounds that the $5 million damages award for trademark infringement was excessive, unless Watec Japan accepted a remittitur. Watec Japan agreed to reduce the damages to $2,156,590, and the district court issued an Amended Judgment, along with a separate order awarding $289,612 in attorneys' fees under 15 U.S.C. § 1117(a).

Watec America and Liu filed motions for a new trial and renewed motions for judgment as a matter of law (JMOL), but the district court denied the JMOL motions. They argued that the district court’s denial of their first JMOL motion prevented them from presenting a defense against Watec Japan's trademark infringement claim. However, they waived their right to appeal the denial of the first JMOL motion by failing to argue it specifically in their opening brief. Their argument regarding evidentiary error was rejected because they did not offer evidence that the district court excluded, reflecting a lack of basis for claiming that error on appeal. The court referenced precedents indicating that a party cannot claim evidentiary error if no evidence was tendered for a ruling.

Watec America and Liu cannot contest the district court's reversal of its initial judgment as a ruling to exclude evidence on trademark infringement. The district court had encouraged them to present additional evidence against Watec Japan's trademark claim, which they did until they stated they had no further evidence to offer. The reversal simply reinstated Watec Japan's trademark claim, placing both parties on equal footing regarding their burdens of proof.

Watec America and Liu challenge the evidence supporting the jury's finding of an oral distributorship agreement and Liu's personal liability. The jury's verdict represents a factual determination based on credibility assessments between Watec Japan's witnesses and Liu. The review focuses on whether Watec Japan's evidence was sufficient to support the jury's conclusion. 

Jury instructions required proof of (1) legal capacity to contract, (2) mutual consent, (3) a lawful objective, and (4) sufficient consideration. Watec Japan presented witness testimony confirming the existence and terms of an oral agreement, including Igarashi’s assertion of having entered into the agreement with Liu and detailing its key terms. Evidence of consistent conduct, such as funding and providing cameras, supported the agreement's existence. Testimonies from non-party witnesses reinforced that Watec America was recognized as Watec Japan's official distributor in the U.S., based on their interactions and representations. Additionally, marketing materials identified Watec America as a division of Watec Co. Ltd., holding the relevant trademarks. Regarding Liu's liability, testimony indicated that he was personally contracted by Igarashi.

Substantial evidence supports the jury's finding of an oral agreement between the parties, confirming that Liu entered the agreement personally. Contradictory evidence does not undermine this conclusion, as it is the jury's role to assess conflicting evidence and witness credibility. The jury's verdict on breach of contract is affirmed. 

Watec America and Liu contest the jury's trademark infringement ruling, asserting that Watec Japan failed to demonstrate necessary evidence to undermine Watec America's incontestable federal trademark rights under 15 U.S.C. 1065. A trademark becomes "incontestable" after five years of continuous use, granting exclusive rights that can only be challenged on specific grounds. One exception to these rights is if another party has valid state law rights acquired through prior use before the federal registration.

For Watec Japan to claim senior rights, it must prove prior use and continuous use of the mark since before Watec America's registration. Watec America and Liu argue there was insufficient evidence of Watec Japan's prior and ongoing use, particularly regarding market penetration required to assert common law senior rights. The jury was instructed that common law rights necessitate actual business activity and significant market presence, not merely advertising efforts.

Even if Watec Japan establishes common law senior rights, these rights only apply to specific locales where it demonstrated market penetration before federal registration. The evaluation of evidence must determine if reasonable minds could find the jury's conclusion credible, considering the legal standards outlined in the jury instructions.

Watec Japan presented evidence of extensive marketing activities in the U.S. in 1989, including direct mail advertisements and national trade show participation, establishing substantial use of the WATEC and WAT marks prior to Watec America's formation. Testimony indicated that thousands of marketing materials and sample cameras were distributed nationwide, and pre-1992 customer correspondence from Florida, New York, and Pennsylvania supported claims of orders and inquiries related to the marks. The president of a camera resale company testified to purchasing Watec cameras before June 1990, reinforcing Watec Japan's claim to senior common law rights in the marks.

Watec Japan argued that it maintained continuous use of the marks through Watec America and Liu as licensees during the period between the formation of Watec America and Genwac. The jury found that Watec Japan licensed Watec America and Liu to use the marks and did not transfer any rights upon selling shares in Watec America in 1995. Testimony from Igarashi supported the existence of an oral licensing agreement, and advertisements from Watec America and Liu indicated they were acting on behalf of Watec Japan regarding the trademarks.

Igarashi's testimony confirmed that the terms of their original distributorship agreement remained unchanged after the sale of shares to Liu, and the Stock Purchase Agreement did not address the trademarks, suggesting no rights were relinquished. The jury's findings that Watec Japan retained its rights in the marks and that a licensing arrangement was in place were upheld, along with the verdict on trademark infringement. Watec America and Liu's requests for a new trial due to perceived excessive damages were noted but not detailed.

Watec America and Liu contend that the Supreme Court ruling in Minneapolis, St. Paul, Sault Ste. Marie Ry. Co. v. Moquin necessitates a new trial due to the jury's excessive damages award for trademark infringement, which they argue indicates influence from passion and prejudice. It is established that a verdict cannot stand if it results from such influences. A new trial is warranted only if there is evidence that passion and prejudice affected the liability finding, not merely the damages award. In the case of Seymour v. Summa Vista Cinema, the court did not order a new trial despite acknowledging that the damages award was excessive and potentially influenced by passion, as there was no evidence of impermissible conduct affecting the liability determination.

In the current case, the district court ruled for remittitur, recognizing that the jury's $5 million damages award was unsupported by evidence, as experts calculated a figure of $2,156,590. The district court suggested the jury may have awarded the entire gross sales figure to the plaintiff, a rationale deemed persuasive. There was no evidence of improper conduct by Watec Japan that could have tainted the liability findings, making remittitur appropriate.

Watec America and Liu also challenge the jury's breach of contract damages award, arguing it was based on an excessively prolonged timeframe, relying on testimony from Watec Japan's expert. However, a similar argument was rejected in Del Monte Dunes, where the court upheld a jury award despite claims of an excessive timeframe, as the district court had left the time period determination to the jury without a basis for the defendant's objections.

Watec America and Liu lack a factual basis to dispute the jury's assessment of contract damages, as they could have countered the expert testimony regarding lost profits but chose not to. The district court allowed the jury to determine the relevant time period for damages, and there was substantial evidence supporting the jury’s award. Regarding attorneys' fees, the district court awarded Watec Japan $300,000 under the Lanham Act, which Watec America and Liu contest as not being an "exceptional" case as defined by 15 U.S.C. 1117(a). An exceptional trademark case requires a finding of malicious or willful conduct, which the jury's determination of intentional infringement does not suffice to establish. The appellate court noted that a district court's fee award can be set aside if it lacks reasoning, and in this case, remanded the issue back to the district court to assess whether the case qualifies as exceptional and to provide explicit findings if it does. The appellate court affirmed the denial of a new trial for Watec America and Liu, ruling they had ample opportunity to present their defense and found no evidence of jury bias affecting the damages award. The jury’s verdicts on breach of contract and trademark infringement are upheld due to substantial evidence supporting these findings.

Affirmation of the district court's decision is partially upheld, while other aspects are vacated and remanded. After Watec America and Liu concluded their evidence, they confirmed to the court that no further evidence was available. According to Rule 28(a)(9)(A), an appellant's brief must detail the appellant's arguments and supporting citations. The court reviews motions for a new trial and evidentiary rulings for abuse of discretion, reversing an exclusion of evidence only if it causes prejudice. The district court indicated that insufficient evidence existed to dismiss Watec Japan's trademark infringement claim as a matter of law, warranting a jury trial. A jury's verdict is upheld if backed by substantial evidence, defined as relevant evidence that reasonable minds could accept, without weighing evidence or assessing witness credibility. The trial primarily involved oral contract disputes. Watec America and Liu did not contest the legal instructions regarding contract law, limiting review to the sufficiency of evidence related to the contract issues. The relevant provision of the Lanham Act indicates that a registrant's right to a registered mark becomes incontestable after five years of continuous use, subject to state law rights. Watec Japan can only assert common law rights for its marks, as it lacks state statutory rights due to non-registration. The court refrained from commenting on the jury's instructions regarding common law senior rights, focusing solely on the sufficiency of evidence for that trademark claim. Watec Japan's expert estimated Watec America's infringing sales gross revenue at approximately $5.2 million. Determining if a case is "exceptional" under the Lanham Act is a legal question subject to de novo review, while the award of attorneys' fees is reviewed for abuse of discretion, where applicable.