Gucci v. Guess?: A Pyrrhic Victory

by / Sunday, 16 September 2012 / Published in COMMERCIAL & IP LITIGATION BLOG

Firm.Logo.Small.gif***This article was originally published in The New York Minutes – a Federal Bar Association, Southern District of New York Chapter, publication ***

Fashion makes headlines because of the luxury of its design brands, the fame of its designers, models and personalities and the endless palette of sartorial expression it gives us to be unique, trendy or simply ordinary.  But when fashion is seen by the public through the prism of our judicial system, it is often the subject of both fascination and ridicule.  Indeed, the long standing trademark dispute between Gucci and Guess resulted in countless headlines, blog postings and articles, not to mention the harsh, albeit elegant, reprimand of a federal judge in the form of an Oscar Wilde quote.[1]  Gucci v. Guess, 2012 U.S. Dist. LEXIS 70833 (S.D.N.Y. May 21, 2012), however, serves as a good lesson to any practitioner who seeks to obtain damages on behalf of her client.  The case reads like a treatise on trademark law, and plainly outlines the shortcomings in Plaintiff’s burden of proof.

 

The dispute between the two fashion giants began in 2009, when Gucci sued Guess and its licensees, stating that Guess had engaged in a “sophisticated and elaborate scheme. . . to target Gucci, to create products that are similar in appearance to the most popular and best-known Gucci products, and trade upon the goodwill and reputation association with Gucci and its high-quality, distinctive products lines.”  Gucci v. Guess, 2012 U.S. Dist. LEXIS 18497 (S.D.N.Y., Feb. 14, 2012).  Gucci sought a permanent injunction preventing Guess from using the infringing marks, monetary relief (including actual damages, statutory damages, and an accounting of profits) and destruction of all infringing products.  The complaint included the following claims under both federal and state law:  1) a trademark counterfeiting claim based on Guess’s use of Gucci’s Green-Red-Green Stripe (“GRG Stripe”) design; 2) a trademark infringement claim based on Guess’s use of the GRG Stripe, Script Guess, and Square G designs, as well as a related trade dress infringement claim based on Guess’s use of the Quattro G design; and 4) claims for dilution, false designation of origin, and unfair competition based on Guess’s use of all four designs.  Gucci also sought cancellation of Guess’s “4G Square Repeating Logo” trademark on the basis of abandonment.  Pictures of the designs, along with examples of their use are included below:

 

Green-Red-Green Stripe:

Gucci’s Registered Mark:

Gucci example:

Guess example:

Script Logo:

Gucci’s Registered Mark

 

Gucci Example:

Guess Example:

 
 Square G:

Gucci Registered Mark:

Guess Example:

Gucci  trade dress motif:

Gucci example – “GG Pattern”/ “Diamond Motif”:

Guess Example “Quattro G”:

Guess moved for summary judgment on the bulk of Gucci’s claims against it.  Although most of Guess’ summary judgment motion was denied, the court did grant summary judgment in favor of Guess with respect to Gucci’s dilutions claims on two marks: the Square G and Quattro G designs.  The reason the court granted summary judgment in favor of Guess for just these two marks was because they were used in commerce prior to October 6, 2006 and therefore subject to a different standard.  Indeed, the standard by which a claim for trademark dilution is assessed depends on when the allegedly diluting mark was first used in commerce. Where such use occurs before October 6, 2006, the dilution claim is governed by the Federal Trademark Dilution Act of 1995, under which a plaintiff must prove actual dilution.  See Moseley v. V Secret Catalogue, Inc., 537 U.S. 418, 433, 123 S. Ct. 1115, 155 L. Ed. 2d 1 (2003).  If, however, the alleged diluting mark is first used in commerce after October 6, 2006, the Trademark Dilution Revision Act of 2005 applies, which allows a plaintiff to succeed upon a lesser showing of a “likelihood of dilution.”  Malletier v. Dooney & Bourke, Inc., 500 F. Supp. 2d 276, 279 (S.D.N.Y. 2007).  The court examined Gucci’s expert report with regards to dilution of Gucci’s marks and concluded that it failed to support a claim of “actual dilution” – as opposed to “likelihood of confusion” – because the report was written in conditional terms (e.g. Guess’ products are “likely” dilute, or there is a “significant risk” of dilution).2  Accordingly, because the report could not show that these risks have materialized the court granted summary judgment in favor of Guess.

 

The case proceeded to a bench trial before Judge Shira A. Scheindlin, where Gucci largely won its claims against Guess based on trademark infringement and dilution claims, obtained a permanent injunction against Guess and its licensees, and the cancellation of one of Guess’ marks.  Gucci v. Guess?, 2012 U.S. Dist. LEXIS 70833 (S.D.N.Y. May 21, 2012).

 

With respect to Gucci’s infringement claims, although Gucci originally alleged point-of-sale confusion as well as post-sale confusion, it ultimately proceeded solely on the more difficult post-sale confusion theory.   Post sale confusion occurs when “a potential purchaser, knowing that the public is likely to be confused or deceived by the allegedly infringing product, will choose to purchase that product instead of a genuine one in order to gain the same prestige at a lower price.”  Gucci Am., Inc. v. Guess?, Inc., No. 09 Civ. 4373, 2012 U.S. Dist. LEXIS 18497, 2012 WL 456519, at *2 (S.D.N. Y. Feb. 14, 2012) (citing Hermès Int’l v. Lederer de Paris Fifth Ave., Inc., 219 F.3d 104, 108 (2d Cir. 2000)). In other words, post sale confusion addresses a purchase intended to confuse rather than a misdirected purchase.   Like point-of-sale confusion, a post-sale confusion plaintiff must still establish a likelihood of confusion among a good number of post-sale observers – not an easy task to accomplish in post-sale observation.  Indeed, and as pointed out by Judge Scheindlin,  “the fact that post-sale observers are removed from purchasing decisions makes post-sale trademark cases inherently difficult to prove, speculative, and subject to increased scrutiny.”  Gucci v. Guess?, 2012 U.S. Dist. LEXIS 70833, at 65; see also Lang v. Retirement Living Publ’g Co., 949 F.2d 576, 583 (2d Cir. 1991).

 

The Second Circuit has never required a trademark owner, in a post-sale confusion context, to show that sales were actually lost to the allegedly infringing user, because such evidence is not easily obtained.  Rather, the Second Circuit has held that post-sale confusion is actionable when members of public (i.e. not the consumer purchasing the infringing goods) are confused as to the origin of the products.  This confusion is the precise motivation that would encourage consumers to purchase the allegedly infringing goods.  Gucci Am., Inc. v. Guess?, Inc., No. 09 Civ. 4373, 2012 U.S. Dist. LEXIS 18497, 2012 WL 456519, at *11.  Courts in the Second Circuit therefore look at all the traditional Polaroid factors in analyzing claims of post sale confusion, namely: (1) the strength of plaintiff’s mark; (2) the similarity of plaintiff’s and defendant’s marks; (3) the proximity of the products; (4) the likelihood that plaintiff will “bridge the gap”; (5) actual confusion between products; (6) defendant’s good or bad faith in adopting the mark; (7) the quality of defendant’s product; and (8) the sophistication of the buyers.  Id; Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d Cir. 1961).

 

In a highly detailed opinion, the Court, after individually weighing all the Polaroid factors and annexing separate appendices itemizing the infringing goods, found that Guess had intentionally copied the repeating GG Pattern and the Diamond Motif trade dress in developing the Quattro G Pattern, and that Gucci had ultimately succeeded on its Lanham Act claims for infringement and false designation of origin on these mark.  Although Gucci had limited evidence to support its claim of actual confusion, the Court found in Gucci’s favor as documentary evidence – in the form of emails, deposition and trial testimony – showed bad faith on Guess’ part.  The Court further found that, for certain types of goods, Guess had also, in bad faith, copied Gucci’s GRG Stripe, as well its stylized G mark.3

 

Despite Gucci’s apparent win, Gucci won just a fraction of the damages it had sought.  Indeed, Judge Scheindlin awarded an underwhelming $4,613,478 out of the $100-200 million Gucci had originally sought.4  This amount was further substantially reduced, “due to mathematical errors and oversights,” in a subsequent decision by the same court a month later.  See Gucci v. Guess?, 2012 U.S. Dist. LEXIS 84232 (S.D.N.Y. June 18, 2012).

 

After so much time and effort spent litigating this matter, it leaves one to wonder what went wrong.  The culprit in Gucci’s failure to recover monies is simply lack of evidence combined with the difficult post-sale confusion standard outlined above.  This lack of evidence was apparent at the summary judgment stage on the issue of dilution, and subsequently on the issue of damages.  Under the Lanham Act, once a plaintiff proves actual consumer confusion or deception, a plaintiff can obtain damages in the form of lost sales, a reasonable royalty and harm to brand value.  A plaintiff may also be entitled to monetary relief in the form of an accounting of profits if the infringer acted with “willful deceptiveness.”

 

Gucci, however, was unable to produce any evidence on the issue of actual damages in the form of lost sales or harm to brand value.  The Court was therefore left with assessing actual damages in the form of a reasonable royalty.  Gucci did submit an expert report proposing a hypothetical royalty calculation, however, the Court found this report highly speculative as a number of assumptions were made in the report that most likely would not transpire in a realistic scenario between the parties.  See Gucci v. Guess?, 2012 U.S. Dist. LEXIS 70833, at *59.  Accordingly, given the speculative nature of the report, the Court found that Gucci was not entitled to actual damages as measured by a reasonable royalty.

 

Gucci was therefore left to fend for itself on the basis of an accounting.  An accounting, however, is an equitable remedy, which requires a court to weigh all of the equities.  Since Guess successfully availed itself of the “innocent use” equitable defense with respect to the Square G mark, Gucci’s recovery was barred on those claims.  For the remainder of Gucci’s claims, Gucci was entitled to an accounting – which ultimately totaled to the numbers stated above.  In other words, a mere fraction of the originally requested sum.

 

Evidence of bad faith and intentional infringement carried the day in this case, but the shortcomings in evidence, particularly as to damages, ultimately made this a questionable victory for Gucci.  Perhaps the parties ran out of steam, or perhaps Gucci’s focus was solely on proving infringement and obtaining an injunction, rather than collecting damages.  Either way, this case serves as a painful reminder that in every trademark case, monetary damages must be proven. ●

 

1.  Judge Sheira A. Scheindlin’s closing paragraph did not mince words (Gucci v. Guess, 2012 U.S. Dist. LEXIS 70833, at *112):

 

Over the past three years, the parties have put in countless hours and spent untold sums of money, all in the service of fashion — what Oscar Wilde aptly called “a form of ugliness so intolerable that we have to alter it every six months.” With the instant disputes now resolved, and with Gucci’s entitlement to the relief noted above, it is my hope that this ugliness will be limited to the runway and shopping floor, rather than spilling over into the courts.

 

2.  For example, the expert report stated that “[a] perceived ubiquity of Gucci-like designs . . . is clearly likely to reduce the perceived value of the original Gucci designs,” that there is a “significant risk than [sic] some of consumers’ existing associations to the Guess brand [may] also become linked to the Gucci brand [in such a way that] would weaken the latter’s brand identity,” and finally, that “among consumers who are fully aware that the accused products are from Guess rather than from Gucci, the availability of Gucci-like Guess imitations is likely to create negative consumer responses toward the Gucci brand.”  Gucci v. Guess, 2012 U.S. Dist. LEXIS 18497, at 40.

 

3.  The Court’s findings are too specific as to each particular mark, and each infringing good, to set out in greater detail here.  A reader interested in the minutiae of this decision would probably be wise to read through the entire opinion.

 

4.  It is also worth noting that roughly half of that amount was imposed upon Guess, and the remainder upon Guess’ independent licensees.

 

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