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Proving Damages in Trademark Cases

Originally published in Business Valuation Update Volume 18, Number 10, October 2012.

By: Dr. Stanley Stephenson & Dr. Gauri Prakash-Canjels
Tel: 800-479-2341
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Proving damages in trademark litigation-typically lost profits or disgorgement of the defendant's profits-generally involves citing the infringer's sales of the infringing product. This article considers some ways to measure trademark damages, including lost profits due to diverted sales and/or price reductions, unjust enrichment, reasonable royalty, and increased costs, especially for corrective advertising

Trademark law is mainly set up to protect the public; the commercial interest of the trademark holder is only a secondary concern. 2 Therefore, damages may not be explicitly considered. In contrast to other types of intellectual property (IP) litigation, the main objective of trademark infringement litigation may not be to recover damages. Also, trademark litigation, like any IP litigation, is expensive and risky. The American Intellectual Property Law Association (AIPLA) 2007 survey of litigation costs puts the risk at $1 million to $25 million and the median cost of IP litigation, including trademark litigation, at a prohibitively high $2.5 million. Discovery and attorney time are key cost drivers. To measure trademark damages, one needs to make sure detailed financial information is available on the parties involved and hire damages experts to conduct complex and credible damages assessments.

Requirements for monetary damages. Some courts require evidence of consumer confusion between the plaintiff's mark and the defendant's mark for recovery from infringement, including a monetary reward. Checklists are also often used to establish the likelihood of confusion, but these lists are not consistent among federal circuits. To be awarded damages, some courts may require more evidence than potential confusion, often including evidence of bad faith or willfulness. Bad faith can mean different things, including deliberate fraud, intent to cause confusion, counterfeit, and knowingly infringing on the mark holder's rights. If bad faith is established, the standard for measuring the amount of damages may not be as strict. The plaintiff still needs damages proof, but the basis is "reasonable inference." 3 This means a plaintiff need not precisely measure damages, especially if the defendant fails to provide financial data, a tactic that does not preclude recovery. Also, courts may be more forgiving regarding the amount of damages if the plaintiff and defendant compete directly in the same market.

Measuring actual damages in trademark cases. A lost profit of the plaintiff is a standard way to measure monetary recovery; however, calculating lost profits is not without challenges. Presumably, it should be simple to measure the lost sales the plaintiff would have made but for the infringement and then subtract incremental costs on those sales to determine lost incremental profits. Here are a few of those challenges:

. . .Continue to read rest of article (PDF).

Stanley P. Stephenson, Ph.D. Economics, has provided Economic Litigation services in more than 300 cases. His experience includes Business Valuations, Economic and Quantitative Analysis and Market Assessments.

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