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Fifth Circuit affirms injunction against trademark infringement in Saudi Arabia
February 29, 2008

In a recent decision, the Fifth Circuit affirmed a district court's finding of infringement and disgorgement of profits, but increased the amount of profits awarded because the defendant failed to provide evidence of its costs to reduce the award. Interestingly, the infringement took place entirely outside the United States, namely in Saudi Arabia. Even though the products were not sold in the United States, under the Fifth Circuit's decision in American Rice, Inc. v. Arkansas Rice Growers Cooperative Association, enforcement of trademark rights extraterritorially was permitted if it was not an affront to Saudi sovereignty. Here, there was no such evidence of record (such as a finding by a Saudi court that there was no infringement), so the court determined that jurisdiction was properly exercised.

The court also vacated the district court's award of attorney's fees on the basis that it represented an inconsistent award. The district court awarded profits, but no attorney fees under the Lanham Act, and attorney's fees, but no other damages under a breach of contract theory. Because an award of both attorney fees and profits would mean portions of the award would come from different legal theories under Texas law, the court did not permit recovery of both.

For 35 years, American Rice, Inc. ("ARI") has continuously sold parboiled, American long-grain rice in Saudi Arabia under its "Abu Bint" brand name. During this time, ARI has spent $25-$30 million to advertise and promote this brand with a design of a girl on the label ("Girl Design"). In Saudi Arabia, consumers refer to ARI's rice as "girl brand" rice. Currently, ARI sells approximately 120,000 to 150,000 tons of rice in Saudi Arabia per year.

Producers Rice Mill, Inc. ("PRMI") also sells parboiled, American long-grain rice in Saudi Arabia. PRMI's rice bags depict a girl with a hat ("Girl With a Hat Design") and has used this image since 1985. Until 2006, PRMI's bags also featured the words "Al Falaha," which means "farmer's girl" in Arabic, which was changed to "Bothaina," a girl's name, in 2005. Additionally, PRMI includes on its bags its registered script mark, "Par Excellence," alongside the Girl With a Hat Design. The two designs are shown below, with ARI's on the left and PRMI's on the right:

Rice logos

In early 2005, PRMI made plans to sell rice under a private label brand and, at the recommendation of its customers, incorporated a different design with a girl on it ("Private Label Girl Design"). Before PRMI shipped any of the rice bearing the Private Label Girl Design, ARI sued PRMI, alleging that this design was too similar to ARI's Girl Design. On April 21, 2005, ARI and PRMI settled the lawsuit, whereby PRMI agreed not to use the proposed Private Label Girl Design or any confusingly similar versions thereof. ARI then proceeded to use its Girl With a Hat Design on its private label rice. ARI brought a lawsuit against PRMI in September 2005 for both trademark infringement and for breach of the April 2005 Settlement Agreement, alleging that the Girl with a Hat Design both created a likelihood of confusion under the Lanham Act and was confusingly similar to its Girl Design in violation of the Settlement Agreement. The district court found trademark infringement under the Lanham Act as well as a breach of the Settlement Agreement. The court awarded ARI a permanent injunction, disgorgement of PRMI's profits from 2005 in the amount of $1,256,635.00 (but later reduced that amount to $227.10), reasonable attorney's fees under Texas law for breach of the settlement agreement as well as interest and costs. The court determined that the case was not "exceptional" for purposes of awarding attorney's fees under the Lanham Act. The court further determined that under an "election of remedies" theory, ARI was only entitled to recover under either the Lanham Act theory or for breach of the settlement agreement and, as such, the court awarded only the attorney's fees and injunction available under Texas law for breach of the Settlement Agreement since it was the greater recovery of the two. Both parties appealed.In its cross-appeal, PRMI argued that the district court improperly exercised extraterritorial jurisdiction because the allegedly infringing conduct took place in Saudi Arabia. The court held that its decision in American Rice, Inc. v. Arkansas Rice Growers Cooperative Association was controlling. There, the court found it sufficient to exercise jurisdiction based on the fact that Arkansas Rice Growers ("Riceland") was an Arkansas corporation engaged in both interstate and foreign commerce and that the defendant's processing, packaging, transportation, and distribution activities took place in the U.S. Likewise, PRMI's sales in Saudi Arabia had an effect on interstate commerce based on the processing, packaging, transportation, and distribution activities which took place in the U.S. before the rice reached Saudi Arabia. The court noted that in American Rice it left open the possibility that where it would be an affront to Saudi sovereignty to exercise jurisdiction, such jurisdiction would not be exercised. In this case, since there was no such evidence of record (such as a finding by a Saudi court that there was no infringement), the court determined that jurisdiction was properly exercised.On the claim of trademark infringement, PRMI asserted that ARI did not have a protectable right in the Girl Design mark, and therefore the infringement conclusion by the district court was erroneous. In this regard, the court noted that the marks were identical images, with the only difference being the inclusion of the words "Golden Parboiled" by PRMI beneath the Girl Design. This in addition to the fanciful nature of the mark, use of the marks on identical products, sales in the same channels of trade, similarity of advertising, and evidence of intent on PRMI's part to benefit from the goodwill associated with ARI's brand were sufficient to support the district court's finding of infringement.In its appeal, ARI argued that it was erroneous for the district court to have required ARI to elect its remedy on the basis the theories of recovery were neither inconsistent nor did they allow ARI to recover twice for the same injury. The court affirmed the district court's application of the election of remedies theory under Texas law as ARI was not granted both a monetary award and attorney's fees on either a Lanham Act or contract theory, but on both the Lanham Act and contract claims. Thus, the court concluded that were it to grant both awards to ARI, it would be picking and choosing from damage elements arising under different theories, which Texas law holds as being impermissible.ARI next challenged the disgorgement of PRMI's profit for 2005 to $227.10. In calculating profits, the district court looked to the formula provided in 15 U.S.C. § 1117(a) which allows the plaintiff to recover the defendant's profits based on proof of the defendant's sales. It is then the defendant's burden to prove all elements of cost of deduction. PRMI had produced no evidence of its costs to reduce the profits award under § 1117(a), PRMI did produce evidence in the form of its tax return and testimony of its CEO which demonstrated that it made virtually no profit. However, this was largely because PRMI is a "flow-through" entity where its profits are distributed to its member farmers. The fact that the profits were already distributed did not mean that the entity did not make profits, and therefore, absent a showing of costs, ARI was entitled to the full amount of proven sales. As such, the court vacated the district court's order finding $227.10 in profits and found that an award of the $1,256.635.00 in profits for 2005 was proper.On the issue of attorney's fees, based upon the court's finding that the election of remedies theory was properly applied, the court held that the issue of whether the district court's attorney's fee award was proper was rendered moot, as the revised profits award was greater than the attorney fee award, even including fees accrued on appeal.

Judge Smith filed a brief dissent. In his view, the two logos were so distinct as to render the district court's likelihood of confusion finding clearly erroneous. This conclusion would defeat both the breach of contract and Lanham Act claims, and Judge Smith would therefore have reversed.

To read the full decision in Am. Rice, Inc. v. Producers Rice Mill, Inc., click here.

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