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Audi AG and Volkswagen of America Inc. v. Bob D'Amato

The Sixth Circuit affirms the District Court's award of summary judgment to plaintiffs, and holds that defendant Bob D'Amato infringed and diluted plaintiffs' famous "Audi," "Quatro," and Audi Four Ring Logo marks, and violated the Anticybersquating Consumer Protection Act.  Defendant was held to have infringed plaintiffs' marks by operating a website at the domain www.audisport.com, at which both goods such as hats and shirts bearing the "Audi Sport" logo, and advertising space, were offered for sale.  The Sixth Circuit accordingly affirmed the District Court's decision, which permanently enjoined defendant from making continued infringing use of Audi's trademarks, directed D'Amato to transfer the audisport.com domain to plaintiffs, and awarded plaintiffs Audi AG ("Audi") and Volkswagen of America Inc. ("Volkswagen") attorneys' fees as the prevailing party.  The Court reached this result notwithstanding both defendant's claim that his use of Audi's marks on his website in connection with the sale of goods was orally authorized by an Audi dealer, and his placement of a disclaimer on defendant's site after receipt of a cease and desist letter.  A written agreement between Audi and the dealer made clear that the dealer lacked authority to so authorize defendant's use of Audi's trademarks.

Defendant Bob D'Amato ("D'Amato") is an individual not affiliated with Audi.  In February, 1999, D'Amato registered the domain name www.audisport.com.  In 2002, D'Amato was approached by an Audi dealer - Champion Audi - who sought a link on D'Amato's site to an online boutique at which goods bearing the "Audi Sport" mark, such as hats and shirts, would be sold.  This online boutique was subsequently set up and run on a separate page on D'Amato's website found at the URL www.audisport.com/boutique.  The boutique also offered for sale personalized email addresses @audisport.com.  For his participation, D'Amato was to receive a percentage of the revenues generated by the boutique.  It is unclear from the court's decision whether D'Amato sold these goods himself or, as he claimed, "his website merely had links to goods (hats and shirts) and email hosting services offered by Champion Audi."  It is also unclear whether D'Amato actually profited from his activities.

D'Amato hired a graphic designer to create two logos incorporating Audi trademarks for use on his site.  The designer inquired whether D'Amato was authorized to use these marks, and noted that Audi itself already had a website at which it offered similar merchandise for sale.  D'Amato claimed he had been authorized by the Audi dealer to use the marks, and placed them on his site.  Unfortunately, the terms of its dealer agreement with Audi barred the dealer from granting D'Amato any right to use Audi's trademarks.

In addition to displaying Audi logos and marks on his site, D'Amato's site also falsely advised users "Who are we?  We are a cooperative with Audi of America, and will be providing the latest products for your Audi's and information on Audisport North America."

In May, 2003, Champion Audi decided to end its involvement in the project because it was not generating sufficient revenue.  Subsequently, in late 2003, and early 2004, Audi sent cease and desist letters to D'Amato.  In response, D'Amato removed both the Audi logos, and Boutique, from his site.  He also added a disclaimer, disclaiming any relationship with Audi.  D'Amato still, however, offered to sell advertising on his site.

Plaintiffs commenced this lawsuit, charging defendant with infringing and diluting plaintiffs' trademarks in violation of the Lanham Act, as well as violating the Anticybersquating Consumer Protection Act ("ACPA").  The District Court awarded plaintiffs summary judgment on these claims, and permanently enjoined D'Amato from making further infringing uses of Audi's marks.  The District Court also awarded plaintiffs attorney's fees under 15 U.S.C. § 1117(a), and directed defendant to transfer the audisport.com domain to plaintiffs.  On appeal, the Sixth Circuit affirmed.

To prevail on claims of trademark infringement, unfair competition and false designation of origin under the Lanham Act, the plaintiff must establish a likelihood of confusion between the two marks at issue.  In the Sixth Circuit, likelihood of confusion is determined by analyzing eight factors:

We have held that in determining whether there is a likelihood of confusion, the following eight factors should be considered:  (1) strength of plaintiff's mark;  (2) relatedness of the goods; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing of channels used; (6) degree of purchaser care;  (7) defendant's intent in selecting the mark; and (8) likelihood of expansion in selecting the mark.

An analysis of these factors, the Sixth Circuit found, amply demonstrated a likelihood that consumers would be confused by defendant's use of plaintiffs' marks.

In reaching this conclusion, the court relied on the fact that defendant had used world famous (and thus strong) trademarks belonging to Audi to market goods identical to those Audi itself was marketing, such as shirts and hats bearing Audi marks. 

The similarity between plaintiff's Audi trademarks and defendant's Audi Sport mark and domain name also supported a finding of likely consumer confusion.  Such prospective consumer confusion would not be alleviated by the addition of the generic term "sport" to plaintiffs' mark.  Said the Court:  

As in PACCAR, where the addition of 'generic or common descriptive words' did not make the domain names sufficiently dissimilar, in the case at bar, the addition of 'sport' after 'Audi' fails to distinguish the two, and public confusion is thus likely. 

The fact that both parties used the same channels to market their products to consumers unlikely to exercise a great degree of care given the low cost of the items defendant marketed also supported the court's determination of likely consumer confusion.  This finding was also supported by evidence of actual confusion, reflected in the graphic designer's email, discussed above, which inquired as to the nature of defendant's relationship with Audi, given its marketing of similar products. 

Finally, the Court found that defendant had decided to use plaintiffs' marks with an intent of copying, and benefiting therefrom, which also supported its determination of likely consumer confusion.  Such was the case, held the Court, because D'Amato sought Volkswagen's permission to use its mark at the time he registered his domain (to which request he received no reply) and because he used plaintiffs' mark throughout his website, in watermarks, wallpaper and his site's domain name.

As a result, the Sixth Circuit held that defendant, by his conduct, infringed plaintiffs' marks in violation of the Lanham Act.

In reaching this result, the Sixth Circuit rejected defendant's claims that his use of Audi's marks was authorized by Champion Audi.  As noted above, Champion Audi lacked the authority to grant D'Amato permission to use the marks at issue.

The Court also rejected defendant's laches defense.  Defendant registered his audisport.com domain in February 1999.  Suit was not commenced until February 2004.  According to the Sixth Circuit, in deciding whether suits are time barred by laches, courts should consider "(1) whether the owner of the mark knew of the infringing use; (2) whether the owner's delay in challenging the infringement of the mark was inexcusable or unreasonable; and (3) whether the infringing user was unduly prejudiced by the owner's delay."  Here, there was no evidence submitted that plaintiffs inexcusably delayed prosecution of this suit after they first became aware of defendant's infringing activities, nor that defendant had been unduly prejudiced by any delay.

Lastly, the court rejected defendant's contention that any consumer confusion was rebutted by his site's disclaimer.  Noted the Court: 

[A]n infringing domain name has the potential to misdirect consumers as they search for web sites associated with the owner of a trademark.  A disclaimer disavowing affiliation with the trademark owner read by a consumer after reaching the web site comes too late.  This "initial confusion" is recognized as an infringement under the Lanham Act.

The Court also found defendant both diluted plaintiffs' famous Audi marks, and violated the ACPA.  Dilution was readily found, as defendant used Audi's famous and distinctive mark in commerce (to sell goods) after the mark became famous.  Because D'Amato used plaintiffs' identical mark, no evidence of actual dilution was necessary.  Said the Court: 

Direct evidence of dilution such as consumer surveys will not be necessary if actual dilution can reliably be proven through circumstantial evidence - the obvious case is one where the junior and senior marks are identical.

A violation of the ACPA was also found.  In reaching this result, the Court relied on the fact that D'Amato had no trademark rights in the Audi mark, which consisted of plaintiffs' legal name, had not used the mark to make a bona fide offering of goods or services, and had used the mark in a commercial way.  The Court also found defendant intended to divert consumers from plaintiffs' online location to his own, in part because his site falsely described D'Amato's relationship with Audi as "a cooperative with Audi of America."

Interestingly, in finding defendant violated the ACPA, the Court rejected D'Amato's claim that his actions were excused under the 'reasonable belief exception' set forth in 15 U.S.C. §1125(d)(1)(B)(ii).  Under this section, a defendant who has a 'reasonable belief' that his use of the domain is legitimate will not be held to violate the ACPA.  Noting that this defense should be used "very sparingly and only in the most unusual cases" the Court held it inapplicable here, despite the "authorization" D'Amato received from Champion Audi to use the mark.

Finally, the Sixth Circuit affirmed the District Court's award to plaintiffs of their attorneys' fees.  Under 15 U.S.C. § 1117(a), courts may award the prevailing party reasonable attorneys fees in "exceptional" cases.  Clearly, plaintiffs were the prevailing parties, obtaining permanent injunctive relief (but not statutory damages) against defendant's future infringing conduct.

The Court also held this an exceptional case.  A case "is not exceptional unless 'the infringement was malicious, fraudulent, willful, or deliberate.'"  The Court held this case fell within that rubric.  Said the Court:

D'Amato did not limit his website to protected speech, such as news and information for Audi enthusiasts.  Rather, he used counterfeit marks on his website and on the goods and services he attempted to sell for a profit.

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He knew that he needed permission to use such marks, evidenced by the fact he attempted to obtain consent from Volkswagen of America and individuals affiliated with Audi.  Further, as explained above, the district court was correct in finding that under the AntiCybersquatting Consumer Protection Act, D'Amato acted in bad faith.  A finding of bad faith under the ACPA does not necessarily compel a court to find "malicious, fraudulent, willful or deliberate conduct.  However, a court would be well within its discretion in determining that bad faith under the ACPA supports finding such conduct.

Notably, the Court affirmed an award of attorney's fees despite the changes D'Amato made to his site after receipt of Audi's cease and desist letters, by which D'Amato removed the Boutique and posted a disclaimer.