           RECOMMENDED FOR FULL-TEXT PUBLICATION
                Pursuant to Sixth Circuit Rule 206
        ELECTRONIC CITATION: 2000 FED App. 0068P (6th Cir.)
                    File Name: 00a0068p.06


UNITED STATES COURT OF APPEALS
                  FOR THE SIXTH CIRCUIT
                    _________________


                             ;
                              
 BALANCE DYNAMICS
                              
 CORPORATION,
                              
          Plaintiff-Appellant,
                              
                                              No. 97-2023

                              
           v.                  >
                              
                              
                              
 SCHMITT INDUSTRIES,

         Defendant-Appellee. 
 INCORPORATED,
                              
                             1

       Appeal from the United States District Court
      for the Eastern District of Michigan at Detroit.
    No. 94-75356—Robert E. DeMascio, District Judge.
                  Argued: December 17, 1999
             Decided and Filed: February 25, 2000
  Before: NELSON and DAUGHTREY,* Circuit Judges;
              DOWD, District Judge.




    *
     The Honorable David D. Dowd, Jr., United States District Judge for
the Northern District of Ohio, sitting by designation.

                                  1
2     Balance Dynamics Corp.                        No. 97-2023
      v. Schmitt Industries

                     _________________
                          COUNSEL
ARGUED: Robert H. Golden, GOLDEN AND KUNZ,
Lathrup Village, Michigan, for Appellant. John F. Brennan,
CHELI, HESS, Royal Oak, Michigan, for Appellee.
ON BRIEF: Robert H. Golden, Armand D. Kunz, GOLDEN
AND KUNZ, Lathrup Village, Michigan, for Appellant. John
F. Brennan, CHELI, HESS, Royal Oak, Michigan, for
Appellee.
                     _________________
                         OPINION
                     _________________
    DAVID D. DOWD, JR., District Judge.
I. Introduction
   The false advertising litigation before us has continued for
six years, largely due to the paucity of legal rulings available
to the trial court on some of the unique issues presented in
this case. These issues pertain to the standards for
establishing a violation of the Lanham Trade-Mark Act, the
relief available once a violation is established, and the method
of proofs necessary to establish entitlement to such relief. In
particular, this case presents several issues of first impression:
(1) whether, upon establishing a violation of the Lanham Act,
a plaintiff can recover damage control costs without showing
that the false advertising created actual confusion in the
marketplace or actual damages in the marketplace; (2)
whether a plaintiff can recover damages to goodwill or
disgorgement of profits upon showing that an advertisement
is literally false or deliberately false, where the plaintiff has
no other proof of damages to its business; and (3) whether
out-of-state, individual corporate officers who were
personally involved in a Lanham Act violation are immune
26    Balance Dynamics Corp.                       No. 97-2023      No. 97-2023                       Balance Dynamics Corp.             3
      v. Schmitt Industries                                                                               v. Schmitt Industries

   While it is true that “jurisdiction over the individual          from the exercise of personal jurisdiction under the fiduciary
officers of a corporation cannot be predicated merely upon          shield doctrine.
jurisdiction over the corporation,” Weller v. Cromwell Oil
Co., 504 F.2d at 929, we hold that the mere fact that the             For the reasons set forth below, we hold: that a plaintiff
actions connecting defendants to the state were undertaken in       seeking to recover damage control costs under the Lanham
an official rather than personal capacity does not preclude the     Act for a defendant’s false advertising is not required to show
exercise of personal jurisdiction over those defendants.            that the false advertising created actual confusion or damages
Hence, where an out-of-state agent is actively and personally       in the marketplace; that in order to recover damage to
involved in the conduct giving rise to the claim, the exercise      goodwill or disgorgement of profits, a plaintiff must show at
of personal jurisdiction should depend on traditional notions       least some damage in the marketplace and cannot rely solely
of fair play and substantial justice; i.e., whether she purposely   on the literal falsehood of an advertisement; and personal
availed herself of the forum and the reasonably foreseeable         jurisdiction may be exercised over corporate agents based
consequences of that availment. See Burger King Corp. v.            upon their minimum contacts with the forum state, as long as
Rudzewicz, 471 U.S. 462, 474 (1985); International Shoe Co.         personal jurisdiction is not premised on the mere fact of
v. Washington, 326 U.S. 310, 316 (1945). This proposition           jurisdiction over the corporation.
has been applied by other circuits in the exercise of personal
jurisdiction over corporate officers who actively and               II. Facts and History
personally involved themselves in conduct violating the
Lanham Act, notwithstanding the fact that the defendants               Plaintiff-Appellant Balance Dynamics Corporation
acted as agents when they did so. See, e.g., Committee for          (“Balance Dynamics”), based in Ann Arbor, Michigan, and
Idaho’s High Desert v. Yost, 92 F.3d 814, 823-24 (9th Cir.          Defendant-Appellee Schmitt Industries (“Schmitt”), based in
1996); Electronic Laboratory Supply Co. v. Cullen, 977 F.2d         Portland, Oregon, manufacture products that balance
798, 807-08 (3d Cir. 1992); Polo Fashions, Inc. v. Craftex,         industrial grinders and other machines that have a spinning
Inc., 816 F.2d 145, 149 (4th Cir. 1987); Donsco, Inc. v.            shaft. In a process unique in the industry, Balance Dynamics’
Casper Corp., 587 F.2d 602, 606 (3d Cir. 1978).                     product uses a gas called Halon 1202 which is heated and
                                                                    vaporized in one chamber and allowed to condense back to
  The district court erred in dismissing Case and Morgan            liquid form in another. Schmitt’s products accomplish the
from the suit based merely on the fact that they acted as           same result by balancing the spinning shafts with motor
agents for the corporation. The matter will be remanded for         driven metal weights.
a determination of whether their contacts with the state of
Michigan were such that due process permits the exercise of           During the late summer of 1992, prior to Chicago’s
personal jurisdiction over them.                                    International Machine Tool Show in September, Schmitt
                                                                    mailed and distributed a postcard cartoon to 2,500 customers
IX. Disposition                                                     or potential customers depicting a “freon balancer” at the top
                                                                    of a “dead wheel balancer bone pile.”1
  The trial court’s ruling on Schmitt’s Rule 50 motion is
REVERSED and the judgment is VACATED. The case is
REMANDED to the district court for further proceedings                  1
                                                                          At the time the cartoon was mailed, Balance Dynamics referred to
consistent with this opinion.                                       its product as a “freon balancer.” As this appellation took on negative
                                                                    connotations in the wake of increasing environmental awareness, Balance
4      Balance Dynamics Corp.                           No. 97-2023   No. 97-2023                    Balance Dynamics Corp.         25
       v. Schmitt Industries                                                                             v. Schmitt Industries

   In late 1992 or early 1993, Schmitt received queries               Case and Morgan were acting in their official capacity as
regarding its possible use of halons, freons, or other ozone-         agents for Schmitt when they signed the offending letters.
depleting materials. On March 16, 1993, Schmitt sent a letter
to approximately 3,200 customers and prospective customers               In the seminal case of Marine Midland Bank, N.A. v. Miller,
stating that                                                          664 F.2d 899 (2d Cir. 1981), the fiduciary shield doctrine is
                                                                      formulated as follows: “if an individual has contact with a
    Effective May 15, 1993, all products which contain or             particular state only by virtue of his acts as a fiduciary of the
    have been processed with ozone depleting substances               corporation, he may be shielded from the exercise, by that
    (ODS) must have warning labels affixed. Subsequently,             state, of jurisdiction over him personally on the basis of that
    these substances will be banned from general use.                 conduct.” Id. at 902. In that form, the fiduciary shield
    Canada has already banned the substances. The ultimate            doctrine prevents the exercise of personal jurisdiction
    financial responsibility for environmentally sound                whenever an out-of-state officer’s contacts occur by virtue of
    disposal of products containing ODS materials will rest           her official capacity. However, in Weller v. Cromwell Oil Co.
    with the end user.                                                the doctrine is stated more mildly: jurisdiction over a
                                                                      corporate officer cannot be predicated merely upon
After stating that Schmitt’s balancing system did not use             jurisdiction over the corporation. 504 F.2d at 929.
ozone depleting substances, the letter continued:
                                                                        Some courts in the Sixth Circuit have followed the Marine
    Perhaps because one manufacturer of automatic grinding            Midland Bank formulation, holding that the mere fact that an
    wheel balancers uses halon, this type of device has come          out-of-state defendant performed the alleged tortious or
    under close scrutiny . . . Should your company operate            violative conduct while acting as a corporate agent precludes
    any halon balancers, and wish to dispose of them prior to         the exercise of personal jurisdiction over that person. See,
    May 15, Schmitt Industries can supply an SBS Balance              e.g., United States v. Flack, No. 2:96-CV-122, 1997 WL
    System as an easy replacement.                                    187373 at *5 (S.D. Ohio January 31, 1997); Cincinnati Sub-
                                                                      Zero Products, Inc. v. Augustine Medical, Inc., 800 F.Supp.
The letter was signed by defendants Wayne A. Case,                    1549 (S.D. Ohio 1992). But other courts have found that the
Schmitt’s president, and James Morgan, Schmitt’s sales                exercise of jurisdiction over the agent depends on the extent
manager.                                                              of that agent’s personal involvement in the conduct. See, e.g.,
                                                                      State of Ohio v. Browning Ferris Indus. Inc., No. C 86-7387,
  In April of 1993, one of Balance Dynamics’ largest                  1987 WL 16940 (N.D. Ohio March 26, 1987); James v. HRP,
customers faxed the letter to Thomas Schulte, Balance                 Inc., 852 F.Supp. 620 (W.D. Mich. 1994); Morton Walker,
Dynamics’ then-vice president of sales. Schulte consequently          D.P.M. v. Robert Concoby, ___ F.Supp.2d ___, 1999 WL
spoke with approximately 40 individuals from 12 different             1210871 (N.D. Ohio October 12, 1999). These courts
corporate customers with regard to the letter. Some of these          exercised personal jurisdiction over corporate officers where
customer contacts were initiated by Schulte, others by the            the officers were active participants in the tortious conduct.
customers themselves.       After investigation, Balance              There is support for this approach in Sixth Circuit case law.
                                                                      See Chattanooga Corp. v. Klingler, 704 F.2d 903, 906-07
                                                                      (6th Cir. 1983); Serras v. First Tennessee Bank N.A., 875
                                                                      F.2d 1212, 1217 (6th Cir. 1989).
Dynamics began referring to its product as a “halon balancer.”
24    Balance Dynamics Corp.                        No. 97-2023      No. 97-2023                    Balance Dynamics Corp.          5
      v. Schmitt Industries                                                                             v. Schmitt Industries

the jury’s verdict in favor of Schmitt were sound, the trial         Dynamics confirmed that its halon balancer was not subject
court’s ruling on the Rule 50 motion would be harmless.              to regulation, did not require labeling, and was not slated to
However, we agree with Balance Dynamics that the jury                be banned. It then responded by making visits to customers
instructions were both infirm and prejudicial.                       and sending a “fact sheet” to those customers who expressed
                                                                     concern.
   In reviewing the jury instructions of a trial court, an appeals
court considers “whether the charge, taken as a whole, fairly           Schmitt disagreed with certain items in the “fact sheet” and
and adequately submits the issues and applicable law to the          hired an environmental chemist to write an opinion, which
jury.” United States v. Martin, 740 F.2d 1352, 1361 (6th Cir.        stated that Halon 1202 had “managed to slip through the
1984). At trial, the court instructed the jury that in order to      regulatory net” but that it is “quite certain the EPA would
recover damages relating to a particular letter, Balance             regulate its production and use.” It also suggested that if the
Dynamics had to show the following elements: (1) a literally         EPA failed to act, a private person could obtain a court order
false or a misleading statement of fact regarding plaintiff’s        requiring the EPA to list Halon 1202 as a regulated substance,
product; (2) that the statement actually deceived plaintiff’s        and that “it is almost certain that in the relatively near future
customer or customers; (3) that the statement actually               Halon 1202 will become very difficult to obtain.” The paper
influenced the purchasing decision of a customer or                  was provided to approximately 12 Schmitt customers or
customers that plaintiff had; (4) a connection to interstate         prospective customers.
commerce; (5) that plaintiff actually lost a sale or sales from
one or more of its customers as a result of defendant’s                 In February of 1994, Balance Dynamics brought suit
statement. Plaintiff’s counsel objected, preserving the issue        against Schmitt, Wayne A. Case, and James Morgan, seeking
for appeal. The jury was out for ten minutes before returning        compensatory damages, treble damages, attorney fees,
a verdict for Schmitt.                                               disgorgement of Schmitt’s profits, and an injunction
                                                                     restraining Schmitt from similar mailings. Balance Dynamics
  Again, the trial court lacked the benefit of Podiatric             claimed the defendants had violated various state laws as well
Physicians. That case shows that it is not necessary to show         as the false advertising language of the Lanham Trade-Mark
lost sales in order to establish a violation of the Lanham Act,      Act, 15 U.S.C. § 1051 et seq. In orders signed by Judge
nor is it necessary to establish that customers were actually        George LaPlata, based on reports and recommendations
deceived. Therefore, the jury instructions were erroneous as         (“R&Rs”) of Magistrate Judge Steven D. Pepe, the district
a matter of law and obviously prejudicial.                           court dismissed Case and Morgan from the suit for lack of
                                                                     personal jurisdiction and dismissed all of Balance Dynamics’
VIII. Dismissal of Defendants Wayne Case and James                   state law claims for failure to state a cause of action.
      Morgan
                                                                       Balance Dynamics dropped its claim for injunctive relief on
  In a November 28, 1994 Order, Judge LaPlata dismissed              August 21, 1994. Balance Dynamics also stipulated that it
Schmitt employees Wayne Case and James Morgan on the                 experienced no lost sales, no lost profits, and no increased
grounds that the fiduciary shield doctrine frustrated the            cost of seeking capital investments. However, Balance
court’s personal jurisdiction over them. Citing Weller v.            Dynamics reserved the right to seek treble damages, Schmitt’s
Cromwell Oil Co., 504 F.2d 927, 929 (6th Cir. 1974), the             profits, damage control costs, and compensation for harm to
court found that personal jurisdiction was lacking because           goodwill. Schmitt then brought a supplemental motion for
6    Balance Dynamics Corp.                      No. 97-2023      No. 97-2023                    Balance Dynamics Corp.        23
     v. Schmitt Industries                                                                           v. Schmitt Industries

summary judgment on Balance Dynamics’ damages claims.               companies. Engineers know just exactly what those
In August of 1995, Judge LaPlata adopted an R&R granting            standards are, just exactly what . . . the EPA rulings are
Schmitt’s motion as to lost profits and costs but denying it as     . . . frankly I have no idea why this case has been hanging
to Balance Dynamics’ claim for damage control activities.           around the court for three and a half years.
   Judge LaPlata retired in 1996 and the litigation was             Balance Dynamics protests this finding on the grounds that
transferred to Judge Horace W. Gilmore. Judge Gilmore             Mr. Schulte had testified that, after the letter was
signed an order, purporting to reaffirm an earlier order of       disseminated, some of his customers contacted him in
Magistrate Judge Pepe, denying Balance Dynamics’ punitive         reference to its claims. Schulte further stated that of those
damages claim and declaring Balance Dynamics’                     companies with whom he had initiated contact, most had
disgorgement claim moot. Judge Gilmore presided over a            received the letter. Schulte testified that his customers told
trial for several days in April of 1997, but later recused        him “they didn’t want to necessarily have anything to do with
himself and declared a mistrial. The case was then assigned       a product that had these stipulations associated with it.” He
to Judge Robert L. DeMascio, who conducted a trial in             also testified that many customers were concerned about the
August of 1997.                                                   regulation and disposal of the Balance Dynamics products.
   Judge DeMascio bifurcated the trial, with the issue of            Obviously, the trial court did not have the benefit of an
liability coming first. A three-day jury trial was conducted in   articulated standard for recovery of damage control costs.
which Balance Dynamics called two of its principals (Thomas       Under that standard, the testimony above contradicts the trial
Schulte and Wayne Winzenz), an expert witness (Dr.                court’s conclusion that Balance Dynamics failed to put on
Jonathan Nimitz) and the president of Schmitt, Wayne Case.        evidence showing the existence of a “fire” to put out. The
Schmitt called no witnesses, rested and moved for entry of a      customer inquiries Balance Dynamics received could be taken
verdict as a matter of law under Fed.R.Civ.P. 50. The court       as proof of the likelihood of damage, cf. Harper House, Inc.
took the Rule 50 motion under advisement and instructed the       v. Thomas Nelson, Inc., 889 F.2d at 210; PPX Enterprises,
jury. Plaintiff’s counsel objected to the instructions,           Inc. v. AudioFidelity Enterprises, Inc., 818 F.2d at 272, and
preserving the issue for appeal. The court granted Schmitt’s      may suffice to show that the deception was material and likely
Rule 50 motion and the jury returned a finding of no cause of     to influence a purchasing decision. Further, the customer
action.                                                           inquiries belie the proposition that Balance Dynamics’
                                                                  customers are so familiar with EPA regulations that Schmitt’s
  The trial court entered its formal findings of fact,            communications would not be off-putting. Therefore, this
conclusions of law and judgment on September 17, 1997.            evidence creates a material issue of fact and the trial court
Balance Dynamics timely filed an appeal from the final            should have let the matter go to a jury for determination.
judgment and preceding interlocutory orders. Schmitt moved        Jackson v. Quanex, 191 F.3d at 647.
for attorney fees under the provision in the Lanham Act
authorizing such awards in “exceptional” cases. The court         VII. Jury Instructions
denied this motion as well as a motion for reconsideration. In
a companion case to Balance Dynamics’ appeal, Schmitt               In a laudable attempt to conserve resources in the event its
appealed from these two orders. (Case No. 98-1143).               decision on Schmitt’s Rule 50 motion was not sustained on
                                                                  appeal, the trial court allowed the jury to return a verdict. If
22   Balance Dynamics Corp.                        No. 97-2023    No. 97-2023                    Balance Dynamics Corp.          7
     v. Schmitt Industries                                                                           v. Schmitt Industries

considers de novo the evidence “in the light most favorable to    III. Jurisdiction
the non-movant, giving that party the benefit of all reasonable
inferences.” Jackson v. Quanex, 191 F.3d at 657. In ruling on       The district court correctly exercised federal question
a Rule 50 motion, a trial court is not permitted to “weigh the    jurisdiction under 28 U.S.C. § 1331 and diversity jurisdiction
evidence or make credibility determinations, as these are jury    under 28 U.S.C. § 1332. Appellate jurisdiction is proper
functions.” Id. A dismissal pursuant to Rule 50 is improper       under 28 U.S.C. § 1291.
where the nonmovant presents sufficient evidence to raise a
material issue of fact for the jury. Id.                          IV. Schmitt’s Rule 50 Motion

  First, the trial court acknowledged that Balance Dynamics         Rule 50 gives district courts the discretion to grant a motion
could prove actual confusion by presenting evidence that the      for judgment as a matter of law “[i]f during a trial by jury a
Schmitt communications were literally false; but it found that    party has been fully heard on an issue and there is no legally
even Balance Dynamics’ expert had been unwilling to testify       sufficient evidentiary basis for a reasonable jury to find for
that the Schmitt communications were literally false. Since       that party on that issue.” Fed.R.Civ.P. 50(a)(1). An appeals
we have ruled that a showing of literal falsity in this case      court reviews de novo a district court’s decision to grant
would not have aided Balance Dynamics in its quest to             judgment as a matter of law. Jackson v. Quanex Corp., 191
recover damages to goodwill, there is no need to decide           F.3d 647, 658 (6th Cir. 1999). “Without weighing the
whether the trial court erred in its factual determination that   evidence or assessing the credibility of the witnesses, and
Balance Dynamics presented no evidence of literal falsity.        after drawing all reasonable inferences in favor of plaintiff,
                                                                  [an appeals court] must determine whether the record contains
  Second, Balance Dynamics contests the trial court’s finding     evidence sufficient to have allowed jurors to find in favor of
that its damage control activities were an over-reaction to the   plaintiff.” Monday v. Oulette, 118 F.3d 1099, 1101-02 (6th
problem. The trial court made the following factual               Cir. 1997).
determinations:
                                                                    The Lanham Trade-Mark Act provides as follows:
  the evidence really taken as a whole shows what
  happened here. Plaintiff got a copy of this letter just as        (1) Any person who, on or in connection with any goods
  Mr. Schulte testified, called a few of his partners together      or services, or any container for goods, uses in commerce
  and began to over-react something horrible, and ran out           any word, term, name, symbol, or device, or any
  and tried to, quote, put out the fire, when no fire was ever      combination thereof, or any false designation of origin,
  testified to. I don’t know what fire the plaintiff is talking     false or misleading description of fact, or false or
  about. There was just no fire produced for this Court             misleading representation of fact, which—
  . . . . That damage that you called loss control is an over-        (A) is likely to cause confusion, or to cause mistake,
  reaction by the Plaintiff that I think the evidence on              or to deceive as to the affiliation, connection, or
  liability makes it very clear, you didn’t even have to do           association of such person with another person, or as
  it. You could have handled half of these customers on               to the origin, sponsorship, or approval of his or her
  the telephone, but more importantly his customers                   goods, services, or commercial activities by another
  included sophisticated engineers at Ford Motor Car                  person, or
  Company, the other auto manufacturers and big                       (B) in commercial advertising or promotion,
                                                                      misrepresents the nature, characteristics, qualities, or
8      Balance Dynamics Corp.                         No. 97-2023    No. 97-2023                         Balance Dynamics Corp.             21
       v. Schmitt Industries                                                                                 v. Schmitt Industries

      geographic origin of his or her or another person’s              Balance Dynamics argued that because it could show that
      goods, services, or commercial activities                      Schmitt knowingly and willfully made false statements, it was
    shall be liable in a civil action by any person who              entitled to disgorgement of profits. In a closely reasoned
    believes that he or she is or is likely to be damaged by         R&R, Magistrate Judge Pepe rejected this contention and
    such act.                                                        found that Balance Dynamics was only entitled to
                                                                     disgorgement if it could show that defendant gained
15 U.S.C. § 1125(a). The damages to which a plaintiff may            additional sales due to the advertisement, or that plaintiff lost
be entitled under the Lanham Act are specified in 15 U.S.C.          sales, or was forced to see its product at a lower price. As
§ 1117:                                                              Magistrate Judge Pepe pointed out, § 35(a) of the Lanham Act
                                                                     makes clear that an award of damages shall be “subject to the
    When . . . a violation under § 1125(a) of this title, shall      principles of equity” but also states that the award is to
    have been established in any civil action arising under          “constitute compensation and not a penalty.” Reviewing the
    this chapter, the plaintiff shall be entitled . . . subject to   legislative history and case law concerning disgorgement of
    the principles of equity, to recover (1) defendant’s             profits, Magistrate Judge Pepe concluded that unless there is
    profits, (2) any damages sustained by the plaintiff, and         some proof that plaintiff lost sales or profits, or that defendant
    (3) the costs of the action.                                     gained them, the principles of equity do not warrant an award
                                                                     of defendant’s profits. We    agree with and adopt Magistrate
  Schmitt made its oral Rule 50 motion at the close of proofs        Judge Pepe’s reasoning.6
on the grounds that Balance Dynamics had failed to show
actual confusion in the marketplace and was therefore not            VI. Trial Court’s Findings of Fact
entitled to relief under the Lanham Act. The district court
agreed, finding that Balance Dynamics had not met its                  In granting Schmitt’s Rule 50 motion, the trial court made
“burden of proving that some customer, just one, was                 two factual findings that Balance Dynamics contests. In
confused or changed a purchasing decision, or lost a sale of         considering the factual findings that a trial court has made in
some kind.”                                                          the context of granting of a Rule 50 motion, a reviewing court
  In ruling on Schmitt’s Rule 50 motion, the district court did
not have the benefit of this circuit’s recent decision in                6
American Council of Certified Podiatric Physicians and                      We do not believe that the “deterrence theory,” in which one of the
Surgeons v. American Bd. of Podiatric Surgery, Inc., 185             trial court’s primary functions is to make violations of the Lanham Act
F.3d 606 (6th Cir. 1999), in which we set forth guidelines for       unprofitable to the infringing party, See Wynn Oil Co. v. American Way
                                                                     Service Corp., 943 F.2d 595, 606-07 (6th Cir. 1991) (citing Roulo v. Russ
deciding liability for false advertising claims under the            Berrie & Co., 886 F.2d 931, 941 (7th Cir. 1989)), supports disgorgement
Lanham Act. In Podiatric Physicians, which also involved             in this case. As Magistrate Judge Pepe noted, the cases awarding profits
appellate review of a district court’s Rule 50 decision, the         under the deterrence theory upon a finding of willfulness or bad faith have
court established a five-element test for plaintiffs seeking to      been infringement cases “where defendant benefits directly from its
prove liability under the Lanham Act:                                wrongful conduct.” See, e.g., International Star Class Yacht Racing
                                                                     Ass’n v. Tommy Hilfiger, U.S.A., Inc., 80 F.3d 749, 753 (2d Cir. 1996);
                                                                     Roulo v. Russ Berrie & Co., Inc., 886 F.2d at 941. Even in false
    [A] plaintiff must establish the following: 1) the               advertising cases, disgorgement has not been awarded in the absence of
    defendant has made false or misleading statements of fact        harm to the plaintiff or benefit to the defendant. See, e.g., U-Haul Int’l
                                                                     v. Jartran, Inc., 793 F.2d at 1036.
20        Balance Dynamics Corp.                          No. 97-2023   No. 97-2023                     Balance Dynamics Corp.          9
          v. Schmitt Industries                                                                             v. Schmitt Industries

in the same market.” Id.; see also Harper House, Inc. v.                  concerning his own product or another’s; 2) the statement
Thomas Nelson, Inc., 889 F.2d 197, 209 fn.8 (9th Cir. 1989).              actually deceives or tends to deceive a substantial portion
                                                                          of the intended audience; 3) the statement is material in
  The reasoning of Porous Media is applicable to the present              that it will likely influence a deceived consumers’
case since Schmitt specifically targeted Balance Dynamics’                purchasing decisions; 4) the advertisements were
balancer, which was the only product of its kind in the                   introduced into interstate commerce; 5) there is some
market. However, as stated above, the evidence shows that                 causal link between the challenged statements and harm
Balance Dynamics did not suffer marketplace injury as a                   to the plaintiff.
result of Schmitt’s advertisements. Therefore, even if the
advertisements were found literally false and Balance                   Id. at 613 (citing U.S. Healthcare, Inc. v. Blue Cross of
Dynamics presented evidence of willfulness or bad faith, the            Greater Philadelphia, 898 F.2d 922-23 (3d Cir. 1990); ALPO
evidence defeats any presumption of damage to goodwill in               Petfoods, Inc. v. Ralston Purina Co., 913 F.2d 958, 964 (D.C.
the present case.                                                       Cir. 1990).
  C. Disgorgement                                                         The second element of the Podiatric Physicians test shows
                                                                        that a plaintiff may establish a violation of the Lanham Act
  Balance Dynamics also claims it was improperly precluded              without proving actual confusion or a lost sale; that is, a
from seeking disgorgement of Schmitt’s profits. In an April             communication that has a “tendency to deceive” can be the
21, 1997 Order Concerning Damages Available at Trial,                   subject of a Lanham Act violation if all other elements of the
Judge Gilmore denied as moot plaintiff’s claim for                      test are met. Hence, the trial court erred in granting Schmitt’s
defendant’s sales and profits as a measure of damages. Judge            Rule 50 motion.
Gilmore stated that this claim had already been denied    in an
October 17, 1996 Order of Judge LaPlata, id.,5 which                    V. Available Relief
purportedly adopted Magistrate Judge Pepe’s September 27,
1996 R&R on plaintiff’s motion in limine regarding punitive                The posture of this case requires that we examine the forms
damages and defendant’s sales. In fact, Judge LaPlata’s                 of relief for which Balance Dynamics may be eligible under
Order adopts Judge Pepe’s August 30, 1995 R&R concerning                the Lanham Act. The granting of Schmitt’s Rule 50 motion
Balance Dynamics’ claims for damages based on its own lost              is harmless error if Balance Dynamics was ineligible for any
sales or lost profits, and it makes no mention of disgorgement          forms of relief under the Lanham Act. In addition, a remand
of Schmitt’s profits. According to Balance Dynamics, the                of this case to the trial court will require a determination as to
September 27, 1996 R&R concerning disgorgement was                      the relief to be granted. Lastly, the substantial confusion
objected to but never ruled on. It appears Judge Pepe’s                 demonstrated in this case underscores the importance of
September 27, 1996 R&R concerning disgorgement never                    clearly distinguishing the elements necessary to prove a
received de novo review of the district court. Consequently,            breach of the Lanham Act from the elements necessary to
this Court will engage in such a review.                                justify a certain remedy for that breach: “the inquiries should
                                                                        be kept separate because a violation of the Lanham Act can be
                                                                        remedied in more ways than one.” Web Printing Controls
                                                                        Co., Inc. v. Oxy-Dry Corp., 906 F.2d 1202 (7th Cir. 1990).
     5
                                                                        Here, by not following the Podiatric Physicians test for
         Judge LaPlata’s Order was actually issued in 1995, not 1996.
10       Balance Dynamics Corp.                         No. 97-2023       No. 97-2023                   Balance Dynamics Corp.       19
         v. Schmitt Industries                                                                              v. Schmitt Industries

establishing liability under the Lanham Act, the district court           BASF Corp. v. Old World Trading Co., 41 F.3d at 1085-88
may have “read out of the Lanham Act the remedies that do                 (finding literal falsity but requiring further proof of
not rely on proof of injury caused by actual confusion.” Web              marketplace damages); Castrol, Inc. v. Pennzoil, 987 F.2d
Printing Controls, 906 F.2d at 1205.                                      939, 941-43 (3d Cir. 1993) (affirming trial court decision
                                                                          granting injunctive relief but denying monetary damages
  A. Damage Control Costs                                                 despite finding of literal falsity).
   The first form of relief to which Balance Dynamics stakes                2. Deliberate Intent or Bad Faith
a claim is that of damage control—the   costs of responding to
Schmitt’s false advertising.2 Balance Dynamics argues that                  Though literal falsity alone does not raise an inference of
it can receive compensation for its damage control activities             damage to goodwill, some courts have created a presumption
without showing actual confusion or what are commonly                     of damages when literal falsity is accompanied by deliberate
called “actual” damages. In other words, Balance Dynamics                 intent or bad faith. The Ninth Circuit reasons that
argues that Magistrate Judge Pepe was correct as a matter of
law when he recommended denying Schmitt’s motion for                        the expenditure by a competitor of substantial funds in an
summary judgment on the issue of loss control. The R&R                      effort to deceive consumers and influence their
that Judge LaPlata adopted states:                                          purchasing decisions justifies the existence of a
                                                                            presumption that consumers are, in fact, being deceived.
  In light of the inquiries made by customers and other                     He who has attempted to deceive should not complain
  business contacts, a factfinder could conclude that                       when required to bear the burden of rebutting a
  plaintiff’s actions in response to Schmitt’s letter were                  presumption that he has succeeded.
  reasonable attempts to nullify any potential damage to
  the corporation. A factfinder could also conclude that the              U-Haul Int’l, Inc. v. Jartran, Inc., 793 F.2d at 1040-41; see
  letter caused serious risk to plaintiff’s future sales and              also Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134,
  reputation . . . . Unlike plaintiff’s claim for lost profits            1146 (9th Cir. 1997); Resource Developers, Inc. v. Statue of
  and costs, for purposes of this issue it is irrelevant                  Liberty-Ellis Island Foundation, Inc., 926 F.2d 134, 140 (2d
  whether plaintiff actually suffered damage through lost                 Cir. 1991).
  or potential sales . . . . Contrary to defendants’ assertion,
  plaintiff’s “damage control activities” are recoverable                    In Porous Media Corp. v. Pall Corp., 110 F.3d 1329 (8th
  under the Lanham Act, which authorizes an award for                     Cir. 1997), the court followed the Ninth Circuit’s reasoning
  any damages plaintiff sustains. 15 U.S.C. § 1117(a)(2).                 and permitted a presumption of money damages where there
                                                                          existed proof of willful deception. Id. at 1336. However,
                                                                          acknowledging that a plaintiff seeking monetary relief under
                                                                          the Lanham Act generally must meet a higher level of proof
     2
      See Magistrate Judge Pepe’s Memorandum Opinion and Order of         than those seeking injunctive relief, the court clarified the
October 24, 1996 for a summary of damage control activities undertaken    presumptive damages rule as extending only to cases of
by Balance Dynamics. There is some question as to whether all of          comparative advertising where the plaintiff’s product was
Balance Dynamics’ claimed damage control losses really related to an
effort to mitigate damages from Schmitt’s false advertising, or whether   specifically targeted. Id. at 1334-35. Otherwise, stated the
Balance Dynamics was simply overreaching and seeking a windfall for       Porous Media court, “a plaintiff might enjoy a windfall from
activities in which it would have engaged anyway.                         a speculative award of damages by simply being a competitor
18       Balance Dynamics Corp.                            No. 97-2023        No. 97-2023                    Balance Dynamics Corp.         11
         v. Schmitt Industries                                                                                   v. Schmitt Industries

compensate for marketplace injury such as harm to goodwill.3                    But for Schmitt’s letter, plaintiff would not have incurred
A contrary rule would risk conferring an undue windfall on                      any expenses because it would not have had to take any
Balance Dynamics. Balance Dynamics presented no evidence                        corrective action. Therefore, the cost of plaintiff’s
that its goodwill was harmed, or   that customers were actually                 response activities, if found reasonable and necessary by
deceived by its advertisement.4 To the contrary, the evidence                   a jury, constitute ‘damage’ under the Lanham Act.”
indicated that Balance Dynamics’ business was not harmed by
Schmitt’s letters. Balance Dynamics’ sales increased after the                (emphases in original).
period in question, and there was no decrease in the price of
its product. Further, Balance Dynamics admitted that no                          On the other hand, Schmitt relies on Electronics Corp. of
customers had ever informed it that it was losing a sale due to               America v. Honeywell, 358 F.Supp. 1230 (D.Mass. 1973), to
the Schmitt communications. While literal falsehood or the                    suggest that damage control costs are not recoverable in the
likelihood of deception may be sufficient to entitle Balance                  absence of actual confusion or “actual” damages. In
Dynamics to injunctive relief or reimbursement for responsive                 Electronics Corp. of America, plaintiff had waived any
advertising, it should not permit Balance Dynamics to recover                 attempt to show so-called “actual business harm” in dollars
for injuries to goodwill in the absence of some more                          and cents but nevertheless pressed its case for damages,
substantial indication that these injuries actually occurred. Cf.             punitive damages, costs, and attorney fees. Id. at 1233. The
                                                                              court held that the plaintiff could not recover in the absence
                                                                              of “actual business harm.” Id. at 1234.
     3                                                                           Like many other circuits, we have held that where plaintiffs
       Our research uncovered only one case that has awarded damages
based merely on the fact that an advertisement was literally false. In PPX    seek to recover monetary damages for false or misleading
Enterprises, Inc. v. AudioFidelity Enterprises, Inc., 818 F.2d 266 (2d Cir.   advertising that is not literally false, “a violation can only be
1987), a record producer falsely labeled eight albums to represent that       established by proof of actual deception (i.e., evidence that
they contained performances by Jimi Hendrix. Because of the literal
falsity of the packaging, the court allowed plaintiffs to prove entitlement   individual consumers perceived the advertisement in a way
to damages without recourse to consumer surveys, witness testimony, or        that misled them about the plaintiff’s product).” Podiatric
reaction tests. Id. at 272-73. The court made clear, however, that this was   Physicians, 185 F.3d at 614 (quoting Sandoz Pharm. Corp. v.
a special circumstance—the misrepresentation occurred on the product          Richardson-Vicks, Inc., 902 F.2d 222, 229 (3d Cir. 1990))
itself, so actual damages were inferable from the fact that the records       (citations omitted). In Podiatric Physicians, we also set forth
successfully sold on the market. Id. at 272. Such is not the case here.       a more lenient standard for obtaining injunctive relief under
     4                                                                        the Lanham Act: “injunctive relief may be obtained by
      Customer inquiries were taken as evidence of actual damage to           showing only that the defendant’s representations about its
goodwill in Criticare Systems, Inc. v. Nellcor Inc., 856 F.Supp. 495 (E.D.
Wisc. 1994), where an allegedly false letter was presented at a               product have a tendency to deceive consumers . . . .” Id. at
conference, prompting audience members to “press [plaintiff] to explain       618 (quoting Max Daetwyler Corp. v. Input Graphics, Inc.,
[the false] allegations during the remainder of the conference and            608 F.Supp. 1549, 1551 (E.D. Pa. 1985)). “This lower
afterwards.” Id. at 507. From these inquiries, the court opined that a jury   standard has arisen because when an injunction is sought,
could reasonably conclude that the plaintiff had lost business and suffered   courts may protect the consumer without fear of bestowing an
depletion of goodwill in the marketplace. Id. at 508-09. But we rejected
this approach in Podiatric Physicians, where we held that a letter of         undeserved windfall on the plaintiff.” Id.
inquiry may have demonstrated some confusion but did not show that the
customer was “tricked into believing an untruth about plaintiff.” 185 F.3d
at 617.
12    Balance Dynamics Corp.                         No. 97-2023       No. 97-2023                    Balance Dynamics Corp.         17
      v. Schmitt Industries                                                                               v. Schmitt Industries

   Although Podiatric Physicians held that recovery of                 deliberate intent or bad faith does not entitle Balance
monetary damages is only available upon a showing of actual            Dynamics to recover money for damages to goodwill.
confusion, the question of the standard upon which damage
control costs may be recovered is one of first impression.               1. Literal Falsity
None of the courts requiring actual confusion as a prerequisite
to monetary recovery have applied that rule to limit recovery             Because proof of “actual confusion” can be difficult to
for damage control activities; their opinions simply were not          obtain, Lindy Pen Co. Inc. v. Bic Pen Corp., 982 F.2d 1400,
written to take account of that kind of damages. Rather, when          1407 (9th Cir. 1993), most of the circuits have ruled that
courts have held that actual confusion must be demonstrated            when a statement is literally false, a plaintiff need not
before monetary damages are recoverable, they have referred            demonstrate actual customer deception in order to obtain
to plaintiffs who were seeking damages that would have been            relief under the Lanham Act. However, the “literal falsity”
suffered in the marketplace, i.e., lost sales, lost profits, or loss   rule has never permitted a plaintiff to recover marketplace
of goodwill. See, e.g., Web Printing Controls, Inc., 906 F.2d          damages without other proof that such damages occurred.
at 1204-05 (plaintiff wishing to recover damages for a                 Rather, this rule has been stated in suits in which the plaintiff
violation of the Lanham Act must prove “actual injury, i.e., a         sought injunctive relief, see, e.g., United Indus. Corp. v.
loss of sales, profits, or present value (goodwill).”); Podiatric      Clorox Co., 140 F.3d 1175, 1180 (8th Cir. 1998); Seven-Up
Physicians, supra; PPX Enterprises, Inc. v. AudioFidelity              Co. v. Coca-Cola Co., 86 F.3d 1379, 1389 (5th Cir. 1996);
Enterprises, Inc., 818 F.2d 266 (2d Cir. 1987); Electronics            McNeil-P.C.C., Inc. v. Bristol-Myers Squibb Co., 938 F.2d
Corp. of America v. Honeywell, supra.                                  1544, 1549 (2d Cir. 1991); cf. Federal Trade Commission v.
                                                                       Brown & Williamson Tobacco Corp., 778 F.2d 35 (D.C. Cir.
   Actual confusion is a prerequisite to an award of such              1985); or literal falsity was not found, see, e.g., Podiatric
“marketplace damages” because actual confusion tends to                Physicians, 185 F.3d at 614-18; C.B. Fleet Co., Inc. v.
show that these hard-to-prove damages probably exist. Yet              Smithkline Beecham Consumer Healthcare, L.P., 131 F.3d
there is no need to use such proxies with regard to damage             430, 434 (4th Cir. 1997); or marketplace damages were not
control expenses, for the proof of such expenses is in the             awarded under the Lanham Act, see, e.g., Rhone-Poulenc
possession of the plaintiff and is therefore easily produced.          Rorer Pharmaceuticals, Inc. v. Marion Merrell Dow, Inc., 93
Hence, there seems little reason to require “actual confusion”         F.3d 511, 516 (8th Cir. 1996); Avila v. Rubin, 84 F.3d 222,
before awarding compensation for damage control expenses,              227 (7th Cir. 1996); or literal falsity was accompanied by
even though such an award is “monetary.” As Magistrate                 other proof of marketplace damages. See, e.g., BASF Corp.
Judge Pepe noted, the plain language of the Lanham Act                 v. Old World Trading Co., 41 F.3d 1081, 1085-88 (7th Cir.
permits recovery of “any damages sustained by the plaintiff”           1994); U-Haul Int’l v. Jartran, Inc., supra.
upon a showing that the plaintiff is or is likely to be damaged
by misrepresentative advertising. 15 U.S.C. §§ 1125(a),                  At trial, Balance Dynamics attempted to show that
1117. Magistrate Judge Pepe’s view is reinforced by                    Schmitt’s advertisements were literally false. But the above
Podiatric Physicians, which allows a plaintiff to establish            cases demonstrate that literal falsity, without more, is
liability under the Lanham Act by showing that a false                 insufficient to support an award of money damages to
advertisement has a tendency to deceive a substantial portion
of the audience, and that it has caused harm to the plaintiff.
185 F.3d at 613.
16    Balance Dynamics Corp.                        No. 97-2023      No. 97-2023                    Balance Dynamics Corp.         13
      v. Schmitt Industries                                                                             v. Schmitt Industries

unwillingness to irk customers as the plaintiff pursues proof           Damage control expenses must be treated differently from
of harm.                                                             marketplace damages because, like an injunction, damage
                                                                     control is undertaken precisely to prevent such things as lost
  Therefore, because a company may justifiably act before it         sales, lost profits, and lost goodwill. As is the case with
actually sustains injury, standards similar to those applicable      plaintiffs seeking injunctive relief, plaintiffs engaging in
to injunctive relief are appropriate where plaintiffs seek to        damage control are still at a stage where substantial
recover damage control expenses. Hence, to recover loss              uncertainty exists as to the extent of “business harm” being
control damages, plaintiffs must show that a violation of the        inflicted by the false advertising. Cf. ALPO Petfoods, Inc. v.
Lanham Act occurred, and that (1) there was a likelihood of          Ralston Purina Co., 997 F.2d 949, 952 (D.C. Cir. 1993). In
confusion or damages to sales, profits, or goodwill; (2) its         the present case, Balance Dynamics first heard about
damage control expenses are attributable to the violation (i.e.,     Schmitt’s March 16, 1993 letter when a customer faxed it to
caused by the violation); and (3) that its damage control            Mr. Schulte. The letter contained disparaging remarks which,
efforts were reasonable under the circumstances and                  if true, would ruin Balance Dynamics’ business. Not yet
proportionate to the damage that was likely to occur.                knowing whether the letter was true or false, Schulte called
                                                                     his most important customers and found that most of them
  B. Damage to Goodwill                                              had received the letter and were concerned about the
                                                                     regulations pertaining to the halon balancer. Meanwhile,
   Although Balance Dynamics stipulated that it suffered no          other customers initiated contact with Mr. Schulte or other
lost sales or change in financial condition, it reserved the right   officers of Balance Dynamics, and also expressed serious
to seek, inter alia, damages to its goodwill. To recover for         reservations about the continued use of the halon balancer.
damage to goodwill, the plaintiff bears the burden of proof.         Balance Dynamics then investigated the veracity of the claims
Web Printing Controls Co., Inc. v. Oxy-Dry Corp., 906 F.2d           made in the letter and found they were false.
at 1204-05; Lithuanian Commerce Corp. v. Sara Lee
Hosiery, 47 F.Supp.2d 523, 533 (D.N.J. 1999). Schmitt                   At this point, with 3,200 letters in circulation, must Balance
contends that Balance Dynamics offered no evidence that its          Dynamics wait to take action until a customer actually tells
goodwill or reputation within the industry was actually              someone at Balance Dynamics that she will not buy the halon
damaged by Schmitt’s communications. But Balance                     balancer? Is Balance Dynamics limited to seeking injunctive
Dynamics presented evidence of the literal falsity of the            relief to stop future letters being mailed out, when 3,200
Schmitt advertisements and also contended that Schmitt               people are reading statements about the halon balancer that,
violated the Lanham Act with deliberate intent and bad faith.        if believed, will be fatal to Balance Dynamics’ business? At
 Though the “actual confusion” rule would ordinarily preclude        such a juncture, an injunction may be a mere palliative. We
Balance Dynamics’ claim for goodwill, in certain                     think it appropriate that Balance Dynamics, upon recognizing
circumstances the literal falsity of an advertisement or             the reasonable likelihood of confusion, would undertake to
evidence of deliberate intent or bad faith has sufficed to           protect its business. Cf. ALPO Petfoods, Inc. v. Ralston
entitle a plaintiff to certain forms of relief or to create a        Purina Co., 997 F.2d at 952. We also think it appropriate that
presumption of damages in the marketplace. The trial court           Schmitt, having violated the Lanham Act and thereby being
seems to have acknowledged this in stating that literal falsity      responsible for “any damages” caused by such violation,
could prove the existence of actual confusion. However, we           should compensate Balance Dynamics for any reasonable and
hold that in the present case, evidence of literal falsity and
14   Balance Dynamics Corp.                       No. 97-2023      No. 97-2023                   Balance Dynamics Corp.       15
     v. Schmitt Industries                                                                           v. Schmitt Industries

necessary expenses incurred in mitigating the detrimental          who is successful in preventing marketplace damages would
effects of that transgression. Id.                                 not be able to recover under the Lanham Act, but a plaintiff
                                                                   who is unsuccessful would be permitted to recover. That
   Consequently, similar standards as apply to injunctive relief   would be an anomaly.
should also apply to recovery of damage control expenses.
That is, damage control expenses should be recoverable upon           We also note that the practical realities of business
a showing of the likelihood of actual confusion, rather than       litigation favor a rule that damage control costs should be
upon a showing of actual confusion itself. This rule               recoverable even where plaintiffs do not demonstrate actual
recognizes that it is unreasonable to expect a businessperson      confusion or marketplace injury. For one, marketplace
faced with a Lanham Act violation to sit idly by until a           damages and actual confusion are notoriously difficult and
customer manifests actual confusion. The law should                expensive to prove.         See PPX Enterprises, Inc. v.
encourage quick responses and the mitigation of damage, and        AudioFidelity Enterprises, Inc., 818 F.2d at 272-73; U-Haul
should not require parties to suffer an injury before trying to    Int’l, Inc. v. Jartran, Inc., 793 F.2d at 1041. More
prevent it. Moreover, a rule allowing recovery for damage          importantly, however, even where marketplace damages or
control costs upon the likelihood of actual confusion does not     actual confusion are provable in theory, such proof often
risk an “undeserved windfall” to the plaintiff since such an       requires that a plaintiff solicit its own customers for
award would not speak to the underlying marketplace                affidavits, which puts the customers at risk of being
damages. Cf. Podiatric Physicians, 185 F.3d at 618.                subpoenaed by the defendant. Plaintiffs are justifiably
                                                                   hesitant to alienate or upset their customers in this way. In
   Distinct from Schmitt’s argument that damage control costs      addition, plaintiffs may hesitate to put marketplace damages
are not recoverable without a showing of actual confusion is       at issue because that would entitle a defendant to discover
its assertion that damage control costs are not recoverable in     information about plaintiff’s business. As may have been the
the absence of “actual damages” or, we assume, marketplace         case here, oftentimes the rational business decision is for a
damages. But we find that argument similarly unacceptable.         plaintiff to embark on a campaign of damage control and
No court has excluded damage control costs from its                forego a demonstration of injury in the marketplace or actual
definition of damages that are considered “actual.” And            confusion of their customers. Such a plaintiff should not be
several courts have awarded damages for the expense of             required to give up compensation for its damage control
responsive or reparative advertising quite apart from an award     expenses when the defendant’s wrongful action necessitated
of marketplace damages. See, e.g., ALPO Petfoods, Inc. v.          those expenses in the first place.
Ralston Purina Co., supra; U-Haul Int’l, Inc. v. Jartran, Inc.,
793 F.2d 1034, 1041 (9th Cir. 1986); Otis Clapp & Son, Inc.          Nor should plaintiffs who are unwilling or unable to prove
v. Filmore Vitamin Co., 754 F.2d 738, 745 (7th Cir. 1985).         marketplace damages or actual confusion be limited to
Although none of these courts have awarded damage control          seeking injunctive relief. An injunction can halt a wrongful
costs in the absence of marketplace damages, none have             activity but it will not correct its effects. Responsive
treated marketplace injury as a prerequisite to recovery of        advertising may be the quickest, most effective way to
damage control costs either. Moreover, a rule that predicated      mitigate damages or prevent them altogether. Further,
recovery of damage control expenses on a showing of                limiting a plaintiff to injunctive relief is especially unfair
marketplace damages would penalize successful efforts at           where a plaintiff’s inability to prove marketplace damages or
mitigating damages. That is, under such a rule, a plaintiff        actual confusion may merely reflect an understandable
