Intellectual Property Violations

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This article addresses the financial remedies for civil intellectual property lawsuits, as distinguished from criminal penalties (as discussed here). Civil penalties refer to cases that are almost always resolved by the payment of money to the injured party (rather than criminal penalties which may result in jail time). In nearly all of the situations described below, you will notice that judges often have great discretion in assessing the amount of damages.

Injunctions and Seizures

Typically a person bringing an intellectual property lawsuit (the “plaintiff”) seeks compensation for the loss, and also seeks an order by the court halting the bad behavior (known as an “injunction”). A court uses two factors when determining whether to grant an injunction: (1) Is the plaintiff likely to succeed in the lawsuit?; and (2) Will the plaintiff suffer irreparable harm if the injunction is not granted? It used to be that if the plaintiff could demonstrate infringement, irreparable harm would be presumed, but as result of a Supreme Court case involving eBay, that is no longer the case and harm must also be proven. In addition to an injunction, a plaintiff may seek a court order requiring the destruction or delivery of infringing material. Intellectual property laws sometimes also provide for attorneys fees. However, these fee awards are almost always discretionary and typically only occur in cases of willful, exceptional, or egregious infringements.

Patent Damages

If a court finds that patent infringement has occurred, the judge will award damages adequate to compensate for the infringement. In exceptional cases, such as willful infringement, this amount may be increased, at the discretion of the court, up to triple the award. Often the measurement of patent infringement damages is what the plaintiff would have obtained as a reasonable royalty from the sale of the defendant's device. For example, if the plaintiff had entered into a license agreement with the defendant, what royalties would it have received from the defendant's sale of the device? This determination may require expert testimony.

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Trademark Infringement

Monetary compensation is not always the major concern for a plaintiff seeking to stop an infringing trademark. In some cases, for example, a court may order an injunction without ordering the payment of any damages. This may occur if the defendant's use of the mark was not in a bad faith and there was no deliberate attempt to cause confusion. Section 35 of the Lanham Act (15 U.S.C. 1117) provides the standards for the award of damages for infringement of a federally registered trademark. Damages are to be awarded under principles of equity (or fairness) and the plaintiff may recover: (1) the defendant's profits; (2) any damages sustained by the plaintiff; and (3) the costs of the action. Costs are defined as the incidental expenses involved in the handling of the lawsuit such as filing fees. In assessing profits, the plaintiff is required to prove the defendant's sales and the defendant must prove any deductions from such sales. If the court finds that the amount of recovery for profits is inadequate or excessive, the court may, in its discretion, enter judgment for a sum which it finds to be just. This sum may be up to three times the amount of actual damages. In exceptional cases, the court may award attorney's fees. 

Under the Lanham Act, a court is not empowered to award damages if the defendant did not have actual notice of the plaintiff's registration. Therefore, if the plaintiff failed to use the proper form of notice (i.e., the "®" symbol or "Registered in U.S. Patent & Trademark Office" or "Reg.U.S. Pat. & Tm. Off.") it is possible that no profits or damages will be awarded. In the event of a counterfeit trademark, as defined in Section 32 of the Lanham Act (15 U.S.C. § 1114), the court is required to award three times the profits or damages (whichever is greater) together with reasonable attorney's fees. Only in extenuating circumstances are these damages waived by the courts.

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Copyright Infringement

If the copyright owner prevails, the court may award monetary damages. If the copyright owner has registered the work prior to the infringement, then the owner may elect either actual damages or statutory damages. If registration has not occurred prior to infringement, the copyright owner may only recover actual damages.

  • Actual damages are damages that are provable, for example, the profits from the sale of a pirated computer program or the loss resulting from the destruction in value of the copyrighted work. The determination of actual damages may be made by comparing costs, market values, anticipated revenues, and sales. Sometimes the court may use the defendant's profits as a benchmark for determining the plaintiff's damages. 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.
  • Statutory damages range between $750 and $30,00 and are awarded per each work infringed, not per each infringement. Although intent is irrelevant for proving infringement, it can be a factor in the award of statutory damages. If the infringement was willful, an award may range as high as $150,000 per infringement. If the infringement was innocent (that is the infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright), the court in its discretion may reduce the award of statutory damages to a sum of not less than $200 per work infringed. The copyright owner may elect statutory damages at any time before final judgment is rendered.  In such case the plaintiff may elect to prove and recover the actual damages. For the purposes of statutory damages, all the parts of a compilation or derivative work constitute one work.

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Trade Secret Infringement

The complaining party (the party whose trade secret was stolen) may recover damages for actual loss as well as for unjust enrichment caused by the theft that is not taken into account in computing actual damages. Alternatively, the court may order payment of a reasonable royalty if a secret was stolen and used to produce a product or service.  Under some state law, the if misappropriation is willful and malicious, the court may award punitive or exemplary damages (not to exceed twice the amount of actual damages) as well as an award of attorney's fees.

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