Hutchinson Industries, Inc. v. DBL Designs, LLC ( 2022 )

In the
Court of Appeals
Second Appellate District of Texas
at Fort Worth
___________________________
No. 02-21-00379-CV
___________________________
HUTCHINSON INDUSTRIES, INC., Appellant
V.
DBL DESIGNS, LLC, Appellee
On Appeal from the 348th District Court
Tarrant County, Texas
Trial Court No. 348-299777-18
Before Kerr, Bassel, and Walker, JJ.
Memorandum Opinion by Justice Kerr
MEMORANDUM OPINION
Appellant Hutchinson Industries, Inc. successfully sued Appellee DBL
Designs, LLC under the Lanham Act for trademark infringement and for unfair
competition by “passing off.” See 15 U.S.C.A. § 1125(a). The trial court awarded
Hutchinson permanent injunctive relief, and based on the jury’s verdict, awarded
Hutchinson nearly $81,000 in profit-disgorgement damages on its trademark-
infringement claim. But the trial court denied Hutchinson’s request for attorney’s fees
under the Lanham Act, which allows a trial court to award the prevailing party
reasonable fees in “exceptional cases.” Id. § 1117(a).
Hutchinson has appealed, and in one issue, argues that the trial court erred by
refusing to find that this case was an exceptional case because (1) DBL willfully
violated multiple provisions of the Lanham Act; (2) Hutchinson’s litigation position
was unusually strong; and (3) DBL engaged in improper, abusive litigation conduct.
Even though we might have ruled otherwise, we will affirm because the trial court
acted within its broad discretion in denying Hutchinson’s request to deem this case
exceptional.
I. The Lanham Act and Attorney’s Fees
Because a trial court’s decision whether to award attorney’s fees under the
Lanham Act is a federal-law issue that we rarely have the occasion to review, we begin
with an overview of the applicable law and standard of review.
2
The Lanham Act allows a trial court to award reasonable attorney’s fees to the
prevailing party in exceptional cases.1 Id. “[A]n exceptional case is one where (1) in
considering both governing law and the facts of the case, the case stands out from
others with respect to the substantive strength of a party’s litigating position; or
(2) the unsuccessful party has litigated the case in an ‘unreasonable manner.’” Baker v.
DeShong, 821 F.3d 620, 625 (5th Cir. 2016) (citing Octane Fitness, LLC v. ICON Health
& Fitness, Inc., 572 U.S. 545, 554, 134 S. Ct. 1749, 1756 (2014)) (adopting the Octane
Fitness Patent Act exceptional-case standard for use in Lanham Act cases). A trial
court determines the exceptional-case issue on a “case-by-case exercise of [its]
discretion, considering the totality of the circumstances.” Id. (quoting Octane Fitness,
572 U.S. at 554, 134 S. Ct. at 1756). A court may consider a nonexclusive list of
factors, including “frivolousness, motivation, objective unreasonableness (both in the
factual and legal components of the case) and the need in particular circumstances to
advance considerations of compensation and deterrence.” Octane Fitness, 572 U.S. at
554 n.6, 134 S. Ct. at 1756 n.6 (quoting Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19,
114 S. Ct. 1023, 1033 n.19 (1994)). There is no precise rule or formula to determine
1
It is undisputed that Hutchinson is the prevailing party. See All. for Good Gov’t v.
Coal. for Better Gov’t, 919 F.3d 291, 295 n.16 (5th Cir. 2019) (recognizing that in the
Lanham Act context, a prevailing party is “a party in whose favor judgment is
rendered” or “one who has been awarded some relief by the court” (quoting Kiva
Kitchen & Bath Inc. v. Cap. Distrib., Inc., 319 F. App’x 316, 322 (5th Cir. 2009))).
3
whether to award fees, and a trial court should use its equitable discretion in light of
these considerations. Id. at 554, 134 S. Ct. at 1756.
We review all aspects of a trial court’s fee determination—including its
conclusion on whether a case is exceptional—for an abuse of discretion. 2 See Spectrum
Ass’n Mgmt. of Tex., L.L.C. v. Lifetime HOA Mgmt. L.L.C., 5 F.4th 560, 564 (5th Cir.
2021) (citing All. for Good Gov’t, 919 F.3d at 295). A trial court abuses its discretion if it
acts without reference to any guiding rules or principles—that is, if its act is arbitrary
or unreasonable. Low v. Henry, 221 S.W.3d 609, 614 (Tex. 2007); Cire v. Cummings,
134 S.W.3d 835, 838–39 (Tex. 2004). We cannot conclude that a trial court abused its
discretion merely because the appellate court would have ruled differently in the same
circumstances. E.I. du Pont de Nemours & Co. v. Robinson, 923 S.W.2d 549, 558 (Tex.
1995); see also Low, 221 S.W.3d at 620.
2
In 2010, this court reviewed for clear error a trial court’s determination that a
prevailing party under the Lanham Act had established the case’s exceptional nature
by clear and convincing evidence. See Astoria Indus. of Iowa, Inc. v. Brand FX Body Co.,
No. 2-08-144-CV, 2010 WL 1433404, at *12–13 (Tex. App.—Fort Worth Apr. 8,
2010, pet. denied) (mem. op.). But the Fifth Circuit has since held that the Supreme
Court’s holding in Octane Fitness rejecting the clear-and-convincing-evidence standard
and regarding the meaning of an “exceptional case” under the attorney’s-fees
provision in the Patent Act applies to the Lanham Act’s attorney-fees provision. See
Baker, 821 F.3d at 622–25. Similarly, the Fifth Circuit has also held that, consistent
with the Supreme Court’s holding in Highmark Inc. v. Allcare Health Management System,
Inc., 572 U.S. 559, 134 S. Ct. 1744 (2014), a trial court’s fee determination under the
Lanham Act is reviewed for an abuse of discretion. All. for Good Gov’t, 919 F.3d at
295 (citing Highmark, 572 U.S. at 561, 134 S. Ct. at 1747). We thus apply an abuse-of-
discretion standard of review. See id.
4
II. Factual and Procedural Background
French-owned Hutchinson is the world’s leading manufacturer of military-
grade wheels, runflats,3 and beadlocks. 4 Hutchinson owns the common-law trademark
for the use of the word “Hutchinson” in connection with the manufacture and sale of
its products in Texas and throughout the United States. Since at least 2005,
Hutchinson has engraved or stamped every wheel, runflat, and beadlock that it sells
with its trademark.
Hutchinson’s products are used by various branches of the United States
military, as well as other executive-branch departments and specialty-vehicle
manufacturers. Once these products wear down or their shelf life expires, the U.S.
government takes the products out of service and sells them as scrap. DBL Designs—
a Tarrant County company and Hutchinson competitor—buys these discarded
products from third parties, modifies them, and sells them to its customers. DBL
marketed and sold these used, modified products as new Hutchinson products by
(1) leaving Hutchinson’s original trademark, serial number, DOT code,5 and CAGE
A runflat is a device in a tire’s interior that, in the case of a flat tire, supports
3
the vehicle’s load and enables the vehicle to continue driving.
4
A beadlock is a device that secures a tire to a wheel so that a low-pressure tire
stays attached to the wheel.
A DOT code is associated with the wheel’s manufacturer and signifies that the
5
wheel complies with Department of Transportation standards.
5
code6 on the modified products and (2) telling its customers that it was selling them
genuine, new, unmodified Hutchinson products. According to Hutchinson, DBL’s
modifications to Hutchinson products rendered them unsafe.
A. Hutchinson Sues DBL
In May 2018, Hutchinson sued DBL for trademark dilution under the Texas
Business and Commerce Code 7 and for common-law trademark infringement and
unfair competition. Hutchinson would later amend its pleadings to drop its
trademark-dilution claim and to add claims for false designation of origin under the
common law and the Lanham Act; unfair competition under the Lanham Act; and
common-law unjust enrichment.8 According to Hutchinson, DBL was using
Hutchinson’s trademark to sell modified wheels, runflats, and beadlocks as genuine
Hutchinson products. As a result of DBL’s alleged misconduct and
misrepresentations, Hutchinson claimed that DBL made money from customers who
Hutchinson’s CAGE code is a unique, government-assigned identification
6
number that “allows the government or any NATO-friendly country to reference
[Hutchinson] and [its] products.”
7
See Tex. Bus. & Com. Code Ann. § 16.103.
8
Hutchinson states in its brief that its amended petition included a trademark-
infringement claim under the Lanham Act. Hutchinson’s amended petition does not
appear to allege such a claim, but the trial court’s judgment states that the jury found
that DBL violated the Lanham Act by infringing and willfully infringing on
Hutchinson’s trademark. DBL does not complain on appeal that Hutchinson did not
plead a Lanham Act infringement claim or that the trial court’s judgment is
unsupported by the pleadings.
6
would have otherwise purchased authentic Hutchinson products and harmed
Hutchinson’s reputation by selling unsafe, inferior products to customers without
informing them that those products were not, in fact, authentic Hutchinson products.
In addition to damages and attorney’s fees, Hutchinson sought temporary and
permanent injunctive relief. In June 2018, the parties agreed to a temporary injunction
prohibiting DBL from (1) directly or indirectly representing to consumers that DBL
was using Hutchinson products; (2) submitting project bids to consumers
representing that DBL was using Hutchinson products in the project; and (3) using
number and letter combinations identifying or designating Hutchinson products on
DBL’s products, product lists, literature, catalogs, bids or bid applications, or
“otherwise in connection with any of DBL’s business activities.”
B. DBL’s alleged bad-faith pretrial acts
During discovery, Hutchinson served DBL with interrogatory and production
requests seeking the identity of customers, persons, and entities to whom DBL had
sold or provided wheels, runflats, and beadlocks bearing Hutchinson’s trademark,
along with documents related to those transactions. DBL objected to providing this
information, claiming that its customer information, including its customer lists, was
protected from disclosure by Rule 507’s trade-secret privilege. See Tex. R. Evid. 507.
Although Hutchinson offered to enter into a confidentiality order to protect this
information, DBL stood by its assertion that its customer information was a trade
secret and claimed that the information was not discoverable because it was not
7
necessary or essential to a fair adjudication of Hutchinson’s claims. See Tex. R. Evid.
507(a). As a result of DBL’s stance, Hutchinson moved to compel DBL to respond.
After a hearing, the trial court granted Hutchinson’s motion and ordered DBL to
disclose (among other things), the identity of the customers to whom DBL had sold
modified Hutchinson products from January 1, 2014, to the present, along with
documentation related to those transactions.
A bit over a year into the case, in late August 2019, DBL’s lead counsel left the
law firm, and another attorney in the firm took over the case. Around that time,
Hutchinson asked to inspect DBL’s inventory of wheels and other Hutchinson
products. Hutchinson sent multiple emails over the course of a month asking DBL to
make its inventory available to Hutchinson for inspection. DBL eventually agreed to
an inspection but soon reversed course and opposed the inspection request, claiming
that it did not possess any wheels that were relevant to Hutchinson’s claims, even
though (1) DBL’s interrogatory responses confirmed that it possessed and was still
modifying and selling used Hutchinson products and (2) DBL’s president had testified
in his deposition that DBL was still purchasing surplus Hutchinson products. As a
result, Hutchinson moved to compel the inspection. But before the motion could be
heard, DBL agreed to the inspection in early November 2019.
Meanwhile, on October 11, 2019—four days after the close of discovery, about
seven weeks before the December 2, 2019 special trial setting, and on the pleading-
amendment deadline—DBL counterclaimed. It alleged that Hutchinson had violated
8
the Texas Free Enterprise and Antitrust Act of 1983 and Section 15 of the Clayton
Antitrust Act by (1) suing DBL to restrain its sales and to recover damages in an
amount that, in reasonable probability, would force it out of business; (2) contracting
and conspiring with third parties to have those parties stop purchasing Hutchinson
products from DBL and to purchase those products only from Hutchinson; and
(3) making false and misleading statements to DBL’s customers and vendors with
“the specific intent to get th[o]se third-parties to either stop selling or stop buying
DBL.” Hutchinson moved for summary judgment on no-evidence grounds and on its
Noerr-Pennington doctrine9 affirmative defense.
Hutchinson set its summary-judgment motion for hearing on November 21,
2019. Three days before DBL’s summary-judgment-response deadline, DBL’s counsel
9
The Noerr–Pennington doctrine arose out of two U.S. Supreme Court cases:
Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S. Ct.
523 (1961), and United Mine Workers of America v. Pennington, 381 U.S. 657, 85 S. Ct.
1585 (1965). See Robinson v. KTRK Television, Inc., No. 01-14-00880-CV,
2016 WL 1267990, at *3 n.12 (Tex. App.—Houston [1st Dist.] Mar. 31, 2016, pet.
denied) (mem. op.). The doctrine has its roots in the First Amendment to the United
States Constitution, which guarantees the “right of the people . . . to petition the
government for a redress of grievances.” RRR Farms, Ltd. v. Am. Horse Prot. Ass’n, Inc.,
957 S.W.2d 121, 126–27 (Tex. App.—Houston [14th Dist.] 1997, pet. denied)
(quoting U.S. Const. amend. I). “The doctrine provides immunity from ‘antitrust
liability’ to those who petition the government for redress and also bars claims based
on conduct ‘incidental’ to the prosecution of a lawsuit respecting such redress.”
Profinity, LLC v. One Techs., L.P., No. 05-14-00403-CV, 2015 WL 9257025, at *13 (Tex.
App.—Dallas Dec. 17, 2015, no pet.) (mem. op.) (citing Sosa v. DIRECTV, Inc.,
437 F.3d 923, 934 (9th Cir. 2006); Noell v. City of Carrollton, 431 S.W.3d 682, 708 (Tex.
App.—Dallas 2014, pet. denied)). A claim of immunity based on the Noerr–Pennington
doctrine is an affirmative defense. Id. (citing RRR Farms, 957 S.W.2d at 129).
9
moved to continue the trial setting and to withdraw because DBL’s attorney was new
to the case and because DBL was not paying its legal fees. Hutchinson opposed the
motions because the withdrawal motion was untimely under the trial court’s rules and
because granting the motions would prejudice Hutchinson, which had “committed
resources to prosecuting this case through trial on the schedule set by the Court.”
The trial court heard DBL’s motions and Hutchinson’s summary-judgment
motion on November 21, 2019. At the hearing, DBL’s counsel stated that he would
continue as DBL’s counsel. The trial court allowed DBL time to supplement its
summary-judgment response and Hutchinson time to reply, denied the withdrawal
motion as moot, and reset the trial to a preferential setting on March 2, 2020.
In mid-February 2020, the trial court granted Hutchinson’s summary-judgment
motion without stating the ground or grounds upon which it relied. The case
proceeded to trial as scheduled.
C. Trial
During the four-day trial in early March 2020, the jury heard testimony from
Mark Young (Hutchinson’s value-chain vice president); Joe Duffy (vice president of
Hutchinson’s Buffalo division10); Johan Resare (Hutchinson’s technical director in
charge of wheels and related systems); Jonathan “Hoot” Wade (Hutchinson’s
technical expert); Stuart Miller (Hutchinson’s damages expert); Usman Bashir (owner
The Hutchinson products at issue in this case were manufactured in Buffalo,
10
New York, and Trenton, New Jersey.
10
of CSI Armoring, a former DBL customer); Jesse Marroquin (executive vice president
of Skeeter Brush Trucks, another former DBL customer); Daniel Little (DBL’s
owner); and Rick Ivey (DBL’s chief financial officer).
Little and several of Hutchinson’s witnesses explained that around 2015, DBL
began purchasing from various third-party suppliers used and surplus Hutchinson
wheels, runflats, and beadlocks and modifying them. DBL sold these modified
products to its customers and represented that they were new, genuine Hutchinson
products (1) by leaving Hutchinson’s name, DOT number, CAGE number, and serial
number on them; (2) by providing Hutchinson’s product certifications to customers;
and (3) by affirmatively representing that the products were new. DBL’s
modifications, however, invalidated the DOT and Hutchinson certifications.
According to Hutchinson, DBL’s modifications also compromised the
structural integrity, performance, and safety of Hutchinson’s products. Little,
however, disagreed that DBL’s modifications compromised the structural integrity of
Hutchinson’s wheels. And while some of DBL’s modified Hutchinson products had
quality-control issues and had failed, there were no accidents, injuries, or deaths
resulting from those products.
Little claimed that he never thought that DBL’s modifying Hutchinson’s
products and leaving Hutchinson’s name and identifying information on the modified
products would be a problem. He thought that even after DBL’s modifications,
Hutchinson’s certifications and warranties still applied to the wheels but testified that
11
he now knows that DBL’s modifications voided Hutchinson’s certifications and
warranties. And since the entry of the June 2018 agreed temporary injunction, DBL
had milled Hutchinson’s identifying information off of the products it had sold and
had complied with the injunction’s terms.
Since 2015, DBL had sold a total of 2,000 modified Hutchinson wheels to
about 150 customers. Little admitted that Hutchinson had identified at least four of
those customers who were confused by DBL’s modified Hutchinson products. Two
of those customers, Bashir and Marroquin, testified. Bashir—who had purchased
Hutchinson wheels for years and whose company CSI Armoring has contracts with
U.S. and foreign governments to provide military and law-enforcement vehicles—
stated that Hutchinson “sets the industry standard” with its “premium” products.
Bashir testified that he thought DBL was a Hutchinson distributor and that he was
unaware that the wheels and runflats CSI Armoring was purchasing from DBL had
been modified. Bashir thought that the wheels and runflats that he had purchased
from DBL were new, unmodified wheels that DBL had purchased directly from
Hutchinson (1) because the wheels were stamped with Hutchinson’s name, DOT
number, and part number, (2) because DBL had provided him with Hutchinson’s
certifications, and (3) because Little had told Bashir that the products were new.
Based on his experience with DBL, Bashir opined that DBL was “piggybacking” on
Hutchinson’s name.
12
The wheels’ authenticity was especially important with respect to CSI
Armoring’s contract with the U.S. government because that contract required that
Hutchinson wheels be used and that CSI Armoring provide Hutchinson certifications
to demonstrate the wheels’ authenticity. When some of Bashir’s customer’s reported
problems with the wheels, Bashir contacted Hutchinson directly. Bashir learned from
Hutchinson that the products CSI Armoring had purchased from DBL were not new,
genuine products. Bashir then had to inform CSI Armoring customers that the wheels
it had sold to them were not genuine Hutchinson wheels.
Marroquin with Skeeter Brush Trucks (a manufacturer and upfitter of wildland
fire trucks) similarly testified that DBL had made misrepresentations about the
Hutchinson wheels that it was selling. According to Marroquin, DBL had represented
to him that the wheels were “Hutchinson new old[-]stock wheels,” meaning that the
wheels had never been used. But unlike Bashir, Marroquin realized that DBL had
modified the Hutchinson wheels he was purchasing, and he did not think that
Hutchinson “stood behind” or warranted those wheels. But DBL had told Marroquin
that the modified wheels were nevertheless still DOT compliant.
Marroquin later learned that DBL had modified the wheels far more than he
had initially realized and that these modifications had negatively impacted the wheels’
performance. He opined that while Hutchinson wheels were “[v]ery good quality,” the
wheels that DBL had sold to Skeeter were “[v]ery poor quality.” About 10 percent of
DBL’s wheels did not pass Skeeter’s quality inspection. But Skeeter caught these
13
quality-control issues before passing on the wheels to its clients, and there were no
accidents or safety issues involving the modified Hutchinson products that Skeeter
had sold to its customers.
Hutchinson’s technical expert testified regarding DBL’s modifications, which
completely changed the structural integrity of Hutchinson’s wheels and invalidated the
DOT certifications. The expert was unaware of any injuries or accidents caused by
DBL’s modifications.
Although Hutchinson believed that DBL’s infringement of Hutchinson’s
trademark had caused a profit loss of $758,000, its economic expert calculated
between $182,000 and $576,000 in lost profits, depending on the jury’s determination
of how long the infringement had occurred. Regarding disgorgement, Hutchinson’s
expert calculated between $468,000 and $830,000 in disgorgement damages.
After hearing all the evidence, the jury found that (1) DBL both engaged in and
willfully engaged in unfair competition by passing off its goods and services in a
manner likely to confuse its potential customers and (2) DBL both infringed and
willfully infringed on Hutchinson’s trademark. But the jury did not award Hutchinson
lost-profit damages on either claim and found that none of DBL’s gross sales were
attributable to its willfully engaging in unfair competition by passing off. The jury did,
however, determine that $204,312 of DBL’s gross sales were attributable to DBL’s
willful use of Hutchinson’s trademark and that DBL’s total costs and deductions with
respect to those sales was $123,318. The jury’s verdict on liability and damages was
14
not unanimous, but the jury unanimously declined to find that DBL had acted with
gross negligence or malice.
D. DBL’s alleged bad-faith post-trial acts
Shortly after the trial’s conclusion, Hutchinson moved to designate the case as
exceptional under the Lanham Act. See 15 U.S.C.A. § 1117(a). Hutchinson argued that
the case was exceptional because of DBL’s willful violations of the Lanham Act,
Hutchinson’s strong litigating position, and DBL’s unreasonable pretrial litigation
conduct.
While Hutchinson’s motion was pending, Little received an email in late July
2020 that appeared to be from an acquaintance forwarding him an email chain. This
chain of emails—some of which were in French—appeared to be sent among four
Hutchinson employees planning a meeting at DBL’s facility on August 2, 2020, with a
Hutchinson informant working for DBL. DBL reported this information to the
Federal Bureau of Investigation, but ultimately, no one appeared for the meeting at
the scheduled time.11
Over two weeks later, DBL’s attorney alerted Hutchinson’s attorneys to the
email chain’s existence because DBL planned to move for death-penalty sanctions
11
DBL’s attorney and the attorney’s paralegal contacted the FBI on DBL’s
behalf. The FBI advised them that no one should be present at DBL’s facility the day
of the planned meeting but that surveillance cameras should be installed. DBL
obtained additional surveillance cameras for the facility, but “[s]urveillance of the
property on August 2, 2020[,] did not show anyone coming to or into DBL’s facility.”
15
based on the email chain. Hutchinson’s attorney encouraged DBL’s attorney not to
file the motion as planned and to “instead focus on confirming the authenticity of this
email, which to me does not appear to be what you claim it is.” But DBL filed the
motion that day so that it could be heard with Hutchinson’s exceptional-case-
designation motion, which was already set for hearing.
In its sanctions motion, DBL contended that Hutchinson’s (ostensibly) hiring
an informant to work at DBL was a violation of the Economic Espionage Act. See 18
U.S.C.A. § 1831 (criminalizing misappropriation and theft of trade secrets with the
knowledge or intent that the offense will benefit a foreign government,
instrumentality, or agent). DBL demanded that Hutchinson identify its informant and
argued that “at best,” Hutchinson was “attempting to conduct some kind of
unauthorized post-verdict discovery in violation of Texas Rule[ ] of Civil Procedure
215[.3] to continue pursuing [DBL] until it is completely out of business.” See Tex. R.
Civ. P. 215.3. Based on this alleged discovery abuse, DBL asked the court to dismiss
Hutchinson’s claims with prejudice and to award DBL $10,000 in attorney’s fees. See
Tex. R. Civ. P. 215.2(b)(5), (8), 215.3. DBL alternatively asked the trial court to order
Hutchinson to retain a private forensic investigator to determine the emails’ origins.
Hutchinson responded that the email chain was “an obvious fake,” pointing
out that the domain names of the email addresses in the chain—@hutchisoninc.com
and @hutchison.fr—misspelled Hutchinson because they were missing a letter “n”
16
and that Hutchinson’s email domain name is @hutchinsoninc.com. 12 Hutchinson also
pointed out that the email addresses in the chain used the naming convention
FirstName.LastName@hutchison.com, instead of using Hutchinson’s actual email
naming convention, FirstInitialLastName@hutchinson.com. Additionally, one email-
chain participant’s first name was misspelled in the email address’s username and that
person no longer worked with Hutchinson; two of the participants had not worked at
the company since 2016; and the participant who purportedly drafted one of the
emails in French—Resare—does not speak or write in that language 13 and does not
go by “Lars,” as he was referred to in the email chain and within the email address’s
username.14
Hutchinson argued that because the email chain was clearly bogus, it should be
disregarded and urged the trial court to deny DBL’s sanctions motion. Hutchinson
also characterized DBL’s sanctions motion as another “unreasonable and dubious”
delay tactic because DBL had waited until the day it filed its sanctions motion to
notify Hutchinson about the email chain. Hutchinson contended that DBL’s failing to
12
According to Hutchinson’s motion, the domain name “Hutchisoninc.com”
belongs to Hutchison Sealing and Asphalt, Inc., a company in North Carolina, and the
domain name “Hutchison.fr” is an invalid domain name.
13
Resare testified at trial that he is originally from Sweden.
14
At least one of the emails admitted into evidence at trial reveals that Resare
goes by “Johan” and that his email address is jresare@hutchinson.com, not
lars.resare@hutchison.fr as reflected in the email chain.
17
give Hutchinson the opportunity to confirm the email chain’s authenticity before
DBL filed its sanctions motion was an attempt to defraud the trial court and thus
further supported Hutchinson’s argument that the case was extraordinary under the
Lanham Act. Hutchinson asked the trial court to order DBL to pay for an
investigation to determine the email chain’s origins to enable the trial court to render
appropriate sanctions at a later date.
In mid-August 2020, the trial court heard Hutchinson’s exceptional-case-
designation motion and DBL’s sanctions motion together.15 The trial court denied the
former, continued the latter, and instructed the parties to conduct a forensic
investigation to determine the email chain’s origin. Over the next several months, the
parties squabbled over the email chain’s origin (Hutchinson claimed that DBL had
fabricated it, while DBL maintained that it had not and that Hutchinson was behind
the email chain) and over the details and scope of the investigation, with both parties
moving to compel court-ordered procedures for forensic evaluation. DBL retained a
digital-forensics company, which performed an initial forensic analysis to determine
the email chain’s origin, but the parties’ disagreement regarding the investigation’s
next steps prevented the investigation from moving forward. In early December 2020,
DBL withdrew its sanctions motion but requested its attorney’s fees and
15
The record does not include the transcript from this or any other post-trial
hearing.
18
reimbursement for the forensic-analysis costs. During a status conference a few days
later, however, the trial court instructed the parties to continue the investigation.
The parties continued the investigation but to no avail. In late June 2021,
Hutchinson moved for sanctions and for reconsideration of the trial court’s
exceptional-case-designation ruling in light of DBL’s post-trial conduct. According to
Hutchinson’s motion, “[a]fter ten months, the origin and provenance of the Fake
Email remains as it did then: DBL is solely responsible for the Fake Email, its lawyers
are responsible for submitting it to the [c]ourt, and . . . the Fake Email’s origin
remains likely DBL itself.” The motion claimed that since the “fake email” came to
light, DBL had continued to “obstruct Hutchinson’s efforts to gain clarity on how
DBL came to submit [the] overtly Fake Email” to the trial court, and that “[d]espite
DBL’s obstructionism, Hutchinson’s investigation confirm[ed]” that (1) Little and
DBL either destroyed or withheld evidence that the trial court ordered produced and
(2) Little and DBL “are almost certainly behind the [fake email’s] creation and use.”
Shortly after Hutchinson moved for sanctions and for reconsideration, it once again
moved the trial court to reconsider its exceptional-case-designation ruling, this time in
light of the Fifth Circuit’s then-recent ruling in Spectrum Association Management. See
5 F.4th at 566–67.
While the parties litigated the sanctions and exceptional-case-designation issues,
Hutchinson also sought permanent injunctive relief, which DBL largely did not
oppose. In September 2020, the trial court permanently enjoined DBL from
19
• directly or indirectly representing to any consumer that it is using
Hutchinson products;
• submitting any bids for projects with any consumer while representing
that DBL is using Hutchinson products in the project;
• using specific number and letter combinations identifying or designating
Hutchinson products on its product lists, literature, catalogs, bids, or bid
applications, or otherwise in connection with any of DBL’s business
activities; and
• claiming that any used product originally manufactured by Hutchinson is
new or unused.
The trial court further ordered DBL to include a permanent 50-by-35-millimeter
prominent warning on every wheel, runflat, or beadlock originally manufactured by
Hutchinson that DBL remanufactures and markets or sells to any third party stating:
“This is a remanufactured product. Any certifications, specifications, or warranties
that may have applied to this product prior to its modification by DBL Design[s],
LLC are not applicable.”
Almost a year later, in August 2021, Hutchinson and DBL attended FDIC
International, a large fire-and-rescue trade show. At that event, Hutchinson’s
Applications Engineering Manager saw two display vehicles with DBL wheels.
According to him,
On the rear wheels of both display vehicles, there was a sticker on the
brake side of the inner flat base of the wheel displaying the text “This is
a remanufactured product. Any certifications, specifications, or
warranties that may have applied to this product prior to its modification
by DBL Designs, LLC are not applicable.” These stickers were not
permanent, nor were they prominently displayed.
20
The manager further observed that there was no sticker on the front wheels and that
the front wheels were not marked with “any disclaimer related to the remanufactured
nature of DBL’s wheels.”
Based on the manager’s observations (which were contained in a sworn
declaration supported by photographs of the wheels), Hutchinson moved to hold
DBL in contempt. Hutchinson argued that DBL had violated the permanent
injunction by failing to permanently mark its wheels with the court-ordered disclaimer
because (1) neither of the front wheels was marked and (2) DBL “knew that its sticker
[on the back wheels] did not comply with the Permanent Injunction because
Hutchinson [had] already rejected [DBL’s] request to use the sticker instead of
permanently marking its wheels with the disclaimer.” Hutchinson also urged the trial
court to revisit its exceptional-case-designation ruling based on DBL’s alleged
permanent-injunction violations.
In response, DBL argued that the Hutchinson manager’s statement regarding
the stickers’ lack of permanency was conclusory and that regarding the front wheels,
the manager did not aver that he had “observed both sides of the front wheels” or
take photographs of the inside of those wheels. Little testified in his affidavit that
DBL’s disclosure stickers are “permanent once applied” and that according to the
stickers’ technical datasheet, the adhesive is “solvent-based, permanent with high
initial tack and final adhesion.” Little further testified that “[e]ach DBL wheel is
shipped to DBL’s customers with the [d]isclosure [s]ticker prominently displayed on
21
the wheel.” He explained that “DBL wheels may be installed with either side of the
wheel facing the exterior of the vehicle. After a customer receives the wheel, it is
possible that they install the wheel such that the [d]isclosure [s]ticker is facing the
vehicle.” According to Little, he personally observed disclosure stickers on all the
DBL wheels on the display vehicles at FDIC International: “The rear wheels of both
display vehicles at the tradeshow were oriented such that the [d]isclosure [s]tickers
were observable from the exterior of the vehicle. The front wheels of both display
vehicles were oriented such that the [d]isclosure [s]tickers were facing the interior of
the vehicle.”
The trial court heard the contempt motion in late October 2021, but it did not
rule on it at that time.16 Instead, the trial court ordered DBL to produce within
28 days records regarding all the wheels it had sold since the September
2020 permanent injunction, as well as any documents establishing whether and how
each wheel was marked in accordance with the injunction. The trial court also denied
Hutchinson’s sanctions motion, as well as Hutchinson’s request that the trial court
reconsider is exceptional-case-designation ruling.
Shortly thereafter, the trial court signed a final judgment on the jury’s verdict,
awarding Hutchinson $80,994 in profit-disgorgement damages based on the jury’s
16
Hutchinson’s contempt motion remains outstanding.
22
finding that DBL had willfully infringed on Hutchinson’s trademark, along with pre-
and post-judgment interest.
Hutchinson timely appealed and attacks only the trial court’s failure to find that
this was an exceptional case under the Lanham Act.
III. Analysis
Hutchinson argues in its sole issue that the trial court abused its discretion by
failing to find that this case is exceptional under the Lanham Act because (1) DBL
willfully violated multiple provisions of the Lanham Act “2,000 times”;
(2) Hutchinson’s case “stood out” because of the “sheer strength” of Hutchinson’s
litigating position; and (3) DBL defended its case in an unreasonable manner.
Hutchinson additionally argues that the trial court’s ruling must be reversed in light of
the Fifth Circuit’s holding in Spectrum Association Management. See id. We address each of
these contentions in turn.
A. The jury’s willfulness findings
The non-unanimous jury found that DBL willfully—which the charge defined
as “voluntarily with the intent to confuse or deceive potential purchasers”—infringed
on Hutchinson’s trademark and engaged in unfair competition by passing off DBL’s
goods or services. Based on these findings and the evidence that DBL had sold
2,000 modified wheels, Hutchinson asserts that the jury found that DBL willfully
“violated two separate provisions of the Lanham Act thousands of times” and thus
23
argues that based on the jury’s willfulness findings alone, the trial court abused its
discretion by not finding this case exceptional.
Exceptional cases include those in which the defendant “maliciously,
fraudulently, deliberately, or willfully infringes [on] the plaintiff’s mark.” Spectrum Ass’n
Mgmt., 5 F.4th at 566–67 (quoting Procter & Gamble Co. v. Amway Corp., 280 F.3d 519,
527 (5th Cir. 2002)); Astoria, 2010 WL 1433404, at *13 (“Exceptional cases include
when the defendant’s violation of the Lanham Act is malicious, fraudulent, deliberate,
or willful.”); cf. Savage Tavern, Inc. v. Signature Stag, LLC, No. 5:21-CV-078-H,
2022 WL 1471442, at *6 (N.D. Tex. May 10, 2022) (“A prevailing party . . . need not
show bad faith, malice, or fraud—an exceptionally weak claim or defense by the
opposing party can suffice, as can vexatious or inexplicable litigation conduct.” (citing
All. for Good Gov’t, 919 F.3d at 295–96)). In such cases, “[t]he prevailing party must
further demonstrate ‘a high degree of culpability on the part of the infringer,’ such as
bad faith.” Spectrum Ass’n Mgmt., 5 F.4th at 567 (quoting Tex. Pig Stands, Inc. v. Hard
Rock Cafe Int’l, Inc., 951 F.2d 684, 697 (5th Cir. 1992)).
Here, Hutchinson urges that the jury’s willfulness findings alone compel an
exceptional-case finding. An intentional-infringement finding—that is, that the
infringer acted willfully—can establish an exceptional case under the Lanham Act. See
Philip Morris USA Inc. v. Lee, 547 F. Supp. 2d 685, 697–98 (W.D. Tex. 2008) (citing
Taco Cabana Int’l, Inc. v. Two Pesos, Inc., 932 F.2d 1113, 1127 (5th Cir. 1991)). But a
willful-infringement finding “does not bind the trial court in determining whether
24
[the] case is ‘exceptional.’” Tex. Pig Stands, 951 F.2d at 697 (footnote omitted); see
Philip Morris USA, 547 F. Supp. 2d at 697–98 (“[A] finding of willfulness for the
purpose of awarding statutory damages does not bind a court in determining whether
or not a case is exceptional.”); see also Lowe v. Eltan, B.V., No. 9:05-CV-38,
2018 WL 7822940, at *10 (E.D. Tex. Dec. 12, 2018) (“A finding of willfulness on the
defendant’s part does not automatically make it an exceptional case, but it can inform
the court in its determination.”), report and recommendation adopted in part, No. 9:05-CV-
38, 2019 WL 493806 (E.D. Tex. Feb. 8, 2019); Xpel Techs. Corp. v. Carlas Int’l Auto.
Accessory, Ltd., No. SA-16-CA-01308-DAE, 2017 WL 9362801, at *8 (W.D. Tex. Nov.
27, 2017) (“A finding of intentional infringement—that the infringer acted willfully—
may establish an exceptional case for purposes of § 1117(a). However, a finding of
willfulness for the purpose of awarding statutory damages does not per se establish that
the case is exceptional.” (citations omitted)), report and recommendation adopted, No. 5:16-
CV-1308-DAE, 2017 WL 9362565 (W.D. Tex. Dec. 19, 2017).
Because a willful-infringement finding in and of itself does not require a trial
court to find that a case is exceptional, we conclude that the trial court did not abuse
its discretion by failing to find this case exceptional on that basis alone.
B. The strength of Hutchinson’s litigating position
Hutchinson next argues that its case is exceptional because of the sheer
strength of its litigating position.
25
As noted, a trial court may declare a case exceptional when “in considering
both governing law and the facts of the case, the case stands out from others with
respect to the substantive strength of a party’s litigation position.” Baker, 821 F.3d at
625. Here, Hutchinson compares its litigation position to the prevailing party in
Alliance for Good Government. See 919 F.3d at 296. In that case, the Fifth Circuit held that
the trial court did not abuse its discretion in concluding that Alliance’s case stood out
because of the strength of its infringement claim against Coalition:
The district court first found that the case stood out due to the strength
of Alliance’s litigating position: Alliance adopted its logo at least 15 years
before Coalition began using its similar logo; Alliance’s composite mark
was strong; the marks were very similar; and both parties provided the
same “product,” used the same advertising channels, and targeted the
same “customers.” In sum, “[t]he likelihood of confusion [was] so great
that it would appear that customer confusion was Coalition’s motivation
for adopting the Coalition Mark.” Further, Coalition presented meritless
defenses at the summary judgment stage: a laches argument that was not
supported by “any credible evidence,” as well as the bare assertion that
the composite marks were different because one depicted an eagle while
the other depicted a hawk.
Id. (alterations in original).
Hutchinson claims that its litigation position was at least as strong as Alliance’s
because Hutchinson had used its trademark on all its goods since at least 2005; the
Hutchinson name evokes quality and “sets the industry standard” when it comes to
wheels, runflats, and beadlocks; DBL competes with Hutchinson; and DBL
piggybacked on Hutchinson’s name and deliberately left Hutchinson’s trademark and
other identifying information on the modified products even after it knew that its
26
customers were confused. Alliance, however, prevailed on its trademark-infringement
claim by summary judgment, which required Alliance to prove that it was entitled to
judgment as a legal matter. See generally All. for Good Gov’t v. Coal. for Better Gov’t,
901 F.3d 498 (5th Cir. 2018). Hutchinson, on the other hand, tried its case to a jury,
which did not unanimously find in its favor, awarded no lost-profit damages for either
of Hutchinson’s claims, and awarded only a fraction of the disgorgement damages
that Hutchinson was seeking. The jury trial also gave the trial court the opportunity to
observe the witnesses’ testimony, candor, and demeanor. We are thus unpersuaded
that the trial court—in a case-by-case exercise of its discretion, considering the totality
of the circumstances—abused its discretion by not concluding that this case stood out
due to the strength of Hutchinson’s litigation position.
C. DBL’s manner in defending its case
A trial court can also deem a case exceptional if the unsuccessful party has
litigated the case in an unreasonable manner. Baker, 821 F.3d at 625; see All. for Good
Gov’t, 919 F.3d at 296 (affirming trial court’s determination that defendant litigated the
case unreasonably by filing an unsupported laches defense, filing a “counterclaim
without any actionable conduct,” filing a meritless dismissal motion that was mooted
by a summary-judgment motion filed two weeks later, and behaving unreasonably
during discovery by refusing to postpone depositions). Hutchinson argues that DBL
unreasonably defended the case (1) by refusing to respond to written discovery
requests seeking the identities of customers to whom DBL had sold modified
27
Hutchinson products; (2) by refusing to allow Hutchinson to inspect DBL’s inventory
of wheels and Hutchinson products at DBL’s facility; (3) by filing untimely, frivolous
antitrust counterclaims; (4) by attempting to use fake evidence to obtain post-verdict
death penalty sanctions; and (5) by violating the permanent injunction.17 We have
reviewed the record and are unconvinced that the trial court abused its discretion by
not concluding that DBL litigated this case in an unreasonable manner.
Regarding DBL’s refusal to respond to written discovery, Hutchinson argues
that DBL’s asserting the trade-secret privilege in response to Hutchinson’s discovery
requests regarding DBL’s customers’ identities was done in bad faith and forced
Hutchinson to file a motion to compel. Although Hutchinson now describes DBL’s
refusal to “provide basic discovery” as a bad-faith pretrial act, DBL had a different
take on Hutchinson’s situation at the time. Soon after the trial court ruled on
Hutchinson’s motion to compel, Hutchinson filed an agreed motion for continuance
(the parties’ third agreed continuance motion) seeking to postpone the trial “because
the nature of the claims at issue in the case, coupled with good[-]faith discovery
disputes (over whether the identity of customers and sales data would be
discoverable),” had substantially delayed discovery. Hutchinson went on to describe
17
Hutchinson also points to DBL’s attempts to interfere with routine third-
party discovery as an additional way in which DBL unreasonably defended this case.
Hutchinson did not raise this argument in the trial court, so we do not consider it in
our analysis.
28
DBL’s actions as “good-faith opposition” to Hutchinson’s discovery requests that
required court intervention.
As to the inspection, Hutchinson complains that it was forced to move to
compel the inspection and that at the inspection, DBL refused to let Hutchinson
inside its facility to view DBL’s machines and disassembled Hutchinson products. 18
But Hutchinson never served DBL with a request for entry under Texas Rule of Civil
Procedure 196.7 stating “the time, place, manner, conditions, and scope of the
inspection” and specifically describing “any desired means, manner, and procedure for
testing or sampling, and the person or persons by whom the inspection, testing, or
sampling is to be made.” See Tex. R. Civ. P. 196.7(a)(1) (providing that a party can
gain entry on land or property of another party to inspect an object thereon by timely
serving a request), (b) (outlining required contents of request for entry). Without such
a request, the trial court could have concluded that DBL’s actions were reasonable.
Nor can we conclude that DBL acted unreasonably in filing its antitrust
counterclaims. Hutchinson first complains that “[t]he very act of filing such explosive
claims six weeks ahead of a preferential trial setting is, by itself, unreasonable,
18
At the inspection, DBL made its inventory of wheels and Hutchinson
products available for inspection in the yard behind DBL’s manufacturing facility.
Hutchinson complains that DBL would not allow Hutchinson inside the facility to
view disassembled Hutchinson products and the machines or the process DBL used
to modify Hutchinson products. Hutchinson further complains that DBL was lying
about its inventory because “[s]itting outside DBL’s facility, Hutchinson encountered
stacked pallets of shrink-wrapped used Hutchinson wheels DBL was about to
modify.”
29
inexplicable, and inappropriate.” While DBL’s timing may have been inconvenient for
Hutchinson, DBL’s filing was nevertheless timely because DBL filed its counterclaims
on the pleading-amendment deadline set out in the parties’ agreed scheduling order.
Hutchinson further complains that DBL’s antitrust counterclaims were boilerplate
and baseless. DBL’s pleadings, however, satisfy Texas’s fair-notice-pleading standard,
see Tex. R. Civ. P. 45, 47, and although Hutchinson made short work of DBL’s
antitrust counterclaims in its summary-judgment motion, we cannot say that those
claims were objectively baseless, as Hutchinson contends.
We reach similar conclusions regarding DBL’s post-trial behavior. See Spectrum
Ass’n Mgmt., 5 F.4th at 567 (considering defendant’s post-trial misconduct in
reviewing trial court’s failure to find case exceptional). Regarding the email-chain
issue, Hutchinson asserts that DBL failed to make a reasonable inquiry “to confirm
the fake email’s authenticity before it accused Hutchinson of a federal crime and
sought to dismiss all of Hutchinson’s claims in a public pleading.”19 Cf. Tex. R. Civ. P.
13. But after Hutchinson responded to the sanctions motion by pointing out several
aspects of the email chain that cast doubt on the chain’s authenticity, DBL responded
19
Hutchinson states in its brief that “DBL’s ‘mistake’ is all the worse because
Hutchinson told DBL the email was fake and DBL filed . . . its ludicrous post-trial
motion anyway without conducting any additional diligence.” But Hutchinson’s
attorney did not tell DBL’s attorney that the email was fake; he recommended further
investigation: “I would encourage you to not file a motion for sanctions and instead
focus on confirming the authenticity of this email, which to me does not appear to be
what you claim it is.”
30
with affidavits from Little, DBL’s attorney, and that attorney’s paralegal detailing
Little’s receipt of the email chain and the efforts made to determine the chain’s
authenticity before the sanctions motion was filed. The trial court was apparently
concerned about the email chain’s origin because it deferred ruling on the parties’
sanctions requests to allow the parties time to conduct a forensic investigation into
the emails’ origins. The parties argued over the investigation’s scope, and DBL
withdrew its motion in early December 2020. But the parties continued to fight over
the investigation, and in June 2021, Hutchinson moved for sanctions against DBL
based on DBL’s allegedly creating the email chain and obstructing the investigation.
The trial court eventually denied the motion, which suggests that the trial court was
unconvinced that DBL’s actions were undertaken in bad faith.
Turning to Hutchinson’s complaints regarding DBL’s alleged violations of the
permanent injunction, our record has no ruling on Hutchinson’s contempt motion.
Moreover, based on Hutchinson’s contempt motion and DBL’s response, it does not
appear to us that DBL has violated the permanent injunction.
Our task is to determine whether the trial court abused its discretion by acting
arbitrarily or unreasonably. Although the litigation was contentious at times, we are
unable to conclude that DBL’s litigation conduct was objectively unreasonable or that
it was motivated by bad faith or was frivolous. We will not second guess the trial
court’s case-by-case exercise of its discretion, considering the totality of the
31
circumstances. The trial court thus did not abuse its discretion by not finding that
DBL litigated the case in an unreasonable manner.
D. The Fifth Circuit’s Holding in Spectrum Association Management
Lastly, Hutchinson argues that the trial court’s ruling “cannot be squared with
Spectrum, and thus must be reversed” and that “[f]ailing to do so puts [our]
jurisprudence in conflict with the Fifth Circuit’s interpretation of the Lanham Act.” In
Spectrum, the Fifth Circuit concluded that the trial court abused its discretion by
declining to award attorney’s fees to Spectrum, a trademark holder that had
successfully sued a former employee (Tuttle) and his company (Lifetime) under the
Anti-Cybersquatting Consumer Protection Act section of the Lanham Act for using
an infringing website domain name that forwarded users to Lifetime’s marketing
website. See 5 F.4th at 562–63.
After a bench trial, the trial court awarded Spectrum the maximum amount of
statutory damages and permanently enjoined Lifetime and Tuttle (collectively, the
Lifetime Defendants) from infringing on Spectrum’s trademarks. Id. at 563, 565–66.
The Fifth Circuit determined that the trial court’s damages award was not error
because of the Lifetime Defendants’ willful and bad-faith behavior:
the record confirms that the Lifetime Defendants violated Spectrum’s
trademarks willfully and in bad faith by engaging in the following
conduct: establishing Lifetime as Spectrum’s competitor while Tuttle was
under his non-compete agreement with Spectrum; registering the
Infringing Domain with prior knowledge of Spectrum’s trademarks;
purchasing the Infringing Domain in the hopes of eventually selling it to
Spectrum for a profit; and setting up the Infringing Domain to confuse
32
and divert internet users who sought Spectrum’s services. The Lifetime
Defendants demonstrated further willfulness during the underlying
lawsuit by showing a disregard for their submission of inconsistent,
misleading, and inaccurate answers to written discovery. Additionally,
the Lifetime Defendants’ bad-faith conduct continued after trial, when
they blatantly copied text from Spectrum’s copyright-protected web
pages for use on Lifetime’s website. Finally, there is no record evidence
that the Lifetime Defendants offered to transfer the Infringing Domain
to Spectrum.
Id. at 566.
But despite the Lifetime Defendants’ behavior, the trial court declined to award
Spectrum its attorney’s fees. Id. at 563. The Fifth Circuit concluded that this failure
was an abuse of discretion because the case was exceptional based on the Lifetime
Defendants’ behavior:
As discussed above, the record of this case confirms that the Lifetime
Defendants engaged in willful, bad-faith infringement of Spectrum’s
trademarks, justifying an award of maximum statutory damages. The
overwhelming evidence against the Lifetime Defendants illustrates the
sheer strength of Spectrum’s litigation position. Moreover, the Lifetime
Defendants’ disregard for their submission of inconsistent, misleading,
and inaccurate answers to written discovery—including not admitting
Spectrum was a competitor, failing to identify the clients they obtained
from Spectrum, and misrepresenting that they had conducted a diligent
search of the number of times the Infringing Domain was accessed—
demonstrates that they litigated this case in an unreasonable manner.
Id. at 567. The court went on to explain that the Lifetime Defendants had acted in bad
faith by registering and using an infringing internet domain with the intent to divert a
direct competitor’s potential customers to Lifetime’s website; by never offering to
transfer the Infringing Domain to Spectrum; and by engaging in post-trial misconduct
by blatantly copying text from Spectrum’s website. Id.
33
While the jury here ultimately found that DBL willfully violated the Lanham
Act by infringing on Hutchinson’s trademark and by passing off DBL’s products,
neither its actions giving rise to this suit nor its litigation behavior were as egregious as
the defendants’ behavior in Spectrum.
IV. Conclusion
Given the trial court’s broad discretion in determining whether a case is
exceptional and the deference that we must give that ruling, we conclude that the trial
court did not abuse its discretion by denying Hutchinson’s request to deem this case
exceptional. We thus overrule Hutchinson’s only issue, and we affirm the trial court’s
judgment.
/s/ Elizabeth Kerr
Elizabeth Kerr
Justice
Delivered: September 29, 2022
34