Trademark Law | Expert Legal Commentary
September 5, 2012
Louis Vuitton Malletier S.A., v. Ly USA: Second Circuit Splits, Allows Attorney’s Fees Under § 1117(c) Trademark Infringement
Louis Vuitton Malletier S.A., v. Ly USA, Inc.
Tom Zuber and Jeff Zuber of Zuber Lawler & Del Duca
In a split with the Ninth Circuit, the Second Circuit has held that plaintiffs electing an award of statutory damages for trademark infringement could also receive attorney’s fees in exceptional cases. In Louis Vuitton Malletier S.A., v. Ly USA, Inc., 676 F.3d 83 (2d. Cir. 2012), the Court gave Louis Vuitton a complete victory in upholding an award of attorney’s fees and refusing to rehear defendants’ request for a stay in light of concurrent criminal proceedings stemming from counterfeiting operations.
In 2006, Louis Vuitton sued LY USA, Inc., its affiliate companies, and its directors for claims related to counterfeiting and trademark infringement. Louis Vuitton alleged that defendants were involved in large-scale production and importation of counterfeit goods, including goods with Louis Vuitton’s marks. During discovery, Louis Vuitton sought documents to ascertain the scope of defendants’ counterfeiting. Louis Vuitton complained numerous times to the district court that defendants’ production was insufficient. Id. at 87-90.
Lam and Chan were directors of defendant companies and were named as defendants as individuals. During discovery of the civil case, they were arrested in a separate criminal investigation into their counterfeiting activities. Law enforcement confiscated computers, documents, and merchandise from their possession. As a result, defendants asked the court in the civil case for a stay, pleading that they no longer had access to documents needed for production and that access to defendants themselves was limited. Id. at 90-91.
The district court denied the motion for a stay, finding that the case had been pending for over a year and highlighting Louis Vuitton’s interest in prompt redress. Id. at 91.
Defendants asked the court for reconsideration, arguing that they planned to assert their Fifth Amendment rights during depositions in the civil case. Defendants continued by anticipating that Louis Vuitton could move for summary judgment based on the absence of defendants’ testimony and the adverse inference that would arise. The court denied the motion. Id. at 92.
As planned, Louis Vuitton deposed Lam and Chan. They asserted their Fifth Amendment right and refused to answer most questions. Louis Vuitton then moved for summary judgment. The court granted summary judgment and a permanent injunction. In doing so, the court did not draw any adverse inference from Lam and Chan’s invocation of the Fifth Amendment. However, the court did draw an adverse inference from the corporate defendants’ refusal to submit witnesses to the depositions under Rule 30(b)(6). Id. at 92-93.
Defendants protested again during the damages phase, arguing that they could not produce sales records because they were seized during the criminal investigation. Without such records and thus lacking the ability to prove actual damages, Louis Vuitton asked for the maximum in statutory damages, which totaled $8 million. Louis Vuitton also asked for attorney’s fees. The court awarded $3 million in statutory damages and over $500,000 in attorney’s fees and costs, noting that defendants’ failure to produce records “invites an inference of a massive counterfeiting enterprise.” Id. at 94.
Court Upholds Denial of Stay Even in Light of Criminal Investigation Against Defendants
On appeal to the Second Circuit, the Court reviewed two issues – (1) the denial of the motion to stay the proceedings; and (2) award of attorney’s fees. On the first issue on the denial to stay proceedings, the Court noted that stays are usually granted only if the requestor can show undue prejudice or an interference with constitutional rights. Id. at 97. The Court highlighted the defendants’ interest in the granting of a stay, as it “can protect a civil defendant from facing the difficult choice between being prejudiced in the civil litigation if the defendant asserts his or her Fifth Amendment privilege, or from being prejudiced in the criminal litigation if he or she waives that privilege in the civil litigation.” Id.
At the same time, the Court warned that a party invoking the Fifth Amendment in a civil action “must bear the consequence of lack of evidence, and the claim of privilege will not prevent an adverse finding or even summary judgment if the litigant does not satisfy the usual evidentiary burdens.” Id. at 98. Moreover, the Court noted the general difficulty of defendants appealing the denial of a stay, showing that “defendants have pointed to only one case in which a district court’s decision to deny a stay was reversed on appeal.” Id. at 100.
In the end, the Court affirmed the denial of the stay. Id. While the standard of district courts in the Second Circuit is to often use a six-factor test in deciding to grant a stay, the Court noted that on appeal, the district court’s decision “will not be disturbed by us absent demonstrated prejudice so great that, as a matter of law, it vitiates a defendant’s constitutional rights or otherwise gravely and unnecessarily prejudices the defendant’s ability to defend his or her rights.” Id.
On application, the Court pointed to “defendants’ plainly dilatory tactics in tendering discovery even prior to their indictments.” Id. at 102. The Court found that defendants had numerous alternatives for relief, including support from the district court to presumably offer tailored alternatives such as issuing protective orders, modifying subpoenas, or offering to help secure documents seized by the government. Id. The Court found no evidence that defendants pursued such options, and concluded that defendants’ actions were “part of a larger pattern of overall delay and obfuscation.” Id.
The Court also minimized the Fifth Amendment factor in denying the stay. While invoking the privilege might usually favor granting a stay, the Court noted that the adverse inference created by defendants’ invocation was not dispositive. Id. at 103. The Court pointed to visual evidence of confiscated items, as well as customs records, in showing that the record was sufficiently developed to support summary judgment even in lieu of the adverse inferences. Id. Further, the Court noted that the corporate defendants, which have no Fifth Amendment privilege, could have offered other witnesses besides co-defendants Lam and Chan. Id.
Lastly, the Court recognized Louis Vuitton’s interest in quickly resolving the case due to the effect on its marks and its business. Id. at 104. In the end, the Court found that the defendants were not deprived of their constitutional rights, nor were they gravely prejudiced by the district court. Id. Thus, the Court found that the district court did not abuse its discretion in denying the stay. Id.
Second Circuit Splits, Allows Attorney’s Fees Under § 1117(c)
The Court then addressed the separate issue of whether statute permitted Louis Vuitton to recover attorney’s fees in combination with statutory damages. Defendants argued that unlike other sections of § 1117, § 1117(c)’s provisions on statutory damages do not mention the availability of attorney’s fees, thus disallowing them in this case. Id. at 104-5.
Under § 1117, plaintiffs seeking damages for counterfeiting and infringement can seek either actual damages under § 1117(a) or statutory damages under § 1117(c). Id. at 105-6. While (a) specifies that attorney’s fees can be awarded in exceptional cases, (c) is silent on the issue. The Court had to decide whether (c)’s discussion of statutory damages supplanted the calculation of damages in (a) while leaving unaffected the availability attorney’s fees; or whether (c) supplanted (a) entirely and thus attorney’s fees are unavailable to plaintiffs who elect to use (c). Id. at 106.
In seeking authority, the Court found a split on the issue. In K & N Engineering, the Ninth Circuit declared that § 1117(c) made no provision for attorney’s fees, and thus they were unavailable. Id. at 107. However, district courts in other circuits held contrary and allowed attorney’s fees under the same statute. Id.
The Court in the instant case found that both textual analysis and statutory purpose leaned toward allowing attorney’s fees. On textual analysis, the Court noted that § 1117(c) gives plaintiffs statutory damages “instead of actual damages and profits under subsection (a).” Id. at 109. The Court noted that (c) does not say “instead of actual damages, profits, and attorney’s fees,” and thus concluded that (c) does not foreclose attorney’s fees in exceptional cases. Id.
Further, the Court cited the purpose of § 1117(c), which allows plaintiffs to recover some compensation in cases when actual damages cannot be proven under (a). Id. at 110. Thus, the Court read (c) as a remedial measure to help plaintiffs in this common situation and said that to deny attorney’s fees would be “inconsistent with that remedial purpose.” Id.
Thus, the Court held that § 1117(a)’s award of attorney’s fees in exceptional cases was permitted for plaintiffs who elect for statutory damages under § 1117(c). Id. at 111.
Under that holding, the Court then examined whether the award of attorney’s fees in this case met the standard of “exceptional cases.” Id. The Court explained that this is interpreted to allow attorney’s fees “on evidence of fraud or bad faith,” or “willful infringement.” Id. The Court summarily agreed with the district court that the infringement was willful, and thus upheld the award of attorney’s fees. Id.
Ly sets a clear circuit split over whether § 1117(c) allows attorney’s fees and parties should stay abreast of new developments in this area. In addition, Ly reminds parties of the issues surrounding concurrent civil and criminal claims and of possible Fifth Amendment conflicts. Parties should contact experienced trademark counsel to see how Ly may affect your trademark rights.
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