September 15, 2008

District Court Reduces Payless Punitive Damages from $137 Million to $15 Million

Judge Garr M. King of the District of Oregon has issued a post-trial opinion reducing what was possibly the largest trademark infringement award ever. (See our prior posts here, here and here.) The jury awarded a total of $305 million, but the court chopped it down it down to a mere $65 million.

The jury had awarded $137 million under the Lanham Act for disgorgement of profits, but Judge King exercised his discretion under the Lanham Act to reduce that figure to $19.7 million.

As for the punitive damages award, Judge King denied Payless' motion for a new trial, conditioned on Adidas' acceptance of a remittitur of the punitive damages award to $15 million. He determined that the $30.6 million awarded by the jury for lost royalties represented Adidas' "actual harm," for purposes of comparing the punitive damages to actual harm. He then went on to conclude that, given the low reprehensibility of the conduct at issue, even a 1 to 1 ratio of punitive damages to actual harm would be excessive:

After considering the Gore guideposts, I have decided that even a 1 to 1 ratio between compensatory and punitive damages is too high. The main reasons are that there was no physical harm or disregard for a person’s health or safety, there were no lost sales, Adidas suffered no economic harm that jeopardized its business in any way, and, even though Payless acted willfully, it did not do so for the entire period addressed here. I realize that going below a 1 to 1 ratio is unusual but such awards have been approved if there is only economic harm. See Motorola Credit Corp. v. Uzan, 509 F.3d 74 (2nd Cir. 2007) (following a court trial in a financial fraud case the trial court characterized as hard to imagine financial conduct more reprehensible,
the appellate court affirmed the trial court’s decision on remand to reduce the punitive damages to $1 billion from $2.1 billion, along with compensatory damages of $2.1 billion). After giving this much thought, I conclude that the punitive damages must be reduced to $15 million to comport with due process concerns. Accordingly, I deny Payless’ motion for a new trial, conditioned on Adidas accepting a remittitur of the punitive damages award to $15 million.
Hat tip: Seattle Trademark Lawyer.