Maximizing Infringement Damages

James Monagle

The Recorder

2012-10-29 00:00:00.0

Frequently, infringement claims are brought under both the Copyright Act and the Lanham Act based on the same allegedly infringing activity. For example, sales of unauthorized concert T-shirts featuring a copy of the Rolling Stones' famous tongue logo could constitute both copyright infringement (because the T-shirts contained copies of the copyright-protected logo) and trademark infringement (because use of the logo may cause consumers to believe the T-shirts were authorized by the Rolling Stones). Likewise, "knockoff" bags featuring designs modeled after Louis Vuitton's famous monogram pattern could infringe both the company's registered copyright and registered trade dress in the pattern. Subtle distinctions between the Copyright Act and Lanham Act damages statutes and Ninth Circuit case law will largely dictate the litigation strategy a plaintiff should implement in order to maximize potential recovery, particularly when seeking statutory damages under the Copyright Act, and attorney fees. An introduction to several of these considerations follows:

Actual Damages and Defendant's Profits

Statutes authorizing damages under both the Copyright Act (17 U.S.C. §504) and Lanham Act (15 U.S.C. §1117) each allow recovery of any actual damages suffered by the plaintiff and any profits of the defendant attributable to the infringement. However, under either act, plaintiff's actual damages suffered and defendant's profits are not both recoverable, to the extent these remedies overlap. An example would be if the plaintiff alleges $10 in lost profits because a consumer bought the defendant's product instead of the plaintiff's (commonly referred to as "switching" behavior), while the defendant earned $5 in profits on that infringing sale, a maximum of $10 would be recoverable, not $15, as the defendant's $5 profit is subsumed in the calculation of plaintiff's lost profits. As an alternative to seeking actual damages and defendant's profits, both acts also authorize a plaintiff to elect statutory damages — in cases involving registered copyrights under the Copyright Act, and in cases involving counterfeiting of a registered mark under the Lanham Act.

Statutory Damages

If actual damages and defendants' profits are sought under both the Copyright Act and Lanham Act based on the same infringing activity, it is generally considered an impermissible double recovery for a plaintiff to receive more than one award of such damages under either act. However, in Nintendo of America v. Dragon Pacific International, 40 F.3d 1007, 1011 (1994), the U.S. Court of Appeals for the Ninth Circuit held that it was not a double recovery for the plaintiff to receive statutory damages under the Copyright Act in addition to defendants' profits under the Lanham Act. In so holding, the court distinguished a case in which a plaintiff was refused an award of both actual damages under the Copyright Act and lost profits under the Lanham Act, arguing that the plaintiff in Nintendo was not seeking "the same type of damages" under both acts. Although the Ninth Circuit subsequently noted in Polar Bear Productions v. Timex, 384 F.3d 700 (2004), that "damages arising from a copyright violation do not necessarily overlap wholly with damages from a trademark violation," cases involving the same infringing activity typically produce identical awards of actual damages and defendant's profits under both acts.

Thus, in order to maximize recovery under the apparent exception to double recovery created by Nintendo, plaintiffs are typically forced to seek actual damages and profits under the Lanham Act and additional statutory damages under the Copyright Act.

Coincidentally, in cases where actual damages and defendant's profits sought under both acts are expected to result in identical awards, recovery of damages under the Lanham Act is preferable, as the Lanham Act allows a district court to treble actual damages and increase the award of defendant's profits in the court's discretion, whereas the Copyright Act contains no similar authorization.

Electing Statutory Damages Under The Copyright Act

A plaintiff may elect statutory damages under the Copyright Act at any time before a final judgment is rendered. Accordingly, plaintiffs often request alternative awards under the Copyright Act — one consisting of actual damages and defendants profits, the other consisting of statutory damages — before deciding whether or not to elect statutory damages. This approach allows for the preservation of a potentially favorable award of actual damages and profits sought under the Copyright Act, in the event such an award exceeds the alternative statutory damages awarded, together with any actual damages and defendant's profits awarded under the Lanham Act. To illustrate the reasoning behind this strategy, in either of the above hypotheticals, if a jury found that copying of a plaintiff's copyright-protected designs occurred, but the plaintiff nevertheless failed to establish that consumers were confused that the plaintiff was the source of the infringing goods (e.g., because of low pricing, inferior quality or other factors related to how the infringing products were encountered by consumers), no damages under the Lanham Act would be awarded, thereby leaving the plaintiff with a simple choice between the award of actual damages and profits or statutory damages rendered under the Copyright Act.

Another consideration along these lines is that the Copyright Act specifies that only a single award of statutory damages may be issued per copyrighted work whenever two or more infringers are jointly and severally liable for infringing the work. 17 U.S.C. §504(c). In cases involving jointly liable defendants, a related concern is that a settlement with one such defendant may preclude or offset an award of statutory damages against any remaining defendants. Thus, while a single award of statutory damages against several defendants may be preferable when awarded in addition to Lanham Act damages, individual awards of actual damages and defendant's profits from each defendant may be preferable when Lanham Act damages are expected to be smaller or potentially nonexistent.

Alternatively, a plaintiff may wish to elect statutory damages early under the Copyright Act in cases where an identical recovery of actual damages and defendant's profits under the Lanham Act appears likely. By seeking statutory damages and not defendants profits under the Copyright Act, the accused infringer may no longer be entitled to prove "elements of profit attributable to factors other than the copyrighted work." 17 USC §504(b). For example, in the Rolling Stones and Louis Vuitton hypotheticals, defendants could not argue that the T-shirts or handbags they sold had intrinsic value unrelated to use of the protected designs that appeared on the allegedly infringing goods. No explicit provision allowing an allocation of profits for noninfringing elements exists in the Lanham Act, and the U.S. Supreme Court has cast doubt on the viability of such arguments, deeming such apportionment "inherently impossible" in an older case involving typical trademark/unfair competition claims. See Hamilton-Brown Shoe v. Wolf Bros., 240 U.S. 251 (1916). Because any kind of apportionment argument may influence the trier of fact to award less under either act, an early election of statutory damages may assist in avoiding apportionment arguments altogether, thereby increasing the potential of a higher award of actual damages and profits under the Lanham Act.

Recovery Of Attorney Fees

A final consideration when seeking to maximize recovery under both acts is the recovery of attorney fees. Attorney fees are more routinely awarded to a party who prevails under the Copyright Act, whereas attorney fees are only awarded under the Lanham Act in exceptional circumstances. However, in cases based on the same infringing activity where fees incurred under both acts are inextricably intertwined, California district courts have allowed plaintiffs to recover attorney fees for their Lanham Act claims as "related claims" under 17 U.S.C. §505.

Most if not all of the above described considerations can become far more complicated depending on the circumstances of individual cases, and in many instances, critical and contrary case law addressing these subjects can be found outside of the Ninth Circuit. Regardless of the circumstances or venue, it nevertheless remains clear that in cases involving claims brought under both the Copyright Act and Lanham Act, a carefully planned strategy for maximizing recovery under both acts is essential, and this strategy should be considered early and reconsidered often throughout the litigation.

James Monagle is a director at Murphy Pearson Bradley & Feeney in San Francisco and holds an LL.M. in intellectual property, which is the primary focus of his practice.

This article originally appeared in The Recorder.