Coach Is Awarded $44 Million under Lanham Act Against Website Selling Counterfeit Handbags

Apparel designer Coach sued Linda and Courtney Allen in the Southern District of New York for counterfeiting and trademark infringement. Judge Colleen McMahon granted Coach’s motion for summary judgment against the defendants — who were acting as their own attorneys — and awarded maximum statutory damages of $44 million because of their “contumacious” behavior.

The Allens operated a website called BellaFashions.net, on which they sold counterfeit handbags and accessories closely resembling Coach products.  The site explicitly identified these as Coach products, although it also contained several disclaimers which stated the products were “not ‘original’ and that the website was in no way affiliated with authentic   manufacturers.”  Defendant Linda Allen had been sued before for selling counterfeit Chanel handbags on two other websites, MyClassyFashion.com and UltimateDesignerHandbags.com. The lawsuit resulted in a permanent injunction on both sites.

Coach bought a handbag bearing Coach counterfeit marks from the Allen’s website and determined that it was not authentic. Coach sent a letter to the Allens which threatened litigation if they continued to sell bags and accessories with Coach’s counterfeit marks on them. Linda Allen responded that “I have no further merchandise as I purchased items upon demand from customers…I sold very little…” In a later email to Coach, the Allens broke down their sales by producing several sales records, however, it also blackened-out the “My Classy Fashion” name from the email confirmation that was previously sent to Coach. Because My Classy Fashion was previously enjoined, the blackening out of the name was “significant.” Additionally, the Allens’ sales records proved to be incomplete. Coach did not learn of the extent of the Allens’ sales until after it subpoenaed other companies that provided website hosting and payment processing services.

As an alternative to proving lost profits, a plaintiff may elect statutory damages under the Lanham Act.  The Act allows Coach to recover “not less than $1,000 or more than $200,000 per counterfeit mark per types of goods or services sold, offered for sale, or distributed, as the court consider[s] just.” 15 U.S.C. § 1117(c)(1).  However, in the case of a willful use of a counterfeit mark, statutory damages can be up to $2,000,000 per mark per type of good.  Because the Lanham Act does not provide guidelines for how large of a statutory damage award should be ordered, the court borrowed the analogous provision in the Copyright Act to justify “wide discretion to determine what amount of damages [that] should be awarded within the minimum and maximum bounds proscribed under the Lanham Act.”

For a plaintiff to be awarded the maximum amount in statutory damages, $2,000,000, the plaintiff must show that the defendant engaged in willful infringement. In the Second Circuit that means “knowledge that a Defendant’s conduct represented infringement or perhaps recklessly disregarded the possibility.”

Judge McMahon determined that the Allens’ “knowingly” offered counterfeit merchandise for sale because the Allens had the “intention and purpose to trade upon Coach’s goodwill.” Judge McMahon gave several reasons for this conclusion. First, the marks in use were identical to Coach’s “strong and established marks.” Second, the Allens’ website disclaimer demonstrated the Allens’ knowledge that the goods were infringing because it described the goods as “not original” and not associated with the manufacturer. Third, the Allens did not provide complete sales records during discovery. Finally, Linda Allen had been sued for “the same exact” illegal conduct before in 2007 for her sales on MyClassyFashion.com and UltimateDesignerHandbags.com.

In addition to the Allens’ willfulness, Judge McMahon looked at what award would deter the Allens and other counterfeiters from engaging in the same behavior in the future. The purpose of the Lanham Act “is to take the incentive out of counterfeiting and strengthen the civil remedies against counterfeiters.” S. Rep. No. 117 (104^th Cong. 1995).  Judge McMahon concluded that “Coach is in need of a substantial award in order to deter the Allens and hundreds of other counterfeiters from selling and offering for sale merchandise bearing counterfeits of the Coach Registered Trademarks.”  Therefore, she awarded the maximum statutory damage award for each infringement. Judge McMahon awarded Coach $2,000,000 for each of the twenty-two types of goods sold or distributed- a total of $44 million.

[Photo courtesy of Creative Commons user xxjoyceeyxx]

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