A federal appeals court upheld on Monday a multimillion-dollar award to Skydive Arizona Inc. of Eloy for false advertising, trademark infringement and cybersquatting by another company, Skyride.
But a divided three-judge panel of the 9th U.S. Circuit Court of Appeals rejected a lower court's attempt to double parts of the $6.6 million in damages. It said that the increase was aimed at punishing Skyride, which is not the purpose of enhancing damages.
Skyride employees and attorneys declined to comment. Neither Skydive Arizona nor its attorneys returned calls.
Skyride was described in court papers as a national advertising company that marketed sky-diving services and sold certificates for people to redeem at sky-diving drop zones.
Although it did not actually have diving operations in Arizona and was not affiliated with Skydive Arizona, Skyride maintained "a plethora of websites" such as PhoenixSkydiving, YumaSkydiving and others, that targeted customers in Arizona. It led customers to believe that Skyride had operations in the state and that Skydive Arizona would accept Skyride certificates, the court said.
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Skydive Arizona said customers from as far away as North Dakota became "very angry with, and blamed Skydive Arizona for, problems caused by Skyride," after the customers tried to redeem the useless certificates.
Skydive Arizona sued Skyride in 2005. In February 2009, a U.S. district court judge ruled in favor of Skydive Arizona on the false advertising claim and in October 2009 a jury ruled for it on the other claims.
The jury awarded damages of $1 million for false advertising and another $2.5 million for trademark infringement. It also awarded Skydive Arizona $2.5 million in lost profits and $600,000 for cybersquatting. The district court also permanently enjoined Skyride from operating in Arizona.
On appeal, the 9th Circuit panel rejected Skyride's claim that the damages were "grossly excessive" in light of the company's annual revenues of $23 million nationwide.
The court also rejected Skyride's challenge that the lost-profits award was inaccurate, saying Skyride did not object to the calculations at trial, so cannot bring them up on appeal.
It said Skydive Arizona did prove harm to its goodwill, even though it did not give jurors a specific formula for calculating damages.
But the court did agree with Skyride that U.S. District Judge Mary H. Murguia was wrong to double the damages award.
The court also rejected a counterclaim by Skydive Arizona that the injunction against Skyride should be nationwide. It found no proof Skyride operated illegally outside of Arizona.
In a dissent, Judge John Noonan wrote, "Nothing … in the record supports the jury's assessment of these damages as amounting to $2,500,000."