Famed handbag maker and design house stalwart Louis Vuitton won a major victory yesterday in the Second Circuit, the Federal Appeals court covering cases arising out of New York, Connecticut and Vermont. In a potentially game-changing decision, Louis Vuitton Malletier, S.A. v. LY, USA Inc. et al , the court settled an unclear issue in trademark law by deciding that a winning trademark claimant could receive attorney’s fees on top of statutory damages.
Quick legal summary of trademark damages: plaintiffs normally have to choose between actual damages (their out-of-pocket costs, lost profits, watering down of the value of the mark, etc) and statutory damages of up to $1,000,000 per mark infringed. Judges who set statutory damages can take into account the actual damages, but can also assess it as a straight penalty, weighing a number of factors.
It was always known that the attorney’s fees of the winning side could be part of an award of actual damages. Pursuing actual damages against counterfeiters was not a great proposition however, because they usually kept no record of sales, had many different corporate entities that would then be shut down without access to any information so proving sales, profits, traffic, and volume would be difficult if not impossible. So the trademark plaintiff had to then rely on statutory damages which could be anywhere from $200 to the $1MM I mentioned. [In copyright cases,BTW, its the exact opposite: if your copyright was unregistered at the time of the infringement, you can only get actual damages, which DO NOT include legal fees;if it was registered you can get statutory damages AND legal fees.]
This decision now allows a trademark plaintiff to have his cake and eat it too. The court below awarded LV $500,000 for each the 6 infringed trademarks ($3MM in total) PLUS every penny of the $556,034.22 in legal fees and expenses incurred in prosecuting the claim.
The Second Circuit becomes the first circuit in the country to decide this issue which arose when Congress, in 1996, passed the Anticounterfeiting Consumer Protection Act, amending the trademark act to add the provision for statutory damages in counterfeiting claims. As the court here stated:
“Congress appears to have been motivated by a gap in the law: Plaintiffs who were victorious on their civil counterfeiting claims were often unable to obtain an adequate recovery in actual damages because counterfeiters often maintain sparse business records, if any at all,” he said.
Because the amendment did not specifically state that the victorious plaintiff could get both statutory damages and attorney’s fees, courts around the country, including several within the Second Circuit have been split on the issue. Not anymore, however. Also, because it comes from the Second Circuit, a circuit that is always influential in intellectual property law, it is likely that other Circuits around the country will follow suit.
I would be remiss if I didn’t also comment on what I think was some flawed decision-making on the part of either the defendants themselves or their counsel. It appears that the defendants chose experienced litigators but not ones who had any real history of IP litigation. In that type of case, courts move much quicker and expect parties to engage in discovery on a much more expedited basis than other forms of civil litigation. That became crucial here because the plaintiff was seeking discovery from the defendants who imported more than 300,000 handbags, wallets and other knockoffs resembling the products of Louis Vuitton, Burberry and other companies from China. In response to all of the discovery demands, the defendants produced exactly 40 documents, even though they operated a massive operation out of West 30th Street in NYC. That didn’t sit well with the plaintiff who made a series of motion to try and get the defendants to cough up the records so they could see whether to pursue actual or statutory damages.
And then, the officers of the defendant companies were arrested and indicted for criminal counterfeiting by the Federal Court in Virginia (two have since been convicted, one acquitted). Their lawyers moved for a stay of the civil proceeding while the criminal one was pending arguing that their records and computers were seized by the US attorney’s office and that therefor they could not properly defend the civil action. They later woke up and added the fairly routine argument that since they would have to plead the Fifth Amendment in any deposition because of the criminal case, they should not be forced to move forward on the civil case. The judge below stated that while there were reasons for awarding the stay, because they had dragged their feet in discovery, it was too late. The court here agreed, stating that their arguments “ring hollow in light of the defendants’ plainly dilatory tactics in tendering discovery even prior to their indictments.” The defendants also refused to take advantage of the trial judge’s offers of help to obtain the needed documents and other alternative forms of relief he proposed, which the court said “paints their insistence that the civil proceedings be stayed as part of a larger pattern of overall delay and obfuscation.”
These issues are the types of strategic decisions that I love about litigation. You need to be forward-thinking and try to focus on how what you do today will affect your case tomorrow. The defendants had to know that a criminal action was coming down the pike. They chose to wait until the shoe dropped before asking for a stay of the civil proceeding. In the civil proceeding, they delayed and stalled litigation producing only a handful of documents. That’s not going to get a court on your side, especially in an IP case like this where if you are in the business of importing goods from China on a daily basis, you should have boatloads of documents – bills of lading; tax payments; insurance receipts; shipping records, trucking and storage costs, etc etc. To come into court with 40 documents is a slap in the face of the judge and it cost them. All credibility went out the window.