An Overview of Recovering Trademark Infringement Damages

To establish willfulness a plaintiff may show that the defendant had actual knowledge of the infringing activity, or was willfully ignorant of potential infringement. Neglecting a warning of potential infringement and using the mark anyway can be evidence of willful infringement. E. & J. Gallo Winery v. Consorzio del Gallo Nero, 782 F. Supp. 472, 475 (N.D. Cal. 1992); JIPC Mgmt. v. Incredible Pizza Co., CV0804310MMMPLAX, 2009 WL 10671438, at 16 (C.D. Cal. June 24, 2009) (awarding attorney's fees where defendant used plaintiffs mark after receiving notice of plaintiff's rights). Similarly, continued use of a trademark after the defendant becomes aware of the potential infringement can demonstrate willfulness. Anhing Corp. v. Thuan Phong Co. Ltd., CV1305167BROMANX, 2015 WL 4517846, at 18 (C.D. Cal. July 24, 2015) (defendant's continued use of trademark knowing its use could constitute infringement and without consulting legal counsel supported finding of willfulness).

Disgorgement Under a Proxy Theory

When a plaintiff uses a defendant's profits to show the plaintiff's actual damages, proving willfulness is not necessary. Paramount Farms Int'l LLC v. Keenan Farms Inc., 2:12-CV-01463-SVW-E, 2012 WL 12892420, at 2 (C.D. Cal. Dec. 6, 2012). In Keenan Farms, the court explained willfulness was not a prerequisite to using a defendant's profits as a proxy for the plaintiff's actual profits. Id. Instead, the Keenan Farms court attributed a prior court's rejection of the proxy theory to "the plaintiff's failure to supply particularized evidence of the defendant's sales derived exclusively from the infringing product." Id. Plaintiffs seeking disgorgement under a proxy theory should focus on establishing with reasonable certainty the defendant's sales — not necessarily the defendant's intent.

To establish profits, a plaintiff is only required to prove the defendant's sales. 15 U.S.C. §1117(a). The burden for establishing a defendant's sales is not high, and courts allow inferences and estimates in the analysis. See, e.g., Djarum v. Dhanraj Imports, Inc., 876 F. Supp. 2d 664, 670 (W.D.N.C. 2012) (plaintiff "met its burden by providing evidence of infringing sales activity and a reasonable estimate of Defendants' gross sales based upon the amount on infringing goods that were imported by Defendants for sale."). Once the plaintiff has established the defendant's sales, the burden shifts to the defendant to prove costs, deductions, or that profits made by the defendant were unrelated to the infringement. Spin Master, Ltd., 944 F. Supp. 2d at 839-40 Moreover, any "uncertainty in the amount of damages should be borne by the wrongdoer." Adray v. Adry–Mart, Inc., 76 F.3d 984, 989 (9th Cir.1995), as amended on denial of reh'g (Feb 15, 1996).

Actual Damages

Under Section 1117(a), a plaintiff can recover not only a defendant's profits, but the plaintiff's actual damages. 15 U.S.C. §1117(a). To recover damages, a plaintiff must prove that actual confusion caused an economic loss. Schutt Mfg. Co. v. Riddell, Inc., 673 F.2d 202, 206-07 (7th Cir. 1982); Tommy Hilfiger, U.S.A., Inc., supra, 80 F.3d at 753.

Lost Profits/Loss of Good Will

To recover damages, plaintiffs must establish loss with a reasonable degree of certainty. Otis Clapp & Son, Inc. v. Filmore Vitamin Co., 754 F.2d 738, 745-46 (7th Cir. 1985). Plaintiffs commonly do this by establishing lost profits or loss of goodwill. To establish lost profits plaintiffs typically show the revenue they would have earned but for the infringing activity, less expenses associated with earning those revenues. To determine loss of good will, plaintiffs must establish the value of the goodwill associated with the mark before the infringement and the value of its goodwill after the infringement (present goodwill). Badger Meter, Inc. v. Grinnell Corp., 13 F.3d 1145, 1157 (7th Cir. 1994).

Corrective Advertising

An award of corrective advertising is intended to counteract confusion resulting from infringement. Zelinski v. Columbia 300, Inc., 335 F.3d 633, 639 (7th Cir. 2003); Adray, 76 F.3d at 988. Corrective advertising is generally focused on future expenses. Adray, 76 F.3d at 988.While courts have discretion in awarding corrective advertising, the Ninth Circuit and district courts therein have implicitly approved an approach that awards the plaintiff 25% of defendant's advertising budget. Marketquest Group, Inc. v. BIC Corp., 11-CV-618-BAS (JLB), 2018 WL 1756117, at 5 (S.D. Cal. Apr. 12, 2018) (citing Big O Tire Dealers, Inc. v. Goodyear Tire & Rubber Co., 561 F.2d 1365, 1374-76 (10th Cir. 1977)).

In Big O Tire Dealers, the rationale for the award was supported by: 1) the geographic scope of Big O's business; and 2) a Federal Trade Commission (FTC) requirement. The FTC's 25% rule originated from several FTC proceedings in the 1970s in which the FTC ordered companies to devote 25 percent of their advertising to corrective advertising. See, e.g., In the Matter of Amstar Corp., 83 F.T.C. 659, 1973 WL 165279, at 9 (1973) (ordering plaintiff to cease advertising "unless not less than 25 percent of the media expenditures" were devoted to corrective advertising). The Tenth Circuit in Big O Tire Dealers upheld the award but reduced the amount awarded based on geographic limitations and that "implicit in the FTC's 25 percent rule … is the fact that dispelling confusion … does not require a dollar-for-dollar expenditure."  Big O Tire Dealers, 561 F.2d at 1374-75.

However, plaintiffs should be wary of seeking the formulaic application of the 25% "rule." See, e.g., Fancaster, Inc. v. Comcast Corp., 832 F. Supp. 2d 380, 423 (D.N.J. 2011) (court rejected plaintiff's proposed corrective advertising award based on defendant's advertising expenditures where plaintiff could not establish any damage to its mark); see also Juicy Couture, Inc. v. L'Oreal USA, Inc., No. 04 CIV. 7203 (DLC), 2006 WL 1359955, at 3 (S.D.N.Y. May 18, 2006) (court rejected award of corrective advertising where parties did not have competing products). The applicability of a corrective advertising award depends on the facts of the particular case.

Reasonable Royalty Rate

Plaintiffs may recover a reasonable royalty rate as a measure of damages, provided this rate represents the plaintiff's actual loss or the infringer's unjust enrichment. Sands, Taylor & Wood Co. v. Quaker Oats Co., 978 F.2d 947, 963 n.19 (7th Cir. 1992) (Sands I); Sands, Taylor & Wood Co. v. Quaker Oats Co., 34 F.3d 1340, 1350 (7th Cir. 1994) (Sands II). While a reasonable royalty is appropriate where the parties had an existing relationship, courts will base the reasonable royalty on a hypothetical license where there is no established royalty for the infringed mark. See, e.g., Contender Partners, LLC v. Azteca Int'l Corp., CV0802026MMMJTLX, 2009 WL 10670472, at 16 (C.D. Cal. July 22, 2009). But the award of hypothetical royalties must be based on more than undue speculation. Oracle Corp. v. SAP AG, 765 F.3d 1081, 1088 (9th Cir. 2014).

Attorney's Fees

Section 1117(a) provides for the award of reasonable attorney's fees in exceptional cases. Traditionally, attorney's fees were awarded where there was strong evidence of bad faith or willful infringement by the defendant. However, in 2016, the Ninth Circuit, sitting en banc, explicitly overturned its previous standard for awarding attorney's fees in trademark cases. The Ninth Circuit now follows the standard announced in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749 (2014) (http://1.usa.gov/1ncWf9j). Four other U.S. appeals courts also follow the Octane Fitness standard in trademark cases governed by the Lanham Act's fee-shifting provision. The Second and Seventh Circuits are the only two appellate courts to have applied earlier case law to fee disputes under the Lanham Act since the Octane Fitness decision was announced.

Recovery of Costs

Section 1117(a) allows a successful plaintiff to recover the costs of an action. Courts have discretion to award costs, subject to the principles of equity. Generally courts award those costs described in 28 U.S.C. §1920, which include filing fees, expert witness fees, and court reporter fees.

Counterfeiting

Under Section 1117(b), a court may award treble damages for willful violations involving counterfeit marks. And under Section 1114(1)(a), a plaintiff may recover three times profits or actual damages, whichever is greater, as well as reasonable attorney's fees. Courts may also award prejudgment interest.

Statutory Damages

Instead of actual damages, a plaintiff can elect to recover an award of statutory damages under Section 1117(a) when a counterfeit mark is used. The amount of statutory damages courts can award is between $1,000 and $200,000 per counterfeit mark. 15 U.S.C. §1117(c)(1). If a defendant's use of a counterfeit mark was willful, a court may award statutory damages of up to $2,000,000 per counterfeit mark. 15 U.S.C. §1117(c)(2).

Under Section 1125(d)(1), a plaintiff can recover statutory damages against a defendant that has a bad faith intent to profit from a mark or personal name, and who registers, traffics, and uses the mark or personal name as a domain name. The amount of statutory damages courts can award for cybersquatting is between $1,000 and $100,000 per domain name that violates Section 125(d)(1). 15 U.S.C. §1117(d).

Analysis

Plaintiffs in trademark infringement cases need to have a thorough understanding of the options available to them to recover damages. These options will depend on the facts of the particular case and the jurisdiction in which the plaintiff chooses to litigate.

*****

Marcus Harris is a partner in the IP Group in the Chicago office of Taft Stettinius & Hollister LLP and a member of the Board of Editors of The Intellectual Property Strategist. He can be reached at [email protected]. Ryan Burandt is an associate at Taft. He can be reached at [email protected].