When plaintiff filed an action alleging trademark infringement and counterfeiting in violation of the Lanham Act, defendant apparently did not think much of it since it failed to respond. Fed.R.Civ.P. 55(a) requires the clerk to enter default when a defendant fails to appear and the plaintiff files either an affidavit to that effect or an application for entry of default. The rule states that in such an instance "the clerk shall enter the party's default." (Emph. added). This is exactly what happened in the case of Conn-Selmer, Inc. v. Apex Industries, Inc., and the U.S. District Court for the Eastern District of Wisconsin now considers plaintiff's motion for default judgment.
In its complaint, plaintiff claimed ownership of the federally registered trademark NORMANDY for clarinets and NORMANDY & Design for various wind instruments. Plaintiff further alleged that defendant imported musical instruments, including clarinets, from China and India under the name NORMANDY, and then sold them through various Internet sites such as eBay.com. Defendant made such use of the marks without plaintiff's consent, and the Court, taking the well-plead allegations as true, did not hesitate in finding the defendant liable for trademark infringement and counterfeiting. The Court thus turned to the issue of damages.
As an initial matter, let's take a quick look at the pertinent counterfeiting statutes. Section 45 of the Lanham Act defines a "counterfeit" as "a spurious mark which is identical with, or substantially indistinguishable from, a registered mark." Section 34(d)(1)(B) defines a "counterfeit mark" as follows:
[A] counterfeit of a mark that is registered on the principal register in the United States Patent and Trademark Office for such goods or services sold, offered for sale, or distributed and that is in use, whether or not the person against whom relief is sought knew such mark was so registered.
One thing is clear, plaintiff's marks were registered on the Principal Register in the USPTO, and plaintiff can thus make the counterfeiting claim. Under Section 35(a), a plaintiff who has established its case for counterfeiting is eligible to recover the defendant's profits, any damages sustained by plaintiff, and the costs of the action, and, treble damages shall be awarded (unless extenuating circumstances exist) if the defendant intentionally used the mark, knowing it was a counterfeit mark (see Section 35(b)). Alternatively, Section 35(c) allows the plaintiff to elect to recover statutory damages in the amount of $500 to $100,000 per counterfeit mark per type of goods or services sold, or, if the court finds that the use of the counterfeit mark was willful, up to $1,000,000 (Note: the statutory award is not multiplied by the number of counterfeit items sold or offered for sale - e.g. whether only one clarinet or 1,000 clarinets were sold under the NORMANDY mark, plaintiff is still eligible for a single award of statutory damages).
When deciding on an award of statutory damages under the Lanham Act, courts usually look to the body of case law dealing with the similar provision in the Copyright Act since the trademark statute provides limited guidance as to the proper determination of an award. This is exactly what the Court did in this case. The Court listed a number of factors that may be considered, such as profits earned by the defendant, revenues lost by the plaintiff, the deterrent effect on others, whether the conduct was innocent or willful, and the potential for discouraging the defendant. The plaintiff in this case sought statutory damages in the amount of $500,000, claiming that defendant's use of the NORMANDY mark for clarinets was willful. After analyzing the relevant factors, the Court agreed. The Court concluded that based on defendant's default and the allegations of the complaint, defendant's conduct was willful, thus making plaintiff eligible for the increased award of statutory damages.
Finally, plaintiff requested permanent injunctive relief under Section 34(a). The court granted the injunction, apparently in the exact wording sought by plaintiff. This included the broad provision restraining the defendant "from unfairly competing with [plaintiff] in any manner whatsoever." The Court thus granted plaintiff's motion for default judgment in its entirety.
So what is the moral of today's story you ask? If you get sued, answer the complaint! This is especially important when so much is at stake such as in a counterfeiting case.
Comment: While discussing the recoverable damages, the Court stated that "[w]hen a court awards damages under § 1117(a) [another name for Section 35(a) and includes damages for trademark infringement, unfair competition and cybersquatting], the court must also enter judgment for three times the amount of profits or damages, whichever is greater..." (Emph. added). However, as I read it, the plain language of Section 35(b) says that this is only so in the case of a violation of Section 32(1)(a) "that consists of intentionally using a mark or designation, knowing such mark or designation is a counterfeit mark. Minor details; I know.
Conn-Selmer, Inc. v. Apex Industries, Inc., (Slip Op.) 2006 WL 752895 (E.D. Wis., March 20, 2006).