By  on November 15, 2004

Lawsuits involving counterfeiting can leave the impression that lawyers ask judges for monetary awards in the same way little girls ask Santa for ponies.

Lawyers representing manufacturers of luxury goods in particular seek huge sums from nameless defendants despite knowing that such judgments will likely be impossible to collect.

For those without law degrees, questions as to how lawyers come up with these stratospheric numbers, why judges award them and why companies invest millions to pursue seemingly hollow victories are understandable.

The answers to those questions involve government guidelines intended to provide companies with alternatives to fighting blatant counterfeiters, and the companies’ use of the law to deter future counterfeiters while protecting their brands.

“[Large awards] are driven by a statute in the Lanham Act that allows you to collect statutory damages as an alternative to proving actual damages,” said David Jacoby, a partner with New York law firm Phillips Nizer LLP with expertise in intellectual property issues and the fashion industry. “It set up standards,” said Jacoby.

Not surprisingly, counterfeiters are not known for their fastidious record-keeping habits, making the onus of proving actual damages often impossible. Recognizing this, Congress amended the Lanham Act in 1996, allowing companies to opt for pursuing statutory damages at any time prior to a judge’s final ruling. According to the guidelines, judges who find a trademark was intentionally copied can award “not more than $1 million per counterfeit mark per type of goods or services sold.”

Richard Lehv, a partner at Fross Zelnick Lehrman & Zissu P.S. who also serves as an adjunct professor at Columbia Law School teaching a trademark and copyright litigation seminar, points out that at $1 million per counterfeit mark per product, judgments can rapidly add up. “Congress has given them this weapon to use and they’ll use whatever means are at their disposal,” said Lehv.

Two recent and particularly noteworthy examples occurred on Aug. 4, when Manhattan Federal Court Judge Thomas Griesa upheld claims of trademark infringement brought by LVMH Moët Hennessy Louis Vuitton and Rolex Watch USA Inc. against unnamed Chinatown retailers. The separate but related cases resulted in a collective award nearing $500 million.In the LVMH case, Judge Griesa ordered 29 unnamed Chinatown retailers to each pay the company $16 million in statutory damages — an award that, on paper, entitled LVMH to $464 million.

Sources said the $16 million verdicts were not a record high. However, they did say they were not aware of a higher collective award granted under the guidelines of the Lanham Act. It is considered a victory.

“Fighting counterfeiting is a long-term battle and we are determined to protect our brands from this daylight robbery of intellectual property rights by seeking sanctions that provide the most deterrence,” said a spokesperson for LVMH Moët Hennessy Louis Vuitton.

Jacoby likens the legal process to installing a car alarm. “Even if you have an alarm, if someone really wants to steal your car, they’re going to find a way to outwit it,” said Jacoby. “But maybe when they’re going down a line of cars and see your alarm it will be a deterring factor.”

Jane Shay Wald, a partner with Los Angeles-based Irell & Manella LLP and head of the firm’s trademark practice group, believes large awards can be an effective tool in the retail world and in the court system. “I think the deterrent does really happen — not at the street level, but I think at the next level up, for people with physical retail locations and assets that could potentially be seized,” said Wald. “I know that when you can get a judgement of any kind and you show it to an infringer that perhaps isn’t a counterfeiter, it has a deterring affect. It’s also easier for a judge. Once they see that their colleagues have had no hesitation to enter a default judgment, it makes it easier for the next judge to make an award.”

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