                                                                                                                           Opinions of the United
1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


1-20-1999

Securacomm v. Securacom Inc
Precedential or Non-Precedential:

Docket 97-5794




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Filed January 20, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 97-5794

SECURACOMM CONSULTING INC.

v.

SECURACOM INCORPORATED; KUWAM CORPORATION;
WIRT D. WALKER, III,

v.

RONALD S. LIBENGOOD

SECURACOM INCORPORATED

v.

RONALD S. LIBENGOOD; CLIFFORD J. INGBER

SECURACOM INCORPORATED; KUWAM CORPORATION;
WIRT D. WALKER, III,
       Appellants

ON APPEAL FROM THE UNITED STATES
DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

(D.C. Civil No. 95-cv-05393)
(Senior District Judge: Honorable Dickinson R. Debevoise)

Argued on June 26, 1998

Before: GREENBERG, ALITO, and MCKEE, Circuit Judges,

(Opinion Filed: January 20, 1999)
       Arthur E. Newbold (ARGUED)
       Michael Doluisio
       Dechert, Price & Rhoads
       4000 Bell Atlantic Tower
       1717 Arch Street
       Philadelphia, PA 19103

       Attorney for Appellants

       Howard N. Aronson (ARGUED)
       Robert B. Golden
       Lackenbach, Siegel, Marzullo,
        Aronson & Greenspan, P.C.
       One Chase Road
       Scarsdale, New York 10583

       Attorneys for Appellees

OPINION OF THE COURT

ALITO, Circuit Judge:

In this trademark infringement case, we are required to
consider whether the District Court erred when it awarded
the plaintiffs a percentage of the profits of the defendant
corporation and then trebled that award and also assessed
attorneys' fees. Central to these awards was the District
Court's finding that the defendant corporation had willfully
infringed the plaintiff's trademark. Because we conclude
that the evidence does not support a finding of willful
infringement, we reverse and remand for further
proceedings.

I.

In 1980, Ronald Libengood lost his job in the
Westinghouse corporate security department, and he then
began a small company that he called SecuraComm
Associates. SecuraComm Associates was a security systems
consulting firm that consulted with clients, surveyed
facilities, designed security systems, managed projects,
reviewed bids and evaluations, developed training

                                 2
programs, and presented security-related workshops. The
firm deliberately refrained from arranging for the purchase
and installation of equipment and from providing
maintenance and technical support. The firm took this
approach because many clients insisted on the separation
of consulting from installation and support services so that
the advice given would not be affected by conflicts of
interest. Initially, most of SecuraComm Pennsylvania's
business consisted of work for Westinghouse in Western
Pennsylvania, but Libengood subsequently developed other
clients in other areas.

Libengood formed the SecuraComm name from the terms
"security" and "communications." When he coined this
name, he was unaware of any other use of the word. All
brochures, letters, and correspondence of his company bore
the name SecuraComm Associates.

After losing Westinghouse as a client in 1992, Libengood
incorporated his firm as SecuraComm Consulting, Inc.
hereinafter ("SecuraComm Pennsylvania") and continued to
do business through the corporation. Libengood was and is
the president and major shareholder of SecuraComm
Pennsylvania. After incorporation, the business expanded,
but SecuraComm Pennsylvania remained a small company,
with average annual revenues between 1992 and 1996 of
slightly more than $250,000 per year. Since its inception,
SecuraComm Pennsylvania has used the SecuraComm
mark with Libengood's permission, and on January 1,
1995, Libengood and SecuraComm Pennsylvania entered
into a formal licensing agreement.

In May 1993, Libengood applied for registration of the
word "Securacomm" without reference to capitalization or
stylization. Although the application was abandoned for a
time, Libengood reinstated the application and received a
registration on May 20, 1997. The registration application
indicated a first use on January 1, 1980, and afirst use in
interstate commerce on September 3, 1981.

The predecessor of the defendant corporation, now called
Securacom Incorporated, was formed by Sebastian
Cassetta, and in 1987 this company became affiliated with
the large engineering firm of Burns & Roe. The company's

                                3
name was then changed to "Burns & Roe Securacom." In
that same year, Libengood became aware of Burns & Roe
Securacom as the result of a chance event at a conference
in Washington, D.C., Libengood saw Cassetta throw into a
fish bowl a business card bearing the name "Burns & Roe
Securacom." Libengood then spoke with Cassetta during
lunch, and Cassetta told him that he knew about
Libengood's firm but that his attorneys had informed him
that the similarity in the companies' names would not
cause problems. Cassetta said that the use of "Securacom"
preceded by the well known name "Burns & Roe" was not
likely to cause confusion. He also noted that the two
companies served different clienteles, since Burns & Roe
Securacom engaged in upgrading security at overseas
embassies and performed work in the nuclear field.
Libengood took no action in response to this encounter.

In 1992, Burns & Roe Securacom hired Ronald Thomas
as its chief executive officer, and within two days of
Thomas's employment, Cassetta was fired. After Cassetta
left, the company he had founded became independent of
Burns & Roe when it received a substantial investment
from entities including KuwAm Corporation, a venture
capital firm of which defendant Wirt D. Walker, III, is a
shareholder and officer. The new, independent company
expanded its activities into the full range of security
services.

In October 1992, a certificate of amendment wasfiled in
the Delaware Secretary of State's Office, indicating that
Burns & Roe Securacom had changed its name to
Securacom Incorporated (hereinafter "Securacom New
Jersey"). In November 1992, Securacom New Jerseyfiled a
trademark application with the Patent and Trademark
Office for the term "Securacom, Incorporated" for goods
and/or services consisting of "large-scale security and
facility management for businesses and government." This
application alleged that the first use was in November
1992. Securacom New Jersey was denied federal
registration because two other companies -- neither of
which was SecuraComm Pennsylvania -- had filed
applications to register names similar to "Securacom."

                               4
In January 1993, Libengood learned about Securacom
New Jersey's name change, as well as its expanded
business base. After consulting with an attorney, Libengood
mailed Securacom New Jersey a cease and desist letter.
Libengood and Thomas attempted to settle the controversy.
Libengood proposed that Securacom New Jersey either (1)
change its name and compensate SecuraComm
Pennsylvania for the use of its mark, (2) purchase the
Securacom mark from SecuraComm Pennsylvania, or (3)
license the name from SecuraComm Pennsylvania. These
negotiations continued for approximately one and one-half
years until Libengood set a deadline of the end of 1994.

In November 1994, Libengood asked Thomas to share in
the cost for appraising the Securacom mark. Thomas did
not respond, and Libengood then went forward on his own.
The appraiser estimated that the value of SecuraComm
Pennsylvania's mark, together with the cost of changing its
name, was $275,000. Libengood provided this appraisal to
Thomas in May 1995.

In June 1995, Libengood informed Thomas that, since he
had received no response from Securacom New Jersey, he
would institute legal proceedings after 30 days. After some
time, Thomas informed Libengood that he would have to
deal with Walker, then the chairman of the board of
Securacom New Jersey. When Libengood spoke with
Walker, Walker became abusive and told Libengood that if
he filed suit Walker would bury him financially and take
everything he had.

Libengood filed suit against Securacom New Jersey in
October 1995, alleging (1) service mark infringement, in
violation of the Lanham Act, 15 U.S.C. S 1125; (2) false
designation of origin, false description, and unfair
competition, in violation of the Lanham Act, 15 U.S.C.
S 1125; (3) common law infringement and unfair
competition; and (4) appropriation of name, good will, and
reputation, in violation of N.J.S.A. S 56:4-1, 2. In November
1995, Securacom New Jersey filed an answer and a third-
party complaint against Libengood, and in December 1995,
Libengood filed a third-party answer, defenses, and third-
party counterclaims. These counterclaims included the

                               5
same four causes of action that SecuraComm Pennsylvania
had asserted, plus a fifth count for libel.

At the same time, Securacom New Jersey's directors
signed a document stating that Libengood's suit was
meritless. The document specifically stated that Libengood
was attempting to extort a payment of $275,000 from
Securacom New Jersey. In November 1995, Walker signed
a letter directing Securacom New Jersey's attorneys (1) to
seek summary judgment and Rule 11 sanctions against
Libengood and his attorneys; (2) to file suit against
Libengood and his attorneys for extortion and RICO
violations; and (3) to file complaints with various bar
associations against Libengood's attorneys for unethical
behavior in filing suit against Securacom New Jersey.
Walker sent a copy of this letter to Libengood and his
attorneys.

Securacom New Jersey's attorneys filed suit against
Libengood and his attorney in New Jersey Superior Court in
April 1996. This suit was removed to federal court and
consolidated with Libengood's trademark infringement case,
and the District Court dismissed the suit as frivolous.
Securacom New Jersey also filed a service mark
infringement suit against SecuraComm Pennsylvania in the
District of Columbia Superior Court, but the District Court
in New Jersey enjoined that action. Finally, the District
Court stayed Securacom New Jersey's petition to cancel
Libengood's trademark.

In May 1996, SecuraComm Pennsylvania and Libengood
amended their complaints to add KuwAm Corporation and
Walker as defendants. In July 1996, SecuraComm
Pennsylvania added a libel count to its complaint. In
August 1996, the new defendants filed an amended answer,
counterclaims, and a third-party complaint. In addition to
alleging various Lanham Act violations against
SecuraComm Pennsylvania, the third-party complaint
requested cancellation of Libengood's trademark
registration if such registration occurred.

In October 1997, this case was tried before the District
Court. At the close of trial, the Court enjoined Securacom
New Jersey's use of the word "Securacom." The Court found

                                6
that confusion was likely because of the slight difference
between the companies' businesses, 984 F. Supp. at 298-
301, and the Court noted that this confusion was
particularly problematic because it was crucial to
SecuraComm Pennsylvania's business that it refrain from
providing the integrated services that Securacom New
Jersey furnished to its clients. Id. at 295-96. The Court also
found that actual confusion had occurred on occasion and
that the confusion had prejudiced SecuraComm
Pennsylvania. Id. at 296. In addition, the Court extensively
quoted Walker's unfavorable opinions about the civil justice
system. Id. at 291, 293, 293-94, 295.

The District Court declined to enter an amount of
compensatory damages because, while it was likely,
according to the District Court, that SecuraComm
Pennsylvania had suffered damages, the damages "[could]
[ ]not be measured with reasonable precision." Id. at 303.
Then, after finding that an award of Securacom New
Jersey's profits was necessary to "deter[ ] . . . the kind of
conduct in which all three defendants . . . engaged," the
District Court awarded the plaintiffs 10% of Securacom
New Jersey's gross profits. 984 F. Supp. at 303. The Court
trebled this amount based on the "egregious
circumstances" of the case. Id. Finally, the Court awarded
attorneys' fees on the ground that Securacom New Jersey's
conduct showed bad faith, fraud, malice, and knowing
infringement. Id. The defendants appealed.

II.

In this appeal, Securacom New Jersey does not either
challenge the District Court's finding of infringement or the
order of injunctive relief. However, Securacom New Jersey
strongly contests the District Court's finding that the
infringement was willful. In addition, Securacom New
Jersey challenges (a) the District Court's award of profits,
which was based in large part on the finding of willful
infringement, (b) the trebling of the award of profits, and (c)
the award of attorney's fees. Securacom New Jersey also
argues that Libengood did not have national trademark
rights and that, therefore, the figures the District Court
used to calculate profits were too large. We agree with

                               7
Securacom New Jersey that the record does not support a
finding of willful infringement, and we therefore reverse the
award of profits, the trebling of the award of profits, and
the order awarding attorneys' fees. We remand the issue of
the attorneys' fees to the District Court for further
consideration.

Section 35 of the Lanham Act, 15 U.S.C. S 1117 provides:

       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), shall have been
       established in any civil action arising under this Act,
       the plaintiff shall be entitled, subject to the provisions
       of sections 29 and 32 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. The court shall assess such profits or cause
       the same to be assessed under its direction. In
       assessing profits the plaintiff shall be required to prove
       defendant's sales only; defendant must prove all
       elements of cost of reduction claimed. In assessing
       damages the court may enter judgment, according to
       the circumstances of the case, for any sum above the
       amount found as actual damages, not exceeding three
       times such amount. If the court shall find that the
       amount of recovery based on profits is either
       inadequate or excessive the court may in its discretion
       enter judgment for such sum as the court shall find to
       be just, according to the circumstances of the case.
       Such sum in either of the above circumstances shall
       constitute compensation and not a penalty. The court
       in exceptional cases may award reasonable attorney
       fees to the prevailing party.

Though the standards for (1) awarding profits; (2)
determining whether such an award should be enhanced;
and (3) awarding attorneys' fees under the Lanham Act
differ somewhat, the issue of willful infringement is central
to each. See ALPO Petfoods, Inc. v. Ralston Purina Co., 913
F.2d 958, 968 (D.C. Cir. 1990) ("an award based on
defendant's profits requires proof that the defendant acted
willfully or in bad faith"); 5 J. Thomas McCarthy, McCarthy
on Trademarks and Unfair Competition S 30.91 at 30-148

                               8
n.6 (4th Ed. 1996) (willful infringement provides usual
basis for enhancing profits award) (collecting cases); Ferrero
U.S.A., Inc. v. Ozak Trading, Inc., 952 F.2d 44, 47 (3d Cir.
1991) (showing of bad faith, fraud, malice or willfulness
necessary for award of attorneys' fees).1 Therefore, we will
first address the District Court's finding that Securacom
New Jersey willfully infringed SecuraComm Pennsylvania's
mark.

A. Willful Infringement

Knowing or willful infringement consists of more than the
accidental encroachment of another's rights. It involves an
intent to infringe or a deliberate disregard of a mark
holder's rights. The Second Circuit has aptly described
willful infringement as involving "an aura of indifference to
plaintiff's rights" or a "deliberate[ ] and unnecessar[y]
duplicating [of a] plaintiff's mark . . . in a way that was
calculated to appropriate or otherwise benefit from the good
will the plaintiff had nurtured." W.E. Bassett Co. v. Revlon,
Inc., 435 F.2d 656, 662 (2d Cir. 1970) (citation omitted); see
also Rolex Watch USA, Inc. v. Meece, 158 F.3d 816, 823
(5th Cir. 1998) ("willful infringement carries a connotation
of deliberate intent to deceive.") (quoting Lindy Pen Co. v.
Bic Pen Corp., 982 F.2d 1400, 1405 (9th Cir.), cert. denied,
510 U.S. 815 (1993)). We agree with Securacom New Jersey
_________________________________________________________________

1. Willful infringement has a central role in the availability of each of
these kinds of relief because of the relevance of equitable factors in
determining their appropriateness on a given set of facts. See 15 U.S.C.
S 1117 (1994) (collection of defendant's profits and award of enhanced
damages "subject to principles of equity"); Champion Spark Plug Co. v.
Sanders, 331 U.S. 125, 131 (1947) (denying accounting of defendant's
profits based on "equities of the case"); BASF Corp. v. Old World Trading
Co., Inc., 41 F.3d 1081, 1096 (7th Cir. 1993) (discussing availability of
enhanced damages under heading "equitable remedies"); Rolex Watch
USA, Inc. v. Meece, 158 F.3d 818, 826 (5th Cir. 1998) (award of
enhanced damages limited by "equitable considerations"); Levi Strauss &
Co. v. Shilon, 121 F.3d 1309, 1314 (9th Cir. 1997) (citing to 15 U.S.C.
S 1117(b) (court may award attorney fees in"exceptional cases") and
noting that "equitable considerations" limit award of attorney fees).

                               9
that the record in this case cannot support a finding of
willful infringement.2

First, we are constrained to conclude that the District
Court committed clear error when it found that "Walker
and the company he dominated . . . knowingly infringed
[SecuraComm Pennsylvania's] mark . . .[f]or years before
this action was commenced." 984 F. Supp. at 303-04.
There is no direct evidence in the record that Securacom
New Jersey knew about Libengood and his small firm
before Libengood's cease and desist letter was sent in 1993.
Thomas testified that he first learned about Libengood and
his company at that time, and no direct evidence to the
contrary has been called to our attention. Moreover, there
is no circumstantial evidence from which it may reasonably
be inferred that Securacom New Jersey learned about
SecuraComm Pennsylvania prior to the cease and desist
letter. It is true that Cassetta knew about Libengood and
his company in 1987, but it is unreasonable under the
circumstances to infer that Cassetta passed on this
information to Securacom New Jersey's new management
either directly or indirectly.

It is apparent that in 1987 neither Cassetta nor
Libengood attached much significance to the similarities in
the companies' names. Cassetta expressed the opinion that
this similarity would not cause problems because his
company's name included the name of the large firm
"Burns & Roe" and because the companies worked in
unrelated areas. It is telling that Libengood made no
complaint about Cassetta's company for the next six years.
Cassetta's attitude and Libengood's inaction strongly
suggest that neither man thought that the matter was
important. Thus, until at least 1992, Securacom New
_________________________________________________________________

2. We review the District Court's finding of willful infringement for
clear
error. See ISCYRA v. Tommy Hilfiger, U.S.A., Inc., 80 F.3d 749, 752 (2d
Cir. 1996); Ferrero U.S.A., Inc. v. Ozak Trading, Inc., 952 F.2d 44, 48
(3d
Cir. 1991). Under this standard, a finding is"clearly erroneous when the
reviewing court on the entire evidence is left with the definite and firm
conviction that a mistake has been committed." Newark Branch, NAACP
v. City of Bayonne, 134 F.3d 113, 120 (3d Cir. 1997). We do not review
the evidence de novo, but we do consider whether there is enough
evidence in the record to support the District Court's factual findings.
Id.

                               10
Jersey reasonably believed the use of the Securacom mark
did not infringe, and "[i]nfringement is not willful if the
defendant might have reasonably thought that its proposed
usage was not barred by the statute." Blockbuster Videos,
Inc. v. City of Tempe, 141 F.3d 1295, 1300 (9th Cir. 1998)
(internal quotation omitted).

The similarity in the companies' names became
potentially more significant in 1992. At that time,
Libengood changed the name of his company from
"SecuraComm Associates" to "SecuraComm Consulting
Inc." and expanded its client base. There is no evidence,
however, that Cassetta or anyone else at Securacom New
Jersey took notice of these changes. Also in 1992,"Burns
& Roe Securacomm" changed its name to "Securacom Inc.,"
and the company expanded its business into new fields,
but these events occurred after Cassetta left. Cassetta was
fired two days after Thomas took over, and there is nothing
to suggest that during these final two days Cassetta told
Thomas or anyone else who remained with the firm about
Libengood and his company -- a matter that, as noted, had
not previously been regarded as troublesome. Under these
circumstances, we see no reasonable basis for inferring that
Cassetta directly or indirectly informed Securacom New
Jersey's management about Libengood and his company.

Relying upon the general principle that the knowledge of
a corporate officer is imputed to the corporation, the
plaintiffs argue that Cassetta's knowledge of the existence
of SecuraComm Pennsylvania should be imputed to
Securacom New Jersey and that therefore Securacom New
Jersey's use of its mark after the critical events of 1992
cannot be regarded as having been done in good faith. We
reject this argument because we find it inconsistent with
the equitable principles that make the question of
willfulness important. Whether Securacom New Jersey
engaged in willful infringement is significant because
courts, looking to "the principles of equity," 15 U.S.C.
S 1117, have held that a finding of willfulness or bad faith
is important in determining whether to award profits,
enhance damages, and award attorney fees. See page 7,
supra. Under the circumstances here, plaintiffs' argument
regarding imputed knowledge is inconsistent with the

                               11
equitable basis of these doctrines. As we have noted,
neither Cassetta nor Libengood seemed concerned about
the similarity between the names of their two companies
when Cassetta's company was called "Burns & Roe
Securacom" and the companies served different clienteles.
As of the date of Cassetta's termination, neither of these
factors had changed. The plaintiffs would have us combine
what Cassetta knew (but, as far as the record shows, never
passed on to the new management that fired him) with
what new management subsequently knew regarding the
company's change in name and range of services. The
plaintiffs cite no direct supporting authority for this
argument, and we find it inequitable under the
circumstances present here.

Second, we conclude that Securacom New Jersey's failure
to conduct a trademark search is not sufficient to support
the finding of willful infringement. In Tommy Hilfiger,
U.S.A., Inc., 80 F.3d 749 (2d Cir. 1996), the Second Circuit
stated that an alleged infringer's failure to conduct a full
trademark search after its attorneys advise that such a
search is warranted may evidence willful ignorance akin to
willful infringement. But the Second Circuit emphasized in
that case that the infringer's attorneys had specifically
advised it to conduct a full search and that the infringer
was aware when it adopted the mark that it was copying
"authentic details" from the plaintiff's design. Id. at 753. In
the present case, by contrast, SecuraComm Pennsylvania
did not establish that Securacom New Jersey knew that it
was copying SecuraComm's name. Similarly, there was no
evidence that Securacom New Jersey's attorneys had
advised Securacom to conduct a full trademark search. In
the absence of these key details, it is unreasonable to
conclude that Securacom New Jersey's failure to conduct a
trademark search established willful ignorance akin to
willful infringement. Rather, as far as the record reflects,
Securacom New Jersey's failure to conduct a search was at
most careless. See Fisons Horticulture, Inc. v. Vigoro Indus.,
Inc., 30 F.3d 466, 480 (3d Cir. 1994); Interpace Corp. v.
Lapp, Inc., 721 F.2d 460, 463 (3d Cir. 1993). And
carelessness is not the same as deliberate indifference with
respect to another's rights in a mark or a calculated
attempt to benefit from another's goodwill. See W.E.

                               12
Bassett, 435 F.2d at 662. Therefore, Securacom New
Jersey's failure to conduct a trademark search is sufficient
to establish that its infringement was willful or intentional.

Third, Securacom New Jersey's failure to stop its use of
the Securacomm mark after receiving Libengood's cease
and desist letter does not demonstrate willful infringement.
A defendant's refusal to cease using a mark upon demand
is not necessarily indicative of bad faith. Sands, Taylor &
Wood Co. v. Quaker Oats Co., 978 F.2d 947, 962 (7th Cir.
1992), cert. denied, 507 U.S. 1042 (1993). This is
particularly true when the trademark at issue is not
registered. Charles Jacquin Et Cie, Inc. v. Destileria
Serralles, Inc., 921 F.2d 467, 472 (3d Cir. 1990). When
Libengood sent the cease and desist letter, he did not have
a federally registered mark. Libengood instructed
Securacom New Jersey to cease using the Securacomm
mark in early 1993, only ten days after he firstfiled to
register his mark. The registration was not complete until
May 20, 1997. In addition, since Securacom New Jersey
had already been denied a trademark registration for the
word "Securacom" because two other companies had
attempted to register similar words, Securacom New Jersey
had a reasonable ground for believing that SecuraComm
Pennsylvania would also be unable to obtain federal
registration in the name "Securacomm."

In addition to the absence of a federally registered
trademark, Securacom New Jersey had other reasons to
believe that it had a legal right to use Securacom. First,
Securacom New Jersey had a reasonable basis for
concluding that Libengood did not have nationwide
trademark rights in the mark due to the localized nature of
his business. Additionally, Securacom New Jersey had a
plausible basis for believing that its use of its name was not
likely to cause confusion. As a result, Securacom New
Jersey's failure to stop using the Securacomm mark after
receiving Libengood's cease and desist letter does not
support a finding of willful infringement.

Finally, we agree with   SecuraComm Pennsylvania that
neither Walker's views   regarding the civil justice system nor
Securacom New Jersey's   litigation tactics support the
finding that Securacom   New Jersey willfully infringed upon

                                 13
Libengood's Securacomm mark. See SecuraComm
Pennsylvania's Br. at 21 n. 6. There are other, appropriate
remedies for abusive litigation tactics. Viewing all of the
evidence together, we conclude that the record is
insufficient to show that Securacom New Jersey willfully
infringed upon SecuraComm Pennsylvania's mark and that
the District Court's contrary finding was clearly erroneous.

B. Defendant's Profits3

Securacom New Jersey argues that the District Court
abused its discretion when it awarded a portion of
Securacom New Jersey's profits to SecuraComm
Pennsylvania and then trebled this award.4 The District
Court concluded that an award of 10% of Securacom New
Jersey's profits for the years in question was appropriate to
deter a willful infringer such as Securacom New Jersey
from such acts in the future. 984 F. Supp. at 303. The
District Court then trebled the damages because of the
"egregious circumstances of this case." Id.

Since the evidence does not support a finding that
Securacom New Jersey willfully infringed Libengood's
trademark rights, we conclude that the award of profits was
not appropriate in the present case. The Lanham Act
permits courts to award monetary damages to trademark
owners as compensation where it is equitable to do so
regardless of the willfulness of the defendant's
_________________________________________________________________

3. When we refer to the District Court's award of profits in this case, we
refer to its award of the defendant corporation's profits, in distinction
to
an award of plaintiff's lost profits. The District Court awarded
defendant's profits not plaintiff's profits. See 5 J. Thomas McCarthy,
McCarthy on Trademarks and Unfair Competition S 30.57 at 30-95 (noting
"semantic confusion" in opinions discussing monetary recovery under
S 1117: "the word profits is often used without revealing whose profits --
plaintiff's or infringer's -- are being discussed").

4. The District Court, at one time, described this award as a "royalty"
without engaging in the analysis required to grant such an award. See
A&H Sportswear Co. v. Victoria's Secret Stores, Inc., 967 F. Supp. 1457,
1479 (E.D. Pa. 1997). Both parties agree that the District Court's use of
the word "royalty" was likely a shorthand description of Securacom New
Jersey's profits. See Securacom New Jersey's Br. at 37; SecuraComm
Pennsylvania's Br. at 30 n.10.

                               14
infringement. See 5 J. Thomas McCarthy, McCarthy on
Trademarks and Unfair Competition S 30.75 at 30-128 (4th
Ed. 1996) ("Unlike recovery of defendant's profits, attorney
fees and treble damages, no wrongful intent or state of
mind is needed for the recovery of actual damages [under
15 U.S.C. S 1117(a).]"). In this case, however, the District
Court awarded profits to deter defendant's assertedly
egregious misconduct; a plaintiff must prove that an
infringer acted willfully before the infringer's profits are
recoverable. George Basch Co. v. Blue Corral, Inc., 968 F.2d
1532, 1537 (2d Cir.), cert. denied, 506 U.S. 991 (1992); see
also, 5 J. Thomas McCarthy, McCarthy on Trademarks and
Unfair Competition S 30:62, at 30-102 (4th ed. 1996).

Once monetary damages have been awarded, the Lanham
Act permits courts, under certain circumstances, to
enhance the damages. 15 U.S.C. S 1117(a) (1994); see also
5 J. Thomas McCarthy, McCarthy on Trademarks and
Unfair Competition, S 30:90 at 30-146 (4th Ed. 1996) Since
the evidence at trial did not support a finding of willful
infringement, the award of profits was not warranted, and
trebling the damages was likewise inappropriate. See
Caesar's World, Inc. v. Venus Lounge, Inc., 520 F.2d 269,
273 (3d Cir. 1995) (holding that enhanced damages award
was inappropriate where no evidence of actual damages
was adduced; "[t]hree times zero is zero."). We therefore
reverse the award of profits and treble profits.5

C. Attorneys' Fees

Securacom New Jersey contends that the District Court
improperly exercised its discretion in awarding attorneys'
fees.6 The Lanham Act provides that a court may award
reasonable attorneys' fees to the prevailing party when
_________________________________________________________________

5. Securacom New Jersey argues that the District Court erred in
awarding profits based on its national profits because Libengood did not
have national trademark rights prior to the federal registration of his
mark on May 20, 1997. Because we conclude that profits were not
properly awarded in the present case, we need not reach this issue.

6. The Lanham Act gives the District Court the discretionary power to
award attorneys' fees. 15 U.S.C. S 1117(a) (1994). We review the district
court's award of attorneys' fees for abuse of discretion. Ferrero U.S.A.,
Inc. v. Ozak Trading, Inc., 952 F.2d 44, 48 (3d Cir. 1991).

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"exceptional circumstances" exist. 15 U.S.C.S 1117(a). Our
Court has interpreted "exceptional circumstances" to
include culpable conduct on the part of the losing party,
such as bad faith, fraud, malice or knowing infringement.
Ferrero U.S.A., Inc. v. Ozak Trading, Inc., 952 F.2d 44, 47
(3d Cir. 1991). In this case, the District Court awarded
attorneys' fees to SecuraComm Pennsylvania because
Securacom New Jersey exhibited bad faith, fraud, malice,
and knowing infringement. 984 F. Supp. at 303-04. Since
the District Court's finding of willful infringement appears
to be a substantial basis for the award of attorneys' fees, we
are required to reverse and remand on the issue of whether
exceptional circumstances, other than willful infringement,
exist warranting an attorneys' fees award.

III.

Because the evidence in the record does not support the
finding of willful infringement, we reverse the award of
profits and attorneys' fees. We remand the issue of
attorneys' fees for further consideration.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

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