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Joint Statement—Part H. Treble Damages and Attorney's Fees

H. TREBLE DAMAGES AND ATTORNEY'S FEES The Senate bill called for an automatic award of treble damages and attorney's fees to plaintiffs upon a showing that the defendant had "intentionally trafficked in goods or services" knowing them to be counterfeit. The House provision spoke in terms of "use" of a mark or designation, and gave the court discretion to reduce the award against the defendant in the event of "extenuating circumstances." (In this statement, the phrase "treble damages" is used as shorthand for "treble damages or profits." See 15 U.S.C. 1117). The Senate sponsors have agreed to the House language concerning "extenuating circumstances," on the understanding that it will be a rare case in which a defendant who has trafficked in goods or services using a mark that he or she knows to be counterfeit can show that he or she should not be assessed treble damages. Once the other requirements for an award of treble damages or profits under section 1117(b) are met that is, intentional use knowing that the mark is counterfeit), it is a (sic) very unlikely that there will be any "extenuating circumstances" that will warrant lessening the amount of the reward. In highly unusual instances, however, the court may be warranted in reducing the treble damages and attorney's fees to which the plaintiff would otherwise be entitled. For example, it may not be appropriate to impose treble damages and attorney's fees when the defendant is an unsophisticated individual, operating on a small scale, whose conduct posed no risk to the public's health or safety, and for whom the imposition of treble damages would mean that he or she would be unable to support his or her family. The act amends 15 U.S.C. 1117, the Lanham Act provision that governs recoveries in trademark cases. For purposes of clarity, the act creates a new subsection 1117(b) relating exclusively to recovery in counterfeiting cases. The provisions of subsection (a) remain applicable in counterfeiting cases except insofar as they are inconsistent with subsection (b). Thus, the sentence of section 1117 that reads "Such sum . . . shall constitute compensation and not a penalty" is inapplicable in counterfeiting cases, since one of the purposes of treble damage awards for intentional dealing in known counterfeits is to provide an adequate penalty for such conduct. (See S. Rept. 98-526, supra, at 6.) Both the Senate and the House bills provided for a two-part mental state requirement: that the defendant be shown to have acted "intentionally" in dealing in the goods or materials in question, and to have "known" that the items were counterfeit. The compromise bill retains that two-part test. The comments above concerning the mental state provision of the criminal code amendment are equally applicable here, except that, of course, the standard of proof in a civil case will be "by a preponderance of the evidence" rather than "beyond a reasonable doubt." The Senate bill called for a mandatory award of reasonable investigator's fees to successful plaintiffs in counterfeiting cases. This provision has been omitted from the compromise bill, because of the concern of the House sponsors that such a provision might set an undesirable precedent. To the extent that an investigator acts under the direction of an attorney, however, his or her fees may be recovered by a prevailing plaintiff as part of an award of attorney's fees. Here too, the compromise bill adopts the comparable Senate provision concerning prejudgment interest on awards. (See subsection 2320(d)(2) of S. 875.) The sponsors wish to discourage frivolous allegations of counterfeiting in trademark infringement suits, and to prevent a demand for "counterfeiting treble damages" from becoming a "boilerplate" request in ordinary trademark infringement suits. Should a plaintiff seek treble damages for "international use" of a "known counterfeit" in a case in which the mark is clearly not counterfeit, it would be appropriate to require the plaintiff to pay the defendant's attorney's fees with respect to that portion of the lawsuit. See 15 U.S.C. 1117 ("The court in exceptional cases may award reasonable attorney's fee to the prevailing party.") For purposes of this act, if the court determines that an allegation of counterfeiting was frivolous, the defendant shall be considered a "prevailing party" with respect to that allegation for purposes of section 1117. Of course, this provision is not intended to reverse the usual principles of the Federal Rules of Civil Procedure with respect to "notice pleading." In particular, it may be difficult for a plaintiff to be certain, at the time of filing a complaint, whether the defendant knew that particular goods bore counterfeit marks. It may be easier to determine at the outset of a lawsuit whether, for example, a mark could plausibly be considered "substantially identical" to a registered mark. The court should take these and other relevant factors into account in determining whether to award attorney's fees to a prevailing defendant on the basis that an allegation of counterfeiting was frivolous. Proposed 15 U.S.C. 1118. This provision amends 15 U.S.C. 1118 to require a party seeking the destruction of articles seized under the ex parte procedures of this act to give 10 days' notice to the U.S. Attorney before doing so, unless the party can show good cause for giving lesser notice. The destruction of the offending articles will rarely be an emergency matter, and the sponsors therefore expect that the full 10-day notice should ordinarily be given.