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Post-License Use of Trademark Is Counterfeiting

A former trademark licensee’s continued use of a trademark after termination of the license constitutes trademark counterfeiting. That is the holding in a recent District of Indiana default judgment case, Century 21 v. Destiny Real Estate.

The court explained:

If an unrelated entity had created an identical trademark and provided authorized goods or services (or the kind provided by the owner of the mark) under that mark, there would be no question that there was counterfeiting. The Court can conceive of no reason why an ex-franchisee should escape liability for counterfeiting simply because that person had access to a franchisor’s original marks because of the former relationship and therefore did not need to reproduce an identical or substantially similar mark.

Other courts have come to differing conclusions on this issue, in various contexts. In a 1997 case, the 6th Circuit held that a franchisee’s holdover use of a trademark was not counterfeiting. The 9th Circuit held that the licensee’s holdover was counterfeiting in a 2005 case involving continuing use of the Idaho potato certification mark.

The significance is that pursuant to 15 U.S.C. 1117(b), if he is found to be a counterfeiter, the former licensee can be liable for statutory damages (up to $2 million in cases of willful counterfeiting), and will be liable for three times profits or damages, whichever amount is greater, together with a reasonable attorney’s fee unless the court finds extenuating circumstances. If he is merely an infringer, statutory damages are not available and treble damages and attorneys’ fees are less certain to be awarded. They may be awarded subject to the principles of equity.

The Century 21 court’s damage, injunction and individual liability analyses also are noteworthy. Century 21 sought its actual damages plus treble damages. The court held that such an amount would be quadruple, rather than treble damages, one multiple too many. The court further reduced the award to two times damages, on the ground that the liquidated damages provided for in the license agreement and awarded by the Court coincided with the actual damages, and therefore to awarded treble damages in addition would again result in quadruple recovery.

On a cheerful note for trademark owners, the Court granted a permanent injunction, finding that the injury especially justifying injunctive relief is the loss of control over and harm to its valuable name and trademark, in which it has invested substantial effort and money over time to develop goodwill. If that is going to suffice under Ebay, trademark owners may not need to be as concerned that injunctions against infringers will be harder to come by.

The court declined to impose liability on Destiny Real Estate’s principal. After surveying the law on individual liability for corporate trademark infringement, the Court found that Century 21’s allegations that the individual was President of the company and authorized or approved of the misconduct were not sufficient bases to hold the individual liable for the corporation’s infringement.

2 Comments to Post-License Use of Trademark Is Counterfeiting

  1. August 15, 2012 at 2:20 am | Permalink

    Rolake, Interesting article. As a pcaitrcal matter, I think it might be a bit pre-mature to begin speaking about litigation or infringement and enforcement in the African fashion industry context. There are basic infrastructural issues and logistics that need to be in place before designers even pursue this route. While South Africa has more of a cohesive judicial system, the rest of the countries within Africa do not share that. Intellectual property registration in fashion i.e. trademark registration, for example, is non-existent and unheard of in fashion and certainly in other creative fields like music and film. The intellectual property (IP) laws in many of these African countries are relatively new and replicate the US or UK’s IP laws. They are on the books but no one knows what to do with it as there are not many trained legal minds that do IP work in the fashion and entertainment field. Further, with respect to fashion, fashion as a professional career is still something that the continent has not fully grasped. I think baby steps first. Issues of financing, teaching designers basic entrepreneur skills etc. should take priority. While those take priority, we need experienced legal advocates (fashion and entertainment lawyers) who can begin setting the ground work and fine tuning the rules within the legal system to accommodate fashion designers and the design industries across Africa. Lots of work to be done but it can be done. -Uduak Oduok

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