We have blogged extensively about anti-counterfeiting strategies both inside and outside of court. In January, a three-judge panel of the Second Circuit Court of Appeals issued a summary order that shows an effective use of litigation to combat counterfeiters and to disgorge ill-gotten profits. In FendiAdele, S.R.L. v. Ashley Reed Trading, Inc., luxury goods manufacturer Fendi Adele (Fendi) brought an action against Ashley Reed Trading (Ashley Reed) claiming that the company knowingly imported counterfeit Fendi merchandise even after being put on notice of the infringement by Fendi in 2001. The district court found Ashley Reed liable for trademark counterfeiting, false designation of origin, and trademark dilution under the Lanham Act, as well as unfair competition and trademark dilution pursuant to New York law. On summary judgment, the district court found that the infringement had been willful and Fendi was awarded $12,324,062.66 in damages, including treble damages, prejudgment interest, costs and attorneys’ fees. The district court also disgorged Ashley Reed’s profits from the years 2005 and 2006 as a result of the finding of willful infringement.
Both parties appealed from the judgment. Specifically, Ashley Reed appealed primarily on the basis of several alleged evidentiary issues and Fendi cross-appealed claiming that the court’s damages award should be increased to include Ashley Reed’s infringing conduct from 2001 to 2004.
The panel of Second Circuit judges upheld the district court’s finding of willfulness. As noted in the panel’s summary order, to find willfulness, it must be shown: “(1) that the defendant was actually aware of the infringing activity, or (2) that the defendant’s actions were the result of reckless disregard or willful blindness. (quoting Island Software & Computer Serv., Inc. v. Microsoft Corp., 413 F.3d 257, 263 (2d Cir. 2005)). The panel specifically noted that, in trademark infringement actions, “willful blindness means that a defendant knew it might be selling infringing goods but nevertheless ‘intentionally shielded itself from discovering’ the truth.” (quoting
Tiffany (NJ) Inc. v. eBay, Inc., 600 F.3d 93, 109 (2d Cir. 2010)).
The panel concluded that Ashley Reed had “clearly” been on notice of its potential infringement of Fendi’s trademarks in 2001 when it received a cease and desist letter from Fendi, as well as “multiple lawsuits filed by other designers in 2000 and 2001.” The record contained evidence that the company had “failed to adequately inquire about the authenticity and original sources of the goods they purchased.” Further, among other things, the panel noted that some of the company’s suppliers provided “sanitized” invoices that failed to disclose the sources of the goods and, in other cases, suppliers submitted no paperwork at all. Ashley Reed also allegedly failed to keep appropriate records and documents relating to finances and transactions and, following the filing of Fendi’s lawsuit, returned all of its inventory of Fendi merchandise instead of retaining it so that it could be inspected. Thus, the panel upheld the district court’s conclusion that Ashley Reed was liable for willful infringement.
Finally, with respect to Fendi’s cross-appeal, the panel concluded that the damage award was “facially inconsistent with the court’s apparent conclusion that Fendi had proven infringement during the entire 2001 to 2006 period.” Thus, the panel vacated the award and remanded it back to the district court to determine whether the award should be increased for the years 2001 to 2004.
Litigation is a potentially powerful tool in the anti-counterfeiting arsenal but should be used wisely, as litigation may not always be the most effective action. For more on this topic visit our previous post concerning Coach, Inc.’s $257 million judgment against hundreds of websites offering counterfeit Coach products. The case is
Fendi Adele, S.R.L. v. Ashley Reed Trading, Inc., No. 11-3025 and the Second Circuit’s decision was issued on January 4, 2013.
