A blog about patent, copyright and trademark law in the U.S. District Court
for the Southern District of New York

Court Awarded Treble Damages For The Intentional Use In Commerce Of A Mark Known To Be Counterfeit, Pre and Post Judgment Interest, Attorneys Fees and Costs.

In a February 28, 2014 Report and Recommendation to the Honorable Lorna G. Schofield, Magistrate Judge Sarah Netburn conducted an inquest on damages following an entry of default against defendants Fastmac Performance Upgrades, Inc. and TruePower, Inc. Because Leviton Manufacturing Company provided the Court with a sufficient basis on which to award damages, the Court recommended an award of $6,054,720 plus pre-judgment and post-judgment interest and reasonable attorneys’ fees and costs. In a June 13, 2014 ruling, Judge Lorna G. Schofield adopted the Report and Recommendation in its entirety.

Courts evaluating damages in a default context first look to the complaint to determine whether the plaintiff has established a prima facie case for recovery. Plaintiff filed federal claims for trademark infringement, false designation of origins, and dilution under the Lanham Act and New York state law causes of action. “To succeed on . . . Lanham Act claims for federal trademark infringement in violation of 15 U.S.C. § 1114(1), [the plaintiff] must show that it has a valid mark that is entitled to protection under the Lanham Act and that [the defendant’s] actions are likely to cause confusion with [the plaintiff’s] mark.” The court recommended that the allegations in the complaint established a valid claim of infringement. Indeed, Judge Schofield had already granted plaintiff an injunction against the defendants on this claim for the following reasons.

First, plaintiff owned at least four federally registered trademarks related to the claims in this action. These registered trademarks were found to be “prima facie evidence of the registrant’s exclusive right to use the mark in commerce on the product.” Plaintiff’s federally registered trademarks thus satisfied the first prong under the Lanham Act.

Second, plaintiff pled facts demonstrating a likelihood of confusion from the defendants’ use of plaintiff’s trademark. The Court dispensed with the usual Polaroid test due to the presence of counterfeit merchandise. A “product is deemed counterfeit if it contains an original mark that is likely to deceive the public as to its origin.” Given this unauthorized use of the original mark without sufficient labeling indicating the relationship between plaintiff and the U-Socket, the court held that the U-Socket may be considered a counterfeit likely to deceive the public as to its origin.

On an inquest for damages, the plaintiff bears the burden of proof and must introduce sufficient evidence to establish the amount of damages with reasonable certainty. A court may determine the appropriate damages on the basis of affidavits and other documentary evidence “as long as [the court has] ensured that there [is] a basis for the damages specified in the default judgment.” In cases involving the intentional and unauthorized use of a counterfeit mark in commerce under § 1114(1)(a), the court must, unless it finds extenuating circumstances, enter judgment for three times defendant’s profits or plaintiff's damages, whichever is greater, plus reasonable attorneys’ fees. 15 U.S.C. § 1117(b).

Plaintiff seeks three times FastMac’s profits. In a sworn declaration filed in opposition to plaintiff’s motion for preliminary injunction, the founder and president of FastMac acknowledged that FastMac has sold approximately 68,000 U-Sockets incorporating the plaintiff’s receptacle since the middle of 2011. Plaintiff provided documentation that the average price of the U-Sockets sold on Amazon.com was $29.63. None of the defendants submitted any evidence regarding net revenue, the cost of manufacturing the U-Socket, or the basis for any other claimed deductions. Where the plaintiff had met its burden by establishing the defendant’s sales, and the defendant has failed to produce any evidence of net revenue, costs, or deductions, the plaintiff is entitled to the defendant’s gross revenue. So, the court held that the plaintiff was entitled to the presumption that the total amount of sales alleged, $2,018,240, reflected FastMac’s profits. Furthermore, the court held that defendants’ violation warranted treble damages for the intentional use in commerce of a mark known to be a counterfeit. 15 U.S.C. § 1117(b).

Plaintiff also sought pre-judgment interest from June 9, 2011 (the date of the first cease and desist letter) at New York’s statutory rate of nine percent per annum, offering no legal argument in support of this request. The district court has substantial discretion in determining an award of pre-judgment interest. Pre-judgment interest on a defendant’s profits has been awarded in cases where the award was made pursuant to § 1117(b) for the sale of counterfeit goods. Section 1117(b) specifically authorizes an award of pre-judgment interest, presumably as part of its goal to “provide an adequate penalty for such [counterfeiting] conduct.”

Having found that defendants have engaged in the sale of counterfeit goods, the Court elected to apply the federal statutory rate identified in 15 U.S.C. § 1117(b) (“In such a case, the court may award prejudgment interest on such amount at an annual interest rate established under section 6621(a)(2) of title 26, beginning on the date of the service of the claimant’s pleadings setting forth the claim for such entry of judgment and ending on the date such entry is made, or for such shorter time as the court considers appropriate.”). Accordingly, the court recommended that any judgment include interest at the rate contained in 26 U.S.C. § 6621(a)(2), from March 26, 2013 (the date FastMac was served with the complaint), until the date judgment is entered.

Finally, the Court recommended that Leviton be awarded reasonable attorneys’ fees in the amount of $91,182.40—reflecting a decrease based on the lack of itemization for two months of services rendered, and the additional unbilled services and costs in the amount of $4,480.63.
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