Fees, won’t you stay

Courthouses arrayed, Foley SquareThe Second Circuit, just yesterday (March 29, 2012) has issued an opinion called Louis Vuitton v. Ly USA, Inc. (08-4483-cv(L)) sure to bring joy to the hearts of trademark counterfeiting enforcers everywhere.  This was one of those major counterfeiting-ring busts, and there have been lawyers and federal marshals scuttling about for a long time on all this business.  The defendants were convicted of trafficking in counterfeit goods, conspiring to do so, and smuggling.  The appealed all the bad things that happened to them in the civil case — massive damages, attorneys’ fees, the usual.

There were two key holdings, both buffeted by extensive and thoughtful discussion.  One was that there’s just about no way the Circuit Court will second-guess a District Court’s refusal to enter a stay of a civil action pending resolution of parallel criminal proceedings, and the court is not shy about saying so.  The second concerned the split among courts as to whether a prevailing plaintiff in a trademark counterfeiting case may be awarded both statutory damages and attorneys’ fees.

First, the stay question… if “question” is the right word; this opinion sure doesn’t leave much room for doubt.  After explaining all the reasons a stay of a civil case, with all that required disclosure, might be a good idea for someone concerned about compromising his Fifth Amendment rights, the court says, well, still, it would be “extraordinary” to really go ahead and enter one:

[T]he Constitution rarely, if ever, requires such a stay.  .  .  .  The existence of a civil defendant’s Fifth Amendment right arising out of a related criminal proceeding thus does not strip the court in the civil action of its broad discretion to manage its docket. . .

District courts have formulated multi-factor tests to apply in deciding whether, in light of these hazards to the defendants in the civil proceedings against them, to grant a stay of those proceedings. . . .  We think the tests do little more than serve as something of a check list of factors we ought to consider as we review the district court’s action for abuse of its discretion.  Even if we were to choose or formulate a test and apply it, we would not be able to reverse the district court solely because we disagreed with its application of the test. . . . A decision so firmly within the discretion of the district court will not be disturbed by us absent demonstrated prejudice so  great that, as a matter of law, it vitiates a defendant’s constitutional rights or otherwise gravely and unnecessarily prejudices the defendant’s ability to defend his or her rights.  There may well be cases where the Constitution requires a stay.  But a plausible constitutional argument would be presented only if, at a minimum, denying a stay would cause “substantial prejudice” to the defendant.

Indeed, so heavy is the defendant’s burden in overcoming a district court’s decision to refrain from entering a stay that the defendants have pointed to only one case in which a district court’s decision to deny a stay was reversed on appeal, and that case was decided more than thirty years ago.

Bill of Rights …. docket management.  Hmm.  There’s a compelling juxtaposition for you!  I suppose it’s the kind of “juxtaposition” that a defendant appealing a civil verdict gets when he’s been convicted of every act claimed in the civil case.  This enabled the court to note the significant public benefit arising from not staying the civil case, which had already been under steam for a year before the indictment.  Moreover, the District Court evidently offered significant alternatives to managing confidentiality issue to the defendants, who weren’t too eager to avail themselves of it.  Plus there were lots of things — record, merchandise, computers — that got “lost.”  Plus these guys were evidently well layered with lawyers.

Bad facts, or certainly bad defendants, make “bad law.”  These were bad defendants, and now the Circuit is trying to be pretty clear on this:  Crooks, stay away from complaining about a stay.  It won’t play.  Okay?

The second is an important, and more groundbreaking (if unsurprising), decision on an important question:  Once the court awarded $3 million in statutory damages, was it allowed to also award over half a million dollars in attorneys’ fees and costs?

The defendants argue that the district court erred in awarding attorney’s fees and costs. They contend that because Louis Vuitton opted to receive statutory damages pursuant to 15 9 U.S.C. § 1117(c), it waived the ability to receive an award of attorney’s fees. The defendants point out that unlike subsections (a) and (b) of section 1117, which explicitly provide for such an award, subsection (c) does not. . . .

On appeal, the defendants argue that in making the award the district court abused its discretion by exercising a power that it did not have. They rely heavily on a line of district court decisions concluding that attorney’s fees are unavailable under section 1117(a) for plaintiffs receiving statutory damages under section 1117(c), as well as on a Ninth Circuit decision, K & N Eng’g, Inc. v. Bulat, 510 F.3d 1079 (9th Cir. 2007). . . .

The issue is plain: Does the election by a plaintiff to seek statutory damages under section 1117(c) instead of actual damages and profits under section 1117(a), (1) supplant only that part of section 1117(a) that provides the method for ascertaining the amount of damages with the method set forth for ascertaining damages in section 1117(c), while leaving unaffected the last sentence of the subsection — “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party”? Or does it (2) supplant the entirety of subsection (a) including the provision for attorney’s fees in “exceptional cases”? If the former, then the plaintiff may make such an election, as Louis Vuitton did in this case, and retain the ability to seek attorney’s fees if the case is deemed by the court to be sufficiently “exceptional.” If the latter, by making the election to seek damages under subsection (c), Louis Vuitton lost the ability to obtain any attorney’s fees award at all, under subsection (a) or otherwise.

Some district courts have concluded that a plaintiff who opts to receive statutory damages under section 1117(c) is indeed foreclosed from receiving attorney’s fees under section 1117(a), even in an “exceptional” case. . . .

Other district courts — including the court in this case — have taken the contrary position and held that the Lanham Act does not prohibit simultaneous awards of relief under Section 1117(a) and section 1117(c) so long as a plaintiff does not obtain a recovery of both actual and statutory damages. . . .

Other district courts have acknowledged this as an unsettled question without proffering an answer to it. Most frequently, courts avoid confronting the issue by implicitly or explicitly accounting for the cost of attorney’s fees in setting the amount of the statutory-damages award. . . .

Still other district courts in this Circuit have awarded attorney’s fees under section 1117(a) and statutory damages under section 1117(c) simultaneously, but without acknowledging the potential statutory hurdle they had to clear in doing so. . . .

Commentators remain divided. Compare 4 Callmann on Unfair Competition, Trademarks and Monopolies § 23:67 (4th ed. 2011) (“[A] prevailing plaintiff who elects statutory damages under the Lanham Act in a counterfeiting case is not entitled to attorney’s fees.”) with 5 McCarthy on Trademarks and Unfair Competition § 30:95 n.9 (4th ed. 2012) (describing the Ninth Circuit’s K & N Engineering decision in the subsection (b) context as “a hyper-technical reading of the statute” and lamenting that it fails “to read Lanham Act § 35 as an integrated whole”).

Wow, enough buildup for you?  OK, that was the windup.  Now comes — the pitch?  Nope:  The Circuit steps off the mound and confers with the catcher, i.e., engages in pages of statutory analysis.  This is what it looks like when a capable court decides to really wrestle with an issue.

The clue that it was going to do so was in the excerpt above, where it called out district courts — by name — for “avoid[ing] confronting the issue by implicitly or explicitly accounting for the cost of attorney’s fees in setting the amount of the statutory-damages award” or, worse, “award[ing] attorney’s fees under section 1117(a) and statutory damages under section 1117(c) simultaneously, but without acknowledging the potential statutory hurdle they had to clear in doing so . . .”

I wonder if that bothered them when those decisions were appealed, though… (No, I’m not going to look up what if anything happened on appeal in those cases.  Enough free work for you today!)

So, says the Second Circuit, it’s like this:

In 1996, Congress passed the Anticounterfeiting Consumer Protection Act (the “Act”), which amended section 1117 to add subsection (c), providing for the alternative of statutory damages. . . .

The Act was thus apparently designed to provide an alternative to the type of recovery provided in section 1117(a); not to all of the remedies provided for in that section. The Act was meant to expand the range of remedies available to a trademark plaintiff, not restrict them. In light of that history, it seems to us unlikely that Congress intended to prevent a plaintiff who opts to recover statutory damages from also receiving attorney’s fees. . . .

As we have explained, a defendant facing a statutory damage award less than the actual amount of the damages he or she caused has the incentive to frustrate ascertainment of the actual amount of the damages. It makes little sense, we think, to further reward a defendant successful in defeating the plaintiff’s and the court’s attempts to fix the actual amount of damages by allowing him or her to avoid an award of attorney’s fees. Such a scheme would only further incentivize the defendant to avoid making, keeping, or producing sales  records.

We therefore conclude that an award of attorney’s fees is available under section 1117(a) in “exceptional” cases even for those plaintiffs who opt to receive statutory damages under section 1117(c).

This seems like a sound conclusion about what Congress probably intended.  I have argued for the contrary result in filed papers, absent a clear decision in the Second Circuit, and because there is a strong policy reason to question whether statutory damages, which have a punitive, exemplary aspect to them, should be enhanced by an attorneys’ fee award which is based on the same rationale for departing from the American Rule.  Moreover, I think it’s a serious question whether the case posited aboe — where “a defendant facing a statutory damage award less than the actual amount of the damages he or she caused has the incentive to frustrate ascertainment of the actual amount of the damages” — has ever happened.  And I have gone on and on about the problem with the one-way nature of fee-shifting in IP enforcement cases.

But it does seem hard to read the Lanham Act or to be at all familiar with the realpolitik of IP enforcement legislation and still conclude that Congress intended, in 1996, to remove attorneys’ fees from the range of remedies available against real counterfeiters such as the defendants in this case.  Now the Second Circuit has spoken, and doubtless the district courts here will listen.  Any judges that may have been in doubt about these issues can be counted on to apply these new rulings to reign in the real trademark counterfeiting crooks.

Just one thing, though:  Let’s maintain our evergreen hope that no judicial officer reads these opinions as suggesting that every case where trademark infringement or counterfeiting is alleged by a big firm that bursts into court with a big noise is really the international knockoff conspiracy that the court dropped the hammer on in Ly, USA.  That’s just what these trademark litigation entrepreneurs are counting on, after all… and they’re not usually disappointed.

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Author:Ron Coleman

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7 Responses to “Fees, won’t you stay”

  1. Tal Benschar
    April 2, 2012 at 6:06 pm #

    Actually, I rather liked the alternative where courts would just fold in an amount for attorney’s fees into the statutory damages award. Fee applications are a royal pain — you have to document each entry. Much easier for the judge to just tack on a couple hundred thousand, or whatever, onto what is usually an already inflated award.

  2. April 4, 2012 at 1:23 pm #

    Yea it seems like folding in a determined amount would be a logical and responsible approach. A clean and functional solution.

Trackbacks/Pingbacks

  1. Stephanie Figueroa - March 30, 2012

    2nd Circ issued opinion in Louis Vuitton v Ly USA Inc sure to bring joy to TM counterfeiting enforcers via @roncoleman http://t.co/u15r2dfi

  2. Matthew Homyk - March 30, 2012

    Fees, won't you stay – Major 2d Cir. decision on #TM #counterfeiting remedies http://t.co/ysACg3ii | LIKELIHOOD OF CONFUSION®

  3. Matthew Homyk - March 30, 2012

    Attys fees available in exceptional cases alongside statutory damages in #trademark counterfeiting & infringement suits http://t.co/B0g6zhIs

  4. Ilya Kondrin - April 8, 2012

    Fees, won’t you stay
    http://t.co/pBSss0Hr

  5. annabellegaubertilaw - May 28, 2012

    Trademark litigation in the US: it's all the rage of the season! RT @roncoleman: Fees, won't you stay http://t.co/Y4Y5UZJX

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