Sure you can win the suit against the competitor bidding on your name, but at what cost?

My first column here analyzed whether it was against the law to bid on a trademarked terms to bring up paid search engine advertising.  At the time, the law was not so clear as to whether triggering pay-per-click ads was a “use in commerce” necessary for a trademark infringement claim.  Over time, most courts are allowing these cases to proceed and plaintiffs are winning if they can show consumer confusion.

Simply because you can win a case does not mean you should bring it.  An unwritten rule is that you don’t sue poor people.  Unless you can actually recover more than the cost to bring the suit, prudent business practices dictate you may want to think twice about it.  A victory at the courthouse is merely a piece of paper that says the other side owes you money.  If they don’t have it, all you have is a pretty piece of paper.

Clients often say it is a matter of principal, but that gusto frequently fades after the first few legal bills.  There are also tangential benefits to litigation other than simply the recovery of money.  In a trademark infringement case, you can certainly get an injunction that forces the defendant to stop using your name.  But, what happens when the defendant stops doing it once you send the first cease and desist letter?  All you have to gain after that is damages.

The damages under the Lanham Act for trademark infringement claims may include the defendant’s profits, any damages sustained by the plaintiff and the cost of bringing the action.  The trial judge has wide discretion to order damages as much as three times actual damages but will only do so in cases of willful or deliberate infringement.  Many defendants claim they did not know what their outside marketing firms were doing and ceased the infringement as soon as the plaintiff complained.

The Infringer’s Profits

To determine whether to award profits, the court considers:  (1) whether the defendant had the intent to confuse; (2) whether sales were actually diverted; (3) the adequacy of other remedies; (4) any unreasonable delay by the plaintiff in asserting its rights; and (5) whether this is a palming off case.  If the court determines profits are appropriate, the burden shifts to the defendant to show it made no profits from the infringement.

The Plaintiff’s Lost Profits

A plaintiff cannot get a double recovery—both defendant’s profits and the loss of their own.  Proving how much the plaintiff may have lost in profits can be difficult when all you have is click-throughs and “conversions” which are often broadly defined and don’t mean actual sales.  Plaintiffs do not have to show lost profits with exactitude, but there must be a reasonable degree of certainty. 

Enhanced Damages

The Lanham Act gives the trial judge discretion to award any amount in excess of the actual damages, but not to exceed three times the amount of actual damages.  Enhanced damages will be upheld in cases involving deliberate and fraudulent infringement such as when there is knowing and intentional illegal conduct.  Cases of innocent infringement and cases in which the defendant made efforts to prevent, and not take advantage of, confusion probably do not merit enhanced damages.  By immediately taking down the offending ad and claiming ignorance, it would be difficult to obtain enhanced damages in many cases. 

Attorney’s fees

The Lanham Act allows for recovery of fees in “exceptional cases.”  Generally, this means there is a high degree of culpability, bad faith or fraud, or when the defendant’s infringement can be characterized as “malicious”, “fraudulent”, “deliberate” or “willful.”  Attorney’s fees are not appropriate in cases in which the law is unclear or in which a party presents what it in good faith believes may be a legitimate defense or in which only mixed results are achieved.

Additional Risks

Plaintiffs with shaky trademark rights and registrations have the additional concern that they could lose their trademark.  If a registration: (1) was obtained fraudulently; (2) has become or is generic; (3) has not acquired secondary meaning; (4) has been abandoned; or (5) has become functional; it could be lost during a trademark infringement claim.

A Case Study

The case of Internetshopsinc.com v. Six C Consulting, Inc. provides a good case study.  Both parties made golf mats.  The plaintiff demanded that defendant stop bidding on the trademarked term “Dura Pro.”  Within 48 hours, the defendant notified its outside marketing firm to stop, but the firm did not do so.  The plaintiff filed suit seeking an injunction, damages, costs and attorneys’ fees, as well as an accounting of defendant’s damages.  The defendant conceded it violated the act, but ceased once the suit was filed, so the only issue was the remedy.

Plaintiff claimed it lost $123,784 damages by showing a reduction in sales during the time defendant engaged in the infringement.  The court found that some months during the infringement period, the plaintiff had higher sales than some months outside of the pertinent period.  The average monthly sales prior to the infringement had a few outlier good months which skewed the average.

The court wrote:  “Even assuming that the spreadsheet shows some unquantifiable decline in plaintiff’s sales during the infringement period, there is no evidence to suggest that the decline occurred as a result of defendant’s infringement.” Because the plaintiff could not tie the infringement to the lost sales, the court granted the defendant’s summary judgment as to damages.

The search data from defendant's PPC campaign showed that during the infringement period, there were 1,319 impressions resulting from searches for the term "Dura Pro." Only 35 of those impressions resulted in a click, after which a potential customer was directed to defendant's website, however, not one of those clicks resulted in a conversion, or a sale, of anything.  Based on this evidence, the court determined there was no evidence of defendant’s profit from the infringing conduct.

The court also denied the request for attorneys’ fees.   The court wrote:  “There is no evidence in the record to suggest that defendant acted in a ‘malicious, fraudulent, deliberate, or willful manner,’ While defendant admits to direct infringement of plaintiff's mark, it credibly argues and presents substantial evidence that the infringement was unintentional.  Defendant was not aware of plaintiff's rights to the ‘Dura Pro’ mark until it was contacted by plaintiff in January, 2009. Within 48 hours of plaintiff's contact, defendant acted, albeit not entirely effectively, to eliminate the term ‘Dura Pro’ from the PPC campaign.”

The court did not say how much the plaintiff spent in attorney’s fees, but I would be surprised if it was less than $50,000 as this case was decided at the summary judgment stage short of trial.  With even a little resistance from a defendant, it would be shocking to get through a federal court trial for less than $100,000.  If the other side agrees to stop using your term, is that enough?