Feature By Rita W Siamas

The future of attorneys’ fees awards in US counterfeiting cases

In late 2007 the Ninth Circuit refused to award mean cases where the infringement is malicious, fraudulent, attorneys’ fees in a counterfeiting case on the basis deliberate or wilful (Hearst Corp v Or Worsted Co (58 USPQ2d 1761, 1765, D Or 2001)). In contrast, under Section 35(b) attorneys’ fees must that the plaintiff had chosen to receive statutory be granted in cases involving wilful counterfeiting, except when rather than actual damages. This decision departed “extenuating circumstances” exist. The statutory damages provision from precedent and worried brand owners in Section 35(c), however, does not mention attorneys’ fees.

K & N Engineering Inc v Bulat Although the Lanham Act’s statutory damages provision does not Although counterfeiting is a global phenomenon, what constitutes mention attorneys’ fees, in December 2007 the US Court of Appeals counterfeiting may vary from jurisdiction to jurisdiction. For a for the Ninth Circuit interpreted the Lanham Act damages provision defendant’s acts to constitute counterfeiting under the Lanham Act to preclude an award of attorneys’ fees under Section 35(b) in a (the US Trademark Act), the defendants must use the counterfeit counterfeiting case when the plaintiff opts for statutory damages (K mark on the same goods or services as those for which the plaintiff’s & N Engineering Inc v Bulat (2007 WL 4394416, 9th Cir December 18 mark is registered. 2007)). In that case, K & N Engineering Inc, an automotive parts Counterfeiting not only poses a great threat of harm to a manufacturer, brought a trademark infringement and trademark owner in terms of the loss of control over its reputation counterfeiting action against two individuals for selling and goodwill, but also poses a serious threat to the public as well. unauthorized decals bearing the plaintiff’s logo on eBay. The Counterfeiting is commonly associated with substandard products defendants’ counterfeit sales totalled $267 and the plaintiff elected and public health and safety concerns, and is even linked to to recover statutory damages. When granting K & N Engineering’s terrorism and organized crime. motion for summary judgment, the district court awarded the The Lanham Act provides for a variety of remedies for plaintiff $20,000 in statutory damages and $100,000 in attorneys’ counterfeiting. A plaintiff may obtain an injunction ordering the fees. On appeal, the Ninth Circuit affirmed the district court’s grant defendant to stop selling its counterfeit goods and ordering the of summary judgment on the infringement claims and upheld the impounding of all goods containing the defendant’s counterfeit statutory damages award of $20,000, but reversed the $100,000 marks. In addition to injunctive relief and seizures, Section 35 of the attorneys’ fees award. In its statutory analysis, the court reasoned Lanham Act (15 USC § 1117) provides for various monetary damages, that because Section 35(c) does not mention attorneys’ fees but including: Sections 35(a) and (b) do, Section 35(c) does not allow a plaintiff • under Section 35(a): choosing statutory damages also to recover attorneys’ fees. • defendant’s profits; K & N Engineering represents a marked departure from • plaintiff’s actual damages; and precedent, as many district courts routinely award both statutory • the costs of the action for “a violation of any right of the damages and attorneys’ fees to plaintiffs in counterfeiting cases. In registrant of a mark”; fact, no other court has held that an award of statutory damages • under Section 35(b), up to three times the defendant’s actual precludes an award of attorneys’ fees. Most courts that have granted damages in cases involving counterfeit marks; and such dual awards have simply assumed that this was proper without • under Section 35(c), as an alternative to actual damages in cases engaging in a statutory analysis. Some courts have even granted a involving counterfeit marks, statutory damages, which range prevailing plaintiff in a counterfeiting case both statutory damages from $500 to $100,000 per counterfeit mark, per type of goods and attorneys’ fees under Section 35(b) and attorneys’ fees under or services sold. Additionally, if the court finds that the use of Section 35(a). For instance, in Tommy Hilfiger Licensing Inc v Goody’s the counterfeit mark was wilful, it may award up to $1 million Family Clothing Inc (2003 US Dist LEXIS 8788, 112, ND Ga, May 9 per counterfeit mark, per type of goods or services sold. 2003), the court stated that “where there is wilful counterfeiting, the court must award the plaintiff reasonable attorneys’ fees. Otherwise, Additionally, under Section 35(a), attorneys’ fees may be granted attorneys’ fees are warranted only in exceptional cases”. The court in exceptional cases. Courts have generally found ‘exceptional’ to granted the plaintiff attorneys’ fees under both Sections 35(a) and (b). www.WorldTrademarkReview.com September/October 2008 World Trademark Review 63 The Ninth Circuit held that K & N Engineering could not recover attorneys’ fees because it had already opted for statutory damages

In holding that a plaintiff’s election of statutory damages completely bars the recovery of attorneys’ fees. Rather, New York precludes an award of attorneys’ fees, the Ninth Circuit essentially courts seem to evaluate requests for attorneys’ fees as one of many determined that a plaintiff electing statutory damages does so in lieu factors to be considered in determining the appropriate amount of of the remedies available in Sections 35(a) and (b). The Ninth Circuit statutory damages. Thus, in Gucci Am Inc v Duty Free Apparel Ltd failed to consider the express language of Section 35(c), which (315 F Supp 2d 511, 522-523, SDNY 2004), the court found that “the provides that a plaintiff may choose statutory damages instead of presumption of attorney's fees does not apply [to an award of “actual damages and profits under Section 35(a)”. Yet “actual damages statutory damages] (except to the extent that actual damages are a and profits” include only two of the four remedies detailed in Section persuasive measure towards determining statutory damages), and 35(a). Because Section 35(c) expressly identifies only two of Section any such application is simply another factor in the mix of the 35(a)’s four remedies, it follows that the remaining two remedies are court’s broad discretion to award statutory damages”. not extinguished when a plaintiff chooses statutory damages. When considering the availability of attorneys’ fees in the Accordingly, choosing statutory damages prevents a plaintiff from context of calculating statutory damages, New York district courts recovering “actual damages and profits” under Section 35(a), but it have both denied and granted plaintiffs’ requests for attorneys’ fees should not affect a plaintiff’s entitlement to costs and reasonable in post-Gucci cases. For example, in June 2007 the Southern District attorneys’ fees under that same section. of New York determined that a plaintiff’s request for $90,000 in Denying attorneys’ fees to plaintiffs that elect for statutory statutory damages was appropriate in a counterfeiting case (John damages frustrates the very purpose behind the statutory damages Wiley & Sons Inc v Kauzin Rukiz Ent’t & Promotions (2007 US Dist scheme, which is to “take the incentive out of counterfeiting and LEXIS 42095, 10-11, SDNY, June 12 2007)). The plaintiff had also asked strengthen the civil remedies against counterfeiters” (S Rep No 177, for $10,000 in attorneys’ fees. Despite agreeing with the Gucci 104th Cong 1995). If implemented broadly, the Ninth Circuit’s court’s holding that attorneys’ fees should not be awarded separately holding in K & N Engineering would discourage trademark owners when statutory damages are awarded, the court ultimately granted from bringing infringement actions, at least to the extent that the plaintiff’s request for $90,000 in statutory damages plus uncertainty exists concerning how sufficiently statutory damages $10,000 in attorneys’ fees. In doing so, the court explained that the would compensate plaintiffs. This inequitable consequence is the defendants’ wilful counterfeiting permitted a statutory award of $1 opposite of what Congress intended when it instituted statutory million per counterfeit mark per type of goods or services sold and damages in the Lanham Act. noted that the defendants refused to comply with the court’s request for damages information, so the plaintiff’s request for New York $100,000 in statutory damages and attorneys’ fees was reasonable. New York district courts have also confronted this issue and several Also in 2007 the Eastern District of New York stated that it is an have denied attorneys’ fees to plaintiffs choosing statutory damages “open question” in the Second Circuit whether attorneys’ fees under in counterfeiting cases. In March 2008 the Southern District of New Section 35 are available to a plaintiff electing statutory damages York stated that “attorney’s fees should not be awarded separately rather than actual damages (Chanel Inc v Schwartz (2007 US Dist where statutory damages under Section 1117(c) are being awarded” LEXIS 97147, 1-2, EDNY, September 28 2007)). However, the court (Cartier v Symbolix Inc (544 F Supp 2d 316, SDNY 2008)). However, no declined to decide the issue because the plaintiff failed to provide case has held that a plaintiff’s election of statutory damages sufficiently detailed records of its legal fees to be entitled to recover

64 World Trademark Review September/October 2008 www.WorldTrademarkReview.com Feature: The future of attorneys’ fees awards in US counterfeiting cases

Right Cartier was one of several brand owners denied a grant of attorneys’ fees in addition to statutory damages by a New York district court

The largess of juries attorneys’ fees. Several district courts have recently refused to award attorneys’ fees to plaintiffs because the plaintiffs did not submit sufficiently detailed fee records. For instance, in Ermenegildo v 56th Another interesting and potentially controversial aspect of damages St Menswear Inc (2008 US Dist LEXIS 48411, 12-13, SDNY, June 26 awards in the United States is their scale. Awards are particularly 2008)), the court denied attorneys’ fees to a plaintiff awarded generous when granted by juries, as was the case in adidas America statutory damages for counterfeiting because the law firm’s Inc v Payless ShoeSource Inc (Case 01-1655-KI, May 5 2008). In that statement of fees did not indicate that it was based on a compilation case a federal jury in the US District Court for the District of Oregon of contemporaneous time records. In Chanel Inc v Kouzniakova held that a discount shoe retailer, Payless ShoeSource, was liable to (2008 US Dist LEXIS 52798, 15-16, EDNY, July 10 2008), the court running-shoe maker adidas America Inc for almost $305 million. awarded $16,000 in statutory damages for counterfeiting, noting Payless was held liable for infringement, dilution, unfair that Section 35(a) allows the grant of attorneys’ fees in exceptional competition and deceptive trade practices with respect to adidas’s cases. However, it denied the plaintiff’s motion for attorneys’ fees ‘three-stripe mark’ (the design that appears on the sides of adidas’s without prejudice for a future showing of actual fees incurred as running shoes). Payless was also found liable with respect to adidas’s substantiated by contemporaneous time records and a description SUPERSTAR trade dress. The jury made specific findings of liability of tasks performed. for each of more than 250 different styles of running shoe, all of In Cartier v Symbolix Inc (544 F Supp 2d 316, 319-320, SDNY 2008), which included either two or four parallel, equal-width stripes that the Southern District of New York considered a plaintiff’s request for were equally spaced in the mid-foot portion of each side of the attorneys’ fees after it had awarded statutory damages. The court shoes. The jury found no liability as to one shoe style that appeared noted that while attorneys’ fees are appropriate in actual damage to consist of only one stripe on the sides of the shoes. cases under Section 35(a) or (b), “some courts have concluded that Turning to monetary relief, the jury: attorneys’ fees are unavailable under Subsection (c)”. Rather than • awarded adidas $30,610,179 in actual damages; deciding the issue, however, the court found it “unnecessary to • found that Payless acted wilfully or in bad faith, supporting an resolve this interesting question of statutory interpretation since [the award of $137,003,578 for Payless’s profits; and court] concludes that a modest award of fees reflecting the modest • found that Payless acted with malice or in wanton and reckless amount of trebled profits is appropriate either as a separate award or disregard of adidas’s rights, which supported an award of $137,003,578 as part of an award of statutory damages”. Accordingly, the court in punitive damages based on adidas’s claims under Oregon state law. directed the parties to negotiate in good faith to determine the amount of attorneys’ fees to be awarded. Payless subsequently filed several post-trial motions, seeking: • judgment as a matter of law on adidas’s liability claims or, in the Ninth Circuit decisions post-K & N Engineering alternative, a new trial; Although the Ninth Circuit determined in K & N Engineering that a • judgment as a matter of law on adidas’s damages claim or, in the plaintiff electing statutory damages cannot recover attorneys’ fees alternative, a new trial on damages or reduction of the jury award; for wilful counterfeiting under Section 35(b), the court did not • a new trial or reduction of the jury award (remittitur); and decide whether such a plaintiff also waives its right to recover • judgment as a matter of law or a new trial due to adidas’s alleged attorneys’ fees under the exceptional case standard of Section 35(a). failure to prove actual damage. The few decisions that have been issued in the Ninth Circuit since K & N Engineering, however, indicate that K & N Engineering may not On the issue of wilfulness, Payless also filed under seal a preclude attorneys’ fees in exceptional cases. supplemental motion for new trial. The parties briefed the motions In July 2008 the District Court for the District of Nevada granted and the court took them under advisement after hearing argument statutory damages to a plaintiff for counterfeiting, but determined on July 21 2008. that because the plaintiff chose statutory damages, “attorneys’ fees The State of Oregon also filed a motion to intervene based on its cannot be granted pursuant to 15 USC 1117(a) or (b)” (Koninklijke status (under Oregon statutes) as a judgment creditor on any awards Philips Elecs NV v KXD Tech Inc (2008 US Dist LEXIS 50839, D Nev, of punitive damages based on violations of Oregon state law. Oregon July 1 2008)), citing K & N Engineering; emphasis added). In contrast, law requires that 60% of punitive damages on state law claims (in this case, 60% of $137,003,578) be paid to the Oregon Department of Justice’s criminal injuries compensation account. Payless opposed the motion, arguing that: • intervention was premature before judgment was entered on the jury verdict; and • intervention was not needed to protect the state’s right to a share of a judgment awarding punitive damages. adidas concurred with Payless’s position that: • the state’s motion was premature; and Tommy Hilfiger and • the state had not shown that it was entitled to intervene at this stage. Microsoft (overleaf) are two of the companies that have been granted both statutory On July 24 American Guarantee & Liability Insurance Co filed a damages and attorneys’ lawsuit declining liability to pay the record award. fees by the Ninth Circuit – one before and the other one after K & N Engineering World Trademark Review

www.WorldTrademarkReview.com September/October 2008 World Trademark Review 65 attorneys’ fees were awarded in addition to statutory damages in be available to plaintiffs choosing statutory damages so long as they three 2008 California cases brought by Microsoft. plead and prove that a case is exceptional. Generally, this can be In January 2008 the Northern District of California granted accomplished by showing that a defendant’s counterfeiting was Microsoft’s request for $45,000 in statutory damages for the deliberate or intentional. Plaintiffs bringing actions in the Ninth defendants’ infringement of multiple copyrights and trademarks. Circuit should make sure to: Microsoft also requested $5,000 in attorneys’ fees and costs • plead specifically that a case is exceptional within Section 35(a); and (Microsoft Corp v E&M Internet Bookstore Inc (2008 US Dist LEXIS • detail comprehensively how a defendant’s acts were deliberate 4381, ND Cal, January 22 2008)). Concerning attorneys’ fees, the court and intentional. noted that both the Copyright Act and the Lanham Act authorize the award of attorneys’ fees and costs, with the Lanham Act allowing Additionally, New York precedent indicates that plaintiffs attorneys’ fees in exceptional cases under Section 35(a). Because the choosing statutory damages will not be barred from recovering court found that the defendants’ infringement was wilful, it attorneys’ fees pursuant to Section 35(a) or Section 35(c). Rather, determined that “the importance of deterring the sale of counterfeit courts will evaluate attorneys’ fees in the context of calculating an products weigh in favour of granting attorneys’ fees”. appropriate statutory damages award. To that end, plaintiffs should In April 2008 the Eastern District of California granted request attorneys’ fees in relation to their proposed calculation for Microsoft’s request for $970,000 in statutory damages for the statutory damages instead of separately claiming to be entitled to defendant’s infringement of nine copyrights and counterfeiting of attorneys’ fees under Section 35(a) or Section 35(b). As with Ninth seven registered trademarks (Microsoft Corp v Nop (2008 US Dist Circuit plaintiffs, New York plaintiffs should also specifically allege LEXIS 31730, ED Cal, April 17 2008)). Recognizing the Copyright Act’s and present evidence that a case is exceptional. Additionally, for the and the Lanham Act’s authorization of attorneys’ fees, the court best chance at recovering attorneys’ fees, plaintiffs in New York found that attorneys’ fees were warranted under both statutes should submit extremely detailed fee records that are substantiated because the defendant’s infringement was wilful. by contemporaneous time records. WTR In May 2008 the Eastern District of California granted Microsoft’s request for $470,000 in statutory damages for the defendant’s infringement of eight copyrights and counterfeiting of seven trademarks and service marks (Microsoft Corp v Hassan (2008 US Dist LEXIS 38691, ED Cal, May 12 2008)). Microsoft requested attorneys’ fees and costs under the Copyright Act and pursuant to Section 35(a). Finding ample evidence that the defendant’s conduct was wilful, the court granted Microsoft attorneys’ fees and costs.

Implications Rita W Siamas is a trademark associate in the IP, media and Based on the recent California decisions discussed above, it appears technology department of McDermott Will & Emery LLP in that K & N Engineering will not operate to preclude plaintiffs from Washington DC recovering attorneys’ fees in all cases. Rather, attorneys’ fees will still [email protected]

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