author: VANASKIE, Circuit Judge.

text:
    GENERAL REFRACTORIES COMPANY v. FIRST STATE INSURANCE CO; Westport Insurance Corporation, Successor to, or, f/k/a Puritan Insurance Company; Lexington Insurance Company; Centennial Insurance Company; Hartford Accident and Indemnity Co; Government Employees Insurance Co; Republic Insurance Company; Sentry Insurance, Successor to, or, f/k/a Vanliner Insurance Company, f/k/a Great SW Fire Insurance Co; American International Ins. Co; AIU Insurance Company; Harbor Insurance Company; Travelers Casualty & Surety Co, Successor to, or, f/k/a Aetna Casualty & Surety Company; American Empire Insurance Co; Westchester Fire Insurance Co Travelers Casualty and Surety Company (f/k/a The Aetna Casualty and Surety Company), Appellant
    No. 15-3409
    United States Court of Appeals, Third Circuit.
    Argued September 9, 2016
    (Opinion Filed: April 21, 2017)

      Theodore J. Boutrous, Jr., [ARGUED], Richard J. Doren, Blaine H. Evanson GIBSON, DUNN & CRUTCHER, 333 South Grand Avenue, Los Angeles, CA 90071, Samuel J. Arena, Jr., Daniel T. Fitch, William T. Mandia, STRADLEY, RONON, STEVENS & YOUNG, 2005 Market Street, Suite 2600, Philadelphia, PA 19103, Counsel for Appellant, Travelers Surety and Casualty Company
    Michael Conley, [ARGUED], Meghan Finnerty, Mark. E. Gottlieb, William H. Pillsbury, OFFIT KURMAN, 1801 Market Street, 23rd Floor, Ten Penn Center, Philadelphia, PA 19103, Howard J. Bashman, Law Offices of Howard J. Bashman, 2300 Computer Avenue, Suite G-22, Willow Grove, PA 19090, Counsel for Appellee, General Refractories Company
    Laura A. Foggan, Esq., CROWELL & MORING, 1001 Pennsylvania Avenue, N.W., Washington, DC 20004, Counsel for Amicus Appellant American Insurance Association and Complex Insurance Claims Litigation Association.
    John N. Ellison, Esq., REED SMITH, 1717 Arch Street, Three Logan .Square, Suite 3100, Philadelphia, PA 19103, Counsel for Amicus Appellant United Policyholders.
    Before: JORDAN, VANASKIE and KRAUSE, Circuit Judges
   OPINION

VANASKIE, Circuit Judge.

Decades of litigation over the effects of pervasive .asbestos use have yielded a financial burden borne across an array of industries. Today we must decide which of two companies will bear costs associated with a staggering number of asbestos claims. These companies — a historical manufacturer of asbestos-containing products and its insurer — dispute the rightful allocation of asbestos-related losses under thirty-year-old excess insurance policies. While the policies are dated, the consequences of our interpretation are immediate both to the parties at hand and to those insurers and insureds whose relationships are similarly governed.

The chief issue on appeal is whether a policy exclusion that disclaims losses “arising out of asbestos” will prevent a manufacturer from obtaining indemnification for thousands of negotiated settlements with plaintiffs who have suffered adverse health effects from exposure to its asbestos-containing products.' The answer hinges on whether .the language of the exclusion is ambiguous. ’After a bench trial, the District Court found that the phrase “arising out of asbestos” contained latent ambiguity because the exclusion could reasonably be read to exclude only losses related to raw asbestos, as opposed to losses related to asbestos-containing products. We disagree. The phrase “arising out of,” when used in a Pennsylvania insurance exclusion, unambiguously requires “but for” causation. Because the losses relating to the underlying asbestos suits would not have occurred but for asbestos, raw or within finished products, we will reverse the judgment of the District Court.

I.

Plaintiff-Appellee General Refractories Company (“GRC”) is a manufacturer and supplier of refractory products that are designed to retain their strength when exposed to extreme heat. To serve this purpose, GRC previously included asbestos in some of its products. GRC’s use of asbestos brought about approximately 31,440 lawsuits alleging injuries from “exposure to asbestos-containing products manufactured, sold, and distributed by GRC” dating back to 1978. (J.A. 199.)

GRC’s insurers initially fielded these claims. During the 1970s and ‘80s, GRC 'had entered into primary liability insurance policies with a number of different insurers. GRC also secured additional excess insurance policies to provide liability coverage beyond the limits of its primary insurance policies, including several excess policies issued by Defendant-Appellant Travelers Surety and Casualty Company, formerly known as the Aetna Casualty and Surety Company. As the number of asbestos-related injury claims against GRC began to grow, the primary insurers continued to defend and indemnify GRC. But this arrangement came to a halt in 1994 when GRC’s liabilities from thousands of settled claims far exceeded the limits of its primary insurance coverage. In 2002, after years of continued settlements, GRC tendered the underlying claims to its excess insurance carriers, including Travelers, all of whom denied coverage on the basis of exclusions for asbestos claims.

GRC commenced this action against its excess insurers seeking a declaration of coverage for losses related to the underlying asbestos claims, as well as breach of contract damages. Gen. Refractories Co. v. First State Ins. Co., 94 F.Supp.3d 649, 652 n.1 (E.D. Pa. 2015). GRC eventually settled with all of the excess insurance defendants—except Travelers—by means of a stipulated dismissal with prejudice. Id. Travelers is the only excess insurer remaining in this litigation.

Travelers’ contractual relationship with GRC is governed by two substantively identical excess insurance policies providing coverage from 1985 to 1986. Each policy obliges Travelers to indemnify GRC “against EXCESS NET LOSS arising out of an accident or occurrence during the policy period” subject to the stated limits of liability and additional terms. (J.A. 370, 381.) In maintaining that it need not compensate GRC for losses related to the underlying asbestos claims, Travelers relies on an “Asbestos Exclusion” contained within the excess insurance contracts, which reads:

It is agreed that this policy does not apply to EXCESS NET LOSS arising out of asbestos, including but not limited to bodily injury arising out of asbestosis or related diseases or to property damage.

(J.A. 377, 388.) The policies do not define the terms “arising out of’ or “asbestos.” Gen. Refractories Co., 94 F.Supp.3d at 654.

At its core, the parties dispute the meaning of four words within the Asbestos Exclusion: “arising out of asbestos.” (J.A. 377, 388.) The District Court held a one-day bench trial specifically to interpret this language. GRC took the position that at the time the policies were drafted “arising out of asbestos” had a separate meaning than “arising out of asbestos-containing products.” Gen. Refractories Co., 94 F.Supp.3d at 653. In GRC’s view, the term “asbestos” plainly referred to the raw asbestos mineral that is “mined, milled, processed, produced, or manufactured for sale in its raw form.” Id. There is no dispute that GRC made and sold refractory products that sometimes contained asbestos components. But the parties also agree that GRC “never mined, milled, processed, produced, or manufactured raw mineral asbestos.” Id. at 654. Thus, GRC argued that the exclusion did not encompass claims based on exposure to its finished asbestos-containing products.

To support its narrow interpretation of the Asbestos Exclusion, GRC presented several types of extrinsic evidence, including:

• examples of comparable insurance policies that other insurers had issued in the late 1970s through 1985, which explicitly excluded “asbestos” and products containing asbestos;
• examples of comparable insurance policies that explicitly defined the term “asbestos” broadly as “the mineral asbestos in any form”;
• six consecutive policies sold by Travelers (as Aetna Casualty) to other policyholders from 1978 to 1985 which contained a more comprehensive and explicit asbestos exclusion than the one included in the two policies sold to GRC;
• the Wellington Agreement, which defined “Asbestos-Related Claims” as “any claims or lawsuits ... alleged to have been caused in whole or in part by any asbestos or asbestos-containing product”;
• the expert testimony of Gene Locks, a lawyer who represented over 15,000 asbestos claimants and was the lead negotiator at the Wellington meetings, in which Locks explained that the terms “asbestos” and “asbestos-containing product” had distinct meanings to the parties involved in asbestos litigation during the relevant timeframe.

Id. at 654-57.

On the other hand, Travelers contended that the only reasonable interpretation of the Asbestos Exclusion is that claims for injuries related to asbestos in any form were excluded. Travelers asserted that this is the “natural, plain, and ordinary meaning of the terms, ‘arising out of asbestos.’ ” Id. at 652-53. Thus, Travelers asserted that GRC’s losses associated with the underlying asbestos claims were precluded by the Asbestos Exclusion. For support, Travelers presented “GRC’s corporate records, as well [as] its communications with Travelers and its own insurance broker,” as evidence of “the parties’ intent to exclude — or their awareness, belief, or knowledge that the purchased insurance did exclude — all injuries related to asbestos in any form.” Id. at 656-57.

After weighing the evidence and arguments, the District Court issued a memorandum and order concluding that the Asbestos Exclusion contained a latent ambiguity “because the terms [were] reasonably capable of being understood in more than one sense.” Id. at 660. The District Court agreed that GRC’s interpretation of “asbestos” as referring only to the raw mineral asbestos rather than other finished products containing asbestos was “consistent with the plain meaning of the written policy,” and therefore “objectively reasonable,” and that Travelers had not met its burden of showing that GRC’s interpretation was unreasonable. Id.

Having found ambiguity, the District Court observed that GRC’s industry custom and trade usage evidence supported the assertion that “[djuring the relevant era, industry participants used the phrase to denote losses arising from mining, milling, producing, processing, or manufacturing the raw mineral,” not from “finished products.” Id. at 663. The District Court found no evidence in the record contradicting this interpretation, and further rejected Travelers’ characterization of its course of performance evidence. Id. at 663-664. Ultimately, the District Court concluded that Travelers had failed to “show not only that its interpretation is reasonable, but also that GRC’s interpretation is not reasonable.” Id. at 664. Accordingly, the District Court deemed the Asbestos Exclusion unenforceable to preclude indemnification to GRC for its losses in the underlying asbestos-related lawsuits, and issued a memorandum and order to this effect. The parties subsequently stipulated that, under the District Court’s interpretation of the exclusion, Travelers must cover $21,000,000 of GRC’s losses — the combined limit of the two excess insurance policies. The District Court accepted this stipulation, awarded GRC an additional $15,273,705 in prejudgment interest, and entered final judgment for GRC. Travelers now appeals the District Court’s interpretation of the Asbestos Exclusion.

II.

The District Court had diversity jurisdiction over this matter under 28 U.S.C. § 1332. We have appellate jurisdiction under 28 U.S.C. § 1291. Pennsylvania contract law governs. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-80, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). In Pennsylvania, “[t]he interpretation of an insurance contract is a question of law.” Donegal Mut. Ins. Co. v. Baumhammers, 595 Pa. 147, 938 A.2d 286, 290 (2007) (quoting Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 589 Pa. 317, 908 A.2d 888, 893 (2006)). Thus, we engage in plenary review of the District Court’s determination. Kroblin Refrigerated Xpress, Inc. v. Pitterich, 805 F.2d 96, 101 (3d Cir. 1986). In the first instance, the insured bears the burden of demonstrating that its claim falls within the policy’s affirmative grant of coverage. Koppers Co. v. Aetna Cas. & Sur. Co., 98 F.3d 1440, 1446 (3d Cir. 1996); Miller v. Boston Ins. Co., 420 Pa. 566, 218 A.2d 275, 277 (1966). Where an insurer seeks to disclaim coverage on the basis of a policy exclusion—as Travelers does here — the insurer bears the burden of proving the applicability of the exclusion as an affirmative defense. Madison Constr. Co. v. Harleysville Mut. Ins. Co., 557 Pa. 595, 735 A.2d 100, 106 (1999).

III.

We now review the District Court’s interpretation of the Asbestos Exclusion. In doing so, we must “ascertain the intent of the parties as manifested by the language of the written instrument.” Id. (quoting Gene & Harvey Builders v. Pa. Mfrs. Ass’n, 512 Pa. 420, 517 A.2d 910, 913 (1986)). Thus, the language of the contract must be the “polestar” of our inquiry. Id. When the language is clear and unambiguous, we give effect to that language. Id. But when the language is ambiguous, the provision should “be construed in favor of the insured and against the insurer.” Id.

A.

We begin by deciding whether the language of the Asbestos Exclusion is ambiguous. Pac. Emp’rs Ins. Co. v. Glob. Reinsurance Corp. of Am., 693 F.3d 417, 426 (3d Cir. 2012) (citing Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 519 A.2d 385, 390 (1986)). Ambiguity exists where the language of the contract is “reasonably susceptible of different constructions and capable of being understood in more than one sense.” Madison Constr. Co., 735 A.2d at 106 (quoting Hutchison, 519 A.2d at 390). After a bench trial, the District Court found the language of the Asbestos Exclusion to contain latent ambiguity. We disagree with the District Court’s penultimate conclusion because the Court’s analysis overlooked the phrase “arising out of,” which has an established, unambiguous meaning under Pennsylvania insurance law.

The District Court properly began its analysis by determining whether the text of the Asbestos Exclusion, which precludes indemnification for “EXCESS NET LOSS arising out of asbestos,” was ambiguous. GRC had asserted that “asbestos” refers only to mineral asbestos in its raw, unprocessed form. Travelers, on the other hand, maintained that “asbestos” is a purposefully broad term which encompasses both asbestos in its raw form and products which contain asbestos — such as those manufactured and sold by GRC.

Driven by the parties’ arguments, the District Court largely focused on whether the word “asbestos” was reasonably susceptible of differing interpretations. After examining various dictionary definitions and grammatical uses of “asbestos,” it concluded that the term’s common usage “revealed] a latent ambiguity as to what it denotes.” Gen. Refractories Co., 94 F.Supp.3d at 658-59. Without deciding which of the parties’ views was more reasonable, the District Court found that both were consistent with the plain meaning of the language and objectively reasonable. Because “asbestos” was “reasonably capable of being understood in more than one sense,” the District Court held that the exclusion was ambiguous. Id. at 660.

While the District Court engaged in a thorough analysis of the breadth of the term “asbestos,” its focus was misplaced. The rest of the language at issue— “arising out of’ — has an unambiguous legal meaning that renders any uncertainty concerning the meaning of the word “asbestos” immaterial. Pennsylvania courts have long construed the phrase “arising out of’ — when used in the context of an insurance exclusion — to “[m]ean[ ] causally connected with, not proximately caused by.” McCabe v. Old Republic Ins. Co., 425 Pa. 221, 228 A.2d 901, 903 (1967); Forum Ins. Co. v. Allied Sec., Inc., 866 F.2d 80, 82 (3d Cir. 1989). A policy provision containing the phrase “arising out of’ is satisfied by “ ‘[b]ut for’ causation, i.e., a cause and result relationship.” Mfrs. Cas. Ins. Co. v. Goodville Mut. Cas. Co., 403 Pa. 603, 170 A.2d 571, 573 (1961).

Recognizing that Pennsylvania courts consistently interpret “arising out of’ to require “but for” causation, we have previously observed that this formulation is “well-settled,” having been applied in numerous insurance law contexts. Allstate Prop. & Cas. Ins. Co. v. Squires, 667 F.3d 388, 391-92 (3d Cir. 2012). This understanding of the phrase is entrenched in Pennsylvania jurisprudence. See, e.g., Forum Ins. Co., 866 F.2d at 82 (holding that “arising out of’ requires “but for” causation in the context of an exclusion for injury or death arising in the course of employment); Smith v. United Servs. Auto. Ass’n, 392 Pa.Super. 248, 572 A.2d 785, 787 (1990) (requiring “but for” causation in interpreting an uninsured motorist provision); Erie Ins. Exch. v. Eisenhuth, 305 Pa.Super. 571, 451 A.2d 1024, 1025 (1982) (no-fault automobile insurance policy); Tuscarora Wayne Mut. Ins. Co. v. Kadlubosky, 889 A.2d 557, 563 (Pa. Super. Ct. 2005) (commercial general liability insurance policy); Roman Mosaic & Tile Co. v. Aetna Cas. & Sur. Co., 704 A.2d 665, 669 (Pa. Super. Ct. 1997) (same). Not only have courts applying Pennsylvania law interpreted “arising out of’ to require “but for” causation, they have also held that the phrase is unambiguous. See Madison Constr. Co., 735 A.2d at 110 (finding that “arising out of’ language was not ambiguous); McCabe, 228 A.2d at 903 (same); see also Forum Ins. Co., 866 F.2d at 82 (relying on McCabe in rejecting an argument that a policy exclusion containing the phrase “arising out of ... his employment” was ambiguous).

With this consistent interpretation in mind, we find that the plain language of the Asbestos Exclusion, disclaiming “EXCESS NET LOSS arising out of asbestos,” is unambiguous on its face and is not “reasonably susceptible of different constructions.” Madison Constr. Co., 735 A.2d at 106. The provision plainly encompasses losses that would not have occurred but for asbestos or which are causally connected to asbestos. Pennsylvania law permits no other interpretation.

B.

Although we find the language of the policy to be clear on its face, our inquiry does not immediately end when the plain meaning of the provision is unambiguous. Evidence of industry custom or trade usage “is always relevant and admissible in construing commercial contracts,” and does not depend on the existence of ambiguity in the contractual language. Sunbeam Corp. v. Liberty Mut. Ins. Co., 566 Pa. 494, 781 A.2d 1189, 1193 (2001). Where it can be shown that words have a special meaning or-usage in a particular industry, “members of that industry are presumed to use the words in that special way, whatever the words mean in common usage and regardless of whether there appears to be any ambiguity in the words.” Id.

In the course of arguing that “asbestos” had a separate and distinct meaning from “asbestos-containing products,” GRC presented industry custom and trade usage evidence which was ultimately credited by the District Court as supporting GRC’s narrow interpretation of the exclusion. Gen. Refractories Co., 94 F.Supp.3d at 654-57. While GRC’s evidence may bear on the ambiguity of the word “asbestos,” it does not cloud the meaning of the phrase “arising out of.” GRC even agrees that “arising out of’ requires “but for” causation. In its brief, GRC explains that its proffered “interpretation of the Asbestos Exclusion itself utilizes a ‘but for’ causation standard.” (Appellee Br. at 32.) GRC clarifies that its argument has been that the Asbestos Exclusion “excludes losses related to (or ‘but for’) the mineral asbestos, as opposed to losses related to or ‘but for’ GRC’s asbestos-containing products.” (Appellee Br. at 32.)

This argument by GRC incorrectly presumes that the méaning attached to “asbestos” would have a material effect on the outcome of this coverage dispute. But assigning “but for” causation to the phrase “arising out of’ carries the important consequence of negating any material ambiguity that the term “asbestos” may introduce into the clause. Even the narrowest interpretation of “asbestos” — as referring only to raw mineral asbestos — leads to the con-elusion that coverage for losses associated with the claims against GRC is disclaimed by the Asbestos Exclusion. While we express no opinion about whether the term “asbestos” is ambiguous here, if we were to credit GRC’s theory that “asbestos” only referred to mineral asbestos in its raw, unprocessed form — as the District Court did' — the asbestos claims against GRC would still fall within the Asbestos Exclusion.

The application of “but for” causation compels the conclusion that GRC’s losses are excluded under the policy as a matter of law. “But for” causation “requires the plaintiff to show ‘that the harm would not have occurred’ in the absence of — that is, but for—the defendant’s conduct.” Univ. of Tex. Sw. Med. Ctr. v. Nassar, — U.S. —, 133 S.Ct. 2517, 2525, 186 L.Ed.2d 503 (2013) (citing Restatement (First) of Torts § 431 cmt. a (1934)); see also Robertson v. Allied Signal, Inc., 914 F.2d 360, 366 (3d Cir. 1990) (noting that “[clause in fact or ‘but for’ causation requires proof that the harmful result would not have come about but for the conduct of the defendant”); First v. Zem Zem Temple, 454 Pa.Super. 548, 686 A.2d 18, 21 n.2 (1996) (quoting E.J. Stewart, Inc. v. Aitken Prods., Inc., 607 F.Supp. 883, 889 (E.D. Pa. 1985)) (“Cause in fact or ‘but for’ causation provides that if the harmful result would not have come about but for the negligent conduct then there is a direct causal connection between the negligence and the injury.”). “But for” causation “is a de minimis standard of causation, under which even the most remote and insignificant force may be considered the cause of an occurrence.” Takach v. B.M. Root Co., 279 Pa.Super. 167, 420 A.2d 1084, 1086 (1980).

The claims that underlie this litigation stem from exposure to the asbestos incorporated into the finished products that GRC manufactured or sold. GRC “only paid settlements and incurred damages when the underlying claimants alleged exposure to GRC’s asbestos-containing products.” (Appellee Br. at 37; J.A. 36.) For each such settlement, a claimant was required to produce “sworn evidence of exposure to a GRC asbestos-containing product” and “medical verification of an asbestos-related disease.” (Appellee Br. at 5; J.A. 36.) GRC’s own expert, Gene Locks, testified that asbestos exposure is a necessary precursor to asbestos-related disease. (J.A. 316:18-21.) Locks further agreed that “[w]hatever disease [the asbestos plaintiffs] had would have been caused by whatever asbestos fiber they were exposed to, whether it came from the raw asbestos ... or it was in the end product.” (J.A. 302:7-20.) This is true both of plaintiffs working in a profession that required exposure to raw asbestos — such as a miner or miller — and those who were exposed to asbestos-containing products. (Id.) Locks also testified that the fiber released from a product containing asbestos is “[t]he same fiber that’s ultimately milled.” (J.A. 303:6-9; see also id. at 302:21-303:5; 304:3-5; 304:18-20; 317:12-22 (stating that asbestos is contained within the end product).)

It is clear that there is an appropriate causal connection between asbestos and the losses GRC suffered in asbestos litigation, and applying GRC’s narrow interpretation of “asbestos” as referring only to raw mineral asbestos does not affect the outcome. Even setting aside Lock’s testimony, there is no dispute that some of GRC’s products contain asbestos, that the plaintiffs in the underlying asbestos lawsuits were exposed to GRC’s asbestos-containing products, and that these plaintiffs allege injuries from asbestos-related diseases. These facts alone compel the conclusion that asbestos in its raw mineral form is causally connected to the losses GRC has incurred as a result of these lawsuits. But for the inclusion of asbestos in GRC’s products — which was originally mined or milled as a raw mineral — the plaintiffs exposed to those products would not have contracted asbestos-related diseases. In order to find that losses relating to exposure to asbestos-containing products are not causally connected to raw asbestos, we would need to assign a different standard of causation to the phrase “arising out of,” which is inconsistent with the plain meaning of the language in this Pennsylvania insurance exclusion.

C.

GRC finally contends that Travelers waived the causation argument by not raising it before the District Court. Appellate courts will generally refuse to consider issues that the parties did not raise below. Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240, 249 (3d Cir. 2013) (citing Singleton v. Wulff, 428 U.S. 106, 120, 96 S.Ct. 2868, 49 L.Ed.2d 826 (1976)). To preserve an argument, a party must “unequivocally put its position before the trial court at a point and in a manner that permits the court to consider its merits.” Shell Petroleum, Inc. v. United States, 182 F.3d 212, 218 (3d Cir. 1999). But while parties may not raise new arguments, they may “place greater emphasis” on an argument or “more fully explain an argument on appeal.” United States v. Joseph, 730 F.3d 336, 341 (3d Cir. 2013). The parties may even “reframe” their argument “within the bounds of reason.” Id.

Travelers has argued throughout this litigation that GRC’s losses associated with asbestos claims “arise out of asbestos” because the claims were caused by exposure to the asbestos in GRC’s products. (See, e.g., Travelers’ Post-Trial Br. at 8, E.D. Pa. Docket No. 631; Travelers’ Proposed Findings of Fact at 9, E.D. Pa. Docket No. 630; Travelers’ Mot. for Summ. J. at 10—11, E.D. Pa. Docket No. 338; Travelers’ Reply Br. on Mot. for Summ. J. at 2, E.D. Pa. Docket No. 397.) The causal connection between the claims for which GRC seeks indemnification and asbestos in whatever form has been an integral part of Travelers’ argument as to why the Asbestos Exclusion is applicable. While Travelers has focused on this argument with greater specificity on appeal, the causation analysis required by the Asbestos Exclusion has always been at issue. GRC is correct that Travelers had never before specified that “arising out of’ is legally synonymous with “but for” causation, but GRC also acknowledged that this theory is the “latest iteration of [Travelers’] argument that the claims are excluded by the ‘plain meaning’ of the Asbestos Exclusion.” (Appellee Br. at 20.) In GRC’s own words, Travelers has consistently “maintained that the ‘plain-meaning’ of the exclusion has only one reasonable interpretation to exclude claims relating to asbestos in any form.” (Appellee Br. at 22.) Travelers’ plain-meaning theory has always hinged on whether the underlying lawsuits were caused by asbestos.

But even if Travelers’ argument-had not been placed before the District Court, we would nonetheless consider it in reaching our conclusion. In “exceptional circumstances,” the “public interest can require that the issue be heard.” Walton v. Mental Health Ass’n of Se. Pa., 168 F.3d 661, 671 (3d Cir. 1999). This is just such an occasion. The language found within this exclusion is prevalent in insurance contracts, and our interpretation may affect a wide range of insurers and insureds beyond the immediate parties to the suit. See. Selected Risks Ins. Co. v. Bruno, 718 F.2d 67, 69-70 (3d Cir. 1983) (holding that exceptional circumstances were present where proper application of Pennsylvania public policies with respect to insurance contracts would affect “every inhabitant ... and the insurance companies that serve them”).

The language in Travelers’ policies is far from unique; it is found in numerous Pennsylvania insurance policies that have been issued in the fifty years since the decision in Goodville established the meaning of “arising out of.” Were we to ignore the consistent and explicit meaning assigned to the phrase in Pennsylvania insurance exclusions, we would cast doubt on a tradition of interpretation that many parties have relied upon in defining their contractual obligations. Parties to an' insurance contract must be able to place faith in consistent interpretations of common language when drafting their policies if they are to properly allocate the risks involved. While future parties may present evidence demonstrating a meaning of “arising out of’ that is unique to their contract, the phrase is not ambiguous on its face when used in a Pennsylvania insurance contract.

IV.

For the foregoing reasons, we reverse the District Court’s judgment and remand with instructions to enter judgment in favor of Travelers.

      . Both Travelers policies define "EXCESS NET LOSS” as "that part of the total of all sums which the INSURED becomes legally obligated to pay or has paid, as damages on account of any one accident or occurrence, and which would be covered by the terms of the Controlling Underlying Insurance, if written without any limit of liability, less realized recoveries and salvages, which is in excess of any self-insured retention and the total of the applicable limits of liability of all policies described in [the] Schedule of Underlying Insurance; whether or not such policies are in force.” (J.A. 370, 381.)

      . The broader asbestos exclusion read: "[T]his insurance does not apply to bodily injury which arises in whole or in part, either directly or indirectly, out of asbestos, whether or not the asbestos is airborne as a fiber or particle, contained in a product, carried on clothing, or transmitted in any fashion whatsoever.” Gen. Refractories Co., 94 F.Supp.3d at 655.

      . In the early 1980s, meetings between the plaintiffs’ bar, target defendants in asbestos-related litigation, and six major insurance carriers (including Aetna Casualty) were moderated by Harry Wellington, Dean of Yale Law School. As a result, a settlement process emerged which came to be known as the Wellington Agreement. Gen. Refractories Co., 94 F.Supp.3d at 656.

      . GRC explains that it "has offered custom and trade usage evidence to support its assertion that 'asbestos' and 'asbestos-containing products’ were distinct terms and that 'asbestos' was not used to unambiguously subsume 'asbestos-containing products.'" (Appellee Br. at 43 n.5, 44-45.) No mention is made of how the evidence bears on the meaning of "arising out of.”


source: Caselaw Access Project

author: KRAUSE, Circuit Judge.

license: Public Domain

text:
    COVERTECH FABRICATING, INC. v. TVM BUILDING PRODUCTS, INC.; TVM Canada, Inc. TVM Building Products, Inc., Appellant
    No. 15-3893
    United States Court of Appeals, Third Circuit.
    Argued: September 21, 2016
    (Opinion Filed: April 18, 2017)

      Brian W. Shaffer, Esq. [ARGUED], Andrew C. Whitney, Esq., Morgan Lewis & Bockius, 1701 Market Street, Philadelphia, PA 19103, Attorney for Plaintiff-Appellee
    J. Michael Baggett, Esq. [ARGUED], McCann Garland Ridal & Burke, Suite 1030, 11 Stanwix Street, Pittsburgh, PA 15222, Attorney for Defendant-Appellant
    Before: JORDAN, VANASKIE, and KRAUSE, Circuit Judges
   OPINION OF THE COURT

KRAUSE, Circuit Judge.

Too often the silence of contracting parties must be filled by the voice of the courts. Such is the case here, where we are called upon to resolve a trademark dispute in which no written contract designates ownership, and, in the process, to clarify the paradigm through which common law ownership of an unregistered trademark is determined when the initial sale of goods bearing the mark is between a manufacturer and its exclusive distributor. The District Court in this case awarded ownership to the manufacturer, but did so on the basis of the first use test, and found the distributor liable for infringement and fraud before rejecting its defense of acquiescence and awarding damages under the Lanham Act. Because the District Court failed to recognize and apply the rebuttable presumption of manufacturer ownership that we conclude pertains where priority of ownership is not otherwise established, and because the District Court incorrectly relied on gross sales unadjusted to reflect sales of infringing products to calculate damages, we will affirm on alternative grounds as to ownership, will affirm as to fraud and acquiescence, and will vacate and remand as to damages.

I. Factual Background and Procedural History

Covertech Fabricating, Inc. is a manufacturer of protective packaging and reflective insulation located in Toronto, Canada. Since 1998, it has sold numerous reflective insulation products under the umbrella of its lucrative rFOIL brand — a United States trademark that has been registered in Covertech’s name since 2001. The rFOIL brand comprises the following products: ULTRA NT RADIANT BARRIER (“ULTRA”), NT RADIANT BARRIER, CONCRETE BARRIER FOIL, CONCRETE UNDERPAD, and ULTRA CONCRETE UNDERPAD. CONCRETE BARRIER, like the umbrella rFOIL brand, is a registered United States trademark.

TVM Building Products, Inc. is a distributor of specialty building materials operating out of Johnstown, Pennsylvania. In 1998, the President of TVM, Michael Boulding, and the owner and President of Covertech, Furio Orologio, entered into a verbal agreement (the “exclusive distribution agreement”), which designated TVM as the exclusive marketer and distributor of Covertech’s rFOIL insulation products in the United States. Under the terms of the exclusive distribution agreement, Cov-ertech sold its rFOIL products directly to TVM for resale to customers in the United States at a markup; in turn, TVM refrained from selling competitor products in the United States. TVM held exclusive responsibility for customer service and marketing of Covertech products in the United States, and while Covertech reviewed and approved advertising materials designed by TVM, it otherwise played no role in marketing, sales, or customer service.

In October 2007, Covertech terminated the exclusive distribution agreement, both because TVM was consistently struggling to remit timely payment and because Cov-ertech discovered TVM had been purchasing comparable product from another manufacturer, Reflectix, and passing off some of its merchandise as Covertech’s. At the time, TVM assured Covertech that its labeling indiscretions were isolated incidents caused by errors in filling its orders. In late 2007 or early 2008, the parties entered a new agreement (the “private label agreement”) pursuant to which Covertech manufactured products for TVM to sell under its own TVM brand name, and Covertech also continued to sell certain rFOIL products to TVM for resale to customers using Covertech’s product names. Under this agreement, TVM represented that it would refrain from buying products from Cover-tech’s competitors.

Despite TVM’s promise, it purchased over $2.2 million in reflective insulation products from Reflectix between 2006 and 2009, and in 2009 it began to purchase comparable goods from another competitor, Soprema. In late 2010 or early 2011, shortly after Covertech learned of TVM’s illicit purchases, the parties terminated their relationship entirely, including the private label agreement, and Covertech proceeded to sell its own products directly in the United States.

Nonetheless, TVM, without authorization from or consultation with Covertech, continued to market its reflective insulation products using the rFOIL brand names. For example, in 2011, TVM advertised using the CONCRETE BARRIER, CONCRETE UNDERPAD, and ULTRA CONCRETE UNDERPAD brands in its own product catalog, and between 2009 and 2013, TVM marketed non-Covertech products on its website using the rFOIL, CONCRETE BARRIER, CONCRETE UNDERPAD, and ULTRA CONCRETE UNDERPAD labels. At no point did Cov-ertech give TVM permission to sell merchandise using these product names, and on multiple occasions when Covertech was alerted to particular instances of such unauthorized sales during this period, Cover-tech confronted TVM in phone calls and demanded that it discontinue this practice.

Over the years that Covertech engaged TVM as its distributor and made efforts, short of court action, to persuade TVM to stop using rFOIL brand names in its advertising, Covertech also took steps to protect its ownership of the mark in Canada and the United States. Specifically, in 2009, Covertech filed a petition to register ULTRA as a trademark with the Canadian Intellectual Property Office (“CIPO”), which registered the mark in 2010. The next year, although Covertech had informed TVM of its registration in Canada, TVM — without notice to or permission from Covertech — petitioned the United States Patent and Trademark Office (“PTO”) to register ULTRA as a trademark in its name. Once it learned that the PTO granted that petition, Covertech filed an adverse petition with the PTO seeking registration of ULTRA in its own name and filed the lawsuit in federal court against TVM that gives rise to this appeal.

After a one-week bench trial, the District Court granted judgment in favor of Covertech on all claims and, as relevant to this appeal, calculated TVM’s ill-gained profits of $4,054,319 and alternative statutory damages of $4 million for TVM’s infringement of the rFOIL and CONCRETE BARRIER marks. See 15 U.S.C. § 1117(a), (c). Because Covertech elected to receive the profit calculation, judgment in its favor was awarded in that amount for the infringement of those marks. The District Court subsequently denied TVM’s omnibus motion for amended and additional findings, altered and amended judgment, and a new trial, and awarded Cover-tech attorneys’ fees and expenses. This appeal followed.

II. Jurisdiction and Standard of Review

The District Court had jurisdiction pursuant to 28 U.S.C. §§ 1331, 1332, and 1367, and we have jurisdiction pursuant to 28 U.S.C. § 1291. We review a district court’s factual findings following a bench trial for clear error, affording “due regard to the trial court’s opportunity to judge the witnesses’ credibility.” Post v. St Paul Travelers Ins. Co., 691 F.3d 500, 514-15 (3d Cir. 2012) (quoting Fed. R. Civ. P. 52(a)(6)); see also United States v. Mallory, 765 F.3d 373, 381-82 (3d Cir. 2014). In contrast, we review conclusions of law, including “choice and interpretation of legal precepts,” de novo, Post, 691 F.3d at 515, and an award of profits under the Lanham Act for abuse of discretion, see Banjo Buddies, Inc. v. Renosky, 399 F.3d 168, 173 (3d Cir. 2005).

III. Discussion

TVM raises four issues on appeal. First, it contends that the District Court erred in determining that, Coverteeh, not TVM, is the owner of the ULTRA trademark. Second, TVM challenges the District Court’s holding that TVM committed fraud on the PTO in applying to register the ULTRA trademark in its name. Third, TVM asserts that the District Court erred in rejecting TVM’s affirmative defenses of acquiescence and laches. Finally, TVM argues that the District Court abused its discretion in awarding $4,054,319 in damages to Coverteeh for TVM’s infringement of the CONCRETE BARRIER and rFOIL marks. We address these issues in turn.

A. Ownership

In assessing the rightful ownership of the ULTRA mark, the District Court relied on the “first use test,” which determines initial ownership by asking which party was the first to use an unregistered trademark in commerce. See United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 100, 39 S.Ct. 48, 63 L.Ed. 141 (1918); Ford Motor Co. v. Summit Motor Prods., Inc., 930 F.2d 277, 292 (3d Cir. 1991). The District Court applied that test to the record developed over five days of trial to conclude that Coverteeh was the rightful owner. For the reasons below, we conclude (1) the first use test was not the correct test given the unique context of the manufacturer-distributor relationship, and (2) the District Court should nonetheless be affirmed because ownership still goes to Coverteeh when the correct test is applied.

1. The First Use Test v. The McCarthy Test

The first use test is generally proper for unregistered trademarks, taking account of the well-established common law principle of “first-in-time, first-in-right” that rewards actual and continuous use in commerce as between market competitors. See Ford Motor Co., 930 F.2d at 292; 2 J. Thomas McCarthy, McCarthy on Trademarks & Unfair Competition § 16.1 (4th ed. 2017). This paradigm is an imperfect fit, however, when it comes to the often exclusive and noncompetitive manufacturer-distributor relationship, where ownership rights would inure to the benefit of the distributor in a multitude of cases based simply on the fact that the distributor, albeit at the manufacturer’s direction, made the initial sale of goods bearing the mark to the public.

In contrast to a single actor’s entry into the market, manufacturers and distributors typically engage in concerted action and thus may, at the outset of the relationship, make any number of arrangements for the handling of the mark. In some cases, the parties’ distribution agreement may make express provision for ownership of the mark in either party. See Premier Dental Prod. Co. v. Darby Dental Supply Co., 794 F.2d 850, 854 (3d Cir. 1986). In other cases, there may be an express assignment of ownership — that is, the sale of a mark—passing the assignor’s rights in the mark to the assignee. See Doeblers’ Pa. Hybrids, Inc. v. Doebler, 442 F.3d 812, 821-22 (3d Cir. 2006); 2 McCar thy on Trademarks § 18:1: In still other manufacturer-distributor relationships, the contracting parties may omit to make explicit provision for ownership of a mark, but even so, have no expectation that a manufacturer, merely by contracting with a distributor, thereby relinquishes its ownership rights in favor of the distributor. To presume that in every case where ownership is not decided in advance, a distributor who makes the initial public sale thereby assumes the mark and the manufacturer cedes any claim to initial ownership would defy logic and common sense. Thus, it cannot be that, in the absence of a contractual arrangement, the first use test automatically fills that gap. Instead, a different test accounting for the realities of the manufacturer-distributor relationship must control.

For that reason, when we first considered the manufacturer-distributor domain in Doebler, we cited approvingly the ownership test expounded by Professor J. Thomas McCarthy in his seminal treatise on trademark law. Doebler, 442 F.3d at 826 (quoting 2 McCarthy on Trademarks § 16:48). But we had no need in Doebler to expressly adopt that test because, in that case, initial ownership as between the manufacturer and distributor was clearly established. Id. at 826-27. Today, the issue is squarely presented to us, and we find the McCarthy test has much to recommend it.

As Professor McCarthy explains, where initial ownership between a manufacturer and its exclusive distributor is at issue and no contract exists, the manufacturer is the presumptive trademark owner unless the distributor rebuts that presumption using a multi-factor balancing test designed to examine the distribution agreement in effect between the parties. 2 McCarthy on Trademarks § 16.48; see also 5 McCarthy on Trademarks § 29.8.

The' six factors that should be considered are: (1) “[w]hich party invented or created the mark”; (2) “[w]hich party first affixed the mark to goods sold”; (3) “[w]hich party’s name appeared on packaging and promotional materials in conjunction with the mark”; (4) “[w]hich party exercised control over the nature and quality of goods on which the mark appeared”; (5) “[t]o which party did customers look as standing behind the goods, e.g., which party received complaints for defects and made appropriate replacement or refund”; and (6) “[w]hich party paid for advertising and promotion of the trademarked product.” Doebler, 442 F.3d at 826 (quoting 2 McCarthy on Trademarks § 16:48).

The presumption and rebuttal factors of the McCarthy test place a thumb on the ownership scale in favor of the manufacturer, but invite courts to consider various indicia of ownership designed to elicit the roles and responsibilities of the parties and the expectations of consumers in order to gauge whether, in a given case, the distributor and not the manufacturer operated as the rightful owner of the contested mark. Thus, unlike the first use test, this approach allows courts to undertake a thorough, individualized analysis of each case that accounts for the unique attributes of the manufacturer-distributor relationship.

We are persuaded by Professor McCarthy’s approach, and hold today that as between a manufacturer and its exclusive distributor, there is a rebuttable presumption of initial trademark ownership in favpr of the manufacturer, and that Professor McCarthy’s test is the proper analytical tool through which a distributor may attempt to rebut that presumption in the absence of a contractual agreement.

Our adoption of this test is also consistent with our sister Circuits, which, when asked to determine ownership in this context, have endorsed some version of the McCarthy test, see TMT N. Am., Inc. v. Magic Touch GmbH, 124 F.3d 876, 884 n.4 (7th Cir. 1997); Sengoku Works Ltd. v. RMC Int’l, Ltd., 96 F.3d 1217, 1220 (9th Cir. 1996), as have a number of district courts, see, e.g., Prod. Source Int’l, LLC v. Nahshin, 112 F.Supp.3d 383, 395-97 (E.D. Va. 2015); Tecnimed SRL v. Kidz-Med, Inc., 763 F.Supp.2d 395, 403 (S.D.N.Y. 2011), aff'd, 462 Fed.Appx. 31, 33 (2d Cir. 2012); Ilapak Research & Dev. S.A. v. Record SpA, 762 F.Supp. 1318, 1322 (N.D. Ill. 1991). While some courts have distilled Professor McCarthy’s six factors to four, see Sengoku, 96 F.3d at 1220; Tecnimed, 763 F.Supp.2d at 403, and others have varied the language, see, e.g., Ilapak, 762 F.Supp. at 1322, all have cited either to Professor McCarthy’s treatise itself or to cases that do so, applying the McCarthy test with only minor variations across the federal courts.

Despite its general acceptance and although our own adoption of it today was presaged by Doebler, the McCarthy test is absent from the District Court’s analysis of the ULTRA mark in this case. Nor, apparently, did the parties recognize its relevance, as it garnered nary a mention in their briefing before the District Court or on appeal. Instead, the District Court and the parties relied on Premier Dental Products Co. v. Darby Dental Supply Co., 794 F.2d 850 (3d Cir. 1986), where we counseled consideration of a product’s goodwill before finding that ownership has vested in a distributor, even when the manufacturer has expressly assigned title to the mark. See id. at 853-54. In Doebler, however, we cabined Premier to only those cases involving express assignment of a mark. Doebler, 442 F.3d at 826-27 & n.16. Yet the case before us, all parties agree, falls outside that category.

After we asked the parties to address Doebler in supplemental submissions and at argument, TVM conceded the District Court’s error and the applicability of the McCarthy test and urged that it should prevail when that test is applied; Cover-tech, however, sought to defend the District Court’s decision in its favor, including the District Court’s application of the first use test. In support, though, Covertech merely directed us to Ford Motor Co., our case adopting the first use test, without explaining why that test, rather than the McCarthy test, should apply here. See Ford Motor Co., 930 F.2d at 292.

We conclude the District Court’s application of the first use test was legal error. To the extent there was any ambiguity after Doebler, we resolve it today: In the absence of a contractual arrangement or assignment, the McCarthy test is the proper test to apply to determine ownership in the manufacturer-distributor context.

2. Applying The McCarthy Test

Where a district court has applied the incorrect legal test to make the ruling under review, we may remand for that court to apply the right test in the first instance. See, e.g., Forestal Guarani S.A. v. Daros Int’l, Inc., 613 F.3d 395, 401 (3d Cir. 2010). Here, however, the six factors of the McCarthy test are fully briefed, the parties have confirmed that they would not add to the record on remand, and our application of the test may provide helpful guidance to district courts. We therefore proceed to apply the test ourselves, evaluating each of the six factors and concluding that, on balance, they favor Covertech. See Wallach v. Eaton Corp., 837 F.3d 356, 374-75 (3d Cir. 2016).

First, we query which party invented or created the mark. Although it did so in the context of its first use analysis, the District Court made a finding that “Covertech developed and used the ULTRA ... brand.” App. 11. We review that finding for clear error, and see none. See Post, 691 F.3d at 514. The District Court’s finding is supported by the testimony of Coverteeh’s Vice President, Jonathan Starr, who explained that Covertech developed ULTRA as a “heavier-duty product” that “evolved” from its original NT RADIANT BARRIER product line. App. 862, 886, 902. Conversely, TVM contends that the testimony of its President, Michael Boulding, supports TVM’s invention of the mark, ie., Boulding’s statements that TVM encouraged the production of a new insulation product and fashioned the ULTRA nomenclature that followed. But, in doing so, TVM ignores the fact that the District Court judged Boulding to be incredible. We will not disturb the District Court’s credibility determination — “quintessentially the province of the trial court, not the appellate court” — except in “rare circumstances,” not present here, Scully v. US WATS, Inc., 238 F.3d 497, 506 (3d Cir. 2001), such as when “specific evidence” exists showing “the Court’s findings were made in clear error,” Trs. of the Nat’l Elevator Indus. Pension, Health Benefit & Educ. Funds v. Lutyk, 332 F.3d 188, 194 (3d Cir. 2003) (internal quotation marks omitted). Thus, far from rebutting Cover-tech’s ownership, this factor supports it.

Second, regarding which party first affixed the mark to the goods sold, although TVM asserts that “[t]he record does not adequately reflect the labeling of the ULTRA ... product prior to the expiration of the exclusivity agreement,” Appellant’s Suppl. Br. 4, the record unequivocally demonstrates that labeling was handled by Covertech. Peter Clarke, a sales representative of Covertech and a former employee of TVM, testified that during the period of the exclusive distribution agreement, Cov-ertech factory employees used a label chart to guide them when affixing labels to manufactured products. The District Court deemed that testimony credible, and we, of course, defer to such credibility findings absent clear error. See Trs. of the Nat’l Elevator Indus. Pension, 332 F.3d at 194. Even Boulding conceded that TVM “would provide the artwork to Covertech in a form that they could then print the labels in order to adhere them to the product.” App. 1102. In sum, this factor too favors Cover-tech.

The third factor, which party’s name appeared on packaging and promotional materials in conjunction with the mark, is more equivocal. The record reveals examples of promotional materials that display both the Covertech and the TVM logos in connection with advertisement of the ULTRA mark and associated products, and while TVM’s name is consistently larger and more prominently visible, Covertech’s is associated with warranties. Because we are unable to discern any relative significance in their manner of display, this factor is in equipoise.

As to the fourth factor, which party exercised control over the nature and quality of the goods on which the mark appeared, although there is evidence on both sides, we conclude the evidence again tips in Covertech’s favor. The District Court found that Covertech manufactured all products contested in this suit, and that TVM fielded complaints and supplied technical support to customers, and the parties do not dispute that Covertech bore responsibility for warranties and manufactured the ULTRA product. While Boulding offered testimony that TVM monitored and set in motion the modification of goods that later became associated with the ULTRA mark, we accord little weight to that testimony in view of the District Court’s general credibility findings as to that witness. See Trs. of the Nat'l Elevator Indus. Pension, 332 F.3d at 194. TVM’s rebuttal garners no support from this factor.

TVM fares no better with the fifth factor, ie., to which party did customers look as standing behind the goods — for example, which party received complaints for defects and made appropriate replacements or refunds. Although the District Court’s findings and the record reflect TVM’s high-visibility roles in marketing, sales, and fielding customer complaints, it is undisputed that Covertech provided the warranties for ULTRA products and that this was made plain in product advertisements. In addition, Covertech presented customer testimony, found credible by the District Court, that reflected the ULTRA products were associated with Covertech. This factor thus supports Covertech’s ownership.

The sixth and last factor — which party paid for advertising and promotion of the trademarked product — as it turns out, is the only one that favors TVM. It is undisputed that TVM was responsible for advertising and promoting the products for sale in the United States, including ULTRA, and the District Court found that TVM “was compensated by being the exclusive distributor of the product line and getting Covertech’s products at a very good price, which it would then mark up for sale in the United States.” App. 16. Although Cover-tech contends these discounts were tantamount to its own payment and responsibility for advertising, that contention finds no support in the record.

Having reviewed all six factors, we conclude the presumption is dispositive, as the weight of the McCarthy factors is indisputably in Covertech’s favor. While a mere counting of the factors is not dispositive— the weight of each being variable with the facts — the numbers here, as well as the weight, favor Govertech. Factors one, two, four, and five, are for Covertech; factor three is inconclusive; and factor six is for TVM. Even if the balance was in equilibrium, such a result would still be insufficient to overcome Covertech’s presumptive ownership of the ULTRA mark. The District. Court’s conclusion that Covertech was the rightful owner of the mark, albeit under an incorrect test, was thus correct, and we will affirm as to that ruling.

B. Fraud on The PTO

In addition to ownership of the mark, TVM challenges the District Court’s cancellation of TVM’s registration of the mark based on a finding of fraud on the PTO, specifically, its finding that Boulding made intentional misrepresentations in TVM’s application to register the ULTRA trademark and its legal conclusion that TVM committed fraud. These 'challenges lack merit.

The Lanham Act provides'that a third party may petition for cancellation of a registered trademark if the registration was procured by fraud, 15 U.S.C. §§ 1064(3), 1120, a showing that must be made by clear and convincing evidence that the “applicant or registrant knowingly ma[de] a false, material representation with the intent to deceive the PTO,” In re Bose Corp., 580 F.3d 1240, 1245 (Fed. Cir. 2009); see Marshak v. Treadwell, 240 F.3d 184, 196 (3d Cir. 2001). That intent to deceive can be inferred from indirect or circumstantial evidence, In re Bose Corp., 580 F.3d at 1245, indicating that “the registrant actually knew or believed that someone else had a right to the mark,” Marshak, 240 F.3d at 196.

Here, Boulding attested in connection with TVM’s petition to register the ULTRA mark that “he believed no other person, firm, corporation, or association ha[d] the right to use the mark,” a statement he made under penalty of perjury. App. 1451. The District Court was entirely justified in finding Boulding’s testimony at trial not credible and in concluding that, “[i]n light of Mr. Boulding’s prior interactions with Coverteeh, he must have known or believed that Coverteeh had a right to use the mark.” App. 98-99. While Boulding asserted his statement was a mere mistake, the District Court astutely observed, first, that TVM was aware on the date of its PTO application that Coverteeh had recently registered the ULTRA mark in Canada, and second, that Coverteeh continued to sell ULTRA in the United States at that time, placing the companies in direct competition. Deferring to the District Court’s credibility findings, which are fully supported by the record, we perceive no error in the District Court’s determination that Boulding subjectively intended to deceive the PTO, see In re Bose Corp., 580 F.3d at 1245; Marshak, 240 F.3d at 196, and that TVM obtained registration of the ULTRA mark through fraud.

C. Acquiescence

We turn next to TVM’s argument that the District Court should have found Covertech’s claims barred by the doctrines of laches and acquiescence. We dispose quickly of the laches argument, which was raised for the first time on appeal and is therefore waived. TVM’s acquiescence argument is preserved for appeal, but is nonetheless unavailing.

An alleged infringer may assert the equitable defense of acquiescence “when the trademark owner, by affirmative word or deed, conveys its implied consent” to the use of a mark. Pappan Enters., Inc. v. Hardee’s Food Sys., Inc., 143 F.3d 800, 804 (3d Cir. 1998). Relevant considerations, required as elements in a number of our sister Circuits, may include whether “(1) the senior user actively represented that it would not assert a right or a claim; (2) the [senior user’s] delay between the active representation and assertion of the right or claim was not excusable; and (3) the delay caused the defendant undue prejudice.” Hyson USA Inc. v. Hy-son 2U, Ltd., 821 F.3d 935, 941 (7th Cir. 2016); see also Seller Agency Council, Inc. v. Kennedy Ctr. for Real Estate Educ., Inc., 621 F.3d 981, 989 (9th Cir. 2010); ProFitness Physical Therapy Ctr. v. ProFit Orthopedic & Sports Physical Therapy P.C., 314 F.3d 62, 67 (2d Cir. 2002); Sun-America Corp. v. Sun Life Assurance Co. of Can., 77 F.3d 1325, 1334 (11th Cir. 1996). Once use becomes infringing, the relevant date for quantifying the' “delay” is when the trademark owner either knew or should have known of the existence of a provable claim of infringement, and an owner’s claim does not ripen until the defendant’s infringement is sufficiently far-reaching to create a likelihood of confusion. See, e.g., What-A-Burger Of Va., Inc. v. Whataburger, Inc. of Corpus Christi, Tex., 357 F.3d 441, 449-50 (4th Cir. 2004).

Here, these considerations lead us to conclude Covertech did not acquiesce in TVM’s infringement. TVM has not identified any affirmative statement or act on the part of Covertech that expressly or impliedly authorized TVM’s infringement, nor has it shown that Covertech’s delay in initiating suit was either inexcusable or unduly prejudicial. See Hyson, 821 F.3d at 941; Pappan, 143 F.3d at 804. Although Covertech learned on at least three occasions in 2007 and 2008 that TVM was passing off other manufacturer’s goods under its brand names, TVM led it to believe these incidents were isolated and merely accidental, and Covertech did not discover until late 2010 or early 2011 — in a deposition for an unrelated matter — the true magnitude of TVM’s infringement. Only then did the acquiescence clock start to run, and Covertech’s escalating responses from that point forward appear both reasonable and timely. That is, having discovered TVM’s actual infringement, Starr called Boulding on multiple occasions between 2010 and 2013 to demand that TVM “stop using ... [Covertech’s] brand names.” App. 935. And when those efforts failed to yield results, Covertech commenced this litigation in May 2013. On that record, we perceive no factual or legal error in the District Court’s conclusion that Coverteeh’s delay in initiating suit did not demonstrate implied consent. See Pap-pan, 143 F.3d at 804.

D. Damages

In its final argument on appeal, TVM submits that the District Court abused its discretion in awarding to Cover-tech $4,054,319 of TVM’s profits for TVM’s infringement of the rFOIL and CONCRETE BARRIER trademarks because, in the absence of any evidence in the record of TVM’s actual profits for sales of infringing products, the District Court based its calculation on TVM’s total sales in the metal building industry. That is, rather than awarding $4 million in statutory damages, the District Court relied on evidence of TVM’s gross sales between 2009 and 2013 and then spontaneously reduced this figure by 30% to avoid an excessive award. If the finding of infringement is upheld on appeal, TVM contends the proper award would be statutory damages. We agree.

The Lanham Act provides two alternatives for calculating damages: either an award subject to principles of equity that turns on evidence of the defendant’s sales and profits, see 15 U.S.C. § 1117(a), or, alternatively, statutory damages of between $1,000 and $2 million per counterfeit mark for each type of good or service offered for sale or distributed, as the court considers just, see id. § 1117(c). The choice between these awards is at the plaintiffs election, and the district court enjoys wide discretion in applying equitable principles. See id.; Banjo Buddies, 399 F.3d at 177. But, in particular where a district court is making an estimate of actual profits under the first alternative, its discretion must be within boundaries, and the touchstone is reasonableness. Those boundaries were tested here and, we conclude, were crossed when the District Court calculated damages by using industry-wide gross sales figures and by selecting a random discount value to determine — in the absence of, for example, company records, expert testimony, or other record evidence — that profits approximated 70% of gross sales of all industry products.

Covertech, relying on our decision in Banjo Buddies v. Renosky, 399 F.3d 168 (3d Cir. 2005), contends the District Court’s calculation was within its discretion in view of the Lanham Act’s burden-shifting framework for an equitable award of actual damages. Under that framework, the trademark owner is tasked with proving the infringer’s sales before the burden of proof shifts to the defendant to show costs and deductions. See 15 U.S.C. § 1117(a). Covertech’s argument seems to be that if a plaintiff makes a showing of gross sales — even industry-wide sales, not limited to the infringing product — and a defendant then fails to offer a rebuttal, it is within the district court’s discretion to award as “actual profits” any dollar amount up to 100% of those gross sales. Covertech is mistaken.

A district court’s discretion, wide as it may be, is not unbounded, and a bare showing of gross sales is not sufficient to fashion an equitable award without some anchor in the record to support a reasonable estimation of actual profits. Indeed, Covertech’s approach would render equitable considerations — and by extension, our review for abuse of discretion — a nullity. We will not interpret the Lanham Act’s statutory burden-shifting mechanism in such a nonsensical manner. See In re Kaiser Aluminum Corp., 456 F.3d 328, 330 (3d Cir. 2006).

' Nor does our case law go so far. In Banjo Buddies, while we explained that a district court has broad discretion to fashion remedies where a defendant fails to meet its burden of proof regarding costs and damages, we affirmed the district court’s decision to rely sua sponte on testimony of the defendant’s business manager to estimate profits. 399 F.3d at 177. Further, in Venture Tape Corp. v. McGills Glass Warehouse, 540 F.3d 56 (1st Cir. 2008), and WMS Gaming Inc. v. WPC Productions Ltd., 542 F.3d 601 (7th Cir. 2008), although the respective defendants offered no evidence to mitigate the plaintiffs’ showing of gross sales, those Courts of Appeals held that the damages requested were reasonable because, in each case, gross sales were tied directly to total profits resulting from infringement and the damages sought were only a small proportion of that amount. Venture Tape, 540 F.3d at 64; WMS Gaming, 542 F.3d at 604, 609.

As these cases make clear, where a district court endeavors to calculate damages under the Lanham Act on the basis of the defendant’s actual profits, rather than awarding statutory damages, it must ground its estimate in the record — e.g., business records, credible witness testimony, expert testimony, or industry data — in order to pass muster as a reasonable estimate and an appropriate exercise of discretion. Conversely, where the court lacks a sound basis for extrapolating actual profits, it abuses its discretion by resorting to guesswork. For just such situations, the Lanham Act provides for statutory damages in the alternative, and it is on that provision that the court must rely. See 15 U.S.C. § 1117(c).

Here, the District Court eschewed statutory damages and awarded $4,054,319 as a matter of equitable discretion even though the record was insufficient to approximate actual damages. For the reasons we have explained, that award constituted an abuse of discretion and cannot stand. As Cover-tech has requested the opportunity on remand to elect an award of statutory damages, see, e.g., Cotter v. Christus Gardens, Inc., No. 99-5996, 2000 WL 1871698, at *6 (6th Cir. Dec. 12, 2000); Oboler v. Goldin, 714 F.2d 211, 213 (2d Cir. 1983) (per cu-riam), we will vacate and remand with instructions to the District Court to grant that request.

IV. Conclusion

For the foregoing reasons, we will affirm in part and will vacate and remand to the District Court for further proceedings consistent with this opinion.

      . The original action, which was filed in the Middle District of Pennsylvania, also named TVM Canada, Inc., but Covertech later stipulated to dismissal of TVM Canada, Inc. and to the transfer of the action to the Western District of Pennsylvania. The PTO has stayed the adverse petition proceeding pending resolution of the federal court litigation.

      . We reject Covertech’s suggestion that TVM lacks standing due to the sale of TVM’s assets to a secured creditor after entry of final judgment by the District Court. Regardless of whether TVM would benefit from reversal of the District Court's cancellation of the ULTRA mark, TVM retains liability for damages from its infringement of that mark and hence continues to hold a live interest in this controversy. See generally Gayle v. Warden Monmouth Cty. Corr. Inst., 838 F.3d 297, 303 (3d Cir. 2016).

      . In reducing McCarthy’s six factors to four, the Ninth Circuit in Sengoku combined as one factor the first and second factors — asking "which party invented and first affixed the mark onto the product” — and omitted the sixth factor, which party paid for marketing. See Sengoku, 96 F.3d at 1220. We conclude, however, that district courts’ analysis and appellate review will be facilitated by considering each of these factors distinctly.

      . Covertech also contends that we should not determine the applicability of the McCarthy test in this case given TVM’s failure to raise it before the District Court and in its opening brief on appeal. We disagree. Notwithstanding TVM’s waiver, it is necessary and appropriate for us to take up the question of the proper legal test because it is a purely legal question, the resolution of which is in the public interest. See Huber v. Taylor, 469 F.3d 67, 74-75 (3d Cir. 2006).

      . The District Court found not only that statement, but also two additional statements Boulding made in applying to the PTO, to be intentional misrepresentations — (1) “TVM first used the mark in 2006” and (2) Boulding "believed that TVM was the owner of the mark.” App. 97. We need not address knowledge or falsity as to these statements because we will affirm the District Court’s conclusion as to the statement above, which alone supports the conclusion that TVM’s registration was fraudulently procured and thus should be cancelled.

      . While in briefing, TVM appeared to assert error in the District Court's calculation of both actual and statutory damages, at oral argument, it clarified that it contests only actual damages, not the District Court’s alternative calculation of $4 million in statutory damages.