                                                                                                                           Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


2-22-2005

Banjo Buddies Inc v. Renosky
Precedential or Non-Precedential: Precedential

Docket No. 03-2038




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                                 PRECEDENTIAL
         UNITED STATES COURT OF APPEALS
              FOR THE THIRD CIRCUIT


                     Nos: 03-2038/2107


                  BANJO BUDDIES, INC.

                               v.

                  JOSEPH F. RENOSKY,

                               Appellant



        Appeal from the United States District Court
         for the Western District of Pennsylvania
                  (D.C. No. 99-cv-01389)
           District Judge: Donetta W. Ambrose


                   Argued March 23, 2004

Before: ROTH, AMBRO and CHERTOFF*, Circuit Judges

___________________
        *Judge Chertoff heard oral argument in this case but
resigned prior to the time the opinion was filed. The opinion
is filed by a quorum of the panel. 28 U.S.C. § 46(d).
            (Opinion filed : February 22, 2005)

Wayne A. Kablack, Esquire (Argued)
Simpson, Kablack & Bell
834 Philadelphia Street, Suite 200
Indiana, PA 15701

John J. Richardson, Esquire
C. James Zeszutek
Thorp, Reed & Armstrong
301 Grant Street
One Oxford Centre, 14th Floor
Pittsburgh, PA 15219
                    Counsel for Appellant/Cross Appellee

Todd S. Holbrook, Esquire (Argued)
Bernstein, Shur, Sawyer & Nelson
100 Middle Street
P.O. Box 9729
Portland, ME 04104

Mark A. Willard, Esquire
Eckert, Seamans, Cherin & Mellott
600 Grant Street, 44 th Floor
Pittsburgh, PA 15219

             Counsel for Appellee/Cross Appellant




                        OPINION
ROTH, Circuit Judge:

        This appeal requires us to decide whether a showing of
willful infringement is a prerequisite to an accounting of a
trademark infringer’s profits for a violation of section 43(a) of
the Lanham Act. We hold that wilfulness is an important
equitable factor but not a prerequisite to such an award,
noting that our contrary position in SecuraComm Consulting
Inc. v. Securacom Inc., 166 F.3d 182, 190 (3d Cir. 1999), has
been superseded by a 1999 amendment to the Lanham Act.
We further affirm the District Court’s resolution of several
other damages issues, with a single exception explained
below.

      I. Factual Background and Procedural History

       Joseph Renosky was a member of the board of
directors of Banjo Buddies, Inc., (“Banjo Buddies” or “BBI”)
from February 1996 until May 1999. Banjo Buddies’
principal product during that time was an extremely
successful fishing lure called the Banjo Minnow, which
Renosky helped develop.
       The Banjo Minnow was principally advertised via
“infomercial” broadcast, and was also sold in sporting goods
catalogs and sporting goods stores. Tristar Products, Inc.,
obtained exclusive rights to advertise and sell the Banjo
Minnow through all forms of “direct response marketing, . . .
print media, and retail distribution.” BBI received 48% of
Tristar’s net profits in return. Renosky agreed to provide the
manufactured Banjo Minnow lure kit through his corporation,


                               3
Renosky Lures, Inc., to both Tristar and BBI at $5.20 per kit.1
Renosky received additional shares of BBI stock in exchange
for producing the Banjo Minnow kits at a “fair price.”
Renosky also executed a non-compete agreement in favor of
BBI in exchange for more BBI stock. The Banjo Minnow
sold very well for a little over a year, from mid-1996 through
mid-1997, but then sales dwindled considerably. BBI
introduced several derivative Banjo M innow products in
1998, but none approached the success of the original.
       During the Banjo Minnow’s early success in 1996,
Renosky presented an idea to the BBI board for a “new and
improved” Banjo Minnow called the Bionic Minnow.2 The
board took no formal action on the proposal, and a month
later Renosky advised one of BBI’s directors that he would
develop the new lure independently. At least two board
members urged Renosky against this course of action, but
Renosky could not be swayed. He immediately began
developing the Bionic Minnow through Renosky Lures and
ultimately marketed the new lure via infomercial and other
means beginning in February 1999.


       1
          The kit consisted of numerous plastic minnow bodies
of various sizes and colors as well as hooks, jigs, and other
fishing bait paraphernalia, all in a plastic “clam-shell” box. The
kit also included an instructional videotape.
       2
         The Bionic Minnow kit is distinguished from the
Banjo Minnow kit largely by minnow bodies with replaceable
heads and the “weedless treble hook,” a hook designed to
reduce the chance of debris catching on the barbs of the hook.
                                4
       After Renosky failed to comply with a “cease and
desist” letter, BBI brought suit in the United States District
Court for the Western District of Pennsylvania in April 1999.
BBI alleged that Renosky violated section 43(a) of the
Lanham Act, 15 U.S.C. § 1125(a), by developing and
marketing the Bionic Minnow in such a way that customers
would believe the Bionic Minnow was a Banjo Buddies
product. BBI also alleged that Renosky’s conduct breached
the non-compete contract and Renosky’s fiduciary duties as
an officer of Banjo Buddies.3
       The District Court denied cross-motions for partial
summary judgment and held a five-day bench trial in May
2002. In its Findings of Fact and Conclusions of Law issued
in November 2002, the court found that Renosky was liable
for “false designation of origin” under § 43(a) of the Lanham
Act.4 The court further found that Renosky breached his


       3
          BBI made several other claims, and Renosky made
several counterclaims, none of which is relevant to this appeal.
       4
            Section 43(a) provides in relevant part:
           (1) Any person who, on or in connection with
           any goods or services, . . . uses in commerce
           any word, term, name, symbol, or device, or
           any combination thereof, or any false
           designation of origin, false or misleading
           description of fact, or false or misleading
           representation of fact, which--
           (A) is likely to cause confusion, or to cause
           mistake, or to deceive as to the . . . origin,
                                 5
fiduciary duty of loyalty to Banjo Buddies by pursuing a
corporate opportunity — the Bionic M innow project —
without fully disclosing his actions to the board or forcing the
board to accept or reject the project. The court also found that
Renosky breached the non-compete agreement by
independently developing the Bionic Minnow. Finally, the
court found that Renosky breached his fiduciary duty of good
faith and fair dealing by overcharging BBI for the Banjo
Minnow kits.
        The District Court concluded that Renosky should be
forced to disgorge the net profits of the Bionic Minnow
project under section 35(a) of the Lanham Act, 15 U.S.C. §
1117(a), which provides for such accountings as an equitable
remedy for Lanham Act violations. The District Court also
concluded that the damages arising from Renosky’s
usurpation of a corporate opportunity, breach of the non-
compete contract, and overcharging for the Banjo Minnow
lure kits were too speculative to support any monetary award.
        Accordingly, the District Court ordered Renosky to pay
to Banjo Buddies the net profits earned by the Bionic Minnow
project, and to produce “verified financial records” attesting



       sponsorship, or approval of his or her goods,
       services or commercial activities by another
       person . . .
                           *****
       shall be liable in a civil action by any person
       who believes that he or she is or is likely to
       be damaged by such act.
15 U.S.C. § 1125(a).
                               6
to this amount. Renosky never produced these records,
despite numerous delays and court orders. Renosky did
ultimately retain an independent financial analysis (the
“Alpern Report”), which the District Court accepted for
purposes of establishing the total sales of the Bionic Minnow
through November 2002. However, the court rejected that
report’s conclusion that the Bionic Minnow project suffered a
net loss. Accordingly, the court calculated Renosky’s profits
by multiplying the total sales figure by 16%, based on
testimony from Renosky’s business manager that Renosky
Lures products typically earn a “bottom line” of between 15-
17%. The court also determined that Renosky should be
forced to disgorge all of the distributions (based on gross
sales) made to him as a shareholder in the Bionic Minnow
project. The court entered judgment in March 2003 against
Renosky in the amount of $1,589,155.
        Banjo Buddies moved to alter or amend the District
Court’s judgment pursuant to Federal Rule of Civil Procedure
59(e), arguing that the court erred by holding that the damages
arising from Renosky’s overcharges for the Banjo Minnow
lure kits were too speculative to support a monetary award.
The District Court denied this motion in March 2003.
        Renosky and BBI both appeal the District Court’s
judgment. Renosky asserts that the District Court should not
have ordered an accounting of profits because Renosky did
not intentionally or willfully confuse or deceive customers.
Renosky alternatively argues that the District Court’s
calculation of those profits was clearly erroneous. Banjo
Buddies cross-appeals, contending that the District Court
erred by refusing to award damages for Renosky’s
overcharges rather than make a reasonable estimate of

                              7
damages based on the available evidence.

          II. Jurisdiction and Standards of Review
       The District Court had federal question jurisdiction
over Banjo Buddies’ Lanham Act claim, 28 U.S.C. § 1331,
supplemental jurisdiction over the parties’ state law claims,
28 U.S.C. § 1367, and diversity jurisdiction over all claims
owing to the complete diversity of the parties, 28 U.S.C. §
1332. We have appellate jurisdiction to review the District
Court’s final judgment. 28 U.S.C. § 1291.
       We review the District Court’s factual findings under a
clearly erroneous standard, but exercise plenary review over
the District Court’s interpretation of legal questions and its
application of the law to the facts. Castrol Inc. v. Pennzoil
Co., 987 F.2d 939, 950 (3d Cir. 1993). We further review the
District Court’s award of equitable remedies under section
35(a) of the Lanham Act under an abuse of discretion
standard. Gucci America, Inc. v. Daffy’s, Inc., 354 F.3d 228,
242 (3th Cir. 2003).
                        III. Discussion

       A.     Willfulness Is a Factor, Not a Prerequisite.

       Renosky argues that the District Court erred by
awarding profits from the Bionic M innow project to Banjo
Buddies under section 35(a) of the Lanham Act because
Renosky’s violation of section 43(a) of that statute was not
willful or intentional. Renosky relies on SecuraComm
Consulting, Inc. v. Securacom, Inc., 166 F.3d 182 (3d Cir.
1999), in which this court held that “a plaintiff must prove
that an infringer acted willfully before the infringer’s profits

                                8
are recoverable” under § 35(a) of the Lanham Act. Id. at 190
(citing George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532,
1537 (2d Cir. 1992)). The District Court’s findings related to
the issue of Renosky’s intent are ambiguous and possibly
contradictory. 5 However, we need not decide whether the
District Court found or should have found that Renosky acted
willfully, because we conclude that SecuraComm’s bright-line
willfulness requirement has been superseded by statute and
that, based on all the relevant equitable factors, the District
Court did not abuse its discretion by ordering an accounting
of Renosky’s profits.
        SecuraComm’s bright-line rule was the dominant view
when SecuraComm was issued in January 1999. See, e.g.,
Quick Technologies, Inc. v. Sage Group PLC, 313 F.3d 338,
347-48 (5th Cir. 2002) (collecting cases, including
SecuraComm); George Basch Co., 968 F.2d at 1537;
Restatement (Third) of Unfair Competition § 37 (1995); J.


       5
              On the one hand, that District Court found that
Renosky exhibited “a considerable lack of good faith and fair
dealing” by producing a nearly identical product in identical
packaging, using the same primary marketing tool (the
infomercial) with similar content, and by presenting himself as
the developer of the Banjo Minnow in marketing materials for
the Bionic Minnow. On the other hand, the court found that
even though Renosky copied the successful format of the Banjo
Minnow product and infomercial, “there is no evidence that
[Renosky] deliberately intended by that copying to confuse
consumers into believing that the Bionic Minnow was a Banjo
Buddies project.”
                              9
Thomas McCarthy, 5 McCarthy on Trademarks and Unfair
Competition § 30:62 (4th ed. 1996). In August 1999,
however, Congress amended § 35. Prior to the amendment,
that section provided as follows:
     When a violation of any right of the registrant of a
     mark registered in the Patent and Trademark Office,
     or a violation under section 43(a) [15 U.S.C. §
     1125(a)], shall have been established . . . the plaintiff
     shall be entitled . . ., subject to the principles of
     equity, to recover (1) defendant’s profits, (2) any
     damages sustained by the plaintiff, and (3) the costs
     of the action.
See SecuraComm, 166 F.3d at 186 (quoting former 15 U.S.C.
§ 1117(a)). The 1999 amendment replaced “or a violation
under section 43(a)” with “a violation under section 43(a), or
a willful violation under section 43(c),” see Pub. L. No. 106-
43, § 3(b), 113 Stat. 219 (Aug. 5, 1999) (emphasis added).
The plain language of the amendment indicates that Congress
intended to condition monetary awards for § 43(c) violations,
but not § 43(a) violations, on a showing of willfulness.6


       6
               The statute has been twice amended since August
1999, see Pub. L. No. 106-113, Div. B, § 1000(a)(9), 113 Stat.
1536, 1501A-54 (Nov. 29, 1999), and Pub. L. No. 107-273,
Div. C, Tit. III, § 13207(a), 116 Stat. 1906 (Nov. 2, 2002), and
now reads as follows:
    When a violation of any right of the registrant of a
    mark registered in the Patent and Trademark Office, a
    violation under section 1125(a) or (d) of this title, or a
    willful violation under section 1125(c) of this title,
                               10
        We presume Congress was aware that most courts had
consistently required a showing of willfulness prior to
disgorgement of an infringer’s profits in Lanham Act cases,
despite the absence of the word “willful” in the statutory text
prior to 1999. See Scheidemann v. INS, 83 F.3d 1517, 1525
(3d Cir. 1996) (“[W]e must presume that Congress is aware of
existing judicial interpretations of statutes.”). By adding this
word to the statute in 1999, but limiting it to § 43(c)
violations, Congress effectively superseded the willfulness
requirement as applied to § 43(a). See Russello v. U.S., 464
U.S. 16, 23 (1983) (“ ‘Where Congress includes particular
language in one section of a statute but omits it in another
section of the same Act, it is generally presumed that
Congress acts intentionally and purposely in the disparate
inclusion or exclusion.’ ”) (quoting United States v. Wong
Kim Bo, 472 F.2d 720, 722 (5th Cir. 1972)).
        This conclusion is supported by Quick Technologies,
313 F.3d at 349, the only other appellate decision to reach the
issue. The Fifth Circuit in Quick Technologies considered the
effect of the 1999 amendment and held that, based on earlier
decisions of that court as well as “the plain language of [§
43(a)],” willful infringement was not a prerequisite to an



    shall have been established in any civil action arising
    under this chapter, the plaintiff shall be entitled, subject
    to the provisions of sections 1111 and 1114 of this title,
    and subject to the principles of equity, to recover (1)
    defendant’s profits, (2) any damages sustained by the
    plaintiff, and (3) the costs of the action.
15 U.S.C. § 1117(a).
                                11
accounting of the infringer’s profits. Id. The court noted the
wealth of contrary authority, including SecuraComm, but
pointed out that all of those cases preceded the statutory
change. Id. at 347-48. The Quick Technologies court
reaffirmed the factor-based approach elaborated in prior Fifth
Circuit cases, including Pebble Beach Co. v. Tour 18 I
Limited, 155 F.3d 526, 554 (5th Cir. 1998), explaining that
the infringer’s intent was an important — but not
indispensable — factor in evaluating whether equity supports
disgorging the infringer’s profits. Quick Techs., 313 F.3d at
349. These factors “include, but are not limited to (1)
whether the defendant had the intent to confuse or deceive,
(2) whether sales have been diverted, (3) the adequacy of
other remedies, (4) any unreasonable delay by the plaintiff in
asserting his rights, (5) the public interest in making the
misconduct unprofitable, and (6) whether it is a case of
palming off.” Id. (internal citations omitted).
        In Gucci America, Inc. v. Daffy’s, Inc., 354 F.3d 228
(3d Cir. 2003), the panel majority noted that the 1999
amendment might affect the continued validity of
SecuraComm’s bright-line willfulness requirement. Id. at
239-40 (noting that statutory language and legislative history
of the 1999 amendment “suggests that willfulness is a
prerequisite in a trademark dilution cause of action, not an
infringement action”). The majority determined it did not
need to decide the issue, however, reasoning that even under
the Quick Technologies factor-based approach, the District
Court did not abuse its discretion in refusing to order an
accounting of the infringer’s profits. Id. at 241-43
(“Accordingly, even after the 1999 amendments to the
Lanham Act and any impact it may have had on our holding

                              12
in SecuraComm, we nevertheless conclude that the district
court did not abuse its discretion given the equities here,
including Daffy’s good faith.”).7
          For the reasons explained above, we now hold that
SecuraComm has been superceded by the 1999 amendment.
Relying on the Quick Technologies factor-based approach
endorsed in Gucci America, we further conclude that the
District Court did not abuse its discretion by ordering an
accounting of Renosky’s profits. Apart from his contention
that his violation was not willful, Renosky does not argue that
the District Court abused its discretion. Accordingly, our
consideration of the equities here will be brief. Because the
District Court’s findings concerning Renosky’s intent are
difficult to reconcile, see supra note 5, we will assume that
factor is neutral. Nonetheless, all of the other Quick
Technologies factors support an award of profits here.
        It is likely that Renosky’s conduct diverted sales from
Banjo Buddies. See Quick Techs., 313 F.3d at 349 (factor
two). The District Court found that Renosky’s marketing for
the Bionic Minnow was confusingly similar to that of the
Banjo Minnow, noting numerous material similarities in the


       7
                Judge Rosenn wrote a dissenting opinion in Gucci
America, concluding that the balance of equities favored the
plaintiff, and that an accounting of the infringer’s profits would
make the trademark owner whole. 354 F.3d at 246-47 (Rosenn,
J., dissenting). Judge Rosenn specifically concluded that
SecuraComm “is no longer binding precedent because it has
been superceded by subsequent statutory amendments to the
Lanham Act.” Id. at 245.
                               13
infomercials used to market each product. The court also
found that the two lure kits were “nearly identical” and were
packaged identically. The court further found that the
markets for the two products were “either the same or
substantially overlap[ping].” The District Court’s
observations concerning the close similarities of the products
as well as their packaging and marketing schemes also
strongly support the conclusion that Renosky was “palming
off” the Bionic M innow as a Banjo Buddies product. See id.
(factor six). The public has an interest in discouraging this
type of behavior, as it interferes with the consumer’s ability to
make informed purchasing decisions. See id. (factor five).
        Next, there are no other adequate remedies. See id.
(factor three). The District Court rejected Banjo Buddies’
estimation of its damages (for both the Lanham Act claims
and the state law claims) as too speculative. If Renosky’s
profits are not assessed, Banjo Buddies will be wholly
uncompensated for Renosky’s infringing actions. Finally,
Banjo Buddies did not delay in bringing suit to stop
Renosky’s infringing actions. See id. (factor four).
Accordingly, we conclude that the District Court did not
abuse its discretion in deciding to order an accounting of
Renosky’s profits.

       B.     The District Court’s Estimation of Profits.

        The remaining issues in Renosky’s appeal concern the
District Court’s calculation of the amount of profits to be
awarded. We first hold that the District Court did not clearly
err by rejecting Renosky’s contention that he suffered a net
loss on the Bionic M innow project, and did not abuse its

                               14
discretion by using an alternative method to estimate
Renosky’s profits. See Tamko Roofing Products, Inc. v. Ideal
Roofing Co., Ltd., 282 F.3d 23, 39 (1st Cir. 2002) (calculation
of profits under section 35(a) is left to the trial court’s
discretion, and will not be disturbed unless “it rests on clearly
erroneous findings of fact, incorrect legal standards, or a
meaningful error in judgment”).
        Section 35(a) provides that “[i]n assessing profits the
plaintiff shall be required to prove defendant’s sales only;
defendant must prove all elements of cost or deduction
claimed.” 15 U.S.C. § 1117(a); see also Caesars World, Inc.
v. Venus Lounge, Inc., 520 F.2d 269, 273 (3d Cir. 1975). The
District Court accepted the Alpern report’s figure for total
sales of the Bionic Minnow through November 22, 2002.
Thus, Banjo Buddies’ burden of proof was satisfied by
Renosky’s accountant’s financial report.
        However, the District Court held that Renosky failed to
satisfy his burden of proof regarding costs and deductions.
The District Court rejected the Alpern report’s conclusion that
Renosky suffered a loss of $ 492,699.00 for several reasons,
most of which Renosky makes no attempt to refute on appeal.
First, the court observed that the Alpern report’s summary of
direct expenses associated with the Bionic M innow project —
totaling almost five million dollars — was sorely lacking in
detail, lumping costs into six broad categories with no
explanation of what specific expenses those categories
represented.8 Renosky appears to argue that the District Court


       8
        As the court explained, “I find disturbing an analysis
which includes calculations to the penny for the cost of the
                               15
improperly rejected the direct expense summary because the
preparers of the Alpern report were unable to confirm
expenses associated with Pacific Media, a vendor
representing no more than two percent of the direct expenses
associated with the Bionic Minnow. This argument is a red
herring. The court rejected the summary in spite of the
preparers’ success in obtaining corroboration from most
major vendors, not because of its failure to obtain
corroboration from one.
       Renosky fails to address the District Court’s remaining
reasons for rejecting the Alpern report’s analysis of costs
associated with the Bionic M innow project. Most important,
Renosky makes no attempt to explain why he twice failed to
produce verified financial records supporting his claimed
costs and deductions as ordered by the court.9 The court also
observed several unexplained discrepancies between the
Alpern report’s summary of direct expenses and other
evidence in the record. Next, the court rejected the Alpern
report’s conclusion that “shared expenses” associated with the
Bionic M innow project were $ 1,416,050. The court
explained that the Alpern report did not show how “each item
of general expense contributed to the production of the
infringing items in issue and offer a fair and acceptable



product (less than $2 million total) but fails to explain expenses
totaling almost $5 million [by] providing even a modicum of
detail in support.”
       9
               The Alpern report contains summaries of financial
records, not the records themselves.
                               16
formula for allocating a given portion of overhead to the
particular infringing items at issue.” (citing Design v. K-Mart
Apparel Corp., 13 F.3d 559, 565-66 (2d Cir. 1994)). Finally,
the court found that the Alpern report’s “bottom line” lacked
credibility. The court doubted that Renosky would allow the
Bionic Minnow to lose nearly half a million dollars, and noted
that Renosky’s claimed loss was inconsistent with his attempt
to secure clarification that profits accrued after November 22,
2002, would belong to him and not Banjo Buddies.
Considering the collective strength of these arguments
together with Renosky’s failure to address most of them, we
conclude that the District Court’s rejection of the Alpern
report’s cost analysis was not clearly erroneous.
        Because Renosky failed to meet his burden of proving
costs and deductions, the District Court was forced to use an
alternative method to estimate Renosky’s profits. The court
decided to rely on the trial testimony of Renosky’s business
manager, Denice Altemus, who stated that Renosky Lures
products “always [make] a bottom line of between 15 and
17%.” Renosky argues that there is no direct evidence that
the Bionic M innow earned a profit in this range. W hile this is
true, the onus of producing such evidence is clearly placed by
§ 35(a) on Renosky, not Banjo Buddies. 15 U.S.C. § 1117(a).
The District Court has broad discretion in shaping remedies
under § 35(a), see Burger King Corp. v. Weaver, 169 F.3d
1310, 1321 (11th Cir. 1999), and did not abuse that discretion
by estimating that the Bionic Minnow earned a profit of 16%.
        Renosky further argues that Banjo Buddies is only
entitled to 48% of whatever profits were earned by the Bionic
Minnow project. That is, if Banjo Buddies had produced the
Bionic Minnow, it would have received only 48% of the

                              17
profits earned from the sale of the lure under its contract with
TriStar. We first note that this contention is impossible to
evaluate on appeal as a factual matter. Presumably Tri-Star
provided some services in exchange for its profit-sharing
agreement with Banjo Buddies, and presumably Renosky
procured those same services through services contracts rather
than a profit-sharing agreement. There is no way for this
court to determine which party struck the better deal.
        Further, this argument also fails as a matter of law,
because there is no requirement that the defendant’s profits
approximate the plaintiff’s damages. Section 35(a) permits a
plaintiff to recover, “subject to the principles of equity . . ., (1)
defendant’s profits, (2) any damages sustained by the
plaintiff, and (3) the costs of the action.” 15 U.S.C. §
1117(a). As the Second Circuit observed in George Basch,
968 F.2d at 1537, an accounting of the infringer’s profits is
available if the defendant is unjustly enriched, if the plaintiff
sustained damages, or if an accounting is necessary to deter
infringement. These rationales are stated disjunctively; any
one will do. See id. Allowing Renosky to keep half the
estimated profits of his infringing activities would not serve
the Congressional purpose of making infringement
unprofitable — Renosky would be unjustly enriched and other
would-be infringers would be insufficiently deterred. See
Burger King Corp., 169 F.3d at 1321-22; Louis Vitton S.A. v.
Lee, 875 F.2d 584, 588-89 (7th Cir. 1989); Playboy Enters.,
Inc. v. Baccarat Clothing Co., 692 F.2d 1272, 1274 (9th Cir.
1982). Even if Banjo Buddies receives a windfall in this case
— which, as discussed in the previous paragraph, is
impossible for this court to determine — it is preferable that
Banjo Buddies rather than Renosky receive the benefits of

                                 18
Renosky’s infringement. See Mishawaka Rubber & Woolen
Mfg. Co. v. S.S. Kresge Co., 316 U.S. 203, 206-07 (1942).
        Finally, we agree with Renosky that the District Court
clearly erred by adding distributions made to Renosky as a
shareholder in the Bionic Minnow project to the profits award
because these distributions were already accounted for in the
court’s estimation of profits. Financial records prepared by
Renosky Lures’ business manager and introduced at trial by
Banjo Buddies show that distributions were paid according to
a simple formula: five percent of gross sales each month.
Those records treat the distributions as an expense for
bookkeeping purposes. That is, each month’s “Total Profit”
was calculated by subtracting expenses from sales, and
shareholder distributions (denominated “Return Reserve”)
were considered expenses in this calculation. Banjo Buddies
added the “Total Profit” and “Return Reserve” figures to
arrive at a “Total Net Profit” figure which it then asked the
District Court to assess as the measure of profits under section
35(a). This is sensible — distributing monies to shareholders
is a method of disbursing income, not a business expense, and
the distributions should be included in the District Court’s
profits award. The District Court may have been attempting
to apply this reasoning when it determined that Renosky’s
share of the distributions should be added to the estimated
profits award. However, when the District Court decided to
estimate profits by multiplying the Alpern report’s gross sales
figure by sixteen percent, rather than use the method proposed
by Banjo Buddies, the issue created by Renosky Lure’s
bookkeeping practice of treating distributions as expenses
disappeared. The court’s estimate accounts for all of the
profits of the Bionic Minnow project — the shareholder

                              19
distributions, which amounted to five percent of gross sales,
as well as an estimated eleven percent of additional profit.
       C.      Overcharge Damages.

       Banjo Buddies argues on cross-appeal that the District
Court erred by refusing to award monetary damages after
determining that Renosky violated his fiduciary duty by
overcharging Banjo Buddies for the Banjo Minnow lure kits.
We hold that the District Court properly determined that
Banjo Buddies failed to meet its burden of proving the
amount of damages to a “reasonable certainty.” Plywood
Oshkosh, Inc. v. Van’s Realty & Constr. of Appleton, Inc., 257
N.W.2d 847, 849 (Wis. 1977) (“The claimant generally has
the burden of proving by credible evidence to a reasonable
certainty his damage, and the amount thereof must be
established at least to a reasonable certainty.”).10 Specifically,


       10
              Banjo Buddies is incorporated in Wisconsin. As
the District Court explained, the “internal affairs doctrine”
holds that courts look to the law of the state of incorporation to
resolve issues involving the internal affairs of a corporation.
CTS Corp. v. Dynamics Corp. of America, 481 U.S. 69, 89-93
(1987); First National City Bank v. Banco Para El Comercio,
462 U.S. 611, 621 (1983). Because the District Court sits in
Pennsylvania, it applies that state’s conflict of law principles,
Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S.
487 (1941), and Pennsylvania has adopted the “internal affairs
doctrine” by statute. See 15 Pa. Cons. Stat. § 4145(a); In re
Estate of Hall, 731 A.2d 617, 622 (Pa. Super. Ct. 1999). Banjo
Buddies’ claim that Renosky breached his fiduciary duty of
                               20
the District Court did not clearly err by finding that Banjo
Buddies’ Exhibit 201 was insufficiently reliable. Further, the
court did not commit legal error by refusing to estimate
damages based on this unreliable exhibit, because Banjo
Buddies could have, but failed to, introduce other, more
reliable evidence as proof of the amount of damages.
        To prove the amount of overcharge, Banjo Buddies
combined two approaches. First, Banjo Buddies introduced
invoices indicating Renosky’s costs for some components of
the Banjo Minnow lure kit. The District Court accepted these
invoices as reliable proof of Renosky’s costs. Banjo Buddies
then added estimated overhead and a reasonable profit margin
to arrive at the price Renosky should have charged for those
components of the lure kit. However, these invoices only
accounted for 20 of the 109 components of the Banjo Minnow
lure kit. Banjo Buddies introduced Exhibit 201, an undated
price quote from Renosky to a third party, National Media, to
establish the prices Renosky should have charged Banjo
Buddies and Tristar for the remaining 89 components.
Combining the invoices (adjusted for overhead and profit)
and the price quote, Banjo Buddies contends that Renosky
should have charged Tristar and Banjo Buddies $3.44 per lure
kit, $1.76 less than the amount actually charged, $5.20. The
District Court, however, found the National Media price
quote unreliable.



good faith and fair dealing by overcharging for the Banjo
Minnow lure kits goes to Banjo Buddies’ internal affairs.
Accordingly, the District Court properly applied Wisconsin law
to this issue.
                             21
       This finding was not clearly erroneous. First, the
National Media quote is undated. There is evidence that over
time some of Renosky’s component prices fell, while other
component prices, operational expenses, and labor costs rose,
after Renosky’s business manager produced the quote to
Banjo Buddies that established the price of $5.20 per kit in
March 1996. Given these fluctuating costs, the District Court
properly observed that not knowing the date of the National
Media quote makes it difficult to conclude that the component
prices quoted therein should have been comparable to those in
the Banjo Buddies quote. The District Court further noted
that Banjo Buddies’ counsel failed to sufficiently question
Renosky or his business manager about the National Media
quote at trial. Such questioning could have readily
established the date and context of the quote, and offered the
persons most familiar with the component prices — Renosky
and his business manager — an opportunity to explain the
different prices in the National Media and Banjo Buddies
price quotes. The National M edia quote is not inherently
unreliable, but given Banjo Buddies’ failure to substantiate
the quote at trial, the District Court did not err by refusing to
rely on the quote.11


       11
                Banjo Buddies’ failure to delve into the National
Media price quote at trial despite the fact that this document is
the linchpin of its damages proof is not as inexplicable as it
appears. It turns out that Banjo Buddies did not make the
argument that this price quote establishes the appropriate price
for most of the components in the Banjo Minnow lure kit until
after trial in its proposed findings of fact and conclusions of
                               22
        Banjo Buddies alternatively argues that the District
Court, having found liability, should nonetheless have
estimated damages based on the less-than-reliable National
Media price quote because it was the only available evidence.
As the Wisconsin Supreme Court explained in Metropolitan
Sewerage Comm’n v. R.W. Constr., Inc., 255 N.W.2d 293,
299 (Wis. 1977), “where records are inadequate to assess
specific damages, yet plaintiff has been injured . . . and
liability is clear,” “[i]t is enough if the evidence adduced is
sufficient to enable a court or jury to make a fair and
reasonable approximation.” (Internal citation omitted); see
also Cutler Cranberry Co. v. Oakdale Elec. Co-op., 254
N.W.2d 234, 240 (Wis. 1977) (“[T]he fact that the full extent
of the damages is a matter of uncertainty by reason of the
nature of the tort is not a ground for refusing damages.”). The
problem here is that the lack of better evidence in this case is
not due to a lack of adequate records, Metropolitan Sewerage,
255 N.W.2d at 299, or the “nature of the tort,” Cutler
Cranberry, 254 N.W.2d at 240, but to Banjo Buddies’ failure
to introduce more reliable evidence, either by introducing
Renosky’s invoices for the remaining 89 components or
substantiating the undated National Media quote through
questioning at trial. As the court explained in Cutler
Cranberry, the rule permitting estimated damages in the face
of uncertainty as to the amount of damages “has been
sustained where, from the nature of the case, the extent of
injury and the amount of damage are not capable of exact and



law. That is, by the time Banjo Buddies realized the importance
of the document, it was too late to flesh it out on the stand.
                              23
accurate proof.” Id. (emphasis added) (internal citation
omitted).
        Banjo Buddies attempts to lay the blame for its failure
to introduce better evidence on Renosky. Banjo Buddies
contends that Renosky failed to provide discovery “in a timely
manner,” and did not produce “any invoices or other
information on costs until two business days before trial.”
However, Banjo Buddies never claims that Renosky
ultimately failed to produce those documents. Further, if
Banjo Buddies felt that Renosky had not complied (or not
timely complied) with its discovery requests, it should have
pursued relief under the discovery rules or sought a
continuance. Banjo Buddies cannot reasonably claim that its
burden of proof should be lowered because it did not have
time to sift through the boxes of documents Renosky
allegedly produced on the eve of trial. Furthermore, as noted
above, see supra n.11, Banjo Buddies’ failure to substantiate
the National Media quote cannot be attributed to Renosky’s
foot-dragging during discovery.

                       IV. Conclusion

        For the reasons given above, we will affirm the District
Court’s award of Renosky’s estimated profits on the Bionic
Minnow project but reverse the District Court’s decision to
add Renosky’s shareholder distributions to that amount. We
will affirm the District Court’s judgment in all other respects.




                              24
