Counterfeit Law Blog

Under the statutory damage provision of the Lanham Act, 15 U.S.C. 1117(c), the court can award statutory damages of not less than $500 or more than $100,000 per counterfeit mark per "type of goods or services," or not more than $1,000,000 per counterfeit mark "per type of goods or services" if the court finds that the use of the counterfeit mark was willful.  A recent decision out of the Southern District of New York addresses what constitutes a “type" of good under this provision.  In Gucci America, Inc. v. MyReplicaHandbag.com, 2008 WL 512789 (S.D.N.Y. Feb. 26, 2008), Judge Koeltl accepted the recommendation of Magistrate Judge Eagan that the Internet retailer MyReplicaHandbag.com be assessed statutory damages of $4.3 million for counterfeiting trademarks owned by Gucci, Chloe and Davidoff. The plaintiffs had sought even more – $21.2 million – based on their assertion that MyReplicaHandbag.com had sold 424 different “types” of counterfeit goods.  The court rejected this count, holding that “[f]or the purpose of awarding damages, it seems unduly artificial to categorize the merchandise into separate ‘types’ for each subtle difference in a particular product’s size, shape, color, pattern or fabric.”  Instead, the court held, “the separate ‘types’ should be based on the functional purpose of the product.”  Based on the functional purpose of the counterfeit goods, the court held that “the defendants sold replicas of the following types of goods: (1) handbags (Gucci and Chloe); (2) wallets (Gucci); (3) handbag and wallet sets (Gucci); (4) watches (Gucci and Dunhill); (5) eyeglasses (Gucci); and (6) belts (Gucci).”  It then awarded Gucci $3,600,000 ($100,000 x 6 marks x 6 types of goods), Chloe $400,000 ($100,000 x 4 marks x 1 type of good), and Dunhill $300,000 ($100,000 x 3 marks x 1 type of good).  While Judge Eagan's observation that it is "unduly artificial to categorize the merchandise into separate ‘types’ for each subtle difference in a particular product’s size, shape, color, pattern or fabric" may have some merit, the standard he adopts -- that the "separate 'types' should be based on the functional purpose of the product" --  is overly simplistic and is not easily reconciled with other decisions.  For example, a 2006 decision cited in Gucci considered t-shirts and polo shirts to be separate types of goods.  Nike, Inc. v. Top Brand Co. Ltd., 2006 WL 2946472 (S.D.N.Y. Feb. 27, 2006) (Ellis, M.J.) (awarding$12 million -- $1,000,000 per infringed mark for each of four Nike trademarks for three types of goods, t-shirts, polo shirts and sweatshirts), adopted by Chief Judge Wood on October 6, 2006.  Handbag aficionados would argue that the differences between certain sizes and shapes of handbags are equivalent to the differences between a t-shirt and a polo shirt. 

I was recently asked to write a column for the UK publication "World Trademark Review" about Rep. Conyers pending bill, HR 4279, titled Protecting Intellectual Property ("PRO-IP").  The official summary of the bill can be found here.  The PRO-IP bill generated considerable controversy when introduced in December 2007, primarily because of the proposed revision of the statutory damage provision of the Copyright Act. which has been referred to as “gluttonous” by William Patry, Senior Copyright Counsel for Google.  Currently,  the Copyright Act provides that, for purposes of calculating statutory damages, “all the parts of a compilation or derivative work constitute one work.”   Applying this limitation the Fourth Circuit Court of Appeals in Xoom v. Imageline limited the clip art distributor Imageline, which had published two compilation CDs containing thousands of clip art images, to only two statutory damage awards against a competitor that had allegedly copied a multitude of Imageline’s images from the two CDs.  PRO-IP would amend the Copyright Act so that the court (or jury, in a jury trial) has the discretion to make “either one or multiple awards of statutory damages” with respect to infringement of a compilation such as Imageline's CDs.  In a case like Xoom, this would give the court the discretion to award multiple statutory damage awards instead of being limited by the number of compilations infringed.  However, the magazine and consumer electronics industries, as well as some commentators and law professors have raised concerns that providing such discretion will inhibit innovation and result in disproportionate damage awards.  Others fear that its passage would prompt the recording industry to threaten individuals who engage in P2P piracy with astronomical damage awards.  Interestingly, at the preliminary House Subcommittee hearings on PRO-IP, Congressman Rick Boucher, a founder of the House Internet Caucus, suggested  that, to avoid chilling innovation, the statutory damage scheme for copyright may need to be overhauled to decouple damages available against willful direct infringers – such as organized software pirates – from those available against device manufacturers accused of indirect secondary infringement. Others have also suggested that damage awards against individuals engaged in P2P file sharing should be separately addressed by the Copyright Act.  It will be interesting to see whether such alternative proposals gain any traction when the bill comes up in Committee for mark-up in March.

The Lanham Act authorizes a district court to grant an ex parte order for the seizure of items involved in the unlawful use of a counterfeit mark, including goods, counterfeit marks, the means of making such marks, and records.  Under the statutory procedure, a court that issues an ex parte seizure order must schedule a hearing, generally within 15 days after the date the seizure order is issued.   At that hearing, the party who obtained the order has "the burden to prove that the facts supporting findings of fact and conclusions of law necessary to support such order are still in effect.” In order to continue the seizure order, the court must make the following findings:

(i) an order other than an ex parte seizure order is not adequate;

(ii) the applicant has not publicized the requested seizure;

(iii) the applicant is likely to succeed in showing that the person against whom seizure would be ordered used a counterfeit mark in connection with the sale, offering for sale, or distribution of goods or services;

(iv) an immediate and irreparable injury will occur if such seizure is not ordered;

(v) the matter to be seized will be located at the place identified in the application;

(vi) the harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered of granting the application; and

(vii) the person against whom seizure would be ordered, or persons acting in concert with such person, would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person.

If the party who obtained the order does not meet its burden of proof, the seizure order will be dissolved or modified.

In Beltronics USA, Inc. v. Midwest Inventory Distribution LLC, the federal district court in Kansas decided November 13, 2007 to dissolve an ex parte seizure order it had previously issued to Beltronics because, after conducting the required hearing, the court was not satisfied that the defendants would destroy, move, hide, or otherwise make the seized goods inaccessible, or that an order other than an ex parte seizure order would not be adequate to ensure that Beltronics would have adequate remedies if the defendants are ultimately found to have infringed Beltronics’ trademark.

The court was swayed by the absence of evidence that the defendants were “the type of fly-by-night defendants who will seek to evade the couirt’s jurisdiction.” The defendants had never failed to appear in court when required to do so, there was no prior legal action against them, and there was no other indicia that they would be unlikely to comply with a court order. Noting that the defendants are incorporated businesses with inventories, assets, and a fixed physical presence that sell merchandise other than Beltronics equipment, the court concluded that they would have much to lose if held in contempt of a court order. Consequently, the court could not find that  an order other than an ex parte seizure order would not be adequate to protect Beltronics. On the grounds that Beltronics has not made the showings required by the ex parte seizure statute, the court dissolved the seizure order and directed Beltronics to return the seized goods to the defendants. At the same time, however, it entered a preliminary injunction prohibiting the defendants from selling or offering for sale any Beltronics goods which do not bear an original Beltronics serial number label. In addition, in order to ensure the preservation of evidence, the court prohibited the defendants from destroying, modifying, moving, hiding, or otherwise making any such goods inaccessible during the course of the litigation.

The Guardian Unlimited reported Friday that law enforcement authorities have shut down the website tv-links.co.uk, a popular website that provided links to pirated copies of films and television programs, and arrested a 26-year-old man from Cheltenham, UK in connection with criminal offenses related to the facilitation of copyright infringement on the Internet. Much of the film content available on the site had apparently been recorded on camcorders at movie theaters.

Another district court judge has weighed in on the question of whether the Second Circuit Court of Appeals’ rule requiring a showing of willful deception or actual confusion for an award of monetary relief in counterfeiting cases survived the 1999 amendment of Section 35 of the Lanham Act (15 U.S.C. §1117(a)). The 1999 amendment provided for damages to be awarded in cases of trademark dilution, but only if a “willful violation” is found. Although the damage provision that applies in trademark infringement and counterfeiting cases does not explicitly require a “willful violation,” this requirement had been read into the statute by the Second Circuit in pre-1999 cases such as George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532 (2d Cir.1992). New York federal Judge Marrero has now joined several other district courts in holding that, by specifying that a “willful violation” must be found before damages can be awarded in a dilution case, Congress, by implication, rejected the Second Circuit’s rule that a willful violation must be shown before damages can be awarded in counterfeiting cases.

The case, Cartier v. Aaron Faber, Inc., 2007 WL 2823691 (S.D.N.Y. Sept. 27, 2007), involved an enterprise in the business of buying and selling premium watches that had admitted that it had caused third-party jewelers to mount diamonds on watches bearing the marks CARTIER, PANERAI, PIAGET, and VAN CLEEF & ARPELS, which it then sold or offered for sale on consignment to auction houses. The altered watches retained the brand owners’ original marks and displayed no additional mark indicating that the diamonds had been added by J & P. At least some of the watches were modified to appear identical to more expensive genuine models. The court held that the altered watches were counterfeits:

"The retention of the Plaintiffs' marks with no indication that the watches had been significantly altered by J & P creates a likelihood that customers would be deceived into believing that the alterations were performed by the original manufacturers. As the Court stated in granting the preliminary injunction: 'A customer viewing the watches on her own or secondary purchasers of the watches would directly attribute to Cartier the bejeweled bezels, cases and/or bracelets, and any flaws in the workmanship or quality of the watch resulting from that alteration.'”

In addition to the dispute over whether willfulness had to be shown to support a damage award, the parties disagreed as to whether the injunction entered in the case should outright prohibit sales of altered watches or permit such sales so long as J & P added another trademark to the watches to indicate that they had been altered. Cartier and the other plaintiff brand owners argued that the court could rule on a motion for summary judgment (i.e., without holding an evidentiary hearing) that addition of an independent mark would not adequately convey to the public that the watches had been altered. However, the Court declined to rule without an evidentiary hearing that it would be impossible for J&P to mark the modified watches in such a way as to make clear to consumers that it had performed after-market alterations. Instead, the scope of the permanent injunction will be determined after evidence is heard on this issue.