Cooper Industries, Inc. v. Leatherman Tool Group, Inc. (05/14/2001)

By: Terry Evans, Medill News Service

Questions presented

What is the standard of review of a trial court's ruling on a challenge to the constitutionality of a punitive damage award?

Brief

Competition in any industry can be fierce. Often it's the search for the next new creation to edge out rivals. Leatherman Tool Group apparently found its edge in the early 1980s when it developed the Pocket Survival Tool (PST), a multi-purpose tool that improves on the classic Swiss army knife. It sold millions.

But the company never got a patent. In 1996 they would regret it.

At the National Hardware Show that August, Leathermans president walked by the booth of Cooper Industries -- a rival tool company -- and noticed ads for Cooper's new pocket tool, Toolzall. After a closer look, he realized the tool pictured in the ads was nearly identical to the popular PST.

Following the show, he spotted the same pictures in catalog and magazine ads. At this point, Leatherman executives were virtually certain the similarities in products were no coincidence and their tool had been altered and marketed under the Toolzall name. They were right.

As it turned out, managers at Cooper had been waiting for Toolzall to come off the production line and wanted to move forward with advertising so they asked employees to create a prototype. But instead of starting from scratch, a Cooper engineer took a shortcut.

Without telling managers, the engineer used Leathermans Pocket Survival Tool as a base for its so-called prototype, doctoring the rival tool to make it look like Coopers tool, according to court documents. Pictures of the mock-up tool were posted at the hardware show, showcased in catalog and magazine ads, press kits and other promotional materials and emblazoned on the Toolzall package itself.

Leatherman sued Cooper Industries in federal court in Oregon, claiming trade dress infringement under the Lanham Act, unfair competition, false advertising and ""passing off."" The company also sought an injunction to block all marketing and sales of Toolzall. It succeeded.

Cooper then acknowledged it copied the tool, although there were a few differences: a serrated blade, slightly different fasteners and a locking device. The company also admitted the ads were a mistake and voluntarily pulled them, as well as the tool, from the market. Still, the case went to trial in October 1997.

A jury awarded Leatherman $50,000 in damages -- an amount equal to the gross profits of Toolzall sales -- and $4.5 million in punitive damages. Attorneys for Cooper filed a post-trial motion to reduce the award, arguing, among other things, that the punitive damage award which was 90 times the amount of the purely economic compensatory damage award violated Coopers due process rights.

The district court denied the motion and Cooper appealed.

In 1999, a unanimous 9th Circuit Court of Appeals panel ruled the lower court had the right to uphold the multi-million dollar award. But at the same time, the panel threw out the jury's verdict on trade dress infringement.

""Cooper acknowledges it copied the overall appearance of the PST almost exactly,"" Judge Jeremy Fogel wrote for the panel. ""To uphold a finding of infringement here, however, would suggest that the general appearance of almost any unpatented product rarely if ever could be copied faithfully. That is not the law.""

Ironically, the trade dress infringement opinion was published; the punitive damage award opinion was not.

With respect to the punitive damages due process issue, the 9th Circuit applied a deferential standard of review and held the district court did not abuse its discretion in refusing to reduce the punitive damages.

Attorneys for Cooper argued that guidance from the U.S. Supreme Court is crucial in this case because of the split among the appellate circuits over the standard to review punitive damage awards. In the petition to the Court, attorneys noted, ""varying standards have incubated an environment in which there is neither rationality nor predictability to the amounts of such awards.""

""There is a big problem nowadays with runaway juries,"" said Bradley J. Schlozman, who represents Cooper. ""The only rational standard of review to adopt is one in which the court of appeals scrutinizes the punitive damages award independently, without according deference to the trial judge's findings.""

On Oct. 10, 2000, the U.S. Supreme Court granted certiorari in the case and limited review to the punitive damage issue noted above.

On May 14, 2001, the Court, by a vote of 8-1, held that courts should apply a de novo standard when reviewing district court determinations of the constitutionality of punitive damages awards, rather than the less demanding abuse-of-discretion standard used by the appeals court in this case. In so holding, the Court vacated the $4.5 million punitive damage award and remanded the case.

Justice John Paul Stevens wrote the lead majority opinion.

As lone dissenter, Justice Ruth Bader Ginsburg invoked the 7th Amendment's influence in deferring questions of fact to the jury to questions of punitive damages too. Ginsburg also cited practical considerations, in particular on issues of witness credibility, noting that trial judges and juries have ""an undeniably superior vantage over courts of appeals,"" in that they ""view the evidence not on a cold paper record, but in the living courtroom context,"" Ginsburg wrote.