Circuits Split Over Profits From Innocent Infringement, Gucci Left Holding the Bag

The U.S. Court of Appeals for the Third Circuit recently split with the Fifth Circuit, holding that a trademark infringer cannot be forced to disgorge profits absent a showing of willful infringement. Gucci America, Inc. v. Daffy’s, Inc., Case No. 02-4046 (3d Cir., Dec. 31, 2003).

Daffy’s, a name-brands-for-less retailer, purchased what it believed to be a shipment of genuine Gucci bags from a reputable importer with whom it had prior dealings. Before Duffy began selling the bags, an employee verified their authenticity by taking one to a Gucci outlet, where she was assured the bag was genuine. Daffy’s also sent a damaged bag back to Gucci, which repaired and returned it.

After selling 588 bags (for a total profit of something less than $85,000), Daffy received a letter from counsel for Gucci informing it that the bags were counterfeit. Daffy responded that it believed the bags were genuine, but nevertheless immediately withdrew the handbags from its stores and adopted a policy of