IV. Remedies A. Damages 4. Profits, Costs, Fees, and Treble Damages under 15 U.S.C. §1117(a)
In a case where the plaintiffs proved both secondary copyright and secondary trademark infringement, the court permitted recovery of both statutory damages under the Copyright Act and actual damages under the Lanham Act, 15 U.S.C. §1117(a). A &M Records v. Abdallah, 948 F.Supp.1449, 1458-1459 (C.D.Cal. 1996). Distinguishing between the two types of remedies, the court noted that “the purpose of the statutory damages, particularly when the infringement was willful, is to penalize the infringer and deter similar conduct in the future.” Id. at 1458. In contrast, “[a]ctual damages under the Lanham Act are designed to compensate the trademark owner for its lost profit and prevent the defendant from unjust enrichment.” Id.
A & M Records was a copyright and trademark counterfeiting case brought by a group of major record companies against multiple defendants, including the president and sole owner of a company that sold blank audiotapes and duplicating equipment. The other defendants included customers of the defendant who ran audiocassette counterfeiting businesses utilizing the tapes and equipment supplied to them by the defendant and his company. The plaintiff record companies sued the defendants, alleging copyright and trademark infringement arising out of counterfeit productions of 156 of their sound recordings and 24 trade names. All either settled or failed to respond, except for the defendant owner of the company that supplied the tapes and equipment. The case thus proceeded against that defendant on a theory of contributory copyright and trademark infringement. A & M Records, supra at 1452.
The court readily found the defendant liable for contributory trademark infringement. Based on the plaintiffs’ evidence it concluded that the defendant had actual knowledge of the counterfeiting and trademark infringement carried out by his customers, and that he continued to supply them with equipment necessary to continue their counterfeiting activities. A & M Records, supra at 1455. The details of the court’s findings are discussed at II.B.3.(a). Citing the Inwood test for contributory trademark infringement, the court concluded that the defendant had continued to supply the blank time-loaded tapes to his customers notwithstanding his knowledge that they used the tapes to engage in trademark infringement. See Id. at 1457.
In assessing actual damages against the defendant the court noted that 15 U.S.C. §1117(a) entitled the plaintiff to recover defendant’s profits and any damages sustained by the plaintiff. However the plaintiffs produced no evidence of actual damages that they sustained, and therefore their damages for trademark infringement derived solely from the defendant’s profits from his illegal activity. A & M Records, supra at 1458.
Tracking the language of the statute further, the court recited that
[i]n determining the defendant’s profits, the plaintiff bears the burden of proving the defendant’s sales; the defendant must then prove any costs or deductions from the gross sales figure. The Act also states that the trial court “may enter judgment, according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount.” Thus, the Court has the discretion to award up to treble damages for a Lanham Act violation. 15 U.S.C. § 1117(a). If the violation is found to be willful, the trial court should award treble damages unless it finds “extenuating circumstances.”
A & M Records, supra at 1458.
The court’s calculation of the defendant’s profits involved rough estimating and “crude” accounting, which the court largely blamed on the defendant’s failure to cooperate. A & M Records, supra at 1459 n.8. The plaintiffs in A & M Records were constrained to produce the defendant’s company bank statements as proof of its gross sales, having access to no other records. A & M Records, supra at 1458. The court found that these statements, together with other evidence, supported a finding that the company was grossing over seven million dollars over a two-year time period at issue. Id. at 1459. Then, having no proof from the defendant as to its operating costs, the court estimated that 50% of the defendant company’s gross sales went to expenses, to arrive at a figure of $3.35 million to represent its total profit for the years in question. Id. Based on testimony from a former employee of the defendant that 70% of the defendant’s customers were engaged in counterfeiting, and having no other evidence to rely on, the court further found that 70% of the gross receipts were directly attributable to the defendant’s contributory counterfeiting, arriving at a figure of $2.34 million. Id.
Finally, the court, citing the Lanham Act, recited that it “should award treble damages if the infringement is intentional unless “extenuating circumstances” exist.” Finding no such extenuating circumstances, the court tripled the above figure, arriving at a total $7,000,000. A & M Records, supra at 1459. The court also awarded attorney’s fees and costs, applying the Copyright Act, but noting that the Lanham Act provided an alternative basis for doing the same. See Id. at 1460, citing 15 U.S.C. §1117(b), providing for attorney’s fees to a prevailing plaintiff where the infringement was intentional.