EIGHT YEARS AGO Congress decided that the existing means for awarding damages for trademark infringement were not deterring this illegal practice and decided to supplement these measures with statutory damages-a specific range that a court could award even in the absence of proof of a plaintiff's losses or the defendant's profits. Despite the fact that almost a decade has passed since Congress passed this statute, most courts that award trademark infringement damages continue to cite as their authority copyright law on statutory damages. While it is true that there is a much longer common law history for copyright statutory damages, the assumption of most courts, practitioners, and even trademark treatises, that there is little jurisprudence on trademark statutory damages is not correct. In fact, a solid body of trademark cases awarding statutory damages exists. At least 25 reported cases in which statutory damages were awarded for counterfeiting can be found.
Before statutory damages provided an alternative, courts awarded damages based on a plaintiff's actual damages or a defendant's profits from the sales of counterfeit goods. Because the records of defendants were often poor or nonexistent, plaintiffs were forced to reveal important information about their businesses in order to recover damages. This put pressure on plaintiffs-particularly privately held companies-either to reveal confidential information about their sales practices and profits or forgo damages. Moreover, this information was to be revealed to the very persons who already had a track record of taking the plaintiff's intellectual property. To plaintiffs, it seemed like they were being asked to give the key to the safe to the person who had just broken into their house. The choice between disclosing trade secrets or forgoing damages added insult to injury to a company that had already suffered a serious trademark infringement. Congress enacted statutory damages to provide an alternative:
The creation of this alternative to the more traditional remedies of recovery of the plaintiff's damages or the defendant's profits reflected a harsh reality---counterfeiters often do not keep or secrete records of their unlawful activities, thus making proof of the extent of the plaintiff's injury or the counterfeiter's profits impossible as a practical matter.
There are three prerequisites to an award of statutory damages in trademark cases. First, there must be a trademark registration. Second, the infringing mark must be nearly identical to the authentic mark. The third requirement is that the infringing product or service is listed in the federal trademark registration.
Courts have a wide range of discretion in setting statutory damages. A court may award $500 to $100,000 per counterfeit mark per type of goods or services. If the infringement is willful the range increases to $1 million. In practice, courts have employed the full range of statutory damages. In one case, a court awarded only $500 per mark, and several courts have made awards of the full $1 million per mark.
In most counterfeiting cases liability can be quickly established without trial. A plaintiff proves that it owns the trademark by offering its federal registration. A plaintiff offers samples of the products or services that the defendant offered that bore the mark and proves that this use was without authorization. Because counterfeiting cases involve only infringing uses in which the mark the infringer used is virtually identical to the registration, there is less room for litigation over issues such as similarity. Relatively simple counterfeiting cases thus lend themselves to resolution before trial.
In fact, in. the vast majority of trademark statutory damage cases there were insufficient contested facts for a trial on the merits. Almost half, involved default judgments. Another third of the statutory damage awards were made during or after a motion for summary judgment. To a defendant the message is that you may be at greatest risk for a statutory damage award in a case that can be quickly resolved. To a plaintiff, these quick cases look like the ideal setting in which to seek statutory damages.
Consistent with the summary stage in which most statutory damages are awarded-and with a defendant having insufficient contested issues to get to trial-the average award per mark is substantial: $219,739. This figure must be considered in view of not only the relatively uncontested state of most of the cases but also in view of the factors that the various courts considered, such as defendant's profits or sales.
The amount of damages a plaintiff recovered on other claims, such as state punitive damages, may also be important. It seems that the greater the recovery on other counts, the less likely a court was to award large statutory damages. None of the courts said this explicitly, but because discretion is so wide, it is probably considered.
Mr. Sarabia has become intimately familiar with the many business problems - and legal issues - which fashion companies may face. The start of his apparel industry experience was nine remarkable years as part of the senior management of Guess?, Inc. Guess? went through amazing growth during this period, one year alone its sales grew 400%! In these nine years, Guess? transformed from a fad into a mainstay fashion company. Those who were fortunate enough to work there saw a variety of challenges, problems and issues which most apparel companies do not encounter over decades.
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