Recent Damages Award for Wrongful Seizure Under the Lanham Act

Judge Preska of the United States District Court for the Southern District of New York recently awarded attorneys’ fees, damages, and prejudgment interest on damages, but not fees to defendants, in a trademark counterfeiting case. In Prince of Peace Enterprises, Inc. v. Top Quality Food Market, LLC, Judge Preska adopted in part a report and recommendation of Magistrate Judge Maas, ending an eight-year litigation surrounding ex parte seizures of herbal supplements which took place in 2007.

In Prince of Peace, certain defendants filed a counterclaim under section 34(d)(11) of the Lanham Act for damages incurred from an allegedly wrongful seizure. They claimed that goods seized by the plaintiff were not in fact counterfeit and that the plaintiff lacked standing to pursue federal infringement claims because it did not own the mark at issue. In 2007, the Court vacated the seizure order as to these counterclaimants and in 2011, dismissed the plaintiff’s claims against them for lack of standing.

The case illustrates the importance of buttoning up IP ownership issues before bringing an ex parte seizure request. For example, the court found that the plaintiff held a license under the mark, but not a valid assignment.

The case also underscores the challenges of proving losses due to store closure during an ex parte seizure. While the counterclaimants sought damages resulting from lost sales, spoiled merchandise, wages paid during the time the seizure was executed, attorney fees, and punitive damages, the Court awarded only $22,343 in attorney fees and $192 for the cost of goods seized but not returned. The Court further noted in its refusal to award punitive damages that while the counterclaim included an allegation of bad faith, it did not contain a specific allegation that the plaintiff sought the seizure knowing that it was baseless.

Interestingly, the parties do not appear to have litigated whether the bond posted before the seizures established a ceiling on the counterclaimants’ potential recovery. For example, under section 34(d)(4)(A) of the Lanham Act, a seizure applicant must post a bond adequate to pay such damages as any person may be entitled to recover as a result of a wrongful seizure. At least one court has found that “liability for wrongful seizure is limited to the amount of th[is] bond.” Blau v. YMI Jeanswear, Inc., 2003 U.S. Dist. LEXIS 27432, at *23 (C.D. Cal. Dec. 31, 2003), aff’d, 129 F. A’ppx 385 (9th Cir. 2005). In Prince of Peace, the Court awarded attorneys fees and damages over four times the amount of the original $5,000 bond.

Gibbons will continue to monitor how courts are applying the ex parte seizure provisions of the Lanham Act and related implications for brand owners and alleged infringers.

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