Ninth and Fifth Circuits slash punitive awards.

• Author: Sanders, Carol McHugh

In a case that previously was before the Ninth Circuit and remanded by the U.S. Supreme Court, a Ninth Circuit panel cut a punitive damages award from $4.5 million to $500,000, holding that the jury's award was constitutionally excessive. Leatherman Tool Group Inc. v. Cooper Industries Inc., 285 F.3d 1146 (2002).

Likewise, the Fifth Circuit, in Watson v. Johnson Mobile Homes, 284 F.3d 568 (2002), applying the same factors as the Ninth Circuit, declared that a $700,000 punitive award exceeded constitutionality limits.

In Leatherman I, the Ninth Circuit in 1999 held that a tool manufacturer had no protectable trade dress in the configuration of its multipurpose pocket tool because it was wholly functional. 199 F.3d 1010. Therefore, Leatherman's competitor, Cooper Industries, was entitled to copy that product closely in making its own pocket tool.

Cooper announced at a 1996 trade show that it would produce a multi-function pocket tool that was nearly identical to the Leatherman Pocket Survival Tool, which dominated the market for such tools. Before that trade show, a Cooper employee created a "mock up" of the new tool by grinding the Leatherman name off the Pocket Survival Tool and adding certain fasteners that would be unique to the Cooper product. Cooper also retouched photographs and line drawings of Leatherman's Pocket Survival Tool to use in advertising and marketing.

The Ninth Circuit, in an unpublished memorandum accompanying its initial opinion, upheld the jury's $4.5 million punitive damages award against Cooper, based on evidence that the company passed off the retouched photographs and drawings of Leatherman's product as its own when it first attempted to enter the market.

The U.S. Supreme Court granted certiorari on the standard of review issue, and took the opportunity to clarify that reviewing courts must independently assess the constitutionality of punitive damage awards through a de novo standard of review. Leatherman II, 532 U.S. 424 (2001). The Supreme Court instructed lower courts to follow the parameters it set out in BMW of North America Inc. v. Gore, 517 U.S. 559 (1996), for determining whether the award of punitive damages comports with due process: (1) the degree of reprehensibility of the defendant's misconduct; (2) the disparity between the harm or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties...