Plaintiff seeking statutory damages cannot recover attorneys' fees

In K&N Engineering Inc v Bulat (2007 WL 4394416, December 18 2007), the US Court of Appeals for the Ninth Circuit has reversed a lower court's award of $100,000 in attorneys' fees, holding that attorneys' fees are not available to plaintiffs in counterfeiting cases when the complaining party elects to receive statutory damages under the Lanham Act - at least not in unexceptional cases.

K&N Engineering Inc, an automotive air filter manufacturer, discovered that Sarah Bulat was selling unauthorized decals of K&N's stylized logo on eBay. K&N filed a complaint in the Central District of California alleging, among other things, trademark infringement and counterfeiting, and seeking statutory damages under 15 USC §1117(c). The district court granted summary judgment on all claims. It awarded K&N $20,000 in statutory damages under Section 1117(c) and $100,000 in attorneys' fees under Section 1117(b).

The Ninth Circuit reversed, holding that an election to receive statutory damages under Section 1117(c) precludes an award of attorneys' fees under Section 1117(b). According to the court, the section, read as a whole, sets forth the following "integrated scheme":

  • Section 1117(a) entitles a plaintiff seeking actual damages to reasonable attorneys' fees in "exceptional cases";

  • Section 1117(b), which is implicated in cases involving counterfeit marks, entitles a plaintiff to treble damages and reasonable attorneys' fees unless there are "extenuating circumstances"; and

  • Section 1117(c) allows a plaintiff to elect statutory damages in lieu of actual damages under Section 1117(a).

Thus, the Ninth Circuit held that by electing to pursue statutory damages under Section 1117(c), K&N forwent the opportunity to seek attorneys' fees under Section 1117(b). The court did not reach the question of whether an election to receive Section 1117(c) statutory damages precludes a plaintiff from seeking attorneys' fees under the exceptional cases provision of Section 1117(a).

The Ninth Circuit's opinion is exceedingly formalistic. By the express terms of Section 1117(c), a plaintiff may recover statutory damages "instead of actual damages and profits", not instead of reasonable attorneys' fees. Furthermore, the purpose of the counterfeiting provision is to punish wilful wrongdoers and compensate their unwitting victims. That purpose is not served by precluding plaintiffs which elect statutory damages - typically because they are unable to quantify their losses or the defendant's ill-gotten gains - from receiving the benefit of the provision. Whether a court awards attorneys' fees should depend on the egregiousness of the defendant's conduct, not on the strength of the plaintiff's evidence of damage.

If this question is not resolved by the Supreme Court, lawmakers can help victims of counterfeiting avoid the result reached in this case by amending the statute. An addition to Section 1117(c) could read: "Nothing in this subsection shall prevent a court from awarding reasonable attorneys' fees under Subsection (b)." Such a provision would ensure that a court's hands are not tied when it wishes to compensate a counterfeiting victim which elects statutory damages under Section 1117(c). It would also comport with Congress' stated purpose when it added the statutory damages provision: to control and prevent commercial counterfeiting.

James L Bikoff and David K Heasley, Silverberg Goldman & Bikoff, Washington DC, with the assistance of Jeremy Haile, an intern at the firm

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