Diesel landed an $11.8 million damages win in the lawsuit that it waged against Diesel Power Gear (“DPG”), the brand created by “Diesel Brothers” reality stars Dave Sparks and Dave Kiley. In the complaint that it filed with the U.S. District Court for the Southern District of New York back in 2019, Diesel alleged that DPG was running afoul of federal trademark law by using the DIESEL POWER GEAR and DIESELSELLERZ marks in connection with its business and on various apparel and/or accessories. On the heels of a New York federal court granting partial summary judgment last year on the Italian fashion brand’s trademark infringement, dilution, and unfair competition claims, the court has partially granted Diesel’s motion for summary judgment on the issue of damages.
Setting the stage in her opinion and order on Tuesday, SDNY Judge Jennifer Rochon stated that the court previously sided with Diesel on a portion of its trademark infringement and dilution claims due, in part, to its finding that DPG was precluded from relitigating the issues of whether its DIESEL POWER GEAR mark “was likely to cause confusion or dilute [Diesel’s] DIESEL marks because [it] had already defaulted on both issues before the Trademark Trial and Appeal Board (‘TTAB’).”
Even without the TTAB judgment, the court determined that Diesel was entitled to summary judgment on its infringement and unfair competition claims, as the parties’ marks are “confusingly similar ‘in light of the way in which the marks are actually displayed in their purchasing context,’ including [DPG’s] use of the marks on its physical storefront and website domains.” As for dilution, Judge Rochon asserted that the court previously found that Diesel’s mark is famous and that DPG’s misappropriation of that mark was willful because it “had acted with reckless disregard of Plaintiffs’ DIESEL trademarks,” and therefore, granted summary judgment on liability in favor of Diesel.
Against that background and in light of the lack of dispute between the parties that damages can be resolved on summary judgment in this case and that Diesel is entitled to an award based on DPG’s profits, the issue before the court in the latest round was the computation of those profits. Diesel argued that the undisputed facts stipulated by the parties establish DPG’s gross and net sales and that DPG “has not proven any deductible costs or expenses.” As such, Diesel maintained that it is entitled to net sales equal to $59.1 million.
DPG, on the other hand, argued that its profits should be based on “a smaller subset of its sales, and that the court should deduct a flat rate of [its] business-wide expenses from those profits.” (Among other things, DPG argued that, based on the court’s earlier summary judgment opinion, it is only liable for “apparel that is marked on the exterior with the word ‘diesel,’” and its profits should be limited to those products.” The court disagreed, stating that DPG was found liable for using “the infringing marks on or in connection with [its] apparel and accessory products,” and thus, liability extends beyond apparel/accessories emblazoned with “diesel” on the outside to its use of the mark “on [its] Diesel Power Gear Products themselves, on the hang tabs and labels thereof, in connection with [its] Website, social media handles, and in connection with its advertisements and promotions,” etc.)
As a threshold issue, the court held that the “principles of equity” warrant an award of DPG’s profits in this case. Delving into these factors, which include “(1) the degree of certainty that the defendant benefited from the unlawful conduct; (2) the availability and adequacy of other remedies; (3) the role of a particular defendant in effectuating the infringement; (4) any delay by plaintiff; and (5) plaintiff’s clean – or unclean – hands,” Judge Rochon held that PDG acted willfully as a matter of law.
In particular, the court noted that DPG had actual knowledge of the Diesel trademarks when it began using the infringing marks and continue to make use of such marks even after receiving a cease-and-desist letter from Diesel. The remaining equitable factors similarly weigh in favor of a profit award, according to the court, as the marks at issue confusingly similar, the court “may reasonably infer that [DPG] ‘benefited from the unlawful conduct,’ and other remedies “would not reasonably compensate [Diesel] for [DPG’s] conduct.”
Based on the parties’ agreement and the undisputed facts, Diesel has “adequately demonstrated an entitlement to an award of profits pursuant to Section 1117(a),” the court held. Diesel also met its initial burden for proving gross sales in the amount of $65.1 million. As for DPG, the court found that it did not meet its burden to show deductible costs or expenses aside from discounts and returns, thereby, resulting in net sales of $59.1 million. “Courts have consistently held that a defendant is not entitled to deduct expenses where the defendant fails to prove either a sufficient nexus between their expenses and sales, or an adequate formula for allocating their expenses,” Judge Rochon maintain, finding that “here, [DPG] has proved neither.”
Ultimately, the court held that the full disgorgement of DPG’s profits would “undoubtably serve as a strong deterrent, prevent any unjust enrichment, and compensate [Diesel] for [DPG’s] ill-gotten gains.” However, to award damages of approximately $59 million would be “excessive” against DPG and amount to “an unwarranted windfall” to Diesel.
Instead, an award of less than DPG’s net sales is warranted to produce a “just” result, per Judge Rochon, because: “DPG’s willful conduct is far from the most egregious infringement contemplated by the Lanham Act,” and there is no evidence of actual consumer confusion; the “strength of the link between the infringement” and DPG’s profits is not equal across all of the infringing products (As DPG suggests, the link is more peripheral with respect to products that, although infringing, do not display the word “diesel” on their exterior); and Diesel has not presented direct evidence of damage to its business, and DGP has “submitted some – albeit deficient – evidence of its costs and expenses.”
Accordingly, the court reduces DPG’s net sales ($59.1 million) by 80 percent, resulting in a total award of $11.8 million.
The case is DIESEL S.p.A. v. Diesel Power Gear, LLC, 1:19-cv-09308 (SDNY).