My clients always express concern, and rightly so, with the potential costs and expenses to bring and maintain a trademark infringement claim in federal court, and if successful, what the client might recover as damages. Within this context, it is imperative that the client fully understand from the outset what types of damages are potentially available under federal law (the Lanham Act) and that court has very wide discretion to determine the amount of any damages award.
The Lanham Act provides for three categories of damages that the court may award to a successful trademark infringement Plaintiff: (1) Actual Damages, (2) Disgorgement of the Infringer’s Profits, and (3) Attorney’s Fees and Costs.
- Disgorgement of Profits.
One potential measure of damages is the disgorgement of the infringing Defendant’s profits. This is an equitable remedy requiring an accounting of Defendant’s profits resulting from the infringement of the successful Plaintiff’s mark. Here, the purpose of disgorgement is to prevent Defendant from unfairly benefitting (being unjustly enriched) from Defendant’s infringement. Once the Plaintiff establishes Defendant’s gross revenues attributed to Defendant’s infringement, the burden shifts to the Defendant to challenge Plaintiff’s evidence.
Importantly, up until April 23, 2020 when the U.S. Supreme Court decided the trademark infringement appeal in Romag Fasteners v. Fossil, disgorgement of profits was not awarded absent a showing by a successful Plaintiff that Defendant’s infringement was “willful.” Until that decision, federal courts consistently held that anything less than a showing of willfulness, including even callous disregard for Plaintiff’s trademark rights, would not support an award of disgorgement of profits.
The Romag court fully decided that issue, holding that the relevant trademark infringement section under the Lanham Act did not include any express requirement of willfulness. Accordingly, the Court refused to interpret that provision to require evidence of Defendant’s mental state as a prerequisite to an award of profits for infringement of federally-registered or unregistered trademarks. This Court did reaffirm the statutory requirement of willfulness as a prerequisite to an award of profits for trademark dilution under a separate section in the Lanham Act that is beyond the scope of this article.
The Romag holding, in effect, means that it may be easier than ever before for a successful Plaintiff to secure monetary damages for disgorgement of profits.
- Actual Damages.
In addition to Defendant’s profits realized from Defendant’s infringing conduct, a successful Plaintiff may recover actual damages. Actual damages typically require proof of actual consumer confusion. This heightened burden of proof can be more difficult to establish than the likelihood of consumer confusion standard for infringement. Actual damages can be measured in several ways, whichever the federal court deems to be most appropriate under the circumstances.
For example, I represent a Maine business which owns and protects its valuable federally-registered trademark. A competitor opened a business in the same locale using a design and word mark highly similar to my client’s mark. I advised my client to keep a record of what turned out to be numerous consumers calls believing that my client and the competitor were one in the same company. After numerous, unsuccessful demands for the competitor to change its mark, I filed a lawsuit on behalf of my client. The client finally agreed to and did change its mark to obviate consumer confusion, but at unnecessary cost and expense to both parties.
Additional ways to establish actual damages, include:
(a) Lost profits that the successful Plaintiff would have realized “but for” the infringement. The Plaintiff must show that certain revenue amounts would have been realized, but for the Defendant’s infringement.
(b) Loss of good will acquired through association of consumers with Plaintiff’s mark and the quality of goods and services sold under that mark. The amount of such loss is measured by assessing the value of Plaintiff’s trademark before and after the infringement.
(c) Corrective advertising required by Plaintiff to alleviate impact of Defendant’s infringing activities on the consumer public. This amount typically requires proof that the Plaintiff and Defendant are in direct competition in the same marketplace.
(d) Reasonable Royalty. The federal court also may award actual damages in the form of a trademark license fee that the Defendant should have paid to Plaintiff instead of infringing Plaintiff’s mark. Some federal courts require an existing license agreement. Other courts base their measurement based upon a hypothetical negotiation between a willing trademark owner and a licensee.
(e) Depending upon the circumstances of a particular case, courts may award enhanced damages up to treble the amount of actual damages proved by Plaintiff. For example, when actual damages are difficult to calculate and courts perceive that Plaintiff would be under-compensated for the damage caused by the infringement, a reasonable royalty payment may be the more appropriate compensation for the infringement.
- Attorneys Fees.
The Lanham Act also provides for the federal court, in its discretion, to award reasonable attorneys fees’, but only in exceptional cases. Historically, such exceptional cases typically involve infringing acts that are willful, deliberate, fraudulent or malicious. Conversely, federal courts have awarded reasonable attorneys fees to successful Defendants where the lawsuit brought was frivolous or baseless or where Plaintiff’s counsel employed oppressive litigation tactics.
- Concluding Remarks.
This article provides a cursory overview of damages for trademark infringement actions brought in federal court under the applicable provisions of the Lanham Act. It further underscores the imperative necessity to obtain the advice and competent representation of legal counsel with experience and expertise in this complex, complicated and specialized area of law. Failure to do so can result in serious but potentially avoidable financial and legal consequence.
Andrew Zulieve is an attorney with Skelton Taintor & Abbott. He has thirty years of experience in all matters of Intellectual Property, Business and Contract law and litigation in all courts.
This article is not legal advice but should be considered as general guidance in the area of intellectual property law. Andrew Zulieve, and Jordan Payne Hay, are intellectual property law attorneys; others in the firm handle business and other matters. You can contact us at 207.784.3200.
Since 1853, Skelton Taintor & Abbott has provided a full range of high-quality legal services to the individuals, companies, and municipalities of Maine. The firm’s main office is located in Auburn and in January 2019, a mid-coast office was opened in Waldoboro.