In a closely monitored appeal, a panel of the U.S. Court of Appeals for the Ninth Circuit unanimously upheld a $56 million damages award against beverage company Molson Coors in Stone Brewing Co., LLC v. Molson Coors Beverage Company USA LLC, No. 23-3142. Stone Brewing accused Molson Coors of trademark infringement, because of a 2017 advertising campaign for its Keystone Light brand that emphasized the “STONE” portion of KEYSTONE. After a three-week jury trial, the jury ruled in favor of Stone Brewing, awarding $56 million in damages.
Stone Brewing first sued Molson Coors in 2018, alleging trademark infringement, among other claims. Stone Brewing began using its STONE mark in the late 1990s, while Molson Coors began using "STONE” in isolation as part of a 2017 rebranding initiative for its Keystone brand. Molson Coors argued that no consumer could actually be confused as to the source of the rebranded Keystone beers, noting that Keystone beers occupied a different price point than the craft beers offered by Stone Brewing, that the packaging for the rebranded beers always still included the KEYSTONE mark in its entirety, and that Keystone beers had long been referred to as “Stone” or “Stones” predating Stone Brewing’s use of its STONE mark. Rejecting these arguments, the jury ruled in favor of Stone Brewing.
During post-trial motions, the district court acknowledged that it previously said: had it been in the position of factfinder, it would not have found that a prudent consumer would be confused by the packaging of Molson Coors’s 2017 Keystone rebranding. But, in ruling on the Molson Coors’s motion, the district court also found that Molson Coors could not deny that the 2017 rebranding de-emphasized the full “KEYSTONE” mark in favor of emphasizing “a single heroic element”—that being the “stone” portion—which rendered the Molson Coors mark nearly identical to Stone Brewing’s. The similarity of the marks, in conjunction with the fact that the two beers “share the same aisle” of the grocery store, provided a sufficient basis for the jury to arrive at the conclusion it did and to award a quarter of the requested damages.
Stone Brewing sought $216.15 million total in damages and presented three categories of damages to the jury: (1) past lost profits, totaling $32.7 million; (2) future lost profits, totaling $141.4 million; and (3) corrective advertising, totaling $41.8 million. The jury, however, only awarded $56 million and did not break down which particular category or combination of categories it considered when reaching the damages award. So, in its post-trial motion, Molson Coors attacked each damages category as unsupported by evidence and argued that the award should be reduced because it represented an “extreme outlier” in the Ninth Circuit.
Regarding past lost profits, Molson Coors argued that the damages model of Stone Brewing’s expert was flawed because it was based on a trademark dilution theory, and that Stone Brewing’s expert failed to control for all other possible explanations for Stone’s loss of revenue. The district court rejected these arguments, noting that the expert’s model controlled for industry-wide trends in the craft beer industry, and while there were additional factors she did not control for in her model, that goes to the weight the jury gave her testimony and is entirely consistent with awarding 25% of the requested damages.
With respect to future lost profits, Molson Coors argued at the district court level that future profits are not available for infringement cases, and that future lost profits are entirely speculative and thus impermissible. The district court noted that while neither party pointed to any definitive authority on the availability of future lost profits, the Ninth Circuit’s ruling in Oracle Corp. v. SAP AG, 765 F.3d 1081 (9th Cir. 2014) recognized that the correct damages figure in a situation where the plaintiff has lost an ongoing stream of revenue from its former customers is a damages figure that accounts for a continuation of harm even after the cessation of infringement—which supports a theory of lost future profits. The district court also recognized that Stone’s expert provided an analysis of the lost future profits that was far from purely speculative. The Ninth Circuit panel likewise recognized that Oracle upheld future lost profits.
The availability of future lost profits as damages can be problematic for trademark infringement defendants, especially as more and more business move to subscription-based revenue models. Defendants can find themselves on the hook for damages far exceeding what a plaintiff’s past profits may suggest, if plaintiffs are able to show that customers transitioned to the defendants’ offerings instead of plaintiffs and so plaintiffs lost access to an ongoing revenue stream because of the infringement.
Molson Coors argued at the district court that the corrective advertising damages were incorrectly awarded because the Ninth Circuit had a 25% cap on corrective advertising damages. But the district court found that Molson Coors had misread Adray v. Adry-Mart, Inc., 76 F.3d 984 (9th Cir. 1995) to stand for a 25% hard cap on corrective advertising damages, when actually the only cap is that the corrective advertising damages may not exceed the damage to the value of the mark. The Ninth Circuit agreed that no such 25% cap has ever been adopted by the Ninth Circuit, departing from the commonly referenced Federal Trade Commission practice of requiring businesses who engage in misleading advertising to spend up to 25% of their advertising budget on corrective advertising.
Of course, the underlying logic of the FTC’s 25% rule is that a corrective advertising award does not require a dollar-for-dollar expenditure to correct the damage. The Ninth Circuit also acknowledged this in Adray when declining to apply the FTC rule, instead determining that the appropriate limit on corrective advertising damages is to not exceed the value of the mark itself. As “McCarthy on Trademarks and Unfair Competition,” put it: “[i]f a $4,000 car is damaged in a collision and repair would cost $10,000, then the court should award $4,000, not $10,000.”
Next, Molson Coors argued that the jury’s damages award was so excessive that it should be subject to remittitur due to being an extreme outlier in the circuit. The district court disagreed, noting that Molson Coors had chosen to attack Stone’s calculations and primarily focus on rebutting the issue of liability, and as a result had not provided any competing damages calculations for the jury to consider. That fact, coupled with the fact that the jury did not provide a category-by-category breakdown of the damages, meant that it was impossible to say that the damages award overall was grossly excessive, even though the district court was clear that the initial $216.15 million request was “fantasy land.” The Ninth Circuit likewise found that evidence in the record sufficiently provided evidence adequate to support the jury’s conclusion.
Had the jury included an itemized breakdown of the damages, Molson Coors may have had more room to argue for a reduction in certain damages categories—the district court acknowledged as much, noting that “[t]he majority of cases discussing remittitur [that Molson Coors cited] had the benefit of the jury identifying the specific category of damages it was awarding, which in turn allowed the district court to reduce that specific category based on corresponding evidence.” Trademark infringement defendants hoping to avoid this scenario should make sure to request a special verdict requiring an itemized damages breakdown.
Finally, Molson Coors raised a laches defense, asserting that Stone Brewing’s claims were time-barred because Stone Brewing had previously sent a cease-and-desist letter to Molson Coors in 2010, over their use of “stones” eight years prior to Stone Brewing’s suit, and well after California’s four-year statute of limitations for trademark infringement actions. The district court ruled that laches did not bar Stone Brewing’s claims, and the Ninth Circuit agreed because all of Stone Brewing’s claims were based on the 2017 rebrand of the Keystone packaging. So, the laches clock began running in 2017, not in 2010, even though Stone Brewing was aware that Molson Coors had used “stones” in certain instances to refer to the number of beers in a case, and as a part of a catchphrase. Notably, none of these previous uses isolated “STONE” on packaging and advertising materials the way materials used for the 2017 rebrand campaign did.
This ruling provides more certainty as to the types and extent of damages that are available to plaintiffs in trademark infringement actions, as well as clarifying that the excessiveness of a damages award depends not on the nominal amount, but on whether evidence in the record supports the jury’s conclusion.