Ninth Circuit: Attorney fees only available for trademark counterfeiting when actual damages soughtDecember 20, 2007

In a decision Tuesday, the Ninth Circuit reversed a district court's decision awarding $100,000 in attorney's fees for trademark counterfeiting under 15 U.S.C. § 1117(c). The court reached this decision based on the language of § 1117: While § 1117(b), the provision allowing attorney's fees, states that they shall be awarded when damages are assessed under § 1117(a), the subsection regarding actual damages, it makes no reference to § 1117(c), the statutory damages provision. Based on this statutory text, the Ninth Circuit held that when a plaintiff opts for statutory damages, the language of § 1117, when read as a whole, does not permit an award of attorney fees based on § 1117(b). More detail of K & N Eng'g, Inc. v. Bulat after the jump,The plaintiff, K & N Engineering, designs, manufactures, and distributes aftermarket automotive air filters and air intake kits. K & N's stylized logo appears on many of its products and on decals that have been distributed to enthusiasts through an internet promotion. Additionally, K & N's logo is the subject of two registered trademarks. The defendants created vinyl decals in the shape of the K & N logo and sold them on eBay. The defendants created and sold 89 sets of these decals for a grand total of $267. K & N's logo is depicted below:

K&N Logo

After learning of the defendants' unauthorized use of its decals, K & N brought suit alleging trademark infringement, trademark counterfeiting, trademark dilution, and other common law causes action. Importantly, K & N opted to seek statutory damages under § 1117(c) as opposed to actual damages under § 1117(a), presumably because the amount of actual damages was quite small. The district court granted K & N's motion for summary judgment and awarded $20,000 in statutory damages and $100,000 in attorney's fees.The Ninth Circuit reversed the award of attorney's fees. The court noted that the plain language of the statute indicates that a plaintiff may only seek attorney's fees when they have elected to seek actual damages under § 1117(a). The full text of § 1117(b) is reproduced below (emphasis added):

(b) Treble damages for use of counterfeit mark In assessing damages under subsection (a) of this section, the court shall, unless the court finds extenuating circumstances, enter judgment for three times such profits or damages, whichever is greater, together with a reasonable attorney’s fee, in the case of any violation of section 1114 (1)(a) of this title or section 220506 of title 36 that consists of intentionally using a mark or designation, knowing such mark or designation is a counterfeit mark (as defined in section 1116 (d) of this title), in connection with the sale, offering for sale, or distribution of goods or services. In such cases, the court may in its discretion award prejudgment interest on such amount at an annual interest rate established under section 6621 (a)(2) of title 26, commencing on the date of the service of the claimant’s pleadings setting forth the claim for such entry and ending on the date such entry is made, or for such shorter time as the court deems appropriate.

As there is no mention of § 1117(c) in § 1117(b), the court held, as a matter of statutory construction, that attorney's fees are not permitted when the damages awarded are statutory damages. Instead, as the statute states, attorney's fees are available when "assessing damages under subsection (a) of this section," namely when actual damages are assessed. As a result, the court held the district court abused its discretion in awarding K & N $100,000 in attorney's fees when it pursued statutory damages instead of actual damages.This case presents an interesting conundrum for trademark counterfeiting plaintiffs. When actual damages are quite low, ordinarily it is preferable to opt for statutory damages. However, depending on the expected amount of attorney's fees, based on this case it may be preferable to take the smaller amount of actual damages and also recover fees and costs. It is a decision that will have to be weighed carefully based upon the likely recovery in each instance.To read the full decision in K & N Eng'g, Inc. v. Bulat, click here.

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