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Attorneys

Election of Statutory Damages for Counterfeiting Bars Attorney's Fees

January 18, 2008

Election of Statutory Damages for Counterfeiting Bars Attorney’s Fee

By Jeffrey Pietsch

Plaintiffs in trademark infringement cases may not be eligible for attorney fees depending on their election of damages. This last December, the Ninth Circuit Court of Appeals examined whether or not electing statutory damages for trademark counterfeiting claims under 15 U.S.C. § 1117(c) precludes the awarding of attorney fees under 15 U.S.C. § 1117(b). The court held that an election for statutory damages does indeed bar the plaintiff from recovering attorney fees in counterfeiting cases.

For over three decades, K&N Engineering (“K&N”) has designed, manufactured and distributed automotive air filters, air intake kits and other related products throughout the country. K&N has a registered stylized trademark that it uses on each of its products. In 2004, K&N became aware that Sarah Bulat and Steve Wandel (“Bulat”) were selling decals of K&N’s registered trademark on Ebay. Bulat made and sold 89 sets (two decals per set) on Ebay for a total of $267. K&N sued Bulat for, among other things, trademark infringement and counterfeiting. K&N elected to seek statutory damages under 15 U.S.C. § 1117(c). The district court granted summary judgment in favor of K&N on all claims and awarded K&N statutory damages in the amount of $20,000. The district court also awarded attorney fees to K&N in the amount of $100,000 under U.S.C. § 1117(b). Bulat appealed the summary judgment and the award of attorney fees. Bulat argued that the district court erred when it awarded attorney fees to K&N. Bulat claimed that K&N’s election of statutory damages precludes them from recovering attorney fees.

Section of 1117 of the Lanham Act which covers trademarks specifically lists the types of damages that can be awarded in trademark actions. 1117(a) covers actual damages and states that damages can be recovered for (1) defendant’s profits, (2) any damages sustained by the plaintiff and (3) the costs of the actions. This section states that the court can award damages in the amount of the actual damages not to exceed three times the amount of such. In addition, the court may, in exceptional cases, award reasonable fees to the prevailing party.

Section 1117(b) covers treble damages for use of counterfeit marks. This section states, “In accessing damages under subsection (a) of this section, the court shall, unless the courts find extenuating circumstances, enter judgment for three times such profit or damages, whichever is greater, together with a reasonable attorney’s fee ….”

The last subsection under 1117 covers statutory damages for counterfeit marks. 1117(c) states that the plaintiff at any time before the rendering of the final judgment may elect to recover, instead of actual damages under subsection (a), an award of statutory damages for an amount not less than $500 and no more than $100,000. If the counterfeiting use is willful, the court can award up to $1,000,000.

In this case, K&N elected to be awarded damages under this last subsection. This election was likely guided by the fact that the sales of the decals were for only $267. The district court, in its discretion under subsection (c) awarded K&N statutory damages in the amount of $20,000. It also awarded attorney fees which was the basis of Bulat’s appeal. Bulat argued that the election of statutory damages under subsection (c) does not include attorney fees. In fact, subsection (b) specifically relates back to subsection (a). The fact that both subsections (a) and (b) include reference to attorney’s fees and subsection (c) does not, led the court to rule in favor of Bulat. The court held that the district court erred in awarding statutory damages and attorney’s fees. Thus, a plaintiff who elects statutory damages is barred from recovering attorney fees.

It is interesting to note that subsection (c) was adopted three years after the other two sections were adopted. Whether or not the drafters intended this result may be decided by the Supreme Court if K&N appeals this ruling. Until then, Plaintiffs will likely be hesitant to elect damages under subsection (c), especially if the party’s attorney’s fees are significant.