Best of 2013: The Lanham Act’s surprising penumbras

First published on July 15, 2013.

Columns and Roman law statue, First Department CourthouseHere I thought I understood something about the Lanham Act.  But wait, there’s more!  Did you know this?:

The purpose of the Lanham Act is to protect registered and valid copyrights, trademarks, and patents.

That’s from Coach, Inc. v. Southwest Flea Market., 2:10-CV-02410-DKV, 2012 WL 8470191 (W.D. Tenn. Feb. 21, 2012), an important decision concerning, among other things, the circumstances under which a flea market vendor can be held contributorily liable for the sale of counterfeit trademark merchandise by vendors after the Second Circuit’s ruling in Tiffany v. eBay.  Tiffany arguably raised, or at least firmly established, the standard by which a party operating a marketplace has legal responsibility for intellectual property infringment by sellers in that marketplace.

The Western District of Tennessee, in its 2012 opinion, found willful blindness by the flea market operator, and that the extent of its notice was sufficiently specific, unlike the general notice of counterfeiting found insufficient in Tiffany.  Moreover, unlike eBay where there was a record of affirmative remedial measures employed by the online auctioneer,  in Southwest the flea market’s purported remedial measures for discouraging the sale of counterfeits were pretty much a joke.

But the suggestion that the Lanham Act applies to copyrights and patents — what is that about?

And why was it “adopted” when the opinion was affirmed by the Sixth Circuit on May 31, 2013?  Yep, here’s what it says in that opinion:

 The Lanham Act protects registered copyrights, trademarks, and patents.

Really?

When I read the appellate opinion, I kept scratching my head, but not over that.  I just glossed over it.  But I did wonder:  Why was it worth it to the defendant to litigate over the other main issue in the appeal, namely the imposition of attorneys’ fees against the defendant for willful infringement?

The amount of fees sought was under $200,000.  What, I wondered, could be the point of litigation over this when there’s already a $5 million damages award out there?  Is this flea market going to pay that, really?   On reflection, and after discussion with the person in my house who brings these things (and who brought the Lanham Act “expansion) to my attention, we started to wonder if the answer hinged on the question of whether a finding of “willful blindness” — a component of contributory liability that is deemed to be constructive knowledge of infringement ineluctably leads to a finding of “willful conduct” relevant to the award of attorneys’ fees.

This, in turn — a finding of willfulness — might be very relevant to the dischargeability of a judgment debt based on trademark statutory damages, much less where there was (as in Southwest Flea Market) and element of default, in bankruptcy.

That’s not such a clear question.  In In re Wright, 355 B.R. 192 (2006), the court found non-dischargeability based on damages awarded under the Anti-Cybersquatting Protection Act — which has as one of its elements a finding of bad faith.  At one point the court makes the statement that if there are statutory damages (in general, it seems, not only under the ACPA), this per se leads to a finding of to non-dischargeability, and cites to a Ninth Circuit BAP case called Albarran v. New Form, Inc. (In re Albarran), 347 B.R. 369, 383 (9th Cir. BAP 2006). That decision, however, was subsequently reversed by the full Ninth Circuit, which held that “malice” and “willfulness” were separate inquiries.  In re Barboza, 545 F.3d 702, 712 (9th Cir. 2008).

On the other hand, in In re Singer, an unpublished 2010 opinion found at 2010 WL 3732944, the District of New Jersey upheld a Bankruptcy Court determination that “[t]he imposition of attorney’s fees alone . . .  is enough” to render a judgment non-dischargeable.  Yet  even in In re Bressler, 387 B.R. 446, 454 (Bankr. S.D.N.Y. 2008), where discharge was not permitted, the court acknowledged that the question of an “intent to bring about injury” is not entirely one that can be decided without reference to the facts of record:

The term “willful” is generally not controversial, and generally means “a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.” In re Strauss,“> 2006 WL 2583645, at *2 (citing Kawaauhau v. Geiger, 523 U.S. 57, 61 n. 3, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998)). The requirement may be satisfied “if the debtor had actual knowledge that he or she was violating the law and the intent to bring about injury.” In re Akhtar, 368 B.R. at 127–28. “Mere negligence does not constitute ‘willful and malicious’ conduct.” Yash Raj Films (USA) v. Ahmed (In re Ahmed, 359 B.R. 34, 41 (Bankr.E.D.N.Y.2005) (citing Kawaauhau, 523 U.S. at 61–62, 118 S.Ct. 974).

This issue, then, could have been in play in the Southwest Flea Market litigation, both post-judgment and on appeal, and may explain why attorneys’ fees were being litigated in the context of a far larger statutory judgment award.  Given the facts there, however, there wasn’t much for the defendant to play with.

But who knew the result of the litigation would be the expansion of the Lanham Act to cover both copyright and patent as well as trademarks?  It’s good to be the king!

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Ron Coleman

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2 thoughts on “Best of 2013: The Lanham Act’s surprising penumbras

  1. I LOVED your piece about the flea market case. How insightful of you! I too have sometimes fought harder for my client (with a retainer, of course) to avoid a finding of willfulness than damages liability for exactly this reason. All IP lawyers who litigate these cases need to be aware of the dramatically terrible consequences that could befall their client if willfulness is found, especially from the bankruptcy perspective. This is another reason, by the way, to try to name personally involved, high-ranking/owner individuals as co-defendants in these cases and, conversely, to fight like hell to get them dismissed if the specter of willfulness is present.

    Somewhat less important is the unfortunate statement by the Western District of Tennessee (and its reviewing Court) about the “scope” of the Lanham Act. No doubt this finds its origin in a trial court brief penned by some non-IP goofball dabbling in a trademark case that he/she had no business handing (but who may have been lucky to get such a massive judgment). Not that this relieves the court from noticing this, but my experience has been that this happens quite a bit. The law clerks who work for federal judges do a great job until they venture out of their comfort zone, into IP cases like this, where such a statement probably sounds perfectly reasonable.

    I hate it, and it is embarrassing. This is one of the reasons we are trying to get Board Certification in Tennessee for IP lawyers.

    Thanks for what you do.

    M Graham, Esq., Knoxville, TN

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