As puzzling as it may seem, a seller of merchandise bearing counterfeit trademarks might not be found liable for “trademark counterfeiting.” Selling such merchandise does not establish counterfeiting liability without a showing of intent. Nevertheless, a defendant’s use of a counterfeit mark, regardless of intent, allows the plaintiff to seek statutory damages. A recent decision illustrates these principles and clarifies factors courts use in gauging the amount of statutory damages awarded.
In a decision entered on November 2, 2012 by the U.S. District Court for the Middle District of Georgia, Macon Division, Coach, Inc. and Coach Services, Inc. (collectively “Coach”) obtained a grant of summary judgment of liability for trademark infringement, resulting in a permanent injunction and an award of statutory damages.
Coach’s Lawsuit and Summary Judgment Motion
Coach’s private investigators set the stage for the lawsuit. In May 2011, they visited The Hair Cottage, located in Macon, an establishment not authorized to either sell or distribute Coach merchandise. There, they spotted “approximately forty to fifty Coach handbags on display, ranging in price from $275.00 to $449.00, as well as other Coach products, including wallets and shoes,” and “observed alleged counterfeit products from other luxury brands.” One of the investigators, Genie Johansen, returned in August 2011. During that visit, she purchased a $150 purse bearing Coach trademarks, received from the proprietor, Gail Becka, “a Coach Registration card, Coach Story Book, and Coach Care Instruction card, also bearing counterfeit trademarks,” and “observed approximately sixty to seventy Coach handbags, twenty-five to thirty Coach bracelets, and Coach shoes on display for sale.” Ms. Johansen returned one more time on September 13, 2011. At that time, she served Ms. Becka with cease-and-desist letters from Louis Vuitton and Chanel, and advised Ms. Becka that her Coach items were counterfeit, and that Ms. Johansen was an authorized Coach representative. Ms. Becka then surrendered all Coach items in her possession to Ms. Johansen: “The two hundred and twenty-four counterfeit Coach items surrendered included sixteen handbags, twelve pairs of shoes, one keychain, three pieces of jewelry, seventy registration cards, seventy storybooks, and fifty-two care cards.”
Just three days later, on September 16, 2011, Coach filed suit in the Macon Division asserting, among other counts, trademark infringement, trademark counterfeiting and copyright infringement. “Coach allege[d] that Becka ordered counterfeit Coach items from China and sold them in her store.” After a period of discovery, Coach filed a motion for summary judgment on those three counts and asked the court to award it $2.4 million in statutory damages.
Analysis of Liability Issues
Judge Marc T. Treadwell decided Coach’s motion, finding that Ms. Becka was liable for trademark infringement, but finding that genuine issues of material fact prevented him from granting summary judgment on the trademark counterfeiting and copyright infringement counts.
Facilitating the court’s analysis of the trademark infringement portion of Coach’s motion was Ms. Becka’s failure to respond to the Statement of Material Facts accompanying that motion, resulting in a finding that such facts were admitted. This, combined with receipts proving the sales of merchandise bearing Coach’s marks the court found no genuine dispute of material facts as to any of the trademark infringement elements, namely:
To prevail on this action, a plaintiff must establish that: (1) he possesses a valid mark; (2) the defendant used the mark; (3) the defendant's use of the mark occurred “in commerce”; (4) the defendant used the mark “in connection with the sale ... or advertising of any goods”; and (5) the defendant's use of the mark was likely to confuse consumers.
Regarding element (5): “Generally, the sale or advertising of counterfeit goods causes consumer confusion and precludes the need to undertake a likelihood of confusion factor analysis.” The court had little problem finding that the Coach goods were counterfeit:
A counterfeit mark “is a spurious mark which is identical with, or substantially indistinguishable from, a registered mark.” 15 U.S.C. § 1127. Coach has provided sufficient (and uncontested) evidence that the Coach items sold by Becka were, in fact, counterfeits.
Thus, the court granted Coach’s summary judgment motion as to trademark infringement liability.
“To prevail on a trademark counterfeiting claim,” declared the court, “a plaintiff must show that the defendant violated 15 U.S.C. § 1114(1)(a) by infringing a registered trademark and that the defendant's use of the mark was intentional and with knowledge that the mark was a counterfeit pursuant to 15 U.S.C. § 1117(b).” As explained in an earlier blog post, a defendant’s “willful blindness” can satisfy the intent requirement. Here, however, the court did not find the evidence so compelling as to warrant a finding of “willful blindness” as a matter of law, despite acknowledging that Ms. Becka’s knowledge of the Chinese origin of her Coach goods “could support an inference of willful blindness.” The court further observed:
If anything, Becka’s Answer considered as a whole indicates that she was neither aware of a high probability of illegal conduct nor purposefully contrived to avoid learning of it. Becka stated that the website she ordered the goods from “looked legitimate” and that she believed the bags to be real because they had “numbers inside” of them. (Doc. 8 at 1). Becka also stated that the company she ordered the goods from replaced any bags with defects.
The court therefore denied Coach’s motion as to its trademark counterfeiting claim.
Interestingly, there is no mention of the weight, if any, that the court accorded to the evidence of Ms. Becka’s sales of apparently-counterfeit merchandise bearing the third-party marks of Louis Vuitton and Chanel, or whether Coach even advocated such evidence as further proof of “willful blindness,” in the first place. Whether the defendant was “willfully blind” is a question of fact, considering the totality of the circumstances. One would think that use of such third-party marks would be credited toward proof of such circumstances, with its evidentiary weight decided by the court, but this is not at all evident from the Middle District’s decision. Of course, advocating use of apparently-counterfeit third-party marks as part of the circumstances raises the question of whether one must prove that the third-party marks are, in fact, counterfeit. Such an argument obviously would increase the costs of litigation due to the need to provide factual support for additional trademark comparisons, namely, between the merchandise in question and each-third party mark asserted. Once the argument appears in a summary judgment motion, at least in instances where the defendant admits material facts, such an argument should not impose significant additional burdens in assessing whether to grant summary judgment of trademark counterfeiting liability. In cases involving a defendant’s use of apparently-counterfeit third-party marks in addition to counterfeit versions of the plaintiff’s own marks, a judgment must be made as to whether the costs of citing such use as additional evidence of “willful blindness” are worth any incremental benefit one may obtain over the injunctive and monetary relief already available as remedies for infringement.
The court easily disposed of the copyright infringement portion of Coach’s motion, finding that Coach did not present evidence that Ms. Becka actually copied a Coach work. Having already found that Ms. Becka did not know the merchandise she sold were counterfeits, the court also concluded that the element of knowledge, required for a claim of contributory copyright infringement, lacked sufficient factual support.
As a result, trademark infringement comprised the only basis on which Coach obtained a summary judgment of liability, leading the court to next determine what remedies it should award Coach for trademark infringement.
Determination of Statutory Damages and Other Remedies
Under the Lanham Act, a plaintiff successfully establishing that the defendant used a counterfeit trademark may, anytime before final judgment in the trial court, elect to recover statutory damages in lieu of an award of profits and actual damages. “The statute [15 U.S.C. § 1117(c)] authorizes an award in the amount of ‘not less than $1,000 or more than $200,000 per counterfeit mark per type of goods ... as the court considers just.’ For the willful use of a counterfeit mark, the statute authorizes a maximum award of ‘$2,000,000 per counterfeit mark per type of goods’ sold.”
“Coach request[ed] $100,000 per mark for a total of $800,000. Coach also state[d] that this amount should be trebled under 15 U.S.C. § 1117(b) to yield a statutory award of $2,400,000.” The $800,000 resulted from a factor of eight, since Coach argued, and the court found, that 8 Coach trademarks (two of which are shown below for illustrative purposes) were counterfeited in the goods sold or distributed by Ms. Becka.  The court did not, however, agree with Coach’s $100,000-per-mark figure, nor did it find a basis for trebling the award. Instead, the court awarded Coach only $2,000 per mark, resulting in statutory damages of $16,000.
Click here to see Two of the 8 registered Coach marks appearing in counterfeit merchandise
Coach’s argument for trebling of statutory damages failed as a matter of law. That was not permitted, the court ruled, because § 1117(b) only authorizes the trebling of actual damages and profits under § 1117(a), not the statutory damages available as an alternative award under § 1117(c). Additionally, stated the court, § 1117(c) already takes willful conduct into account by allowing the judge to increase the per-mark statutory damage award up to a maximum of $2,000,000 when the plaintiff proves such conduct. 
The rejection of Coach’s trebling argument reduced its maximum amount recoverable from $2.4 million to $800,000. Embarking upon a drastically different approach from that taken by Coach, resulting in a significantly further reduction of statutory damages deemed recoverable, the court commented: “The Court believes the amount of statutory damages requested to be grossly disproportionate to any reasonable estimate of actual damages.”
“Because § 1117(c) provides little guidance on how to determine statutory damages, district courts have broad discretion in setting an amount.” The court observed three general guideposts regarding statutory damages - they: (1) may exceed actual damages and “serve deterrent as well as compensatory purposes”; but (2) “should not ‘constitute a windfall for prevailing plaintiffs’”; and (3) “are meant to serve as a substitute for actual damages, so the Court will evaluate whether the requested damages ‘bear some relation to the actual damages suffered.’”
Whereas Coach based its $100,000-per-mark figure solely upon a statutory damage award it obtained in other litigation, the Middle District of Georgia conducted a multi-factor analysis, stating: “In assessing statutory damages under the Lanham Act, courts often consider the Copyright Act’s analogous provision for statutory damages.”
“Under the Copyright Act, courts look to factors such as: (1) the expenses saved and the profits reaped; (2) the revenues lost by the plaintiff; (3) the value of the copyright; (4) the deterrent effect on others besides the defendant; (5) whether the defendant’s conduct was innocent or willful; (6) whether a defendant has cooperated in providing particular records from which to assess the value of the infringing material produced; and (7) the potential for discouraging the defendant.”
Applying those factors in light of the three general guideposts recited above, the court first observed that Ms. Becka’s gross revenue from sales of the counterfeit Coach merchandise totaled only $12,400.14, and that her profits would have been less than that total. The court then assessed Ms. Becka’s conduct, commenting on: (1) the finding of the unintentional nature of the infringement; (2) Ms. Becka’s voluntary surrender of the counterfeit merchandise to Ms. Johansen upon learning of its counterfeit nature; and (3) Ms. Becka’s cooperation in responding to discovery requests. Finally, the court remarked: “Other courts have awarded significantly lower awards to Coach for similar infringing conduct, even when the conduct was willful.” Consequently, the court decided to award Coach $2,000 per counterfeited mark, resulting in a statutory damages award of $16,000.
Turning to other requested relief, the court had no trouble awarding Coach a permanent injunction, citing precedent that in trademark cases, a showing of infringement raises the presumption that: (1) monetary relief alone would not be an adequate remedy and (2) the trademark owner would suffer irreparable harm absent an injunction. The court devoted even less space to its decision refusing Coach’s request for attorneys’ fees, holding that the finding of unintentional infringement prevented the case from being deemed “exceptional.”
The decision is Coach, Inc. and Coach Services, Inc. v. Gail D. Becka d/b/a Hair Cottage, No. 5:11-CV-371 (MTT), 2012 U.S. Dist. LEXIS 157311 (M.D. Ga. Nov. 2, 2012).
Note: In an unrelated matter, Coach filed a trademark counterfeiting complaint in the Southern District of Georgia. See our October 31 post.