The threat of monetary damages in trademark infringement cases is something that is often asserted, but not necessarily a well understood concept. Some trademark owners mistake their federal trademark registration as a lottery ticket. Generally, this is not the case.
The primary goals of the Lanham Act are to achieve equity between the parties, and make infringement unprofitable. Equitable relief is not available except when a plaintiff’s legal remedies are inadequate. An award of plaintiff’s actual damages is a legal remedy, whereas an accounting of defendant’s profits is an equitable remedy.
Actual damages are generally difficult to prove in a trademark infringement context, which is why most plaintiffs claim an entitlement to a defendant’s profits. An accounting of an infringer’s profits is available if:
The defendant is unjustly enriched;
To compensate the plaintiff; or
To deter infringement.
An award of profits may be denied where an injunction forbidding future infringing acts satisfies the equities of the case. The majority of courts do not require a showing of actual confusion for an accounting of profits. However, the circuits are split on whether a showing of willfulness is a prerequisite for an accounting of profits.
When seeking defendant’s profits, the plaintiff need only prove defendant’s sales. While this may initially look like a large number, it can be reduced significantly. A defendant is allowed to deduct from sales its variable costs and sometimes its semi-variable cost. A defendant also can apportion its sales between infringing and noninfringing sources. Finally, a defendant can deduct sales in areas where there is no geographic overlap between the plaintiff’s use of its mark and the defendant’s use of the infringing mark.
Consequently, the large number the plaintiff initially sought can be significantly reduced calling into the question the wisdom of litigation if the primary reason for starting a lawsuit was to obtain a monetary award. Understanding the monetary damage calculation can be helpful tool to either avoid a lawsuit or settle a dispute early before substantial legal fees are incurred.