4SEMO.COM, Incorporated v. Southern Illinois Storm Shelte ( 2019 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 18-1998 & 18-2095
4SEMO.COM INCORPORATED,
Plaintiff-Appellee/
Cross-Appellant,
v.
SOUTHERN ILLINOIS STORM SHELTERS, INC.,
INGOLDSBY EXCAVATING, INC., and BOB INGOLDSBY,
Defendants-Appellants/
Cross-Appellees,
and
ROMAN A. BASI and ALFRED E. SANDERS JR.,
Intervenors/
Appellees.
____________________
Appeals from the United States District Court
for the Southern District of Illinois.
No. 3:13-cv-00297 DRH/SCW — David R. Herndon, Judge.
____________________
ARGUED APRIL 1, 2019 — DECIDED OCTOBER 7, 2019
____________________
2 Nos. 18-1998 & 18-2095
Before EASTERBROOK, SYKES, and BRENNAN, Circuit Judges.
SYKES, Circuit Judge. This appeal involves a long-running
trademark dispute over ownership and misuse of a word-
mark and logo for below-ground storm shelters. The story
begins in 2005 when a Missouri-based home-remodeling
firm known as 4SEMO.com Inc. began selling storm shelters
manufactured by Southern Illinois Storm Shelters, Inc.
(“SISS”), an Illinois company run by Robert “Bob” Ingoldsby
and his brother Scott. The dealership agreement gave
4SEMO the exclusive right to sell SISS shelters in portions of
Missouri and Arkansas. As part of its marketing campaign,
4SEMO created a wordmark—“Life Saver Storm Shelters”—
and a logo using that name, which it affixed to the shelters.
In 2006 the Ingoldsbys asked 4SEMO for permission to use
these marks on shelters marketed in southern Illinois.
4SEMO granted a limited license for that purpose, but the
Ingoldsbys violated it by using the marks on products sold
throughout the country.
SISS sued 4SEMO for trademark infringement, claiming
prior use and ownership of the “Life Saver” wordmark. That
claim did not survive summary judgment. 4SEMO counter-
claimed for trademark infringement and false endorsement
under the Lanham Act, along with several state-law claims.
The counterclaims were tried to the bench, and the district
judge found for 4SEMO across the board, entered a cease-
and-desist order, and awarded more than $17 million in
disgorged profits as damages. The judge denied 4SEMO’s
motion for vexatious-litigation sanctions under 28 U.S.C.
§ 1927 and attorney’s fees under the Lanham Act.
On appeal SISS does not contest the judge’s factual find-
ings. It argues instead that 4SEMO’s logo violates a statute
Nos. 18-1998 & 18-2095 3
that makes it a crime to use the iconic emblem reserved to
the American Red Cross: a red Greek cross on a white back-
ground. SISS also raises a novel legal argument to attack
4SEMO’s ownership of the wordmark. Finally, SISS chal-
lenges the eight-figure monetary award. In a cross-appeal
4SEMO seeks review of the denial of § 1927 sanctions and
Lanham Act attorney’s fees.
We affirm for the most part. SISS’s statutory argument is
meritless and its legal theory challenging 4SEMO’s owner-
ship of the marks is new on appeal and thus is waived. We
also reject the challenge to the damages award; the judge’s
conclusion that SISS engaged in trademark infringement on
a vast scale is well supported by the evidence. Finally,
although the judge reasonably concluded that § 1927 sanc-
tions were not warranted, his summary denial of Lanham
Act fees cannot be squared with his factual findings and
legal conclusions on the merits of the infringement claim.
Because those findings and conclusions satisfy the Act’s
standard for recovery of attorney’s fees, we remand for the
limited purpose of determining a reasonable fee award.
I. Background
Ray Fielack is the president of 4SEMO, a home-
remodeling company located in southeast Missouri. Bob and
Scott Ingoldsby have been manufacturing storm shelters
since 1998. They began operating under the SISS name in
2000 and continued to do so as Ingoldsby Excavating, Inc.,
since 2008.
In 2004 4SEMO purchased a storm shelter from an SISS
dealer and installed it at the direction of a remodeling client.
Pleased with the product, 4SEMO expressed interest in
4 Nos. 18-1998 & 18-2095
buying more shelters from the dealer and began promoting
them to potential customers. The dealer asked if 4SEMO
would be interested in simply purchasing its existing inven-
tory and becoming a dealer in its own right. 4SEMO agreed
to do so.
Fielack decided that a set of identifiable trademarks
would assist his company’s foray into storm-shelter market-
ing and installation. In late March or early April 2005, he
settled on the name “Life Saver Storm Shelters.” He also
designed a logo: a red Greek cross on a black background
with the “Life Saver” product name written across its hori-
zontal bar in yellow lettering. Fielack testified at trial that no
one at 4SEMO had seen the name or logo before.
4SEMO took possession of the former dealer’s inventory,
stenciled its new logo and wordmark onto the shelters, and
displayed them for sale. Starting in April or early May 2005,
4SEMO’s brochures and signage, and the shelters it sold,
featured the marks as shown below:
On May 5 4SEMO signed a formal dealership agreement
with SISS. The contract granted 4SEMO exclusive retail
rights in a territory that included portions of Missouri and
Arkansas. It did not mention the marks. Around this time
Scott Ingoldsby visited 4SEMO to exchange one of the
inventory shelters for an updated model. He expressed no
Nos. 18-1998 & 18-2095 5
familiarity with the marks. 4SEMO continued to market its
inventory under the “Life Saver Storm Shelters” brand.
In February 2006 the Ingoldsbys asked 4SEMO for per-
mission to use the “Life Saver Storm Shelters” marks in
connection with retail sales and installations in southern
Illinois. 4SEMO orally agreed to permit use of the marks in
that region on three conditions: only shelters manufactured
by the Ingoldsbys could be sold under the marks, the
Ingoldsbys would install all branded shelters in a manner
familiar to 4SEMO, and 4SEMO would maintain control over
all promotional materials bearing the marks.
The Ingoldsbys did not comply with the license agree-
ment. Doing business as SISS and later as Ingoldsby Excavat-
ing, they used the marks to promote a nationwide sales
campaign, supplied other dealers with “Life Saver” branded
shelters, and even registered the domain name
“www.lifesaverstormshelters.com.” The Ingoldsbys planned
to continue this activity until 4SEMO discovered it, at which
point they would try to buy the marks. And that’s precisely
what happened. In 2011 4SEMO discovered the widespread
unauthorized use and demanded cessation. Scott Ingoldsby
immediately offered to purchase the marks. The parties were
headed toward an agreement until August 2012 when Bob
Ingoldsby called off the deal. The Ingoldsbys later terminat-
ed the dealership agreement with 4SEMO and continued to
use the marks even up to the month of trial.
In March 2013 SISS and Ingoldsby Excavating sued
4SEMO alleging trademark infringement in violation of the
Lanham Act and several state-law claims. The suit was
premised on a theory of retroactive ownership. The
Ingoldsbys claimed that SISS and one of its licensed distribu-
6 Nos. 18-1998 & 18-2095
tors sold shelters under the name “Life-Saver Storm Shel-
ters” (with a hyphen) years before 4SEMO entered the
picture. They characterized the 2006 license agreement as
covering only the logo, not the wordmark.
4SEMO responded with multiple counterclaims against
SISS, Ingoldsby Excavating, and Bob Ingoldsby (collectively
“SISS” unless the context requires otherwise): trademark
infringement and false endorsement under the Lanham Act,
violation of the Illinois Uniform Deceptive Practices Act,
breach of contract, unjust enrichment, and civil conspiracy.
After several years of litigation, SISS acknowledged that
most of its claims against 4SEMO lacked an adequate factual
or legal basis. The judge dismissed most counts of the com-
plaint and entered summary judgment for 4SEMO on the
Lanham Act claims.
In late July 2017, the judge commenced a bench trial on
the counterclaims with the case now reconfigured to show
4SEMO as the plaintiff. Fielack and the Ingoldsby brothers
testified. 4SEMO presented a damages expert who testified
that SISS’s revenue from its decade-long nationwide sales of
“Life Saver” branded shelters totaled approximately
$17.4 million. SISS did not contest that calculation and
waived its right to prove up offsetting costs.
Confronted with irreconcilable factual accounts, the
judge sided with 4SEMO and entered findings of fact, con-
clusions of law, and a remedial award in its favor. The judge
found that the Ingoldsbys were not credible witnesses. He
found that 4SEMO owned both marks and SISS breached a
valid license, generating consumer confusion and deception,
and thus violated the Lanham Act, 15 U.S.C. § 1125(a). The
judge also found for 4SEMO on the state-law claims.
Nos. 18-1998 & 18-2095 7
Addressing damages, the judge found that the decade-
long infringement was willful, intentional, egregious, even
malicious. He awarded $17,371,003 in damages under
15 U.S.C. § 1117(a) and $26,940 for the breach of contract. He
also ordered injunctive relief in the form of a cease-and-
desist order. Finally, the judge held Bob Ingoldsby and his
proprietorships jointly and severally liable for the judgment
and denied 4SEMO’s motions for attorney’s fees under the
Lanham Act and sanctions under 28 U.S.C. § 1927.
SISS appealed. 4SEMO filed a cross-appeal seeking re-
view of the denial of attorney’s fees and sanctions. Two of
SISS’s trial attorneys, Roman A. Basi and Alfred E. Sanders
Jr., intervened as cross-appellees. After oral argument we
issued an order noting a defect in the form of the order for
injunctive relief under Rule 65 of the Federal Rules of Civil
Procedure. We stayed the appeal pending entry of a proper
injunction. The district court promptly entered an amended
judgment, and the case is now ready for decision.
II. Discussion
“We review the judge’s factual findings following a
bench trial for clear error and his conclusions of law de
novo.” Ill. Liberty PAC v. Madigan, 904 F.3d 463, 469 (7th Cir.
2018). SISS has not challenged the judge’s factual findings, so
we take them as established.
A. The Red Cross Statute
SISS first argues that 4SEMO’s logo is unlawful and thus
unprotected by trademark law. This argument rests on a
federal criminal statute reserving the emblem of a red Greek
cross on a white background for the American Red Cross:
8 Nos. 18-1998 & 18-2095
Whoever wears or displays the sign of the Red
Cross or any insignia colored in imitation
thereof for the fraudulent purpose of inducing
the belief that he is a member of or an agent for
the American National Red Cross; or
Whoever, whether a corporation, association or
person, … uses the emblem of the Greek red cross
on a white ground, or any sign or insignia made or
colored in imitation thereof or the words “Red
Cross” or “Geneva Cross” or any combination
of these words—
Shall be fined under this title or imprisoned
not more than six months, or both.
18 U.S.C. § 706 (emphasis added).
This language is straightforward: only the American Red
Cross may use the emblem of a red Greek cross on a white
background or an insignia “made or colored in imitation
thereof.” Id. SISS contends that 4SEMO’s logo clearly violates
§ 706, 1 noting that in 2012—while the parties were negotiat-
ing a sale of the marks—the Patent and Trademark Office
rejected 4SEMO’s application to register the logo on § 706
grounds. But the Trademark Office explained that 4SEMO
could still secure registration if it “submit[ed] a substitute
specimen … in a color other than red.” 4SEMO promptly
filed a replacement depicting a yellow cross with red letter-
ing. Satisfied, the Trademark Office was prepared to register
1 The judge considered and rejected this argument in a pretrial order,
reasoning that § 706 only “prohibits someone from fraudulently trying to
hold themselves out as an agent or a member of the American National
Red Cross.”
Nos. 18-1998 & 18-2095 9
4SEMO’s logo but stayed its proceedings pending the results
of this litigation.
That history aside, the original version of 4SEMO’s logo
wasn’t a red Greek cross on a white background, nor was it
“made or colored in imitation” of the insignia reserved to the
American Red Cross. Id. The Trademark Trial and Appeal
Board has held that inclusion of additional design elements
on or around a red Greek cross can make § 706 inapplicable.
For example, in In re Health Maintenance Organizations, Inc.,
188 U.S.P.Q. (BNA) 473 (T.T.A.B. 1975), 1975 WL 20855, a
trademark applicant submitted a dark Greek cross with a
caduceus—the familiar medical symbol featuring two
serpents entwined around a winged rod. The Appeal Board
framed the inquiry as “whether [the] mark so resembles the
Greek red cross that such mark can be said to consist of
matter which may disparage or falsely suggest a connection
with the” protected symbol. Id. at 473, at *1. On this under-
standing, the applicant’s submission did not violate the
statute, in part because “the representation of the caduce-
us … remove[d] any hint or suggestion of resemblance.” Id.The Appeal Board’s logic is consistent with the statutory
text, which prohibits logos “made or colored in imitation” of
the familiar Red Cross insignia. We find the Board’s analysis
persuasive. The logo at the center of this dispute is a red
Greek cross on a black background emblazoned with “Life
Saver Storm Shelters” in large, yellow letters. The words fill
nearly the entire horizontal bar of the cross, making it pre-
dominantly yellow. These different design elements provide
what the caduceus provided in Health Maintenance Organiza-
tions: an obvious distinguishing feature from the traditional
icon of the American Red Cross. 4SEMO’s logo thus is not
10 Nos. 18-1998 & 18-2095
“made or colored in imitation” of the Red Cross symbol, so
§ 706 does not bar 4SEMO’s commercial use or negate the
judge’s finding of trademark infringement.
B. Ownership of the Wordmark
In the district court, SISS claimed to have marketed storm
shelters under a virtually indistinguishable name—“Life-
Saver Storm Shelters” (with a hyphen)—years before the
relationship with 4SEMO. The judge rejected that prior-use
theory, and his factual findings on that point are unchal-
lenged on appeal.
Instead, SISS offers a new legal theory derived from ob-
servations in a widely cited trademark treatise. Discussing
trademark disputes between manufacturers and their dis-
tributors, the McCarthy trademark treatise observes: “In the
absence of an agreement defining ownership,” there is a
“rebuttable presumption that the manufacturer of [the]
goods is the owner of the trademark of those goods.”
2 J. THOMAS MCCARTHY, MCCARTHY ON TRADEMARKS AND
UNFAIR COMPETITION § 16:48 (5th ed. 2018). The treatise goes
on to describe a six-factor balancing test to determine
whether the presumption has been rebutted. Id.
SISS argues that Professor McCarthy’s factors weigh in
its favor. This argument is new on appeal and thus is
waived. See, e.g., In re Veluchamy, 879 F.3d 808, 821 (7th Cir.
2018). Still, we note for completeness that Professor
McCarthy’s “test” might be relevant “where the initial
allocation of trademark rights is in dispute.” TMT N. Am.,
Inc. v. Magic Touch GmbH, 124 F.3d 876, 884 n.4 (7th Cir.
1997). But where, as here, a party’s initial ownership of a
mark has been conclusively established as a factual matter,
Nos. 18-1998 & 18-2095 11
the owner may “lose its rights by assignment or by aban-
donment, but not by some nebulous balancing test.” Id.Accordingly, the presumption and balancing test an-
nounced in the McCarthy treatise cannot displace the judge’s
unchallenged factual findings that 4SEMO created the
marks, used them in commerce, and granted the Ingoldsbys
a tightly limited license to use them. Indeed, if SISS already
owned the wordmark, why would the Ingoldsbys have
asked for a license to use it? Whatever force Professor
McCarthy’s balancing test may have in other cases, it has no
effect here.
C. Disgorged Profits
We turn now to a series of challenges to 4SEMO’s
$17.4 million judgment. SISS argues that the award consti-
tutes a windfall for 4SEMO, imposes an inequitable penalty,
and unlawfully contains profits earned in markets outside of
4SEMO’s contractual dealership range.
Under the Lanham Act’s damages provision, the district
court may award a prevailing plaintiff “(1) [the] defendant’s
profits, (2) any damages sustained by the plaintiff, and
(3) the costs of the action.” 15 U.S.C. § 1117(a). The statute
installs a burden-shifting framework: “In assessing profits
the plaintiff shall be required to prove defendant’s sales
only; defendant must prove all elements of cost or deduction
claimed.” Id. 4SEMO took the first step. Its expert calculated
approximately $17.4 million in revenue from unlicensed
sales of “Life Saver” branded shelters. And before trial SISS
affirmatively waived its right to prove up any deductions.
Nor did SISS object to the expert’s calculations or introduce
countervailing evidence at trial.
12 Nos. 18-1998 & 18-2095
These litigation decisions are fatal to SISS’s appellate
attacks on the damages award. Because SISS effectively
conceded the expert’s calculation at trial, its attack on the
judgment as a windfall comes too late. SISS points to lan-
guage in § 1117(a) saying that profits are awarded “subject to
the principles of equity.” Id. True enough, but a “trial court’s
primary function is to make violations of the Lanham Act
unprofitable to the infringing party.” Otis Clapp & Son, Inc. v.
Filmore Vitamin Co., 754 F.2d 738, 744 (7th Cir. 1985). Moreo-
ver, “[§] 1117 confers a great deal of discretion on a district
court in fashioning a remedy for trademark infringement.”
Bandag, Inc. v. Al Bolser’s Tire Stores, Inc., 750 F.2d 903, 917
(Fed. Cir. 1984). The judge’s decision to award the full
$17.4 million without sua sponte reductions was not an
abuse of discretion, especially given his finding that the
infringement was “egregious.”
SISS also argues that the judge should have excluded
profits earned in geographic areas beyond 4SEMO’s dealer-
ship territory. In other words, because 4SEMO could not sell
SISS’s shelters outside of specified counties in Missouri and
Arkansas, its trademark rights were also confined to those
counties. This argument too was not raised below and thus
is waived. It’s also meritless. The dealership agreement did
not impose geographic restrictions on 4SEMO’s trademark
rights. The agreement gave 4SEMO the exclusive right to
resell SISS products within the identified territory, but it
placed no limits on 4SEMO’s right to sell other products—
including storm shelters manufactured by other compa-
nies—anywhere in the United States.
Next, SISS seeks refuge in the Tea Rose–Rectanus defense,
a common-law trademark doctrine that stems from a pair of
Nos. 18-1998 & 18-2095 13
century-old Supreme Court cases. See Hanover Star Milling
Co. v. Metcalf, 240 U.S. 403 (1916); United Drug Co. v. Theodore
Rectanus Co., 248 U.S. 90 (1918). It provides that a “senior
user of an unregistered mark cannot stop the use of a territo-
rially ‘remote’ good faith … junior user who was first to use
the mark in that territory.” 5 MCCARTHY, supra, § 26:2. We’ve
referred to this rule as the “good faith junior user” defense.
Money Store v. Harriscorp Fin., Inc., 689 F.2d 666, 674 (7th Cir.
1982).
This argument rests on the same flawed view of the deal-
ership agreement, which we’ve already addressed. Regard-
less, the Ingoldsbys clearly did not act in good faith when
they appropriated 4SEMO’s marks. As we explained in
Money Store, “[a] good faith junior user is one who begins
using a mark with no knowledge that someone else is al-
ready using it.” Id.; see also Hanover Star, 240 U.S. at 412(explaining that the junior user adopted the mark “in perfect
good faith, with no knowledge that anybody else was using
or had used those words”). The defense shields those who
unwittingly develop a mark that duplicates another, not
intentional counterfeiters.
The next attack on the damages award focuses not on the
judgment’s size or legal basis but on who must pay it. The
judge held SISS, Ingoldsby Excavating, and Bob Ingoldsby
jointly and severally liable for the judgment. Bob Ingoldsby
challenges the judge’s decision to hold him personally liable,
characterizing his brother Scott as the moving force behind
any trademark infringement.
A corporate officer is individually liable if he “personally
participates in the manufacture or sale of the infringing
article … , uses the corporation as an instrument to carry out
14 Nos. 18-1998 & 18-2095
his own willful and deliberate infringements, or … knowing-
ly uses an irresponsible corporation with the purpose of
avoiding personal liability.” Dangler v. Imperial Mach. Co.,
11 F.2d 945, 947 (7th Cir. 1926). The judge’s unrebutted
factual findings defeat this argument. He found no evidence
that the Ingoldsbys respected the corporate form of either
SISS or Ingoldsby Excavating: “The record is devoid of any
corporate formation documents, articles of incorporation,
bylaws, operating agreements, board resolutions, or any
other evidence of corporate activity in general … .” These
businesses were proprietorships, not truly independent
corporate entities.
Moreover, Bob Ingoldsby’s attempt to shift blame to his
brother doesn’t stand up to scrutiny. That 4SEMO typically
interacted with SISS and Ingoldsby Excavating through Scott
does not undermine the judge’s well-founded conclusion
that Bob maintained full operational control. And while Bob
occasionally claimed ignorance at trial, the judge specifically
“found the Ingoldsbys’ claimed inability to recall important
details of, or claimed non-involvement with, certain matters”
to be “suspect.” Even if Bob could inculpate his brother, he
faces another problem: the judge concluded that the
Ingoldsbys were each other’s agents as well as participants
in a civil conspiracy. Any act or omission by Scott must be
imputed to Bob, so the latter’s fraternal finger-pointing is
ultimately pointless.
D. Sanctions and Fees
4SEMO’s cross-appeal challenges the judge’s refusal to
award attorney’s fees under the Lanham Act’s fee-shifting
provision or sanctions under 28 U.S.C. § 1927. We take the
latter argument first. Under § 1927, “[a]ny attorney … who
Nos. 18-1998 & 18-2095 15
so multiplies the proceedings in any case unreasonably and
vexatiously may be required by the court to satisfy personal-
ly the excess costs, expenses, and attorneys’ fees reasonably
incurred because of such conduct.” 4SEMO’s sanctions claim
is directed at intervenors Basi and Sanders. We review for
abuse of discretion. Fox Valley Const. Workers Fringe Benefit
Funds v. Pride of Fox Masonry & Expert Restorations, 140 F.3d
661, 666 (7th Cir. 1998).
Vexatious-litigation sanctions under § 1927 require a
showing of either subjective or objective bad faith. Dal Pozzo
v. Basic Mach. Co., 463 F.3d 609, 614 (7th Cir. 2006). 4SEMO
focuses on the latter. Objective bad faith consists of reckless
indifference to the law: “pursu[ing] a path that a reasonably
careful attorney would have known, after appropriate
inquiry, to be unsound.” Riddle & Assocs., P.C. v. Kelly,
414 F.3d 832, 835 (7th Cir. 2005) (quotation marks omitted).
4SEMO insists that Basi and Sanders engaged in vexatious
behavior and made objectively unreasonable legal argu-
ments. The district court disagreed. Though he ruled sum-
marily, we see no abuse of discretion. Basi and Sanders were
entitled to zealously represent their clients, and although
SISS’s claims were meritless, we’re hard-pressed to find
reckless indifference.
The claim for attorney’s fees is another story. The
Lanham Act permits district courts “in exceptional cases” to
“award reasonable attorney fees to the prevailing party.”
§ 1117(a). Interpreting identical language in the Patent Act,
the Supreme Court held “that an ‘exceptional’ case is simply
one that stands out from others with respect to the substan-
tive strength of a party’s litigating position … or the unrea-
sonable manner in which the case was litigated.” Octane
16 Nos. 18-1998 & 18-2095
Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554
(2014). Again we review for abuse of discretion. Fin. Inv. Co.
(Berm.) v. Geberit AG, 165 F.3d 526, 530 (7th Cir. 1998).
Based on our reading of the judge’s findings and conclu-
sions, this was an exceptional case. The judge found that the
Ingoldsbys engaged in a vast infringement campaign and
indeed planned in advance to offer to buy the marks only “if
and when 4SEMO discovered the[ir] improper use and
complained.” He found their conduct “willful, egregious[,]
and intentional.” Likewise, he found that they “acted in bad
faith, intentionally, willfully[,] and maliciously[;] [and] have
refused to cease the infringing activity[] and … caused
4SEMO unnecessary trouble and expense.” Then, in the next
sentence, the judge summarily denied 4SEMO’s motion for
Lanham Act attorney’s fees. Respectfully, that conclusion
simply doesn’t follow from the factual findings of willful-
ness, maliciousness, and bad faith.
We therefore REVERSE the denial of attorney’s fees and
REMAND for entry of a reasonable fee award under § 1117(a).
In all other respects, the judgment below is AFFIRMED.