The Ninth Circuit's recent interpretation of the Lanham
Act's damages provisions surely surprised many trademark practitioners. It held that, when a plaintiff chooses to
receive statutory damages in a counterfeiting case instead of opting for actual
damages, it may also be barred from recovering its attorneys' fees. K&N Engineering, Inc. v. Bulat, (9th Cir.
Before discussing the court's opinion, let's go through a
brief synopsis of Lanham Act remedies provisions. 15 U.S.C. § 1117 of the Lanham Act (also
known as Section 35) sets out the monetary relief to which a successful
plaintiff is entitled. Section 1117(a)
allows a Lanham Act plaintiff to obtain actual damages, plus attorneys' fees if
the case is "exceptional." Section
1117(b) allows a plaintiff in a counterfeiting case to obtain treble actual
damages, plus "a reasonable attorney's fee."
Section 1117(c) allows a plaintiff in a counterfeiting case to elect
statutory damages instead of actual damages, with no mention of attorneys'
In the K&N Engineering case, the Ninth Circuit reasoned
that because Section 1117(c) does not mention attorneys' fees, it does not
allow for attorneys' fees. The court
compared Section 1117(c) to Sections 1117(a) and (b), which explicitly do
provide for an award of fees. In
addition, the court found that the explicit provision of attorneys' fees in
Section 1117(b) does not authorize attorneys' fees in conjunction with a
statutory damage award, such as the one in this case, because that provision
only relates to an award of treble actual damages. Therefore, because the plaintiff in this case
had elected statutory damages under Section 1117(c), it could not request
attorneys' fees under Section 1117(b).
This case represents a departure from precedent. Other than a handful of opinions from the
Southern District of New York foreshadowing the K&N Engineering opinion,
several lower courts have awarded attorneys' fees under Section 1117(b) in
addition to statutory damages under Section 1117(c). Most made the dual award without engaging in
statutory interpretation or discussing whether it was correct to do so.
Statutory damages are especially appropriate in
counterfeiting cases where profits are uncertain because the counterfeiter has
not kept records of its activities.
Nevertheless, a plaintiff may elect statutory damages no matter how
exact the defendant's records. Statutory
damages may also be used to penalize the counterfeiter and deter future
violations, if an award of actual damages and profits would not be high. Therefore, when actual damages are very low
or are indeterminate, a plaintiff in a counterfeiting case may prefer to opt
for statutory damages.
What is a plaintiff in a counterfeiting case to do after
this decision? A plaintiff may choose to
take the smaller amount of actual damages (trebled) in order to be sure of
recovering attorneys' fees. It should weigh
the amount of trebled actual damages along with attorneys' fees against the
amount of statutory damages it believes it could receive, based on the evidence
and on similar reported cases.
Another option is to request statutory damages and seek fees
under Section 1117(a) if the plaintiff can prove that the case is
"exceptional." The K&N Engineering
court explicitly did not decide whether a party electing statutory damages
under Section 1117(c) could receive an award of attorneys' fees under Section 1117(a)
if the case was "exceptional." K&N
Engineering, 510 F.3d at 1082 n.5. It
did not have to reach that issue because the district court had made a fee
award under Section 1117(b) and not under the "exceptional case" provision of
Section 1117(a). While no appeals court
has squarely decided that issue, district courts across the country have
awarded both statutory damages under 15 U.S.C. § 1117(c) and attorneys' fees
under 15 U.S.C. § 1117(a).
Although no court has found that an award of statutory damages
precludes an award of attorneys' fees under Section 1117(a), each court making
such an award has simply assumed that it was proper. With the Ninth Circuit ruling in K&N
Engineering, courts may look twice at whether such an award is warranted under the
statute. Section 1117(a) provides that,
when a defendant violates any right of the holder of a registered mark, the
plaintiff may receive the defendant's profits, damages and costs. As a separate sentence at the end, that
section also provides: "The court in
exceptional cases may award reasonable attorney fees to the prevailing
party." 15 U.S.C. § 1117(a). It is quite plausible to argue that this
sentence applies to all Lanham Act cases, including those in which the
plaintiff has elected statutory damages.
A plaintiff opting for statutory damages also could argue
that it should receive attorneys' fees under Section 1117(a) based on grounds
other than counterfeiting. Courts have
awarded fees on other grounds - false advertising or unfair competition under
15 U.S.C. § 1125(a) - where the case is exceptional, even where the plaintiff
also received statutory damages under Section 1117(c).