Shareholder Mark A. Salky and associate Jessica Johnson Fishfeld, Greenberg Traurig in Miami. (Photo: Courtesy Photo)

During a time when online marketing, virtual shopping and electronic communication are more widely used than ever, it is critically important for individuals and businesses to be highly aware of how they are using trademarks, the scope of a trademark owner's rights, and the consequences of infringing them. Monetary damages are one such consequence, and for many, the amount of recoverable damages at stake is a primary driver to strategic decisions regarding when to initiate, defend or settle litigation.

Federal trademark infringement is governed by the Lanham Act. Under that statute, a trademark owner may recover three broad categories of monetary damages: actual damages, disgorgement of the defendant's profits, and attorney fees and costs. See 15 U.S.C. Section 1117(a). Each category of damages subject to recovery is discussed below, along with strategies for both plaintiffs and defendants to consider.

Actual Damages

A plaintiff whose trademark was infringed may recover actual damages. These comprise monetary losses the plaintiff actually sustained as a result of the defendant's infringement. Actual damages can often be difficult to prove because it typically requires evidence that consumers were actually confused by the infringing trademark and that the confusion caused the plaintiff an economic loss, such as lost profits or loss of goodwill. For lost profits, the plaintiff must demonstrate that it would have received certain revenue but for the defendant's infringement. Loss of goodwill is determined by comparing the value of the trademark before and after the infringement to show that the value decreased. These can be presented through evidence of diverted sales or a consumer survey, sometimes done with the help of an expert. Additionally, the plaintiff might show that it sustained loss through corrective advertising costs incurred to correct confusion caused by the defendant's infringement. However, corrective advertising costs are only recoverable if the plaintiff and defendant are direct competitors in the same market.

Another way to prove actual damages is through the reasonable royalty approach. This method measures damages based on the reasonable value of a trademark license fee the defendant should have paid the plaintiff instead of infringing. Some circuits require the parties to have had an existing licensing relationship to calculate actual damages based on a reasonable royalty, while others allow a reasonable royalty calculation based on a hypothetical negotiation between a willing trademark owner and willing licensee on the date the infringement began.

Disgorgement of Profits

The second kind of damages available under the Lanham Act involves the disgorgement of the infringer's profits. This is an equitable remedy comprising an accounting of the defendant's profits obtained as a result of the infringement, which deprives the infringer of any improperly reaped benefits.

Plaintiffs will seek to show that a high percentage of the defendant's profits during the relevant time were gained because of the defendant's improper use of the infringing trademark, while defendants should focus on only those specific profits, if any, that were directly attributable to its use of the trademark. Defendants should undertake a rigorous analysis to identify all of the legitimate ways its business earns revenue unrelated to any infringing trademark and exclude those revenues from the plaintiff's damages calculation. Additionally, once plaintiffs prove the amount of the defendant's gross revenues attributable to infringing sales, the burden shifts to the defendant to demonstrate all costs that should be deducted from the plaintiff's calculation to arrive at an accurate lost profit award.

Until recently, the circuit courts were divided on whether disgorgement of profits required a plaintiff to show that the defendant willfully infringed—i.e., that the defendant knew it was infringing or was willfully ignorant of potential infringement. The U.S. Supreme Court resolved the split in April by holding that a plaintiff need not show that the infringement was willful to be entitled to disgorgement of the defendant's profits. See Romag Fasteners v. Fossil, 140 S. Ct. 1492 (2020).

 Attorney Fees and Costs

Finally, a prevailing party (plaintiff or defendant) could be entitled to recover its attorneys' fees in "exceptional cases." The Lanham Act does not define what makes a case "exceptional." However, courts have typically 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 when the plaintiff's conduct lacks merit, abuses the litigation process, or unnecessarily increases the costs of defending the lawsuit. The awarding of costs is discretionary, and includes costs such as filing fees, witness fees, and court reporter fees.

Wide Discretion

Despite the guidelines discussed above for calculating damages, courts have very wide discretion in determining an appropriate award, and the text of the Lanham Act imposes few restrictions. If a court finds that the calculated amount of monetary recovery is either inadequate or excessive, it can modify the amount to a sum it finds to be "just" under the circumstances of the case. However, the amount awarded must constitute a method for compensating the plaintiff rather than penalizing the defendant, and the court may only increase a damages award by up to three times the calculated amount of actual damages.

Conclusion

Parties utilizing trademarks to market and sell their goods or services should be careful not to infringe on an existing trademark, else they be subject to monetary consequences in addition to equitable remedies like an injunction. While trademark owners have a number of options for demonstrating damages, defendants have multiple strategies for ensuring any damages amount is fair.

Mark A. Salky is a shareholder and Jessica Johnson Fishfeld is an associate in the Miami office of Greenberg Traurig. Salky  represents clients in complex commercial disputes, including defense of class actions, and defense and prosecution of  trademark and copyright infringement, trade secrets, business disputes and other civil litigation. Fishfeld represents clients in business disputes, intellectual property infringement, defense of class actions and other civil litigation.