One-minute read
Trademark litigation is costly, and obtaining adequate monetary relief in infringement cases can be tricky. In today’s workshop on assessing damages in trademark cases, practitioners and experts will tackle a series of hypothetical cases and engage members in an interactive session aimed at educating trademark owners and attorneys about the process. The hypothetical cases address trademark dilution and infringement and involve international aspects; the panel will compare the law in Germany, Japan, Mexico and the US. In the US, for example, plaintiffs can choose to recover lost profits and/or the defendant’s earnings from infringement, and there are important issue to consider when making that choice. Getting your strategy right requires careful thought—but the rewards can be counted in the millions of dollars.
“We want to try to demystify the whole issue of damages—or monetary relief, which is broader than damages—in trademark cases,” says John Crittenden of Cooley Godward Kronish, one of the speakers in today’s workshop WM01—The Intersection of Trademark Law and Economics: Successfully Managing Monetary Claims in Infringement Cases. To that end, Crittenden and his fellow panelists have come up with two fictitious cases, which they will review and analyze during the interactive workshop.
Both cases involve the owner of the mark SCHRÖDER, a famous German sports cars brand. In the first case, SCHRÖDER’s owner, Schroeder AG, has discovered that Car Parts Emporium (CPE) has been using its mark inconsistently, causing consumers to mistakenly purchase products that they believed were manufactured, endorsed, or sponsored by SCHRÖDER, when they in fact were not.
In the second case, Schroeder AG has discovered that renowned chef David Schroeder has opened his own chain of restaurants using the mark SCHROEDER’S CHEQUERED FLAG. The restaurants have a motorsports theme, which Schroeder AG alleges is a violation of its trademark rights.
After reviewing each hypothetical situation, the panel will address questions such as whether trademark infringement or trademark dilution is a better cause of action for seeking monetary relief, which forms of damage are relevant to consider and how to measure them.
Damages around the world
The session will also provide an overview of the legal principles governing damages in four key jurisdictions: the US, Germany, Japan and Mexico. “We want to get people thinking about the US in comparison to other countries: how are they different?” says Crittenden. Crittenden points out that in Mexico, for instance, the maximum damages award is fixed at 40% of the sale price of the infringing goods, while “exposure can be tremendous in the US.”
The rule on damages in Germany is similar to that in the US. Plaintiffs may recover their own losses, defendant’s profits or hypothetical license fees and attorney’s fees. The proof that is required is also similar, but in the US, the court can choose to adjust the amount of damages based on its own discretion, while in Germany it cannot.
In Japan, meanwhile, damages for trademark infringement are governed by both the Japanese Trademark Law and the Japanese Unfair Competition Prevention Act, which allows the court considerable flexibility in using its discretion to determine the damages amount, including the ability to order expert testimony.
Ask the experts
In the US, there are several ways of calculating damages for trademark infringement. A plaintiff can seek lost profits, which entails determining the amount of profits a party would have earned if not for the infringing goods, or it can seek the defendant’s profits, which requires obtaining the defendant’s financial records. In either scenario, there are various risks and rewards that need to be weighed.
That’s where one of today’s panelists, Brian Daniel, an economist with CRA International, comes in. “In most instances, there’s a requisite need for an expert to help with calculating damages,” says Daniel, who often provides expert testimony in trademark infringement cases. “The tricky thing in trademark cases is that the court has the discretion to amend what it deems an equitable amount,” he adds. “Sometimes you can get both [plaintiff’s lost profits and defendant’s profits] or a fraction of both. We often go for both.”
One complication in seeking a plaintiff’s lost profits is that it is somewhat of a hypothetical exercise: “It means looking back and even forward sometimes,” says Daniel. “Looking back to reconstruct who the parties involved are, the historical level of sales, the pricing of products and certain factors leading to a decline in sales that aren’t attributable to the defendant, such as problems in the economy. You have to look at all of the factors and isolate what we call the ‘should have been’ or ‘but for’ sales.”
When attempting to prove forward-looking losses, meanwhile, a company must provide proof that it would have made the claimed sales, which requires producing a proven track record and performance history. However, when a preliminary injunction has been issued, which is often the case, “it somewhat eliminates that claim,” says Daniel. “An injunction can limit the amount, but it doesn’t necessarily eliminate the fact-specific analysis,” he explains. “One or two facts can make the difference between a claim making sense or not.”
Another potential conflict for companies attempting to recover lost profits has to do with the need to share financial records with the opposition. “The other side’s expert is entitled to review the books as well, and companies are sometimes reluctant to reveal that information,” says Daniel. “Some get queasy about that, so if it’s a lost profits calculation which requires them producing information, they’ll put forth a claim for defense profits only. It’s a risk-reward trade off. But if the judge or jury doesn’t agree, then they have nothing to fall back on, so it’s a strategic decision. Most companies are comfortable though, and will pursue any and all means available to them.”
There are challenges involved with recovering the defendant’s earnings from the infringing goods as well. “The challenging issue there is getting access to the other side’s business records,” says Daniel. “In the US, the burden of proving cost rests on the defendant, so the plaintiff has to prove the defendant’s revenue.” Although defendants are forced through discovery and document request to produce such records, Daniel says that the process of obtaining the requisite information from the opposition’s accounting and finance departments can often be lengthy and grueling.
Daniel will review the various methods for determining damages in each of the case studies presented during today’s session, but promises that “it won’t be an overly-technical number crunching exercise.”
Also joining the panel will be 2004 INTA President Jaqueline Leimer of Kraft Foods, who will offer an in-house perspective on damages strategies. “Hopefully people will jump in and participate readily,” says Daniel.
Monetary relief available under the law
Germany
It is established case law that a plaintiff who proves infringement of a registered trademark and who proves that the infringer acted willfully or negligently can calculate its damages on the basis of one of the following three methods:
1. Skimming off defendant’s profits reaped from the infringement;
2. Recovering plaintiff’s own lost profits due to the infringing acts of the defendant;
3. Fictitious license fee (which license fee would have reasonably been stipulated, if the defendant had asked for a license).
Japan
1. Infringement
The remedies for infringement are preliminary injunction (if the registrant is using the mark), permanent injunction, monetary damages (calculated on the basis of reasonable royalties) and/or lost profits. Preliminary (interim) injunctions are obtainable upon proof that there would be irrecoverable losses if the defendant’s infringing activity is not stopped immediately. Japan does not have a punitive or treble damages system or attorney’s fees for willful infringement.
2. Unfair competition
According to Sections 2 and 7 of the Japanese Unfair Competition Prevention Law, a person who negligently infringes on the business interests of another person through unfair competition shall be liable to compensate for damages and may be ordered to restore the business reputation of that person.
Mexico
In the Industrial Property Law, article 221 allows damages and losses to be claimed in the event of a violation of the Law. Additionally, article 221 is of the same Law establishes that the affected party can demand of the infringer 40% of the sale price of every product or of the rendering of services which violate any of the industrial property rights regulated by the Law.
United States
A plaintiff who proves infringement of a registered trademark, false designation of origin in violation of Lanham Act section 43(a) (15 U.S.C. section 1125(a)), or willful trademark dilution in violation of Lanham Act section 43(c) (15 U.S.C. section 1125(c)) is entitled to recover:
1) Defendant’s profits;
2) Damages sustained by the plaintiff;
3) Costs of the action (this does not include attorney’s fees).
In exceptional cases the court may award reasonable attorney’s fees to the prevailing party.
(Other amounts may be awarded for intentional counterfeiting)
Sources:
Dr. Ekkehard Stolz, Attorneys Lichtenstein, Koerner & Partners (Germany)
John A. Tessensohn, Shusaku Yamamoto (Japan)
Ricardo Sanguino, Arochi, Marroquin & Lindner, S.C. (Mexico)
John W. Crittenden, Cooley Godward Kronish (US)
Significant US damages awards
• $594.0 million: Cartier Int’l B.V. v. Liu, 2003 U.S. Dist. LEXIS 6381 (S.D.N.Y. Apr. 16, 2003)
• $26.5 million: Sands, Taylor & Wood v. The Quaker Oats Company, 18 U.S.P.Q.2d 1457 (N.D. Ill. 1990), aff’d in part and rev’d in part, 978 F.2d 947, 24 U.S.P.Q.2d 1001 (7th Cir. 1992), cert. denied, 507 U.S. 1042 (1993), on remand, 1993 WL 204092 (N.D. Ill. 1993), aff’d in part and rev’d in part, 34 F.3d 1340, 32 U.S.P.Q.2d 1065 (7th Cir. 1994), reh’g in part, 44 F.3d 579, 33 U.S.P.Q.2d 1543 (7th Cir. 1995)
• $12.1 million: ALPO Pet Foods v. Ralston Purina Co., 997 F.2d 949, 27 U.S.P.Q.2d 1455 (D.C. Cir. 1993)
• $4.3 million: Roulo v. Russ Berrie & Co., Inc., 886 F.2d 931, 12 U.S.P.Q.2d 1423 (7th Cir. 1989), cert. denied, 110 S. Ct. 1124 (1990)
• $3.0 million: Taco Cabana Int’l, Inc. v. Two Pesos, Inc., 932 F.2d 1113, 19 U.S.P.Q.2d 1253 (5th Cir. 1991), aff’d, 505 U.S. 763 (1992)
Source: Brian M. Daniel, CRA International, Inc.
