Counterfeit Law Blog

In federal civil counterfeiting cases, a plaintiff may elect to recover statutory damages instead of actual damages. If the defendant's use of the counterfeit mark was willful, the court can award up to $1 million per counterfeit mark for each type of good sold, offered for sale or distributed. If the defendant’s use of the counterfeit mark is not found to be willful, the statutory damage award can be no more than $100,000 per counterfeit mark per type of good (and no less than $500).

 

The Lanham Act does not define the term "willful." In a December 1 decision by the United States District Court for the Eastern District of Michigan, the court rejected Lorillard’s assertion that a showing of “reckless” conduct by the defendant is sufficient to establish willful use of a counterfeit mark. 

In the case, Lorillard Tobacco Company v. Kamposh, reported at 2006 U.S. Dist. LEXIS 86997, Lorillard had asked to the court to grant it summary judgment on the issue of willfulness. (Summary judgment is a procedure under which the moving party can get judgment entered in its favor without a trial by showing the court that the relevant facts are all undisputed.)  Lorillard argued that willfulness, or at least recklessness, was established by records showing a sharp decline in the number of Newport cigarettes purchased by the defendants, cigarette retailers, during the months before counterfeit Newport cigarettes were found and seized at their stores. From March of 2003 to December of 2003, the retailers purchased 54 cartons of Newport King cigarettes in the soft pack and in 2004 they purchased 53 cartons. In contrast, between January of 2005 and April of 2005, the retailers purchased only five cartons of Newport King cigarettes in the soft pack, none of which were purchased between February 22, 2005 and April 19, 2005.   On March 30, 2005 and April 15, 2005, when counterfeit cigarettes were confiscated from their stores, more than half of the retailers' total inventory of Newport King cigarettes in the soft pack for the year were counterfeit.   Lorillard contended that the retailers' reduction in purchases of Newport King cigarettes in the soft pack combined with the fact that more than half of their inventory was counterfeit, shows that they willfully, or at least recklessly, used counterfeits of its Newport mark.

The court held that, even if this evidence showed recklessness, “the standard for increasing damages owed is willfulness not recklessness.”  Because Lorillard's evidence did not unequivocally establish that the retailers knew they were selling counterfeits, Lorillard was denied summary judgment:

“Plaintiff's evidence may suggest that the defendants' conduct was willful, however, Plaintiff has failed to show that Defendants knew the cigarettes were counterfeit or that Defendants sold the counterfeit cigarettes with knowledge that the cigarettes were counterfeit. Without such showing, the Court cannot determine that Defendants willfully used a counterfeit mark as a matter of law.”

Lorillard will have a second chance to try to establish willfulness -- at trial.  The denial of summary judgment merely means that the court refused to find willfulness as a matter of law based on the undisputed facts without conducting a trial.  It is possible that, at trial, Lorillard could rely on the same facts it presented in its summary judgment motion to convince the jury (or judge if the case is tried to the court) that the retailers knew they were trafficking in counterfeits.