In The 9th Circuit, May Not Be Worth It To Elect Statutory Damages In Trademark Counterfeiting Claim

In a trademark counterfeiting claim, the successful plaintiff is entitled to recover actual damages or can statutory damages. However, according to a recent decision by the 9th Circuit, depending on the recovery sought, the plaintiff may loose the ability to recover attorney fees.

In K and N Engineering, Inc. v. Bulat the defendants were selling unauthorized decals bearing the K&N logo on eBay. The defendants created vinyl decals in the shape of plaintiff’s logo and sold 89 sets of those decals for a total of $267. After contacting the defendants, K & N filed a complaint alleging trademark infringement, trademark counterfeiting, and other related claims. K&N also elected to seek statutory damages under 15 USC 1117(c). The district court granted judgment in favor of K&N and awarded it statutory damages of $20,000 under 15 USC 1117(c) and $100,000 in attorney’s fees under 1117(b). The defendant appealed the attorney’s fee award and argued that K&N’s election to receive statutory damages under 15 UCS 1117(c) precludes an award of attorney’s fees under 1117(b).

Section 1117 covers damages that may be awarded to a successful plaintiff in a trademark infringement action. Under Section 1117(a), a plaintiff seeking actual damages for trademark infringement, and is entitled to reasonable attorney’s fees in exceptional cases. When counterfeit marks are involved, Section 1117(b) is also applicable. Under this section, a plaintiff may, under 1117(a), recover three times the actual damages plus reasonable attorney’s fees, or may elect to recover statutory damages in the range of $500 to $100,000 per counterfeit mark per type of goods sold or offered for sale.

The defendant argued that K&N is not entitled to an award of attorney’s fees since Section 1117(c) does not authorize an award of attorney’s fees. Section 1117(b)’s attorney’s fee provision, the defendant argued, applies only in cases where actual damages are recovered under 1117(a).

The 9th Circuit agreed with the defendant’s argument. The Court found that because an election to receive statutory damages under 1117(c) precludes an award of attorney’s fees under section 1117(b).

The 9th Circuit’s ruling appears to run counter to the purpose behind the allowance for statutory damages in a counterfeit case. Statutory damages are available to a successful plaintiff in a counterfeit case most likely because actual damages may be difficult to prove. The availability to recover statutory damages may encourage a plaintiff to take early action to catch a counterfeiter. However, where early action is taken, the amount of actual damages is likely to be small. The ability to recover attorney fees and costs would appear to be the only saving grace encouraging early action. Otherwise, in order to be assured recovering damages justifying the cost of litigation a plaintiff would be better to wait until the defendant had sold a significant number of counterfeit goods. This runs contrary to the purpose of the Lanham Act; consumer protection legislation. How would it be to the benefit of consumers to allow counterfeiters to sell knock-off goods.