Two recent federal Court of Appeals decisions have opened the door for the use in federal intellectual property cases of enhanced remedies under state law provisions. Remedies available under federal IP claims are generally limited to nothing more than actual damages, with no general provision for punitive damages, attorneys’ fees or expert fees. Many states have acts modeled on the Federal Trade Commission Act, known as Little FTC Acts, which permit awards of attorneys’ fees, punitive damages, and expert fees to the prevailing plaintiff. However, as a rule, federal laws preempt state laws. But now there are high-level federal cases involving trademark infringement claims where the courts have permitted state law remedies to supplant limited federal IP remedies.
Limited Federal IP Remedies
The Lanham Act provides for, among other things, a federal claim for trademark infringement. The remedies available under the federal Lanham Act include attorneys’ fees, but only in exceptional cases, while punitive damages and expert fees are not permitted. The remedies available under the federal patent infringement laws include: (1) attorneys’ fees only in exceptional cases, and (2) punitive damages up to three times actual damages for willful infringement, but again expert fees are not permitted. The remedies available under federal copyright infringement laws include attorneys’ fees, which may be awarded in the court’s discretion, but there is no provision for punitive damages and generally expert fees are not permitted.
Twenty-three states now have Little FTC Acts that permit claims by business competitors while also permitting some combination of enhanced remedies. The operative language of almost all of these acts follows that of the FTC Act itself by prohibiting “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”
These enhanced remedies include (1) an award of attorneys’ fees which is usually mandatory, while in other cases it is discretionary, (2) an award of punitive damages in the form of a multiple of two to three times actual damages upon a finding that the defendant’s conduct was a willful or knowing violation, and (3) an award of costs including expert fees which, as with attorneys’ fees, is usually mandatory and in some cases discretionary.
Among the 23 states whose Little FTC Acts include enhanced remedies are such large states with heavy volumes of IP litigation as: California, Colorado, Connecticut, Florida, Georgia, Illinois, Massachusetts, Minnesota, New Jersey, New Hampshire, North Carolina, Texas, and Washington.
New Case Law Applying Enhanced Remedies to Trademark
In 2006 the U.S. Court of Appeals for the First Circuit, in Atrezzi v. Maytag Corporation, held that the New Hampshire Little FTC Act permitted an award of attorneys’ fees and double actual damages for a claim premised on a Lanham Act violation.
The Court upheld the award of attorneys’ fees and double damages by the District Court under the New Hampshire Little FTC Act where the defendant violated the “likelihood of confusion” provision of the Lanham Act. In upholding the award of attorneys’ fees and punitive damages, the Court expressly noted the severe limitations on such awards under the Lanham Act itself. The Court held that, nevertheless, the award of enhanced remedies under the New Hampshire Little FTC Act could stand.
In March 2007, the U.S. Court of Appeals for the Seventh Circuit upheld a jury award of $50,000 in punitive damages under Illinois unfair competition law. The case, entitled JCW Investments, Inc. v. Novelty, Inc. cited the First Circuit Atrezzi case as precedent. These new appellate cases show a trend of high-level authority permitting awards in Lanham Act cases of enhanced remedies under state Little FTC Acts and Deceptive Trade Practice Acts.
State Remedies Are Not Preempted
The First and Seventh Circuits considered at length the issue of whether the state law claims, with their enhanced remedies, were preempted by the Lanham Act, which does not provide for such enhanced remedies. The Atrezzi Court analyzed the three grounds for preemption, namely, (1) express preemption, (2) field preemption, and (3) conflict preemption. The Court noted that the Lanham Act contains no express preemption of state law unfair competition claims. The Court dealt with field preemption by also noting that “[i]t is settled that the Lanham Act does not in general preclude state unfair competition statutes from operating.” Finally, the Court rejected the conflict preemption argument, stating that “there is no issue here of inconsistent commands to a party.” On the issue of conflict preemption, the Seventh Circuit held that “[w]e agree with the First Circuit that, to the extent the state substantive law survives and is coterminous with federal law in this area, state law remedies should survive as well.”
Do State Enhanced Remedies Apply Beyond Trademark?
Permitting state law remedies in Lanham Act cases might very well presage the extension of state law remedies to other federal IP causes of action as well. Although preemption in the patent law area is highly complex, the Federal Circuit has held that “there is no field preemption of state unfair competition claims that rely on a substantial claim of federal patent law.” Just very recently there has been an increase in the use of state Little FTC Act claims in conjunction with patent infringement claims. And even in the area of federal copyright law, which does contain an express preemption clause, state law claims alleging an “extra element” such as fraud or misrepresentation have been held not to be preempted by federal copyright law.
Allowing enhanced remedies under Little FTC Acts and state DTPAs in federal IP cases will work great change in permitting awards of attorneys’ fees, punitive damages, and expert fees where such remedies were formerly not always available.