Audi Ag and Volkswagen of America, Inc. v. Bob D'amato, D/B/A Quattro Enthusiasts
Docket: 05-2359
Court: Court of Appeals for the Sixth Circuit; November 27, 2006; Federal Appellate Court
Defendant Bob D'Amato operated a website, www.audisport.com, to sell goods featuring Audi's trademarks, leading Audi AG to sue for trademark infringement and dilution, as well as violation of the Anticybersquatting Consumer Protection Act. The district court granted Audi summary judgment and injunctive relief, awarded attorneys' fees, but denied statutory damages. D'Amato appealed these decisions, including the denial of additional discovery under Rule 56(f).
D'Amato registered the domain in 1999 and claimed he received verbal authorization from dealership employees to use Audi trademarks, despite later findings that these individuals lacked actual authority. An agreement between Champion Audi and Audi explicitly stated that Champion Audi had no rights to grant trademark permissions. D'Amato had also agreed to post links to a related site, www.audisportline.com, for which he would share sales revenue. The appellate court affirmed the district court's ruling.
Each item on the audisport.com website featured a PayPal button for customer payments. D'Amato engaged graphic designer Thompson Smith to create logos using the AUDI RING LOGO for the site. Smith expressed concerns to D'Amato on May 21, 2002, regarding Audi's existing "Collection" site, the necessity of licensing rights for Audi trademarks, the company's incorporation status, and the need for a corporate lawyer. The audisport.com homepage claimed a cooperative relationship with Audi of America, although D'Amato initially stated he lacked written permission to use Audi's trademarks. He later testified that since spring 2003, he received various communications from Audi AG's Press Officer, Melissa Grunnah, who granted him permission to post certain content. However, on May 29, 2003, due to lack of profits, Carlson canceled further development of the site and indicated he would inform D'Amato when to remove links, which he never did. D'Amato received Cease and Desist letters from Audi in late 2003. On February 9, 2004, D'Amato claimed to have removed all Audi trademarks from the website, transforming it back to a noncommercial site, although he argued that Audi continued to supply content. Nevertheless, evidence indicated that the site retained a commercial purpose, including the sale of advertising space, while asserting it was not associated with Audi AG or Audi USA. The district court ruled in favor of Audi on claims of infringement, dilution, false designation of origin, and cyberpiracy, granting a permanent injunction and attorneys' fees, while denying statutory damages. D'Amato's motion to reopen the discovery period was also denied, as he failed to conduct timely discovery.
A district court's denial of additional discovery time is reviewed for abuse of discretion, considering factors such as the timing of the discovery request, its potential impact on the case, the length of the discovery period, the moving party's diligence, and the responsiveness of the adverse party. In this instance, D'Amato sought additional discovery after the deadline had passed, specifically submitting a notice of deposition after hours on the last day, which was received by Audi the following day. The magistrate judge denied D'Amato's motion to compel and extend the discovery deadline, a decision later affirmed by the district court.
D'Amato argued that his delay was excusable due to a lack of awareness regarding Audi's alleged abandonment of its mark until February 16, 2005. However, the court noted that D'Amato's counsel admitted awareness of the issue since December 14, 2004, indicating a substantial delay. Citing precedent, the court found a delay of two-and-a-half months to be dilatory and concluded that D'Amato did not demonstrate that additional discovery would affect the case's outcome.
The court emphasized that any disputes about D'Amato's use of the domain name were irrelevant to his liability for using Audi's trademarks. Consequently, the district court's rejection of D'Amato's Rule 56(f) affidavit was upheld.
To obtain summary judgment, the moving party must show that there are no genuine issues of material fact based on the evidence presented. The mere existence of factual disputes does not defeat a properly supported motion for summary judgment; instead, the nonmoving party must provide evidence that such issues exist, thus warranting a trial.
The standard of review for a district court's grant of summary judgment is de novo, considering facts in favor of the nonmoving party. A trademark, under both common law and federal law, serves to identify and distinguish the goods of a person, as defined by the Lanham Act. The primary test for trademark infringement is the likelihood of confusion between marks. D'Amato contests the district court's finding of likelihood of confusion, arguing that Audi failed to demonstrate actual confusion. However, to obtain equitable relief, only a likelihood of confusion is necessary, not proof of actual deception.
Eight factors are used to assess likelihood of confusion: 1) strength of the plaintiff's mark, 2) relatedness of the goods, 3) similarity of the marks, 4) evidence of actual confusion, 5) marketing channels, 6) degree of purchaser care, 7) defendant's intent, and 8) likelihood of expansion.
Regarding the strength of Audi's mark, the court found Audi's trademarks to be world-famous, which enhances the likelihood of confusion and warrants strong protection. The relatedness of goods was established since D'Amato sold merchandise featuring the Audi symbol, indicating a direct competition that likely causes confusion. The similarity of marks was analyzed by considering pronunciation, appearance, and meaning. D'Amato claimed lawful use of the domain name www.audisport.com due to the cancellation of the "AUDI SPORT" trademark; however, the addition of "sport" did not sufficiently differentiate the marks. The court concluded that the marks are substantially similar, leading to a likelihood of public confusion.
Evidence of actual confusion is a significant factor in determining the likelihood of confusion between brands, although its absence is not detrimental. An email from Thompson Smith to D'Amato illustrates confusion regarding the relationship between Audi and D'Amato's website, www.audisport.com, suggesting that if an experienced designer is confused, consumers likely would be as well. The predominant customers for both Audi and D'Amato are those seeking goods with the Audi brand, and both parties utilized internet marketing, which increases the potential for confusion due to the ease of accessing websites. The low cost of D'Amato's goods, such as shirts and hats, implies that consumers are unlikely to exercise significant care while purchasing, similar to how customers approach inexpensive items online. The intent behind D'Amato's use of Audi's trademarks is crucial, as it suggests he may have sought to benefit from Audi's reputation. D'Amato's use of Audi's trademarks, including their incorporation into domain names and website elements, indicates an intention to create the impression of affiliation with Audi. Notably, D'Amato registered the domain name in 1999 with full awareness of Audi's trademarks and sought confirmation regarding potential issues, but failed to follow up when his inquiry was not answered.
Thompson Smith’s inquiries regarding D'Amato's use of Audi Trademarks indicated potential issues with D'Amato's website and merchandise. Although D'Amato claimed to have received permission from Devin Carlson and Bob Skal, neither had the authority to grant such permission, and D'Amato did not obtain written authorization. D'Amato argued that emails from Carlson and Melissa Grunnah constituted binding agreements, but Michigan law requires mutual consent for electronic contracts, which was not evidenced. The emails sent to D'Amato were mass distribution press releases and did not provide any authorization for trademark use. D'Amato's interpretation of the phrase "Text and Photos Courtesy of Audi AG" as permission for commercial use was deemed unreasonable.
Audi demonstrated that D'Amato used identical counterfeit trademarks on his website, satisfying the second factor for inferring intent to benefit from Audi's goodwill, and the overlap of product lines negated the need for further analysis on that factor. Consequently, the district court found a likelihood of confusion.
D'Amato raised the defense of statute of limitations against Audi's trademark infringement claim, but the Lanham Act does not prescribe a statute of limitations; instead, laches applies. Audi filed the lawsuit on February 23, 2004, while D'Amato claimed to have started using the infringing content on June 4, 1999. In assessing laches, courts consider the mark owner's awareness of the infringement, the reasonableness of any delay in enforcement, and the potential prejudice to the infringer due to that delay.
The district court concluded that D'Amato failed to provide evidence that Audi was aware of his infringing use and did not challenge it. His appeal did not introduce any new evidence suggesting Audi's delay was intentional or inexcusable. The court also determined that D'Amato was not prejudiced as he lacked authorization to use Audi's trademarks for commercial purposes. D'Amato claimed he had consent to use the trademarks, but any agreement Carlson had with Audi did not extend that permission to him. Moreover, D'Amato misrepresented having a signed agreement with Audi on his website.
His defense, citing a disclaimer on his site to refute claims of consumer confusion, was deemed ineffective, particularly since he used identical marks to Audi’s trademarks. The court noted that disclaimers do not prevent liability when they come too late to avoid initial interest confusion, which is actionable under the Lanham Act. D'Amato's assertion that his website only contained hyperlinks to goods did not exempt him from liability, as consumer confusion regarding the commercial impact of his actions was the primary concern, regardless of intent. The use of Audi's trademarks in this context was found to constitute a violation of the Lanham Act, as it suggested a commercial association with Audi.
D'Amato's fair use defense was mentioned, emphasizing that once a strong likelihood of confusion is established, the defendant must merely raise this defense to shift the burden back to the plaintiff.
Audi demonstrated a significant likelihood of confusion regarding D'Amato's use of its trademarks, as D'Amato failed to provide evidence to counter this finding. D'Amato's mention of using "Audi" descriptively in his brief does not address the commercial implications of his website, www.audisport.com, thus undermining his fair use defense. Under the KP Permanent Make-Up precedent, Audi successfully disproved D'Amato's fair use claim.
For trademark dilution, Audi must establish five criteria: that its trademark is famous and distinctive, that D'Amato's use was in commerce, that it began after Audi's mark became famous, and that it caused dilution of Audi's mark's distinctiveness. Audi's trademarks meet the first two criteria due to significant investment and global recognition. D'Amato's website, which sold merchandise and advertising featuring Audi's logo, satisfies the third factor. The fourth factor is fulfilled since D'Amato's website was established after Audi's trademarks. The fifth factor is also met, as D'Amato used identical trademarks, and it is irrelevant whether he profited from the website, as profit is not necessary to prove dilution.
The Anticybersquatting Consumer Protection Act (ACPA) aims to combat cybersquatting, defining civil liability for individuals with bad faith intent who register or use domain names that are identical or confusingly similar to famous marks. To succeed under the ACPA, a plaintiff must demonstrate the defendant's bad faith in using the domain name.
ACPA outlines nine nonexclusive factors for courts to assess whether a defendant acted in bad faith regarding domain names. These factors include:
1. The defendant's trademark or intellectual property rights in the domain name.
2. The extent to which the domain name reflects the legal or commonly used name of the person.
3. The person's prior use of the domain name for bona fide goods or services.
4. The person's bona fide noncommercial or fair use of the mark.
5. The intent to mislead consumers and harm the trademark owner's goodwill.
6. The offer to transfer or sell the domain name for financial gain without prior legitimate use.
7. Providing false or misleading contact information during registration or failing to maintain accurate information.
8. Registration of multiple confusingly similar domain names to distinctive or famous marks.
9. The distinctiveness and fame of the mark involved in the domain name.
The Act includes a "safe harbor" provision for defendants who reasonably believed their use was lawful. In the case reviewed, the district court found that Factors VI through VIII were irrelevant. Factors I and II indicated D'Amato had no trademark rights in www.audisport.com, which used Audi's legal name. Factor III showed D'Amato's use did not constitute a bona fide offering since it infringed Audi's trademarks. Factor IV concluded that D'Amato's use was not fair, as he sold merchandise and advertising space with Audi's name. Factor V examined D'Amato's intent, concluding it could be inferred from his misleading use of Audi's trademarks and false claims of a relationship with Audi, leading consumers to believe his site was affiliated with the company.
D'Amato's actions were aimed at diverting customers from purchasing from Audi's official website, as evidenced by his use of the domain name www.audisport.com, which incorporates the Audi mark, recognized as "distinctive and famous" under the Anticybersquatting Consumer Protection Act (ACPA). D'Amato unsuccessfully claimed a "reasonable belief" defense regarding his use of Audi's trademarks, asserting he had permission based on communications from individuals lacking authority. The court emphasized that this defense should be applied sparingly, focusing on the objective reasonableness of the defendant’s belief. D'Amato's interpretation of press releases as granting permission was deemed unreasonable, especially since he continued his infringing activities despite receiving cease-and-desist letters.
Regarding injunctive relief, the court noted that a plaintiff must demonstrate irreparable harm, lack of adequate legal remedy, a balance of hardships favoring the plaintiff, and public interest. D'Amato's usage of Audi's trademarks posed a risk of consumer confusion and counterfeit sales, justifying the need for a permanent injunction. The court concluded that not issuing the injunction would result in ongoing harm to Audi, while D'Amato would not face significant hardship by ceasing his trademark infringement. Thus, the district court's finding that D'Amato violated the ACPA was affirmed.
Injunctive relief is deemed appropriate as D'Amato's website was not classified as protected speech but rather exploited Audi's goodwill for profit. The district court granted Audi attorneys' fees under 15 U.S.C. § 1117(a), which allows for such awards to the prevailing party in "exceptional" cases. The analysis involves determining if Audi was a "prevailing party" and whether the case is "exceptional." The review of attorneys' fees awards is conducted for abuse of discretion, with overturning the decision limited to clear errors in judgment.
D'Amato argues that Audi does not qualify as a "prevailing party" because it did not secure monetary damages, citing a precedent that suggests minimal success may not meet this definition. However, he fails to provide case law supporting that injunctive relief in trademark cases does not establish prevailing status. The Ninth Circuit emphasizes that injunctive relief is often the primary remedy in trademark disputes due to the lack of adequate legal remedies for ongoing infringement. The court concludes that Audi's success is not merely de minimis.
Regarding the "exceptional" status, the law indicates that a case is not exceptional unless the infringement was malicious, fraudulent, willful, or deliberate. D'Amato's actions, which included using counterfeit marks for profit rather than limiting content to protected speech, support a finding of exceptional circumstances. The use of counterfeit marks mandates reasonable attorneys' fees unless extenuating circumstances exist. D'Amato's awareness of the need for permission to use such marks is evident from his attempts to obtain consent from Volkswagen and Audi affiliates. Additionally, the district court's finding of bad faith under the Anticybersquatting Consumer Protection Act (ACPA) bolsters the argument for exceptional status, as bad faith can indicate malicious intent relevant to attorneys' fees under the Lanham Act.
D'Amato claims he should not incur attorneys' fees since he modified the website after receiving cease-and-desist letters and before Audi initiated legal action.
D'Amato remains liable even if he claims his website transitioned to non-commercial use prior to the complaint being filed. The precedent set in Shields v. Zuccarini indicates that a defendant's last-minute change in website purpose does not negate liability, especially when bad faith use of counterfeit marks is evident. The district court properly exercised its discretion in awarding attorneys' fees under section 1117(a) due to D'Amato's actions. The court's judgment is affirmed. Additionally, it is clarified that Bob Skal was not affiliated with Champion Audi, and Melissa Grunnah was an independent contractor for Audi, not a direct employee, as indicated by her non-Audi email address. D'Amato's assertion about the website's change is also deemed false, as he continued to sell advertising space.
