Recovering Damages for Trademark Infringement

While enjoining unlawful use is the objective of most trademark infringement suits, some trademark owners can get money damages as well. This article explains how to make the case for monetary recovery.

By Nicholas A. Gowen and Peter V. Baugher

topping the unlawful use of a trademark is usually the primary objective of a trademark infringement suit. But while injunctions are the common remedy in Lanham Act cases1 and money-damage cases are rare, monetary remedies may be appropriate where trademark owners suffer an actual economic loss or the Sinfringer is unjustly enriched. Despite the 65-year history of the Lanham Act This article outlines recovering damages for trade- and the thousands of cases interpreting it, the law on mark infringement plaintiffs, with a focus on seventh monetary relief for violations is surprisingly unset- circuit rulings. After describing the distinct categories tled. Even when courts permit trademark owners to of monetary damages for trademark plaintiffs, the ar- recover damages, the circuits differ on what a trade- ticle discusses the monetary damages available to vic- mark owner must prove to obtain them. tims of trademark counterfeiting and whether mon- This raises some basic questions: When are courts etary damages are tried to a judge or jury. Not unex- likely to award money damages? Does a trademark ______owner have to prove an actual injury to obtain a mon- 1. Kenneth L. Port, Trademark Extortion: The End of Trademark Law, 65 Wash. & Lee. L Rev., 585, 622 (2008) (observing that injunc- etary recovery? Does a judge or jury decide whether tions were granted in 55% of Lanham Act cases filed between 1947- damages are awarded? 2005).

Nicholas A. Gowen ([email protected]) and Peter V. Baugher ([email protected]) are partners at Schopf & Weiss LLP in Chicago, where they concentrate in business litigation.

1 pectedly, prevailing trademark owners fringer’s profits attributable to the in- mark owner must prove that actual cus- are most likely to receive money dam- fringement.11 In calculating profits, how- tomer confusion caused an economic ages when they prove either actual confu- ever, the trademark owner is only re- loss to recover damages.21 A trademark sion, unjust enrichment by the infringer, quired to prove the infringer’s sales.12 owner may prove customer confusion or the use and/or sale of a counterfeit In WMS Gaming Inc. v. WPC Prod. with evidence of diversion of sales or by trademark. Ltd., the seventh circuit held that a presenting survey results establishing ac- trademark owner may prove an infring- tual customer confusion with the mark’s Overview of monetary remedies er’s sales by simply establishing proof of true owner.22 The Lanham Act provides trademark the infringer’s gross reve- owners five different types of monetary nues.13 Proof of sales does relief as compensation for infringement: not need to be mathemati- (1) an accounting of an infringer’s prof- cally precise. Indeed, courts its (i.e., money the infringer made from shift the burden to infring- Although the odds of obtaining the infringement), (2) the actual damages ers and require them to the trademark owner sustained (e.g., prove any deductions from monetary recovery are long, money diverted from the owner to the their established sales. owners can get damages when infringer), (3) a reasonable royalty repre- The infringer must senting a measure of the trademark own- prove deductions. Once a there is proof of actual confusion, er’s damages, (4) attorney’s fees in excep- trademark owner estab- unjust enrichment, or use or sale tional cases, and (5) costs.2 lishes the infringer’s sales, A prevailing trademark plaintiff is not it is entitled to an award of a counterfeit trademark. automatically entitled to a monetary re- based on them unless the covery.3 In fact, as noted above, money infringer can prove appro- damages are rarely awarded.4 Those who priate deductions and show win them typically prove either customer which portion of the profit confusion resulting in actual economic is not attributable to the infringing use.14 ______loss or that the infringer was unjustly en- In WMS, although the evidence estab- 2. 15 U.S.C. § 1117(a). lished that the defendant also earned 3. Id. (monetary relief awarded consistent with the riched. In either case, damages are com- principles of equity). pensatory, not punitive.5 revenue from gaming products that did 4. Port, supra note 1, at 622 (noting only 5.5% of not infringe WMS’s marks, WMS had all Lanham Act cases decided between 1947 and 2005 An accounting of an infringer’s no duty to segregate the defendant’s le- obtained any damages at all). 5. 15 U.S.C. § 1117(a). profits gitimate revenues from those derived 6. Roulo v. Russ Berrie & Co. Inc., 886 F.2d 931, 15 941 (7th Cir. 1989), cert. denied, 493 U.S. 1075 (1990). The Lanham Act authorizes a trade- through its infringement. The infringer bears the burden of ap- 7. Web Printing Controls Co., Inc., v. Oxy-Dry mark owner to recover an infringer’s Corp., 906 F.2d 1202, 1205 (7th Cir. 1990). profits resulting from its violation of the portionment because it is in the best po- 8. BASF Corp. v. Old World Trading Co., Inc., 41 sition to prove its own deductions.16 De- F.3d 1081, 1096 (7th Cir. 1994); Web Printing, 906 Act, subject only to the principles of eq- F.2d at 1205-1206; Roulo, 886 F.2d at 941. uity.6 An accounting compensates the ductions may only include variable costs 9. Sands, Taylor & Wood Co. v. Quaker Oats Co., trademark owner for its losses while also such as labor, raw materials and other 978 F.2d 947, 961 (7th Cir. 1992); Roulo, 886 F.2d at costs associated with the production of 941; Louis Vuitton, S.A. v. Lee, 875 F.2d 584, 589 (7th depriving the infringer of any improperly Cir. 1989). 17 reaped benefits.7 infringing goods. Fixed costs, taxes, and 10. Compare Roulo, 886 F.2d at 941 (willfulness excessive expenses are not deductible.18 and bad faith are only factors in deciding whether to Proving confusion, willfulness. Be- award profits), with, e.g., Bishop v. Equinox Int’l Corp., cause the purpose of an accounting is to If it is impossible to isolate the prof- 154 F.3d 1220, 1223 (10th Cir. 1998) (“[A]n award of make trademark infringement unprof- its attributable to an infringer’s use of profits requires a showing that defendant’s actions were an infringing mark, then the court must willful or in bad faith.”). itable to redress the infringer’s actions, 11. Mishawaka Rubber & Woolen Mfg. Co. v. S.S. a trademark owner may obtain an ac- rely on evidence of sales, regardless of the Kresge Co., 316 U.S. 203, 206 (1942). 19 counting without proof of either actual “windfall to the trade-mark owner.” In 12. 15 U.S.C. § 1117(a). WMS, the defendant submitted no evi- 13. WMS Gaming Inc. v. WPC Prod. Ltd., 542 F.3d customer confusion or an economic loss. 601, 608 (7th Cir. 2008). Profits may be awarded based on unjust dence of deductions, leaving the court 14. 15 U.S.C. § 1117(a); WMS Gaming, 542 F.3d with only evidence of the defendant’s at 607-08 (finding that infringing party has burden to enrichment, deterrence, and compensa- show which portion of gross income is not attributable tion, even if the trademark owner’s ac- considerable sales data that established to its infringing use). tual losses were less than the infringer’s it earned hundreds of millions of dol- 15. WMS Gaming, 542 F.3d at 607. 20 16. Mishawaka, 316 U.S. at 206. 8 lars. The court remanded the case to profits. 17. See e.g., Aladdin Mfg. Co. v. Mantle Lamp Co. of Moreover, a finding of bad faith or the district court for further proceedings Am., 116 F.2d 708, 714-16 (7th Cir. 1941). willfulness may be unnecessary to re- that would likely provide WMS with an 18. Roulo, 886 F.2d at 941 (fixed administrative costs not deductible from profit calculation); Dorr-Oli- 9 award considerably larger than its actual cover an infringer’s profits. Although ver Inc. v. Fluid-Quip, Inc., 914 F. Supp. 210, 211 (N.D. the majority of courts hold otherwise, damages. Ill. 1995) (corporate income taxes and costs related to the seventh circuit permits a trademark extraordinary compensation paid to shareholders not Recovering actual damages properly deductible). owner to recover an infringer’s profits 19. WMS Gaming, 542 F.3d at 608. without establishing willfulness.10 requires proof of actual confusion 20. Id. at 609. 21. Web Printing, 906 F.2d at 1204-05. Proving the infringer’s sales. A trade- Unlike the evidence required to es- 22. Schutt Mfg. Co. v. Riddell, Inc., 673 F.2d 202, mark owner is entitled to recover an in- tablish an accounting of profits, a trade- 206-07 (7th Cir. 1982).

2 In certain circumstances, however, a certain qualities with the mark, such as between a willing trademark owner and trademark owner may recover actual reliability and durability. a willing licensee as of the date that the damages without proof of customer con- Damages for corrective advertising. infringement began.38 A reasonable roy- fusion. Regardless of whether proof of Trademark owners may also recover for alty rate is generally calculated using customer confusion is necessary, a trade- the costs of corrective advertising that do the so-called Georgia-Pacific factors to mark owner must establish that it suf- not exceed the value of the mark.30 Cor- determine how much a reasonable li- fered an actual loss. To do so, it must rective advertising seeks to counteract censee would have been willing to pay demonstrate a loss of sales or profits, a public confusion resulting from trade- the owner for the use of the trademarks. loss of goodwill, or the cost of corrective mark infringement31 and is focused on These factors are the nature and scope advertising.23 future expenses. of a licensee’s use, special value to the in- Damages without proof of customer Awards for prospective corrective ad- fringer, the amount a reasonable licensee confusion. In an exception to the rule, vertising have been criticized as arbitrary would have been willing to pay for the 32 the seventh circuit permits a trademark and inefficient. The seventh circuit has use of the trademarks, profitability of in- owner to recover money damages with- opined that an award of corrective ad- fringing use, lack of viable alternatives, out evidence of customer confusion if, as vertising should be limited to cases where and the opinions of experts.39 Courts err the trademark owner shows not only a result of an infringer’s deception, cus- on the high side in calculating a reason- that it was injured by con- able royalty to discourage infringement.40 fusion, but also that the “re- pair of the old trademark, Attorney fees for prevailing rather than adoption of a parties An accounting of profits new one, is the least expen- The final sentence of section 1117(a) sive way to proceed.”33 can be considered an action Corrective advertising provides that a “court in exceptional is only available where the cases may award reasonable attorney at law that properly gives 41 trademark owner proves fees to the prevailing party.” The statute rise to a jury demand. that it competes with the does not define an “exceptional” case. infringer in the same mar- The seventh circuit holds that an excep- ket. Otherwise, it is consid- tional case is one involving some mea- 42 ered a windfall or punitive. sure of culpability by the losing party. Another test is whether the conduct of tomers cannot verify the validity of the A reasonable royalty as an the party from which payment of at- mark.24 alternative measure of damages torney fees is sought had been “oppres- In Zelinski v. Columbia 300, Inc., sive.”43 A trademark owner may recover a the trademark owner and infringer were The Lanham Act is silent about treat- 25 reasonable royalty as an alternative mea- bowling ball manufacturers. The Zelin- ing the prevailing party differently de- ski court found there was no reason to sure of damages that represents its ac- ______believe that the average customer would tual loss or the infringer’s unjust enrich- 23. Web Printing, 906 F.2d at 1205; see also Schutt ment.34 A royalty is a measure of com- Mfg., 673 F.2d at 206. have been aware that the infringer’s 24. Zelinski v. Columbia 300, Inc., 335 F.3d 633, 639 bowling balls were not the trademark pensation for past infringement based on (7th Cir. 2003). owner’s products.26 The court found that the reasonable value of a trademark li- 25. Id. at 636. 26. Id. at 639. no amount of inspection would have cense that the infringer should have paid. The reasonable royalty theory is gen- 27. Otis Clapp & Son, Inc. v. Filmore Vitamin Co., revealed that the infringer, and not the 754 F.2d 738, 745-46 (7th Cir. 1985). erally limited to situations where the 28. See BASF, 41 F.3d at 1092; Borg-Warner Corp. trademark owner, manufactured the parties had an existing licensing relation- v. York-Shipley, Inc., 293 F.2d 88, 95 (7th Cir. 1961). balls, and thus proof of actual confusion 29. Badger Meter, Inc. v. Grinnell Corp., 13 F.3d ship. However, in Sands, Taylor & Wood was unnecessary. 1145, 1157 (7th Cir. 1994); Meridian Mut. Ins. Co. v. v. Quaker Oats Co., the seventh circuit Meridian Ins. Group, 128 F.3d 1111, 1117 (7th Cir. Damages for lost profits or goodwill. suggested that a hypothetical royalty 1997) (defining goodwill). Once a trademark owner establishes that 30. Zazu Designs v. L’Oreal, S.A., 979 F.2d 499, 506 calculation should be the starting point (7th Cir. 1992). it suffered damages, it must demonstrate for damages in a case where the parties 31. See id.; Zelinski, 335 F.3d at 640. a reasonable basis for computing them.27 32. See J. Thomas McCarthy, McCarthy on Trade- had no licensing relationship. In Sands, marks and Unfair Competition § 30:84 (4th ed. 2006). The most common way is by establishing the court found that the plaintiff’s re- 33. Zazu Designs, 979 F.2d at 506. lost profits or loss of goodwill. quest for a $24 million award resulting 34. Sands, Taylor & Wood Co. v. Quaker Oats Co., Lost profits consist of the revenue the 978 F.2d 947, 963 n.19 (7th Cir. 1992) (“Sands I”); from an accounting of profits was ineq- Sands, Taylor & Wood Co. v. Quaker Oats Co., 34 F.3d trademark owner would have earned uitable and would be “a windfall to the 1340, 1350 (7th Cir. 1994) (“Sands II”). but for the infringer’s actions, less the ex- plaintiff”35 and that a reasonable royalty 35. Sands I, 978 F.2d at 963 & n. 19. 36. Id. penses that would have been incurred to analysis would more accurately reflect 37. Sands II, 34 F.3d at 1344-45. earn those revenues.28 the extent of the infringer’s unjust en- 38. Id. In determining loss of goodwill, the 39. See Georgia-Pacific Corp. v. U.S. Plywood Corp., richment and the interest of the trade- 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970) . fact-finder must compare the value of mark owner.36 40. Sands II, 34 F.3d at 1351. the trademark owner’s goodwill before If there is no established royalty for 41. 15 U.S.C. § 1117(a). 29 37 42. See e.g., BASF, 41 F.3d at 1099. and after infringement. Trademarks are the mark, courts base the reasonable 43. Door Sys., Inc. v. Pro–Line Door Sys., Inc., 126 valuable because the public associates royalty on a “hypothetical negotiation” F.3d 1028, 1031 (7th Cir. 1997).

3 pending on its status as plaintiff or de- ant to section 35(b) of the Lanham Act. stances were exceptional.65 An “excep- fendant.44 The seventh circuit, however, In counterfeiting cases, the court must tional case” is one in which the acts of employs slightly different standards to award attorneys’ fees and treble the pre- infringement are “malicious, fraudulent, determine whether a case is exceptional vailing trademark owner’s actual dam- deliberate or willful.”66 for a prevailing plaintiff versus a prevail- ages or the infringer’s profits, whichever Treble damages for intentionally using 45 ing defendant. amount is greater, absent extenuating a counterfeit mark. The Lanham Act re- 55 A prevailing plaintiff may recover its circumstances. quires courts to treble either damages attorneys’ fees. A case is exceptional Statutory damages. A trademark or an infringer’s profits – whichever is for a prevailing plaintiff based upon the owner may choose to recover an award greater – as a penalty for an infringer’s circumstances surrounding the defen- of statutory damages, rather than actual knowing and willful sale of counterfeit dant’s infringement actions and the de- damages and profits, for any use of a merchandise.67 Courts also award treble fendant’s conduct. An exceptional case is counterfeit mark in connection with the damages for an infringer’s willful blind- one where the acts of infringement can sale, offering for sale, or distribution of ness to selling counterfeit products. be characterized as malicious, fraudu- goods or services.56 Courts may award lent, deliberate, or willful.46 Courts seem statutory damages in addition to com- Jury trials for an accounting of to have heightened the requirement for pensatory damages in counterfeit cases, an exceptional case by stating that it in- as long as the award is not for the same profits volves “truly egregious, purposeful in- violation.57 Trademark infringement claims that fringement, or other purposeful wrong- No evidence of actual damages re- seek actual damages can be tried to a 47 doing.” quired. The statutory minimum and jury.68 Claims seeking costs and attor- Exceptional cases are not limited only maximum damages for non-willful in- to those in which the prevailing plain- fringement are $1,000 and $200,000 for ______tiff shows willful infringement by the each counterfeit mark, and for each type 44. 15 U.S.C. § 1117(a). defendant. The seventh circuit has also 45. Compare, BASF, 41 F.3d at 1099 (finding defen- of goods or services sold. Additionally, dant’s conduct exceptional in awarding attorneys’ fees recognized that wrongdoing beyond cul- a court may award up to $2 million for to plaintiff) with S Indus., Inc. v. Centra 2000, Inc., pable infringement may justify declar- each counterfeit mark if the infringement 249 F.3d 625, 627 (7th Cir. 2001) (finding plaintiff’s conduct exceptional in awarding attorneys’ fees to ing a case exceptional and awarding was committed willfully.58 48 defendant). fees to a prevailing plaintiff. A defen- Although a plaintiff can pursue stat- 46. See e.g., BASF, 41 F.3d at 1099. dant’s conduct is considered oppressive utory damages without proving actual 47. Badger Meter, 13 F.3d at 1159. based on its willful infringement of the 48. TE–TA–MA Truth Found.–Family of URI, Inc. damages, courts do not have to fol- v. World Church of the Creator, 392 F.3d 248, 261–63 plaintiff’s trademark and its “vexatious low any rigid formula and have wide (7th Cir. 2004). 49 litigation conduct:” i.e., the defendant discretion in deciding the amount of 49. Id. 50. Door Sys., 126 F.3d at 1031–32. lacked a solid justification for its defense 59 an award. Courts look to an analo- 51. S Indus., 249 F.3d at 627. or caused the plaintiff unreasonable ex- gous provision of the Copyright Act, 17 52. Central Mfg., Inc. v. Brett, 492 F.3d 876 (7th Cir. 50 pense in bringing suit. U.S.C. section 504(c), for guidance to de- 2007) (finding attorney fee award to prevailing defen- A prevailing defendant may also re- dant warranted in trademark infringement action in termine the standard for awarding stat- which court found no commercial use by plaintiff and cover attorneys’ fees. A defendant may utory damages for willful infringement no infringement; plaintiff filed action without evidence be awarded its attorneys’ fees if the of the Lanham Act.60 In computing the of any sales to support its claim, ignored requests to plaintiff’s litigation conduct was “op- produce documents to support its claim, and offered statutory damages award, a court may confused and misleading deposition testimony featuring 51 pressive:” i.e., if it lacks merit, has ele- consider factors such as “the difficulty unfulfilled promises of cooperation); see also Door Sys., ments of an abuse of process claim, and or impossibility of proving actual dam- 126 F.3d at 1031. unnecessarily increases the cost of de- 53. 15 U.S.C. § 1117(a). ages, the circumstances of the infringe- 54. Hairline Creations, Inc. v. Kefalas, 664 F.2d 652, 52 fending against the suit. ment, and the efficacy of the damages 655-56 (7th Cir. 1981). 55. 15 U.S.C. § 1117(b). as a deterrent.”61 When the infringement A prevailing trademark owner may 56. 15 U.S.C. § 1117(c); Lorillard Tobacco Co. v. S is willful, courts also consider statutory & M Central Serv. Corp., 2004 WL 2534378 at *3 recover its costs damages an appropriate means to “pe- (N.D. Ill.). 57. 15 U.S.C. §§ 1117(c)(d); Gabbanelli Accordions Section 35(a) of the Lanham Act pro- nalize the infringer and deter future vio- & Imports, L.L.C. v. Gabbanelli, 575 F.3d 693, 698 vides that when a trademark owner es- lations.”62 (7th Cir. 2009). tablishes a violation, “the plaintiff shall Courts must award a 58. 15 U.S.C. § 1117(c). Attorney fees. 59. Tony Jones Apparel, Inc. v. Indigo USA LLC, be entitled...subject to the principles of trademark owner attorney fees if an in- 2005 WL 1667789, *8 (N.D. Ill.). equity, to recover...costs of the action.”53 fringer intentionally uses or sells a trade- 60. See, e.g., Lorillard Tobacco, 2004 WL 2534378 The awarding of costs is discretionary. at *3; Tony Jones Apparel, 2005 WL 1667789, *8; Mi- mark knowing that it is a counterfeit, crosoft Corp. v. V3 Solutions, Inc., 2003 WL 22038593 A court may only award costs described barring “extenuating circumstances.”63 at *14 (N.D. Ill.). in 28 U.S.C. section 1920, such as filing A trademark owner may also recover at- 61. Chi-Boy Music v. Charlie Club, Inc., 930 F.2d fees, witness fees, and court reporter fees, 1224, 1229 (7th Cir. 1991). torney fees that result from a defendant’s 62. Id. at 1230. 54 not attorneys’ fees. willful blindness, absent extenuating cir- 63. 15 U.S.C. § 1117(b). cumstances.64 If, however, an infringer 64. See Hard Rock Café Licensing Corp. v. Conces- Increased money damages for sion Serv., Inc., 955 F.2d 1143, 1151 (7th Cir. 1992) is liable only because it had reason to 65. Id. at 1151. counterfeiting victims know the products it was selling were 66. BASF, 41 F.3d at 1099. 67. 15 U.S.C § 1117(b). Victims of counterfeiting may re- counterfeits, the court will only award 68. Dairy Queen, Inc. v. Wood, 369 U.S. 469, 477 cover special monetary remedies pursu- attorneys’ fees if it finds that the circum- (1962).

4 neys’ fees are equitable and are tried to mutual accounts, the accounts are too the odds of obtaining monetary recovery the bench.69 Whether a trademark in- complicated for a jury to resolve, or are usually long, damages are available fringement plaintiff has the right to a when a fiduciary relationship exists be- if there is proof of actual confusion, un- jury when it seeks an accounting of prof- tween the parties.72 just enrichment by the infringer, or the its is less clear. Courts typically award accounting use or sale of a counterfeit trademark. The determination of whether an ac- of profits as a remedy for unjust enrich- Moreover, these claims may be tried to counting of profits is equitable or legal ment or as restitution. Those claims can a jury if the plaintiff can establish that relief turns on the facts present in each be considered both legal and equitable the claims are more likely legal and not case. An accounting of profits is often remedies for which the U.S. Supreme equitable in nature. These are powerful considered an equitable remedy that Court has permitted juries.73 Accord- tools for trademark plaintiffs and their does not provide a trademark plaintiff ingly, an accounting of profits can be lawyers. ■ ______the right to a jury trial.70 considered an action at law that prop- 69. Empresa Cubana Del Tabaco v. Culbro Corp. However, there may be a right to a erly gives rise to a jury demand. and General Cigar Co., Inc., 123 F. Supp. 2d 203, 211 jury in cases where a claim for a trade- (S.D.N.Y. 2000). Conclusion 70. See e.g. SPSS, Inc. v. Nie, 2009 WL 2579232, 3 mark infringer’s profits is more analo- (N.D. Ill.). gous to a suit at law for damages than Trademark infringement plaintiffs 71. Oxford Indus., v. Hartmarx Corp., 1990 WL a claim in equity for restitution.71 A de- need to know that, in addition to equita- 65792, at *7 (N.D. Ill). 72. Medtronic, Inc. v. Intermedics, Inc., 725 F.2d 440, mand for an accounting only requires ble relief, several distinct monetary rem- 443 (7th Cir. 1984). equitable jurisdiction when there are edies may also be available. Although 73. See e.g., Dairy Queen, 369 U.S. at 477.

Reprinted with permission of the Illinois Bar Journal, Vol. 101 #3, March 2013. Copyright by the Illinois State Bar Association. www.isba.org

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