Philip Morris hopes to stub out online sales with damages award

Following three years of litigation, the US District Court for the Southern District of New York has issued its third decision in favour of Philip Morris USA against Swiss online retailer Otamedia, which sells cigarettes around the world and avoids many of the import tariffs and taxes applied to domestic retailers. In its latest ruling, the court awarded $173 million in damages to Philip Morris for wilful infringement of its trademarks.

The history of the case dates back to 2002 when Philip Morris first sent a cease and desist letter to Otamedia, a company the district court has described as one of the largest internet sellers in the world. Philip Morris then brought a thirteen count complaint under state and federal law against Otamedia alleging violations of the Lanham Act, the Imported Cigarette Compliance Act and New York State law. Otamedia failed to respond and the district court entered a default judgment against it on all of Philip Morris's claims. It enjoined Otamedia from, among other things, "using or licensing the use of … the Philip Morris USA marks" and "supplying cigarettes, fulfilling orders for drop shipping, and/or facilitating the importation into the United States of Philip Morris USA grey market cigarettes for any other website, customers or affiliates, or any member of its 'affiliate programme'".

In blatant defiance of the 2003 injunction, Otamedia carried on in its sales activity, prompting the district court in August 2004 to order Otamedia to transfer its 'yesmoke.com' and 'yessmoke.com' domain names to Philip Morris.

Otamedia argued that the transfer of domain names in order to enforce the 2003 injunction was a "classic case of an elephant gun being used to kill a flea" but it proved an effective means of surmounting the jurisdictional hurdles associated with enforcement of a judgment against an online seller based outside the United States.

The district court's latest decision (on March 14 2005) to award damages and attorney's fees to Philip Morris is intended to compensate it for Otamedia's wilful infringement of Philip Morris's trademarks. The award is also based on Otamedia's contempt of the January 2003 injunction. On its website press releases, Philip Morris describes its "ability to collect on its judgment" as "uncertain" but notes that it "is exploring all of its available legal options for enforcement".

Virginia Taylor and Heather Forrest, Kilpatrick Stockton LLP, London