IDENTIFYING NEW FORMS OF “MONEY” TO SATISFY MONETARY AWARDS
AND STRATEGIES OF DEFENDING AGAINST MONETARY RELIEF AND
INJUNCTIONS
JURA C. ZIBAS
WILSON ELSER MOSKOWITZ EDELMAN & DICKER LLP
Plaintiffs in copyright, trademark, and patent infringement litigation 1 have two broad
types of remedies available to them: monetary relief and injunctive relief. Injunctive relief serves
mainly to stop the ongoing infringement, deter further infringement, possibly correct previous
infringing advertising, and remove infringing products from the market. Monetary relief, on the
other hand, seeks to hold the infringer liable for damages, which may include compensatory
damages (either disgorgement of profits or reimbursement of plaintiff for their actual damages),
punitive damages, attorneys fees, costs of corrective advertising, etc.
Effective strategy of defending against these remedies must begin with a thorough
understanding of the client’s business challenges and goals. Ultimate success on the merits is
frequently not the client’s only goal, especially not if it is a Pyrrhic victory after years of
litigation. A business may wish, on the one hand, to “invest” in sending a strong message to the
market to promote the business’s image and position with regard to future lawsuits, i.e. that
lawsuits will be defended vigorously and not settled quickly to save on defense costs. On the
other hand, a business may be primarily interested in avoiding negative publicity, controlling its
timing and impact, decreasing the drain on the business from employee distraction, etc. Client’s
emotional investment in the dispute, tolerance for protracted litigation and availability of
insurance coverage often play a critical role in building a successful defense strategy. While the
defense does not choose the form of relief sought, a defense attorney must learn early on what
form of relief the client needs most to avoid.
This paper will discuss specific defense tools to be employed in formulating a litigation
strategy, and practical considerations for their use. Part I of this paper will discuss the remedies
under Trademark Law, Part II - the remedies under Copyright Law, and Part III - the remedies
under Patent Law. Part IV will then consider some of the strategies that defendants can employ
when defending against copyright, trademark, and patent claims. Finally, Part V will discuss
some of the emerging, non-traditional methods of satisfying monetary damage awards that both
plaintiffs and defendants will be facing in the years ahead.
PART I - INJUNCTIVE AND MONETARY RELIEF UNDER TRADEMARK LAW
The Lanham Act, primary authority in trademark infringement cases, gives the court
power to grant injunctive relief 2 as well as permits plaintiffs to recover profits, damages and
costs for violation of the Act’s trademark provisions. 3 State law may allow for additional relief,
such as punitive damages.
1
The authors are using the term “litigation” in its narrow sense, which does not include U.S. Patent and Trademark Office
administrative proceedings or arbitration.
2
15 U.S.C. §1116(a).
3
15 U.S.C. §1117(a).
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(1) Injunctive Relief
Injunctive relief is a standard remedy in trademark law, more common then monetary
relief as there is no need to prove injury. 4 The courts have broad discretion in fashioning the
form of injunctive relief. Thus, for instance, an injunction may impose restrictions on the use of
infringing trademark only in certain markets, distribution channels (such as retail, online, etc.), or
geographic regions 5. Restrictions may be placed on use of plaintiff’s mark, as well as other
marks “confusingly similar” to that of the plaintiff’s. Courts may order defendants to use
disclaimers that would allow a defendant to continue using an infringing mark, but disclaim
affiliation with the plaintiff’s mark. 6
Defendants should therefore carefully analyze the scope of the injunction sought by the
plaintiff. While plaintiffs are frequently inclined to seek the broadest possible injunction, they
are seldom able to demonstrate that they are entitled to as broad a relief as they seek. For
instance, while courts have held that registration of a trademark under the Lanham Act creates a
presumption that the registrant is entitled to use the registered mark throughout the nation, 7 nonregistrant defendants may rebut the presumption of ownership with evidence establishing their
own prior use in commerce of the registered mark. 8 Even the owner of a federally registered
trademark is only entitled to injunctive relief in the areas actually penetrated by his mark. 9
Overbroad injunctions are furthermore likely to be appealed and overturned. 10 Notably,
courts have held that unlike an affirmative defense, a challenge to the scope of injunctive relief
need not be set forth affirmatively in the pleadings, and the failure to do so does not amount to a
waiver of the argument. 11
4
5 McCarthy § 30:2; see also, Century 21 Real Estate Corp. v. Sandlin, 846 F.2d 1175 (9th Cir. Cal. 1988) (“Injunctive relief is
the remedy of choice for trademark and unfair competition cases”).
5
See, e.g., Beacon Mut. Ins. Co. v. OneBeacon Ins. Corp., 376 F.Supp.2d 251, 265 (D.R.I.2005) (“injunctive relief should be
limited to the senior user's geographic market”); Citizens Fin. Group, Inc. v. Citizens National Bank of Evans City, 383 F.3d 110,
132 (3d Cir.2004) (“[T]he senior user of a common law mark may not be able to obtain relief against the junior user in an area
where it has no established trade, and hence no reputation and goodwill”) (additional citations and internal quotation marks
omitted).
6
Westchester Media v. PRL USA Holdings, Inc., 214 F.3d 658 (5th Cir. Tex. 2000), citing Better Business Bureau, Inc. v.
Medical Directors, Inc., 681 F.2d 397 (5th Cir. Tex. 1982); Consumers Union of United States, Inc. v. General Signal Corp., 724
F.2d 1044 (2d Cir. N.Y. 1983); Twin Peaks Prods. v. Publ'ns Int'l, Ltd., 996 F.2d 1366 (2d Cir. N.Y. 1993). On the other hand,
several courts are of the opinion that disclaimers are ineffective in eradicating customer confusion, see Home Box Office, Inc. v.
Showtime/The Movie Channel, 832 F.2d 1311, 1315–16 (2nd Cir.1987), citing United States Jaycees v. Philadelphia Jaycees,
639 F.2d 134, 142 (3d Cir. 1981); Miss Universe, Inc. v. Flesher, 605 F.2d 1130, 1134-35 (9th Cir. 1979).
7
Draeger Oil Co. v. Uno–Ven Co., 314 F.3d 299, 302 (7th Cir. 2002).
8
Sengoku Works v. RMC Int'l, 96 F.3d 1217 (9th Cir. Cal. 1996); Armand's Subway, Inc. v. Doctor's Associates, Inc., 604 F.2d
849, 849–50 (4th Cir.1979) (explaining that even though the owner of a registered trademark has an exclusive right of use that
enjoys nationwide protection, “the protection is only potential in areas where the registrant in fact does not do business” and a “a
competing user could use the mark there until the registrant extended its business to the area”).
9
Emergency One, Inc. v. Am. Fire Eagle Engine Co., 332 F.3d 264 (4th Cir. N.C. 2003) (“In fact, a junior user who successfully
defends against an infringement action by asserting [the defense of good faith use in a remote trade area] may itself be entitled to
injunctive relief against the senior user.”)
10
As with injunctive relief generally, an equitable remedy for trademark infringement should be no broader than necessary to
prevent the deception. See Soltex Polymer Corp. v. Fortex Industries, Inc., 832 F.2d 1325, 1329 (2d Cir. 1987); Better Business
Bureau, Inc. v. Medical Directors, Inc., 681 F.2d 397, 405 (5th Cir. 1982).
11
Westchester Media v. PRL USA Holdings, Inc., 214 F.3d 658, 674 (5th Cir. 2000) (“[C]ourts in trademark cases have a
responsibility to tailor the relief to the violation[…]. Appellate courts have a similar responsibility and have reviewed the breadth
of injunctive relief in the face of similar waiver arguments”); see also, Allard Enters. v. Advanced Programming Res., Inc., 146
F.3d 350 (6th Cir. Ohio 1998).
2
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Plaintiff may also seek expedited injunctive relief – preliminary injunctions or temporary
restraining orders – at the outset of the litigation. It should be noted that resolution of the motion
for preliminary injunction casts light on the legal and factual issues central to the litigation, and
often results in a voluntary dismissal of the matter or in an early settlement. Thus, avoiding a
preliminary injunction is often an important objective, even though defending against a
preliminary injunction forces a defendant to expend significant costs at the outset of litigation.
Even if amicable resolution is a goal, defendants should also be cautioned against
voluntarily entering into broad preliminary injunction orders, and should rather seek guidance
from the court in fashioning an injunction order that they can later comply with, and thus avoid
further disputes. Expedited relief is only available when plaintiff sought it promptly after
discovering the alleged infringing conduct. 12 Furthermore, as courts differ somewhat in the
elements necessary to issue a preliminary injunction, the requirements of the particular court
should be analyzed. Normally, the required elements include: (1) threat of irreparable injury and
(2) either a likelihood of success on the merits, or the existence of serious questions going to the
merits to make them a fair ground for limitation, and (3) a balance of hardships tipping decidedly
in plaintiff's favor. 13 We note that defendant’s proof of hardships that would result from granting
the preliminary injunction may help narrow the injunction, if not avoid it completely by
demonstrating that the balance of hardships does not tip in plaintiff’s favor. 14
(2) Monetary Relief
The Lanham Act permits recovery of profits, damages, costs and attorney’s fees for a
trademark infringement 15. Standards for determining whether a plaintiff is entitled to a monetary
award vary greatly between jurisdictions. 16 Generally, plaintiffs are required to either
demonstrate actual harm or present evidence of intentional, culpable or reckless conduct to be
entitled to monetary relief.
With respect to damages, courts have recognized the liability doctrines of lost profits and
unjust enrichment in order to make the plaintiff whole after a finding of trademark infringement.
12
Bear U.S.A. v. A.J. Sheepskin & Leather Outerwear, 909 F. Supp. 896 (S.D.N.Y. 1995)(“ if the party seeking a preliminary
injunction has delayed unduly, the delay may undercut the presumption of irreparable harm and serve as a basis for denying a
preliminary injunction.”)
13
See Church of Scientology v. Elmira Mission of The Church Scientology, 794 F.2d 38, 41 (2d Cir. 1986); Platinum Home
Mortg. Corp. v. Platinum Fin. Group, 149 F.3d 722 (7th Cir. Ill. 1998);GMC v. Phat Cat Carts, Inc., 504 F. Supp. 2d 1278 (M.D.
Fla. 2006); Computer Currents Publ. Corp. v. Jaye Communs., 968 F. Supp. 684 (N.D. Ga. 1997); Deckers Outdoor Corp. v.
DOES 1-100, 2013 U.S. Dist. LEXIS 6404 (N.D. Ill. Jan. 16, 2013); Adventure Plus Enters., Inc. v. Gold Suit, Inc., 2007 U.S.
Dist. LEXIS 52581 (N.D. Tex. July 19, 2007).
14
See Oracle Corp. v. Light Reading, Inc., 233 F. Supp. 2d 1228 (N.D. Cal. 2002)(“The Court concludes that a complete ban on
defendant's use of "OpticalOracle" or "WirelessOracle" is neither justified nor necessary to avoid confusion pending trial.
Defendant has put forward evidence that a complete ban might put the two newsletters marketed under these marks out of
business, and would result in employee layoffs. The consequences could well be irreversible, even though it is quite possible that
defendant will prevail at trial.”); see also, Supelco, Inc. v. Alltech Associates, 1986 U.S. Dist. LEXIS 21236 (E.D. Pa. Aug. 27,
1986).
15
17. U.S.C. §1117(a).
16
5 McCarthy § 30:58 (“The courts have balanced several factors such as: whether defendant was willful, negligent, or innocent;
whether plaintiff suffered losses in any provable amount; whether there is proof of actual confusion of some customers; and
whether defendant realized profits from its infringing actions. In various cases, different courts have given widely disparate
emphasis to one or more of these factors, making predictability of result a dangerous undertaking.”)
3
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Under the doctrine of lost profits, the courts determine the pecuniary cost to the plaintiff as a
result of infringement. Recovery of actual damages normally requires plaintiff to demonstrate
either actual consumer confusion as a result of the infringement, or that defendant’s actions were
intentionally deceptive. 17 Actual injury may be proven by survey evidence, consumer data,
market research, or evidence of diverted sales. 18 The personal opinion of an expert as to what a
consumer would understand is not enough. 19
Under the unjust-enrichment theory, a defendant must disgorge all of their profits,
leaving them with zero gain. 20 Notably, the award of profits does not depend on availability, or
plaintiff’s ability to prove, actual damages. In assessing profits the plaintiff shall be required to
prove defendant's sales only; defendant must prove all elements of cost or deduction claimed. 21
Defendants should therefore make sure they are in possession of thorough and detailed records of
their costs and deductions early in the life of the case, or have these records collected and
assembled, in order to be able to later seek reduction of plaintiff’s claim for accounting of
profits. Plaintiff is generally required to show willfulness of bad faith on the part of the
defendant to recover defendant’s profits, although some courts disagree. 22 The courts differ in
their interpretation of what conduct satisfies the requirement of willfulness or bad faith. 23
The court’s power to award monetary relief is based on a theory that plaintiff should be
made whole, and windfall to either the plaintiff or to the defendant. As such, the court has broad
discretion to increase or decrease the award to achieve a fair result for both parties. 24 This
provision gives defendants an opportunity to reduce an potential award by showing that the
allegedly infringing conduct led to little or no profit to the defendant, caused limited to no
damage to plaintiff, and otherwise demonstrate that a higher monetary award would result in a
windfall to the plaintiff.
The Lanham Act permits recovery of statutory damages for (a) use of counterfeit marks;
and (b) cyberpiracy. 25 In the case of counterfeit marks, an award of not less than $1,000 or more
than $200,000 per counterfeit mark per type of goods or services sold, offered for sale, or
distributed, may be awarded in the court’s discretion. For willful infringements, not more than
17
WE Media, Inc. v. Cablevision Sys. Corp., 94 Fed. Appx. 29 (2d Cir. N.Y. 2004)(Plaintiff “did not submit sufficient evidence
to establish actual consumer confusion or intentional deception,” and was not entitled to monetary relief); Univ. of Kan. v. Sinks,
565 F. Supp. 2d 1216 (D. Kan. 2008); but cf. Chanel, Inc. v. Veronique Idea Corp., 795 F. Supp. 2d 262 (S.D.N.Y. 2011)(“Courts
in the Southern District of New York are split over the issue of whether an award of damages under 15 U.S.C.S. § 1117(a)
requires a showing of either: (1) actual confusion; or (2) bad faith, meaning intentional deception or willfulness.”)
18
See generally, 1A Callmann, §5:5.
19
Id., citing First Health Group Corp. v. United Payors & United Providers, Inc., 95 F. Supp. 2d 845, 2000-1 Trade Cas. (CCH)
¶72895 (N.D. Ill. 2000), aff'd, 269 F.3d 800, 60 U.S.P.Q.2d (BNA) 1532 (7th Cir. 2001).
20
Recovery of defendant’s profits may also be sought as a measure of plaintiff’s lost profits, a component of actual damages. See
George Basch Co., Inc. v. Blue Coral, Inc., 968 F.2d 1532 (2d. Cir. 1992).
21
15 U.S.C. §1117 (a); see also Chanel, Inc. v. Veronique Idea Corp., 795 F. Supp. 2d 262, 269 (S.D.N.Y. 2011).
22
Chanel, supra, 795 F. Supp. 2d at 269.
23
See, e.g., Quick Techs. v. Sage Group Plc, 313 F.3d 338 (5th Cir. Tex. 2002) (willful infringement is an intent to confuse or
deceive); Nike, Inc. v. Top Brand Co., 2005 U.S. Dist. LEXIS 42374 (S.D.N.Y. July 13, 2005)(“The standard for willfulness is
'whether the defendant had knowledge that [his] conduct represented infringement or perhaps recklessly disregarded the
possibility”).
24
15 U.S.C. § 1117(a), see also Getty Petroleum Corp. v. Bartco Petroleum Corp., 858 F.2d 103, 109 (2nd Cir. 1988)
(“Unlimited enhancement or reduction of an award based on defendant's profits is permitted in order to correct inadequacy or
excessiveness. Where--as here--the recovery is based on the plaintiff's damages, the court--not the jury--may enhance the award
up to three times the amount of actual damages.”).
25
15 U.S.C. §1117(c) and (d).
4
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$2,000,000 per counterfeit mark per type of goods or services sold, offered for sale, or
distributed, may be awarded. In the case of cyberpiracy, the plaintiff may elect, at any time
before final judgment is rendered by the trial court, to recover, instead of actual damages and
profits, an award of statutory damages in the amount of not less than $1,000 and not more than
$100,000 per domain name, as the court considers just. The statute does not provide guidance as
to how appropriate statutory damages should be determined.
a. Attorney’s Fees
The Lanham Act provides that the court in “exceptional cases” may award reasonable
attorney fees to the prevailing party, which may include a successful defendant as well as a
plaintiff. 26 The statute itself does not define "exceptional cases.” Notably, being the prevailing
party is not, by itself, enough to justify an award of attorney fees. 27 Judge Posner of the Seventh
Circuit Court of Appeals noted “the surprising lack of agreement among the federal courts of
appeals” concerning the meaning of exceptionality. 28 Judge Posner further attempted to
consolidate the standards for awarding attorneys fees in trademark cases as follows 29:
We conclude that a case under the Lanham Act is “exceptional,” in the sense of
warranting an award of reasonable attorneys' fees to the winning party, if the
losing party was the plaintiff and was guilty of abuse of process in suing, or the
losing party was the defendant and had no defense yet persisted in the trademark
infringement or false advertising for which he was being sued, in order to impose
costs on his opponent.
Thus, defendants who have suffered from particularly vexatious litigation at the hands of their
plaintiff should consider an application to recover their attorney’s fees. Furthermore, possibility
of such a sanction may be used as a deterrent against plaintiff’s future oppressive conduct while
litigation is still in progress.
b. Punitive Damages
The Lanham Act does not permit recovery of punitive damages. State laws, however,
may permit such recovery. 30 As such, in assessment of their exposure, defendants should not
assume that the state law claims are duplicative of the Lanham Act claims.
PART II – REMEDIES AVAILABLE UNDER COPYRIGHT LAW
Similar to the Lanham Act, the Copyright Act allows for injunctive relief for copyright
violations, as well as permits recovery of compensatory damages. The Copyright Act also
26
17. U.S.C. §1117(a).
National Ass'n of Prof'l Baseball Leagues, Inc. v. Very Minor Leagues, Inc., 223 F.3d 1143 (10th Cir. Okla. 2000) (“even in
exceptional cases, the award of attorney fees is vested in the discretion of the district court”).
28
Nightingale Home Healthcare, Inc. v. Anodyne Therapy, LLC, 626 F.3d 958 (7th Cir. Ind. 2010)
29
Id., at 963-64.
30
See, e.g., Pfizer, Inc. v. Y2K Shipping & Trading, Inc., 2004 U.S. Dist. LEXIS 10426 (E.D.N.Y. Mar. 26, 2004)(“Under New
York law, a plaintiff may obtain punitive damages where the defendant's conduct constitutes gross, wanton, or willful fraud or
other morally culpable conduct to an extreme degree”).
27
5
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permits plaintiff to recover elective “statutory damages,” a wild card in copyright damages,
which has led to some unpredictable and disproportionate awards of damages. 31 Unlike the
Lanham Act, whose purpose is to make plaintiff whole, the Copyright Act provides for a
statutory punitive remedies for willful infringers.
(1)
Actual Damages and Profits
The Copyright Act entitles plaintiff to recover actual damages suffered as a result of
infringement, or defendant’s profits. 32 Similar to the claims under the Lanham Act, plaintiff has
the burden of proving his or her actual damages, which are typically determined by analysis of
diminution of the market value of the work at the time of the infringement. In proving lost
profits, plaintiff must establish a causal connection between the lost revenue and the
infringement; the burden then shifts to the defendant to disprove such a connection. While
recovery of defendant’s profits is a separate measure of damages, plaintiff may be able to recover
the difference between defendant’s profits and plaintiff’s lost profits as part of the measure of
plaintiff’s lost revenue. Similar to the provisions of the Lanham Act, in establishing the
infringer’s profits, the copyright owner is required to present proof only of the infringer’s gross
revenue, and the infringer is required to prove his or her deductible expenses and the elements of
profit attributable to factors other than the copyrighted work. 33Again, defendant’s profits will
likely be a significant issue in discovery. If a defendant has poor business records and is unable
to quantify their costs and expenses that should be deducted from the revenue, any doubt would
be resolved in the plaintiff’s favor. As such, locating and securing the business’s financial
records early in the litigation is critical in the defense of claims for accounting of profits.
As a general matter, recovery of actual damages is hindered by plaintiff’s inability to
quantify such damages, or to demonstrate a causal link to the infringement. To the extent that
plaintiff’s lost revenue and defendant’s profits are difficult to quantify, some courts adopted the
value of reasonable royalty as a measure of damages. 34
(2)
Statutory Damages Under Copyright Law
The Copyright Act allows plaintiff to elect to receive an award of statutory damages,
which may range from $750 to $150,000 per each work infringed. 35 As low as $200 per
infringement may be awarded against “innocent” infringers, who had a good faith and
objectively reasonable belief that their conduct was not infringing. 36 As a practical matter,
however, a finding that the infringer was innocent is quite rare.
31
See Pamela Samuelson and Tara Wheatlan, STATUTORY DAMAGES IN COPYRIGHT LAW: A REMEDY IN NEED OF REFORM, 51
Wm. & Mary L. Rev. 439 (2009), discussing excessive awards in UMG Recordings, Inc. v. MP3.com, Inc., 92 F. Ssupp. 2d 349
(S.D.N.Y. 2008) (potential award of $118 million despite the absence of any evidence of actual harm to the plaintiffs or profits to
the defendants) and Capitol Records, Inc. v. Thomas, 579 F. Supp. 2d 1210 (D. Minn. 2008)(“the jury awarded $80,000 per
infringed song against an individual file-sharer, for a total award of over $1.92 million, despite the trial judge’s recognition that
actual damages were approximately $50”)(internal citations omitted).
32
Normally the plaintiff recovers the larger of the two amounts, or all of one and so much of the other as is not included in the
one. See 3 Nimmer on Copyright § 14.01[A].
33
17 U.S.C. § 504.
34
See Deltak, Inc. v. Advanced Systems, Inc., 767 F.2d 357 (7th Cir. Ill. 1985).
35
17 U.S.C. § 504(c).
36
Id.
6
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The statute provides little guidance as to the factors that justify a higher or a lower award,
leaving it to the court’s discretion to determine what award is just, and stating only that “willful”
infringements will carry awards at the top of the range. The courts have interpreted the
wilfulness criteria broadly, holding that defendant who should have known that their conduct is
infringing is considered a willful infringer. 37 Awards of statutory damages have also been
inconsistent between courts, leaving litigants little guidance to adequately predict the likely
award range. 38
Legal scholars, commentators and litigators have commented that too often awards of
statutory damages are disproportionate to the damages suffered by the plaintiff or profits derived
by the infringer, and that statutory awards become punitive rather then compensatory in nature,
as they were originally intended. 39 Commentators suggest challenging excessive statutory
awards under the Due Process clause. 40 The U.S. Supreme Court has long recognized that
punitive damages awards are to be consistent with the Due Process clause of the U.S.
Constitution. The Supreme Court set three criteria for determining whether a punitive damage
award is consistent with due process: (1) the degree of reprehensibility of the defendant’s
actions, (2) the disparity between the harm to the plaintiff and the punitive award, and (3) the
similarity or difference between the punitive award and civil penalties authorized or imposed in
comparable situations. 41
With statutory damages awardable per “work,” the precise meaning of this term becomes
important in calculating potential exposure. In this regard, courts have held that separate
copyrights are not distinct “works” unless each expression has an independent economic value
and is, in itself, viable. 42 There is, however, a division of authority as to whether the copyright
registration is determinative of the number of works. 43
Plaintiff may elect to recover statutory damages in lieu of profits and/or actual damages
at any time before the final determination. 44 It is therefore important for the defendant to be
prepared for a potential last minute change of course on the part of the plaintiff.
37
See Island Software & Computer Serv., Inc. v. Microsoft Corp., 413 F.3d 257, 264 (2d Cir. 2005) (constructive knowledge
suffices to show willfulness).
38
Some courts spelled out the factors to be considered when assessing statutory damages. See NFL v. Primetime 24 Joint
Venture, 131 F. Supp. 2d 458 (S.D.N.Y. 2001)(“In awarding statutory damages, the courts may consider, among other factors, the
expenses saved and the profits earned by the defendant, the revenues lost by the plaintiff, the deterrent effect on the defendant
and third parties, the defendant's cooperation in providing evidence concerning the value of the infringing material, and the
conduct and attitude of the parties”).
39
See Samuelson and Wheatlan, supra note 31; see also 6 Patry on Copyright § 22:181; 5 Nimmer on Copyright § 14.04.
40
See generally, Samuelson and Wheatlan, supra.
41
BMW of North America, Inc. v. Gore, 517 U.S. 559, 574-75. (1999).
42
Gamma Audio & Video, Inc. v. Ean-Chea, 11 F.3d 1106, 1116 (1st Cir.1993); Robert Stigwood Group, Ltd. v. O'Reilly, 530
F.2d 1096, 1105 (2nd Cir.1976); Walt Disney Co. v. Powell, 283 U.S. App. D.C. 111, 897 F.2d 565, 569 (D.C.Cir.1990).
43
See Stokes Seeds Ltd. v. Geo. W. Park Seed Co., 783 F. Supp. 104, 107 (W.D.N.Y. 1991); cf. Gamma Audio & Video v. EanChea, 11 F.3d 1106 (1st Cir. Mass. 1993).
44
17 U.S.C. § 504(c)(1); see also 5 Nimmer on Copyright § 14.04 (discussing defendants’ right for a jury trial on statutory
damages, and noting that “[a]bsent the ability to reconvene the jury or to empanel a new one, it would seem that, in those cases in
which the defendant has requested a trial by jury, the plaintiff's last opportunity to elect statutory damages effectively matures
when the case is submitted to the jury for deliberation.”)
7
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(3)
Attorney’s Fees
A prevailing party, either plaintiff or defendant, may recover attorneys fees in a copyright
infringement suit. The U.S. Supreme Court ruled that in considering award of attorney’s fees,
prevailing plaintiffs and prevailing defendants are to be treated alike, but attorney's fees are to be
awarded to prevailing parties only as a matter of the court's discretion. 45 Some courts suggested
several factors to guide the court’s discretion. 46
(4)
Punitive Damages
As set forth above, the courts have discretion of awarding up to $150,000 in statutory
damages per work in case of a willful infringement, which serves as a punitive remedy. 47
(5)
Injunctive Relief
The Copyright Act authorizes courts to grant temporary and final injunctions on such
terms as it may deem reasonable to prevent or restrain infringement of a copyright. 48 Any such
injunction will have effect nationwide. 49 As with trademark infringement claims, injunctions are
to be narrowly crafted to prevent or restrain future harm to the plaintiff. 50
Preliminary injunctive relief is generally available to a plaintiff who demonstrates either:
(1) a combination of probable success on the merits and the possibility of irreparable harm; or (2)
that serious questions are raised and the balance of hardships tips in its favor. 51 These two factors
of probability of success and possibility of irreparable harm counter-balance each other, in that
the required degree of irreparable harm increases as the probability of success decreases. We
note, however, that different courts developed varying standards for obtaining expedited relief,
and the requirements of the particular jurisdiction must be confirmed when opposing an
application for emergency injunctive relief. The overarching consideration of the courts in
granting preliminary relief has been to preserve the status quo. 52 This consideration is important,
as it permits defendants to challenge the applications for overbroad injunctions. As in trademark
litigation, delay in seeking a preliminary injunction may defeat the application for the
injunction. 53
45
Fogerty v. Fantasy, Inc., 510 U.S. 517, 534-535 (U.S. 1994)
See Lieb v. Topstone Industries, Inc., 788 F.2d 151, 156 (CA3 1986) (Indicating "frivolousness, motivation, objective
unreasonableness (both in the factual and in the legal components of the case) and the need in particular circumstances to
advance considerations of compensation and deterrence" as factors to be considered in determining the attorney’s fees award; bad
faith is not a required factor.)
47
17 U.S.C. § 504(c).
48
17 U.S.C. § 502(a).
49
17 U.S.C. § 502(b).
50
See, e.g., Nihon Keizai Shimbun, Inc. v. Comline Bus. Data, Inc., 166 F.3d 65 (2d Cir. N.Y. 1999) (“we modify the injunction
to replace "substantially similar to any article or work" with the phrase "substantially similar to the copyrighted elements of any
article or work.")
51
See Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146 (9th Cir. Cal. 2007);
52
Cheever v. Academy Chi., Ltd., 690 F. Supp. 281, 289 (S.D.N.Y. 1988).
53
See New Era Publ'ns Int'l, ApS v. Henry Holt & Co., 684 F. Supp. 808, 811 (S.D.N.Y. 1988) , aff'd, 873 F.2d 576 (2d Cir.
1989) (plaintiff's delay for strategic reasons--fear that filing suit would boost defendant's sales--though reasonable tactic, bars
entry of TRO).
46
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Permanent injunctions are typically not granted where there is no possibility of further
infringement. 54 Thus, a defendant may be able to defeat the application for a permanent
injunction by showing that the offending conduct has ceased.
PART III – REMEDIES AVAILABLE UNDER PATENT LAW
When assessing damages in a patent infringement case, “the question to be asked…is
‘had the Infringer not infringed, what would [the] Patent Holder…have made?” 55 In other
words, patent infringement damages are compensatory in nature. Statutory damages are not
available in patent infringement cases. That said, where willful infringement is proven, courts
may award treble damages as a punitive measure to deter bad actors in the marketplace. 56 In
truly exceptional cases, attorney’s fees may be awarded to the prevailing party in the court’s
discretion. 57 The federal courts also have broad authority to “grant injunctions in accordance
with the principles of equity to prevent the violation of any right secured by patent.” 58
(1)
Lost Profits
In general, patent infringement damages may be calculated as lost profits or as a
reasonable royalty. 59 Lost profits are typically assessed by measuring the patent holder’s lost
sales or increased expenses. A patent holder may also attempt to demonstrate that the sales price
of the patent holder’s goods was depressed by the infringer’s unlawful competition in the
marketplace.
In Panduit v. Stahlin, 60 the Sixth Circuit set forth a four factor test for establishing the
existence of lost profits. This test has become the standard for lost profits analysis in the patent
infringement context. In Panduit, the court held that:
To obtain as damages the profits on sales he would have made
absent the infringement, i.e., the sales made by the infringer, a
patent owner must prove: (1) demand for the patented product, (2)
absence of acceptable noninfringing substitutes, (3) his
manufacturing and marketing capability to exploit the demand, and
(4) the amount of the profit he would have made. 61
54
See Harolds Stores v. Dillard Dep't Stores, 82 F.3d 1533 (10th Cir. Okla. 1996); Educational Comm'n for Foreign Sch. Med.
Graduates v. Repik, 1999 U.S. Dist. LEXIS 7185 (E.D. Pa. May 14, 1999).
55
Compensatory Damages Issues in Patent Infringement Cases: A Handbook for Federal District Court Judges,
January 2010 at 2. (citations omitted).
56
35 U.S.C. § 284.
57
35 U.S.C. § 285.
58
35 U.S.C. § 283.
59
35 U.S.C. § 284.
60
Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978).
61
Id. at 1156.
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The first factor – demand for the product – is generally presumed from the fact of the
infringement itself. In other words, the fact that the infringer is able to sell infringing goods
necessarily establishes that there are buyers who want the product. 62
The second factor – absence of acceptable noninfringing substitutes – is primarily
concerned with causation, i.e. whether the patent holder actually lost sales due to the infringer’s
activities as opposed to other noninfringing market substitutes. Indentifying what products do or
do not quality as “acceptable substitutes” is a major point of contention in almost every dispute
over lost profits.
When conducting an analysis of the second factor, it is important to remember that “the
mere existence of a competing device does not necessarily make that device an acceptable
substitute.” 63 A classic example of this principle was seen in the protracted dispute between
Polaroid and Kodak over instant photography. 64 In Polaroid Corp. v. Eastman Kodak Co., the
court determined that conventional photography was not an “acceptable substitute” for instant
photography because “[c]onsumers sought the emotional ‘instant experience’ of having a picture
develop immediately, usually in the presence of the subject.” 65 Therefore, a dispute over
“acceptable substitutes” cannot simply address the existence of alternatives, but must concern the
existence of alternatives with the same advantages as the patented technology.
“[T]o prove that there are no acceptable noninfringing substitutes, the patent owner must
show either that (1) the purchasers in the marketplace generally were willing to buy the patented
product for its advantages, or (2) the specific purchasers of the infringing product purchased on
that basis.” 66 This showing can be complicated, and generally requires expert testimony
regarding the market implications for the patented technology, particularly as the market relates
to the buying decisions of the infringer’s customers.
In lieu of proving the absence of “acceptable substitutes,” the patent holder may also
attempt to satisfy the second factor by establishing its market share. Under this approach, the
patent holder recovers lost profits only on the percentage of infringing sales equal to the patent
holder’s market share. 67 The market share approach is widely used in cases where noninfringing
substitutes are readily identified, or in those cases where it may be prohibitively expensive to
prove that a substitute is not sufficiently acceptable.
The third factor – manufacturing and market capability – requires a showing that the
patent holder has “the existing or at least potential manufacturing and marketing capabilities to
62
See Gyromat Corp. v. Champion SparkPlug Co., 735 F.2d 549, 552 (Fed. Cir. 1984).
Cohesive Techs., Inc. v. Waters Corp., 543 F.3d 1351, 1373 (Fed. Cir. 2008) (quoting Standard Havens Prods.,
Inc. v. Gencor Indus., Inc., 953 F.2d 1360, 1373 (Fed. Cir. 1991)).
64
Polaroid Corp. v. Eastman Kodak Co., 1990 U.S. Dist. LEXIS 17968, 16 U.S.P.Q.2D (BNA) 1481 (D. Mass. Oct.
12, 1990).
65
Id. at *38.
66
Cohesive Techs., Inc. v. Waters Corp., 543 F.3d 1351, 1373 (Fed. Cir. 2008) (quoting Standard Havens Prods.,
Inc. v. Gencor Indus., Inc., 953 F.2d 1360, 1373 (Fed. Cir. 1991)).
67
BIC Leisure Prods. v. Windsurfing Int'l, 1 F.3d 1214, 1219 (Fed. Cir. 1993)(“This market share approach allows a
patentee to recover lost profits, despite the presence of acceptable, noninfringing substitutes, because it nevertheless
can prove with reasonable probability sales it would have made ‘but for’ the infringement.”).
63
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obtain the infringing sales.” 68 This showing may also be made by demonstrating the possibility
for licensing of the patent or for the contracting of additional manufacturing by a third party. 69
Once the first three factors of the analysis are satisfied, the fourth factor – amount of
profit – is somewhat mechanical. The amount of lost profit is equal to the revenue lost to the
infringer’s sales, minus the marginal costs that would have been incurred to meet the additional
demand.
(2)
Price Erosion
A patent holder may also seek compensatory damages based on price erosion. A
showing of price erosion requires the patent holder to demonstrate that the sales price of the
patent holder’s goods was depressed by the infringer’s unlawful competition in the marketplace.
As with traditional lost profits, the patent holder must prove causation. This requires a showing
that the patent holder’s products would have sold at a higher price “but for” the infringement. 70
(3)
Reasonable Royalty
Where lost profits cannot be proven, compensatory damages for patent infringement shall
“in no event [be] less than a reasonable royalty for the use made of the invention by the
infringer.” 71 While profit disgorgement is not an available remedy for patent infringement, the
reasonable royalty analysis necessarily reflects the benefits enjoyed by the infringer resulting
from his use of the patent, and therefore significant sales by the infringer will generally lead to a
larger royalty calculation.
“A reasonable royalty is an amount ‘which a person, desiring to manufacture and sell a
patented article, as a business proposition, would be willing to pay as a royalty and yet be able to
make and sell the patented article, in the market, at a reasonable profit.’” 72 When attempting to
fashion a reasonable royalty under this construct, the courts attempt to envision a hypothetical
license negotiation conducted at the time the infringement began. 73 Unlike in a traditional
negotiation, however, the court will presume that the “licensee” (the infringer) is at a negotiating
disadvantage by assuming that the patent is valid, 74 and that the licensee’s intended use would
constitute infringement. 75 This analysis will sometimes yield a royalty rate that far outpaces
industry norms. 76
68
Bio-Rad Lab. v. Nicolet Instrument Corp., 739 F.2d 604, 616 (Fed. Cir. 1984).
See Gyromat Corp. v. Champion SparkPlug Co., 735 F.2d 549, 554 (Fed. Cir. 1984).
70
In re Mahurkar Double Lumen Hemodialysis Catheter Patent Litig., 831 F. Supp. 1354, 1386-87 (N.D. Ill. 1993)
71
35 U.S.C. § 284.
72
Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1157-58 (6th Cir. 1978)(quoting The Goodyear
Tire and Rubber Co. v. Overman Cushion Tire Co., 95 F.2d 978, 984 (6th Cir. 1937)).
73
Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1554 (Fed. Cir. 1995).
74
Studiengesellschaft Kohle v. Dart Industries, Inc., 862 F.2d 1564, 1570 (Fed. Cir. 1988).
75
TP Orthodontics, Inc. v. Professional Positioners, Inc., 20 U.S.P.Q.2d 1017, 1025 (E.D. Wis.1991).
76
See, e.g., Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1554 (Fed. Cir. 1995)(setting reasonable royalty as
50% of infringer’s estimated profits).
69
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(4)
Enhanced Damages and Attorney’s Fees
Where willful infringement is proven, courts may award treble damages as a punitive
measure to deter bad actors in the marketplace. 77 When determining whether to award treble
damages, the courts look to numerous factors. These include:
(1) whether the infringer deliberately copied the ideas or design of
another; (2) whether the infringer, when he knew of the other's
patent protection, investigated the scope of the patent and formed a
good-faith belief that it was invalid or that it was not
infringed…(3) the infringer's behavior as a party to the
litigation...(4) Defendant's size and financial condition….(5) [the]
Closeness of the case…(6) [the] Duration of defendant's
misconduct.; (7) [the] Remedial action by the defendant…(8)
Defendant's motivation for harm…[and] (9) whether defendant
attempted to conceal its misconduct. 78
In exceptional cases, attorney’s fees may also be awarded to the prevailing party. 79 As
with treble damages, the courts look to factors such as willfulness, litigation misconduct, or
vexatious or frivolous litigation in making such an award.
(5)
Injunctive Relief
As in trademark law, an injunctive award against future infringement is often the most
important remedy for the patent owner. A permanent injunction against future infringement is
awarded in virtually every patent infringement case where a patent has been deemed valid and
enforceable. 80
By contrast, preliminary injunctions are rarely granted. When considering an application
for a preliminary injunction, the courts weigh four factors: (1) the likelihood for success on the
merits; (2) irreparable harm to the patent holder; (3) the balance of equities; and, (4) the impact
of the injunction on the public interest. 81 The likelihood for success on the merits is generally
the most significant factor, and requires the patent holder to show probability of infringement as
well as the likelihood that the accused infringer will not be able to demonstrate that the patent is
invalid or unenforceable. 82 Preliminary injunctions are considered a drastic remedy, and, as a
result, the burden is placed squarely on the patent holder seeking to enjoin the defendant’s use.
77
35 U.S.C. § 284.
Read Corp. v. Portec, Inc., 970 F.2d 816, 827 (Fed. Cir. 1992).
79
35 U.S.C. § 285.
80
See, e.g., Richardson v. Suzuki Motor Co., 868 F.2d 1226, 1247 (Fed. Cir. 1989)(“It is the general rule that an
injunction will issue when infringement has been adjudged, absent a sound reason for denying it.”).
81
See, e.g., Nutrition 21 v. United States, 930 F.2d 867, 869 (Fed. Cir. 1991).
82
Vehicular Techs. v. Titan Wheel Int’l, Inc., 141 F.3d 1084, 1088 (Fed. Cir. 1998); see also, Nutrition 21 v. United
States, 930 F.2d 867, 869 (Fed. Cir. 1991)(holding that “…at the preliminary injunction stage, because of the
extraordinary nature of the relief, the patentee carries the burden of showing likelihood of success on the merits with
respect to the patent's validity, enforceability, and infringement.”).
78
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PART IV – DEFENSE STRATEGIES IN INTELLECTUAL PROPERTY INFRINGEMENT CASES
Regardless of whether a business faces a trademark, copyright, or patent infringement
lawsuit, any defense strategy must first take into consideration the client’s business needs. One
of the initial concerns is always how long will it take to reach a final resolution. In the copyright
and trademark contexts, businesses frequently need a resolution as swiftly as possible in order to
know whether the allegedly infringing material can remain in use. Trade dress infringement, for
example, is a situation where a business may need an early resolution so that the brand can either
continue to function confidently as is, or quickly begin the re-tooling process before it becomes
prohibitively expensive.
When time is of the essence, defense attorneys would do well to use the Federal Rules of
Civil Procedure to push discovery quickly by serving demands for written discovery prior to the
Court’s initial conference, and noticing early depositions. This approach has the added
advantage of forcing one’s adversary to build their prima facie case on a short timeline, which
can reduce the odds of plaintiffs identifying additional instances of alleged infringement that
might otherwise come to light. Many plaintiffs’ attorneys are prone to initiate an action too early
in their pre-suit investigation under the assumption that a long discovery process will reveal all
the necessary facts. Defense attorneys willing to work diligently and quickly can force these
overeager plaintiffs into a defensive position by pressing discovery early and often.
Defendants can also exert downward pressure on plaintiffs by using a procedural device
known as an Offer of Judgment, which is provided for in Federal Rule of Civil Procedure 68.
This is an especially useful tool in copyright cases because the Copyright Act bundles attorney’s
fees into the definition of costs. 83 Plaintiffs owe defendants all costs incurred after an Offer of
Judgment is rejected in cases where plaintiffs cannot prove entitlement to a greater amount at a
subsequent trial. 84 Accordingly, because the Copyright Act considers attorney’s fees as a cost,
defendants can put plaintiffs in fear of owing significant legal fees when an early Offer of
Judgment is made and rejected. 85 Of course, there are risks associated with making an Offer of
Judgment, as no business wants a judgment entered against it. However, an early offer, made
before discovery has commenced in earnest, will most frequently be rejected, giving defendants
leverage over future settlement negotiations. A low offer will also routinely be rejected early in
the life of a case, and can serve to set the tone for how defendants view of the value of the
plaintiffs’ cause of action.
In the context of patent infringement, by contrast, defendants are usually better served by
taking a “wait and see” approach. Plaintiffs in patent infringement actions carry a heavy burden
of proof that requires expensive expert analysis and testimony. Defendants can therefore afford
to take a more relaxed posture, while pressing plaintiffs to carry that burden. As discussed,
preliminary injunctions are difficult to obtain in patent infringement cases. As such, a
defendant’s business is unlikely be restrained at the outset of the litigation, allowing defendants
to let the discovery process play out while the onus rests squarely on the plaintiff to establish the
infringement.
83
17 U.S.C. § 505.
Fed. R. Civ. P. 68.
85
See, e.g., Baker v. Urban Outfitters, Inc., 431 F. Supp. 2d 351, 361 (S.D.N.Y. 2006).
84
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With respect to damages, a client’s exposure is often “baked in the cake” long before the
defense attorney has had a chance to review the facts. That said, general and outside counsel to
businesses that may face infringement lawsuits from larger competitors should counsel their
clients in effective record keeping. For example, good financial record keeping practices will
ensure that the defendant possesses the evidence necessary to challenge plaintiff’s applications
for disgorgement of profits by showing evidence of deductions from these profits of defendant’s
costs and expenses. Such records can also effectively demonstrate the profit margins necessary
to reduce a patent infringement award based on a reasonable royalty analysis. Furthermore, in
the trademark context, an accurate compendium of purchase orders and invoices can be a critical
factor in determining whether a company dealing in allegedly counterfeit goods is an infringer or
simply a middleman who did not “sell” or “transport” the goods in commerce. When accurate
financial and transactional records are available to defense counsel, defendants will always have
a greater chance of minimizing their business’s exposure to monetary awards.
PART V – VIRTUAL CURRENCY: EMERGING AVENUES FOR PURSUING MONETARY AWARDS
Before the emergence of the Internet and ecommerce, plaintiffs seeking monetary awards
arising from copyright, trademark, and patent infringement rightly focused on obtaining and
enforcing judgments against a defendant’s bank accounts or other tangible assets. Today, the
majority of intellectual property infringement continues to move into the virtual marketplace,
where the advent of virtual currency is shifting the dynamics of monetary awards and judgment
enforcement.
Most consumers are now familiar with the mechanics of the average ecommerce
transaction. One of the early darlings of the dot-com bubble was eBay.com, which today is a
multibillion dollar marketplace for goods. eBay.com hosts online auctions where third party
users can sell merchandise to consumers. These transactions are facilitated by PayPal.com, a
wholly owned subsidiary of eBay.com. While these transactions all take place digitally,
consumers are still dealing in traditional currency. Users connect a traditional bank account to
PayPal.com and, similar to an escrow service, PayPal.com essentially acts as the middleman
holder of the money.
Of course, some of eBay.com’s sellers deal in counterfeit or otherwise infringing goods,
which has produced no shortage of litigation related to trademark and copyright infringement in
particular. 86 When pursuing these often faceless online infringers, plaintiffs may find themselves
with limited information about a targeted defendant’s assets in pursuit of a monetary award,
especially in the event of a default. However, because PayPal.com deals in traditional liquid
currency, plaintiffs would do well to levy against a defendant’s PayPal.com account.
PayPal.com’s records can be readily subpoenaed, and an analysis of those records frequently
reveals the number of potentially infringing transactions, as well as the profits generated from
such sales. Assuming that the defendant’s Paypal.com account holds only money that has been
86
See, e.g., Tiffany Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010).
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received or placed into the account from selling goods, as opposed to money owed to another or
held to pay someone else, then these assets are reachable by judgment creditors. 87
A much more vexing situation is now emerging with the rise of truly “virtual currency.”
The new bastions of trademark and copyright infringement are “Deep Web” marketplaces like
the recently shuttered Silk Road. These underground sites hit the mainstream consciousness last
Fall when the Federal Bureau of Investigations famously shuttered Silk Road. 88 Unlike
mainstream sites like eBay.com, these underground sites have no policies to curb infringement,
operate in anonymity, and transact business entirely by way of virtual currency.
Given its most basic definition, virtual currency is a medium of exchange not authorized
or adopted by a government. But the mechanics of virtual currency are far more complex. The
most famous virtual currency in the marketplace today is Bitcoin, but there are others such as
Litecoin, Peercoin, Namecoin and Primecoin to name a few. Understanding how these
currencies work, and the increasing efforts to regulate their exchange, will help the intellectual
property litigator in both pursuing and protecting virtual assets.
Bitcoin is not printed or pressed, and it does not exist in a tangible form—not even as a
digital file on a hard drive. Rather, it is a form of digital payment based on mathematical proof.
Without plumbing the depths of the technical aspects of a Bitcoin’s creation, it suffices to say
that the distinguishing feature of the Bitcoin is that there are no Bitcoins, only records of Bitcoin
transactions. As one prominent website devoted to virtual currency explains it 89:
Every transaction that ever took place is stored in a vast general
ledger called the block chain. If you want to work out the balance
of any bitcoin address, the information isn’t held at that address;
you must reconstruct it by looking at the block chain.
But just because the virtual currency is not tangible does not mean that particular Bitcoins cannot
be readily identified and seized. In fact, when Silk Road was shuttered, the United States
government seized $28 million dollars worth of Bitcoins that it is now preparing to sell back into
the marketplace. 90 And the Bitcoin’s lack of tangibility certainly does not mean that it is not
worth real money. When Mt. Gox, the world's largest Bitcoin exchange, recently collapsed,
Reuters reported that hundreds of millions of dollars worth of virtual assets may have been lost. 91
87
The United States government has already begun taking this approach with respect to tax liens. See United States
v. Springer, 2010 U.S. Dist. LEXIS 18802, at *61 (N.D. Okla. 2010)(“Because the funds in [defendant’s] PayPal
and checking accounts are liquid and could be easily diverted or lost, it was appropriate for the IRS to levy those
assets.”).
88
See United States of America v. Ross William Ulbrecht, Sealed Complaint 13 MAG 2328 (Sept. 27,
2013)(available online at https://www.cs.columbia.edu/~smb/UlbrichtCriminalComplaint.pdf)(last retrieved Mar.
12, 2014).
89
See, http://www.coindesk.com/information/how-do-bitcoin-transactions-work/ (last retrieved Mar. 12, 2014).
90
See, http://www.foxnews.com/tech/2014/01/17/feds-to-sell-28-million-in-seized-bitcoins/ (last retrieved Mar. 12,
2014)
91
See, http://www.reuters.com/article/2014/03/11/us-bitcoin-karpeles-idUSBREA2A1VM20140311 (last retrieved
Mar. 12, 2014)
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While Bitcoin may not survive the Mt. Gox collapse (and its subsequent fraud
investigation 92), the role of virtual currency in the marketplace shows no signs of waning. And
as regulations emerge to ease the volatility of virtual currency, the value of the currency to the
average consumer will only increase. For example, on March 11, 2014, Benjamin M. Lawsky,
New York’s Superintendent of Financial Services, issued a public order announcing that the New
York State Department of Financial Services will consider formal proposals and applications in
connection with the establishment of regulated virtual currency exchanges operating in New
York State. 93 Therefore, intellectual property practitioners should be mindful of the potential to
seek seizure of virtual currency in satisfaction of judgments, especially in the realm of online
copyright, trademark, and patent infringement cases.
The pursuit and protection of these assets is, of course, still fraught with uncertainty. For
example, many business owners would presumably wish to convert virtual currency to “real
world” dollars in the event that a seizure of virtual assets was successfully effectuated. As
regulations emerge, however, it is these types of conversions that are drawing the most attention.
On March 18, 2013, the Department of Treasury’s Financial Crimes Enforcement Network
(“FinCEN”) issued an advisory letter stating that “a person that creates units of convertible
virtual currency and sells those units to another person for real currency or its equivalent is
engaged in transmission to another location and is a money transmitter” subject to the regulations
and requirements of the Bank Secrecy Act. Accordingly, a plaintiff’s ability to convert seized
virtual assets into a more fungible denomination may be circumscribed by the uncertainties
created by such nascent regulatory schemes.
That said, as the role of the online marketplace continues to shape commerce, virtual
currency appears posed to be the next wave of the future in the industry. Therefore, as copyright
and trademark infringement litigation continues to swirl around both mainstream and
underground online marketplaces, the ability to leverage and protect the emerging virtual
currencies of that marketplace will become the newest essential tool of the intellectual property
litigator when contesting damages awards.
CONCLUSION
For a defendant in a trademark, copyright, or patent lawsuit, understanding the
implication of each of the forms of relief, as well as the business needs and risk of the defendant,
are the cornerstones of successful defense strategy. Furthermore, good financial record keeping
practices will ensure that the defendant possesses the evidence necessary to challenge plaintiff’s
applications for disgorgement of profits by showing evidence of deductions from these profits of
defendant’s costs and expenses. Finally, both plaintiffs and defendants alike should be mindful
of the non-traditional methods of satisfying monetary damage awards that lie just beyond the
horizon.
Thank you to Jana Slavina and Stephen Barrett in preparing this paper.
92
Gregory Greene v Mt. Gox Inc et al, No. 14-01437 (U.S. Dist. Ct. Northern Dist. of Ill. 2014).
See, Order in the Matter of Virtual Currency Exchanges, dated March 11, 2014 (available online at
http://www.dfs.ny.gov/about/po_vc_03112014.pdf)(last retrieved Mar. 12, 2014).
93
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