Can a trademark counterfeiting and infringement plaintiff elect statutory damages instead of actual damages under the Lanham Act and still receive attorney’s fees? The 2nd Circuit recently answered that question in the affirmative – to the tune of $3.5 million dollars – leaving some valuable lessons in its wake.
In a March 29, 2012 opinion, the U.S. Court of Appeals for the 2nd Circuit upheld a $3.5 million dollar judgment in a trademark counterfeiting and infringement case, affirming an award of statutory damages and upholding more than $500,000 in attorney’s fees and costs along with it.
In so doing, the 2nd Circuit resolved an unsettled question of law that had sharply divided its district courts and issued an opinion creating a debatable split with the 9th Circuit – the only other Circuit to explicitly tackle this question.
The 3.5 Million Dollar Question…
The question arose when French fashion icon Louis Vuitton brought suit against defendants, alleging various claims including trademark counterfeiting and infringement under the Lanham Act. After granting summary judgment for Louis Vuitton and issuing a permanent injunction against defendants, the district court awarded statutory damages under 15 U.S.C. § 1117(c) in the amount of $3 million. But the court didn’t stop there. It then granted 100% of Louis Vuitton’s claim for attorney’s fees and costs – $556,034.22.
As readers may know, a plaintiff under section 35 of the Lanham Act can elect to receive either actual damages or statutory damages, but not both.
On appeal, defendants claimed Louis Vuitton couldn’t have its cake and eat it, too – arguing plaintiff’s election to pursue statutory damages under 1117(c), rather than actual damages under 1117(a), precluded an award of attorney’s fees.
Which left the 2nd Circuit with an unresolved question: Did plaintiff’s election to recover statutory damages under 1117(c) prohibit an award of attorney’s fees under the actual damages section in 1117(a)? Or can a plaintiff, like Louis Vuitton, who opts for statutory damages under 1117(c), also receive attorney’s fees under 1117(a)?
A Plaintiff Can Have it Both Ways
The case concerned defendants Chong Lam and Joyce Chan, who, through various entities, operated a widespread trademark counterfeiting operation which imported and sold knock-off luxury items bearing trademarks owned by Louis Vuitton.
In its opinion, the court found that 1117(c) was intended to expand the range of remedies available to a trademark plaintiff – not to limit them – and held that a plaintiff who elects statutory damages under 1117(c) may also be allowed attorney’s fees under section 1117(a) in cases that are “exceptional.”
The case, styled as Louis Vuitton Malletier S.A. v. LY USA, Inc., can be read here, but we thought we’d cut to the chase and give our top 3 takeaways from this precedent setting opinion.
1. Court to Counterfeiters – “Knock it Off”
The 2nd Circuit delivered a clear message to counterfeiters selling cheap copycat versions of an original manufacturer’s more expensive product – knock it off. The case serves as a signal that civil courts increasingly have little sympathy for counterfeiters who blatantly infringe on a manufacturer’s trademarks and seek to make a profit. As the 2nd Circuit noted,
[A] defendant facing a statutory damage award less than the actual amount of the damages he or she caused has the incentive to frustrate the ascertainment of the actual amount of damages. It makes little sense, we think, to further reward a defendant successful in defeating the plaintiff’s and the court’s attempts to fix the actual amount of damages by allowing him or her to avoid an award of attorney’s fees. Such a scheme would only further incentivize the defendant to avoid making, keeping, or producing sales records.”
Governmental crackdowns on counterfeiters are on the rise. In 2011, U.S. Customs and Border Protection seized almost 25,000 shipments of counterfeit goods at U.S. borders, a 24 percent increase over 2010, with electronics, shoes, and drugs topping the list. Manufacturers seem more vigilant than ever about protecting their trademark and other intellectual property rights in the civil courts, as well as through such venues as the ITC, and civil courts seem more willing than ever to listen.
2. Statutory Damages and Attorney’s Fees – Being “Exceptional” Matters
The 2nd Circuit concluded an award of attorney’s fees under the Lanham Act is available at the discretion of the district court under the “exceptional” language of 1117(a), even for those plaintiffs who elect to receive statutory damages under 1117(c). According to the 2nd Circuit, “exceptional cases” include those cases involving instances of “fraud or bad faith” or “willful infringement.”
The 2nd Circuit noted that the district court found defendants responsible for “a massive counterfeiting enterprise” based partially on “plaintiff’s allegations and the unavailability of records suggesting otherwise.” Louis Vuitton alleged that defendants supplied literally tens of thousands of items bearing counterfeiting and infringement of Louis Vuitton’s trademark to wholesalers and retailers across the country. Meanwhile, defendants produced only scant accounting and sales records (an all too common scenario in counterfeiting schemes), making it difficult at best for plaintiff to prove actual damages.
According to the court, the key to showing a case is “exceptional” turns on willfulness of the defendants. The bottom line: A plaintiff who can show a defendant’s actions are willful – and therefore exceptional – can convince a court in the 2nd Circuit (and perhaps now even elsewhere) to award attorney’s fees even when a plaintiff is forced to opt for statutory damages.
3. Silence Can Speak Volumes
In its opinion, the court considered a host of other issues, including whether the district court abused its discretion in denying a stay of the civil lawsuit pending resolution of a related federal criminal proceeding against defendants Lam and Chan.
The 2nd Circuit didn’t take lightly the fact that defendants used a variety of evasive and dilatory tactics during discovery, even prior to their indictments, which “invited the inference” of the enormity of their counterfeiting enterprise. For example, in addition to a failure to produce accounting documents, when finally compelled by the court to appear for deposition, defendants asserted their 5th amendment privilege to nearly every question asked.
Sometimes silence really does speak louder than words. As the 2nd Circuit noted (quoting an earlier 2nd Circuit opinion),
“It is permissible to give an adverse inference ‘significant weight,’ as ‘silence when one would be expected to speak is a powerful persuader.’”
The Sum Total
In light of the 2nd Circuit’s opinion, if a trademark counterfeiting and infringing defendant has engaged in willful conduct, amounting to an “exceptional” case under the Lanham Act, consider asking a district court (particularly in the 2nd Circuit) for attorney’s fees even if electing statutory damages under 1117(c). Courts seem ready, willing, and able to consider an award of attorney’s fees in an action for statutory damages – sending a clear message to willful counterfeiters – knock it off.
Your turn: Do you think a plaintiff electing statutory damages under section 1117(c) of the Lanham Act should also be able to receive attorney’s fees under section 1117(a)?