What are trademark infringement damages under the Lanham Act?
What are trademark infringement damages under the Lanham Act?
Section 1117(a) of the Lanham Act provides for the recovery of damages as follows:
When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled, subject to the provisions of sections 1111 and 1114 of this title, and subject to the principles of equity, to recover (1) defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action. The court shall assess such profits and damages or cause the same to be assessed under its direction. In assessing profits the plaintiff shall be required to prove defendant’s sales only; defendant must prove all elements of costs or deduction claimed. In assessing damages, the court may enter judgment, according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount. If the court shall find that the amount of the recovery based on profits is either inadequate or excessive, the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case. Such sum in either of the above circumstances shall constitute compensation and not a penalty. The court in exceptional cases may award reasonable attorney fees to the prevailing party. 15 U.S.C. § 1117(a).
Thus, a trademark owner may recover the following categories of monetary damages under the Lanham Act: (1) disgorgement of the defendant’s profits; (2) actual damages, (3) reasonable royalty, (4) attorneys’ fees in exceptional cases, and (5) costs. See 15 U.S.C. § 1117(a). The prevailing plaintiff in a trademark infringement suit is not automatically entitled to an award of monetary damages; in fact, such awards typically require evidence of actual confusion or unjust enrichment. Regardless, damages awarded pursuant to the Lanham Act are compensatory rather than punitive.
The text of the Lanham Act provides little guidance on when monetary damages are available, but grants wide discretion to the courts to determine an appropriate remedy. In practice, trademark infringement lawsuits typical result in injunctive relief to stop the infringement rather than an award of monetary damages.
See our post Trademark Counterfeiting Damages for a discussion of additional damages available where trademark counterfeiting has occurred.
Disgorgement of Profits as Alternative to Infringement Damages
One potential measure of damages under the Lanham Act is the disgorgement of the infringer’s profits. This can be achieved through (1) disgorgement of unjustly obtained profits; or (2) using the infringer’s profits as a measure of the plaintiff’s own loss (proxy theory). While the Circuit Courts are divided on whether disgorgement of any unjustly obtained profits requires a showing of willful infringement (i.e., actual knowledge of the infringing activity or willful ignorance of potential infringement), recovery of a defendant’s profits as a proxy for plaintiff’s actual damages typically requires no such showing.
Actual Damages
Under Section 1117(a), a successful plaintiff can recover not only a defendant’s ill-gotten profits, but also the plaintiff’s actual damages. 15 U.S.C. §1117(a). This typically requires proof of actual confusion that caused an economic loss, which can be presented through evidence of diverted sales or consumer survey evidence. Economic loss must be demonstrated through lost profits (i.e., revenue the owner would have earned but for the infringement), or loss of goodwill (determined by comparing the value of goodwill before and after the infringement). If a plaintiff can demonstrate that it competes with the infringer in the same market, it may also show loss by way of corrective advertising costs (incurred to correct public confusion caused by the infringement but not exceeding the value of the mark).
Reasonable Royalty as Trademark Infringement Damages
Another alternative measure of actual damages is a “reasonable royalty,” which is a measure of compensation for past infringement based on the reasonable value of a trademark license the infringer should have paid. Some circuits require the parties to have had an existing licensing relationship in order to calculate actual damages based on a reasonable royalty, while others (including the Fifth Circuit) allow calculation of reasonable royalty based on a hypothetical negotiation between a willing trademark owner and willing licensee on the date the infringement began. When allowed, courts typically calculate a reasonable royalty based on the Georgia-Pacific factors set forth in 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970): (1) nature and scope of a licensee’s use; (2) special value to the infringer; (3) the amount a reasonable licensee would be willing to pay; (4) profitability of infringing use; (5) the lack of viable alternatives to calculating damages; and (5) expert opinion.
Attorneys’ Fees, Costs, and Exceptional Cases
The Lanham Act allows a prevailing party to recover attorneys’ fees in “exceptional cases.” 15 U.S.C. § 1117(a), but does not define “exceptional case.” Most courts have held that a prevailing plaintiff may recover attorneys’ fees when infringement is shown to be malicious, fraudulent, deliberate or willful. Prevailing defendants have been allowed to recover attorneys’ fees in instances in which a plaintiff’s conduct lacks merit, demonstrates elements of an abuse of process, or unnecessarily increases the costs of defending the lawsuit. Courts typically limit the recovery of any costs to those included in 28 U.S.C. § 1920 (i.e., filing fees, witness fees, court reporting fees, but not attorneys’ fees).
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See our Trademark Registration Process for an overview of the trademark process from a search through registration of a trademark. See also our Trademark Cost & Pricing Options for a discussion of how much a trademark costs and how we bill for our services.
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This article has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorneys in connection with any fact-specific situation under federal law and the applicable state or local laws that may impose additional obligations on you and your company. © 2023 Klemchuk PLLC