IV. Remedies A. Damages 3. Statutory Damages under 15 U.S.C. §1117(c)
Where counterfeiting is involved, the law recognizes that “counterfeiters’ records are frequently non-existent, inadequate or deceptively kept … making proving actual damages in these cases difficult, if not impossible.” Lorillard Tobacco Co. v. Jamelis Grocery, Inc., 378 F.Supp.2d 448, 458 (S.D.N.Y. 2005) (citations omitted). See also Church & Dwight Co. v. Kaloti Enterprises, 697 F.Supp.2d 287, 291 (E.D.N.Y. 2009)(noting that “damages for counterfeiting are not always readily quantifiable.”). Consequently, a plaintiff is entitled to recover at its election, any time before final judgment is entered, statutory damages under the Lanham Act, 15 U.S.C. § 1117(c), as an alternative to defendants’ profits or plaintiff’s actual losses resulting from the infringing activity. The Act permits an award “not less than $1,000 or more than $200,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just.” 15 U.S.C. 1117(c). If the court finds that the use of the counterfeit mark was willful, the court may award damages in an amount “not more than $2,000,000 per counterfeit mark per type of goods sold, offered for sale, or distributed.” Id.
Courts have wide discretion in awarding statutory damages for willful trademark infringement pursuant to 15 U.S.C. § 1117 (c)(2). Cartier Int’l v. Ben-Menachem, 2008 WL 64005 *14 (S.D.N.Y.)(citations omitted). See Rolex Watch v. Pharel, 2011 WL 1131401 *4 (E.D.N.Y.), noting that “the Lanham Act does not provide a methodology for calculating the appropriate statutory damages, requiring only an award of “ ‘what the court considers just,’” citing Church & Dwight Co. v. Kaloti Enterprises, 697 F.Supp.2d 287, 295 (E.D.N.Y. 2009)(citations omitted).
In a contributory counterfeiting case involving a web hosting company, the court upheld a jury award of $10.5 million in statutory damages against each of the defendants. Louis Vuitton Malletier v. Akanoc, 2010 WL 5598337 (N.D. Cal.), discussed in further detail in Sections II.D.2(d). The defendants in Akanoc owned and operated servers that were hosting websites found to be selling counterfeit Louis Vuitton products. Following the jury verdict, the defendants moved for judgment as a matter of law (JMOL) and a new trial.
In support of their motion, the defendants argued that “(1) the statutory damages exceeded the statutory maximums, (2) the statutory damages were unconstitutional as applied, and (3) the closing instructions to the jury misstated the law regarding statutory damages.” Id. at *12. The court rejected all three arguments.
The jury’s award of $10,500,000 per defendant for willful contributory infringement of 13 of Louis Vuitton’s trademarks amounted to approximately $807,692 per trademark, the court determined. Citing the language of the statute in effect prior to October of 2008, it found that amount to be within the statutory maximum of $1,000,000 “per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just.” Louis Vuitton Malletier v. Akanoc, supra at *12 (N.D. Cal.), citing 15 U.S.C. § 1117(c) (2).
The defendants’ constitutional challenge to the jury award was based on two grounds: (1) the statute violated their due process rights under the Fifth Amendment because it lacked adequate language to guide a jury in applying it, and (2) the damages awarded were unconstitutionally excessive. The court relied on the Supreme Court’s holding in Feltner v. Columbia Pictures Television, that the “right to a jury trial includes the right to have a jury determine the amount of statutory damages.” Louis Vuitton Malletier v. Akanoc, supra at *12 -*13, quoting Feltner, 523 U.S. 340, 353 (1998). Although Feltner involved damages under the Copyright Act, the court reasoned, there was no reason its rationale should be so limited. It therefore concluded that it did not err in permitting the jury to determine the amount of statutory damages. Louis Vuitton Malletier v. Akanoc, supra at *13.
Nor was the jury’s award unconstitutionally excessive, the court held, noting that “[b]ecause awards of statutory damages serve both compensatory and punitive purposes, a plaintiff may recover statutory damages ‘whether or not there is adequate evidence of the actual damages suffered by plaintiff or of the profits reaped by defendant. …’” Louis Vuitton Malletier v. Akanoc, supra (citation omitted). “The amount to be awarded is ‘constrained only by the specified maxima and minima.’” Id.
In reviewing the jury award, the Akanoc court applied the Supreme Court’s standard as articulated by the Ninth Circuit in U.S. v. Citrin, namely that “[a] statutorily prescribed penalty violates due process rights ‘only where the penalty prescribed is so severe and oppressive as to be wholly disproportions[ate] to the offense and obviously unreasonable.’” Akonoc, supra at*13, citing 972 F.2d 1044, 1051 (9th Cir. 1992). It compared the jury’s award with those in other cases, noting that “[c]ourts routinely reject substantive due process challenges to statutory damage awards.” Akanoc, supra at *13 (citations omitted). Distinguishing the exceptional cases where damages were found to violate due process, the court concluded that the defendants had not shown that the award of statutory damages was “so severe and oppressive as to be wholly disproportionate to the offense and obviously unreasonable.” Id. at 14. It noted that the award was within the statutory ranges and that there was no requirement that the jury base the award on any evidence of actual damages suffered by the plaintiff. Id. Moreover, the defendants had failed to cite to any analogous case where a court found a due process violation. Id. Given the jury’s finding of willful infringement of the plaintiff’s 13 trademarks and copyrights, the court concluded, the award was permissible and not excessive. Id.
In another counterfeiting case, the jury imposed damages almost 30 times as great on the secondary infringer as on the direct infringer. Roger Cleveland Golf Co., Inc. v. Price (sic), 2010 WL 5019260 (D. S.Carolina); Jury Verdict Form. The outcome in Roger Cleveland Golf was also noteworthy because the jury found liability notwithstanding that the plaintiff had not sent any kind of notice or cease and desist demand to the web hosting company prior to the lawsuit. The case is further discussed in Section II.D.2(d).
The plaintiff in Roger Cleveland Golf manufactured and distributed CLEVELAND brand golf clubs. It discovered that an online business run by the defendants was selling counterfeit versions of its golf clubs. The plaintiff subsequently sued both the website operators and their web hosting company, “Bright Builders,” alleging direct and either contributory or vicarious infringement, respectively. Roger Cleveland Golf, supra at *1 and *2. Bright Builders moved for summary judgment, arguing that it should be dismissed as a defendant.
While Bright Builders maintained – in a procedurally deficient motion that was criticized by the court – that its role was limited to being a “web hosting entity” and that it was unaware of the nature of the website owners’ business, the plaintiffs countered with evidence that Bright Builders was deeply involved in the counterfeiting enterprise, working hand-in-hand with the operators. Roger Cleveland Golf Co., Inc. v. Price (sic), supra at *3. Specifically, the plaintiffs showed how Bright Builders created and developed the infringing websites, providing “coaching and mentoring” services to help develop the business. Id. They demonstrated further that an advisor from the web hosting company had detailed one-on-one discussions with the business owners about how to go about selling the golf clubs. Id.
Moreover, the plaintiff argued that Bright Builders knew or should have known based on their involvement with the owners that the websites were meant to sell counterfeit golf equipment. Roger Cleveland Golf Co., Inc. v. Price (sic), supra at *3. One of the domain names used by the business was “copycatclubs.com,” which the plaintiffs argued should have put Bright Builders on notice that their customers were selling counterfeits. So, too, should the content of their online store’s website, which described itself as “your one stop shop for the best COPIED and ORIGINAL golf equipment on the internet.” Id. The court agreed,and denied the defendant’s motion for summary judgment. Id. at *4.
Following a two-day trial, the jury found the defendant Bright Builders liable for secondary trademark infringement under the Lanham Act and violation of the South Carolina Unfair Trade Practices Act. It awarded statutory damages to the plaintiff pursuant to both acts, in the amount of $770,750 as against Bright Builders, but only $28,250 as against the website owners. See Jury Verdict Form.
The disparate result between the direct and indirect infringers might be explained by the language of the instructions affording wide discretion to the jury. The instructions explained to the jurors that statutory damages “are meant not only to compensate the plaintiff for its losses and disgorge any profits wrongfully earned by defendants, but also to deter infringement, both by the defendants charged in a particular case and other who may be situated.” Moreover, “[s]tatutory damages may also be used to punish infringers.” To these ends, the jury could consider “any and all factors” they deemed “relevant to determine an amount that [they considered] just in light of the purposes and functions of a statutory award.” See Jury Instructions Form.
A number of other courts have awarded statutory damages in contributory liability cases. See e.g., Cartier Int’l v. Ben-Menachem, 2008 WL 64005 *14 -*15 (S.D.N.Y.)(where court found contributory liability on part of defendant parents, who owned and resided in the home out of which their sons operated their counterfeiting business, and chose to be willfully blind to their activities, it awarded statutory damages, costs, and fees); Microsoft v. Black Cat Computer Wholesale, 269 F.Supp.2d 118, 119, 123-124 (W.D. N.Y. 2002)(awarding statutory damages and attorneys fees against owners of company found contributorially liable for company’s sale of counterfeit software); Council of Better Bus. Bureaus, Inc. v. Bailey & Assocs., Inc., 197 F.Supp.2d 1197 1222-1224 (E.D. Mo. 2002)(awarding statutory damages where corporate defendants were found liable for infringing activity of their officers, and corporate owner was vicariously liable for such activity).