Considering for the first time whether a trademark owner who elects to recover statutory damages for a defendant’s counterfeiting rather than actual damages and defendant’s profits is precluded from also recovering attorneys’ fees, the U.S. Court of Appeals for the Second Circuit held that a trademark owner may recover both, upholding an award of $3 million in statutory damages and well over half a million dollars in attorneys’ fees and costs. Louis Vuitton Malletier S.A. v. LY USA Inc., et al., Case No. 08-4483 (2d Cir., Mar. 29, 2012) (Sack, J.).
French fashion house Louis Vuitton sued defendants for trademark counterfeiting, trademark infringement and false designation of origin under the federal Lanham Act. Louis Vuitton alleged that the defendants were engaged in a large-scale counterfeiting operation distributing tens of thousands of handbags and related goods bearing at least five counterfeits of the plaintiff’s Louis Vuitton trademarks. The defendants were uncooperative during discovery. More than a year after Louis Vuitton filed the lawsuit, defendants were arrested in a parallel proceeding for criminal counterfeiting, and requested a stay of the civil lawsuit. The defendants alleged that they could not conduct meaningful discovery because law enforcement had removed computers, documents, merchandise and other significant items from defendants when executing a search warrant for the criminal case. Louis Vuitton argued that the defendants were using the criminal case inappropriately as a shield against the civil case. In denying the defendants’ requested stay, the court noted that the case had been pending for over a year, considerable discovery had been conducted and Louis Vuitton needed prompt redress.
Louis Vuitton noticed the depositions of individual defendants and FRCP 30(b)(6) depositions for the corporate defendants. First, the individual defendants refused to appear based on their Fifth Amendment right against self-incrimination. After the court granted Louis Vuitton’s motion to compel those depositions, those defendants appeared for their depositions but asserted their Fifth Amendment privileges and refused to answer almost every question. The corporate defendants refused to produce witnesses to testify at the Rule 30(b)(6) depositions.
After full briefing and oral argument, the district court granted summary judgment to Louis Vuitton on its trademark counterfeiting and infringement claims. The court also granted a permanent injunction barring defendants from any use of Louis Vuitton’s marks. The court did not explicitly draw an adverse inference from the individual defendants’ invocation of the Fifth Amendment, but did draw an adverse inference from the corporate defendants’ refusal to produce FRCP 30(b)(6) witnesses. The district court awarded Louis Vuitton $3 million in statutory damages and approximately $560,000 in attorneys’ fees and costs. The defendants appealed.
On appeal, the defendants argued that the district court abused its discretion in refusing to stay the civil case pending the outcome of the parallel criminal case. The 2d Circuit disagreed. The court explained that staying a civil case to permit conclusion of a related criminal prosecution is “an extraordinary remedy” and that “[a] defendant has no absolute right not to be forced to choose between testifying in a civil matter and asserting his Fifth Amendment privilege.” While noting that a few of the relevant factors would have supported a stay, the 2d Circuit found that the defendants had not demonstrated that they were deprived of their constitutional rights or otherwise suffered grave and unnecessarily prejudice as to reverse the district court. The court specifically noted that the defendants had shown a pattern of dilatory tactics developed over a year prior to the criminal indictments. The court also noted that despite the district court’s indication that it was open to hearing alternatives to a stay, the defendants never sought the court’s help to obtain alternative forms of relief such as protective orders, quashing or modifying subpoenas or sealing confidential material.
The defendants also argued that the district court erred in awarding Louis Vuitton both statutory damages and attorneys’ fees. The Lanham Act permits a plaintiff in a trademark counterfeiting case to recover either actual damages pursuant to § 1117(a) (defendant’s profits, plaintiff’s damages and costs of the action) or statutory damages pursuant to § 1117(c) (ranging from $1,000 to $200,000 per mark, or up to $2,000,000 per mark for willful counterfeiting). The defendants argued that a plaintiff that opts to recover statutory damages under § 1117(c) waives its right to recover attorneys’ fees under § 1117(a). After considering the statutory text and legislative history, the 2d Circuit concluded that defendants’ interpretation could not stand because it would frustrate the purpose of the statute and reward defendants for not maintaining or producing sales records to avoid paying a plaintiff’s attorneys’ fees. Therefore, the 2d Circuit held that “an award of attorney’s fees is available under § 1117(a) in ‘exceptional’ cases even for those plaintiffs who opt to receive statutory damages under § 1117(c).”© 2013 McDermott Will & Emery