International Society of Primerus Law Firms

Dont Let IP Licenses Lead You Down A Rabbit-Hole of Damages

By: David K. Hou

Boylan, Brown, Code, Vigdor & Wilson, LLP

Rochester, NY

A recent decision from the United States District Court for the Southern District of New York reaffirms the need for every trademark licensee to be particularly aware of their use of the licensors marks under the licensing agreement, and serves as an example of the serious magnitude of potential exposure that a trademark licensee can face if it engages in conduct which exceeds the boundaries of the license.

In Union of Orthodox Jewish Congregations of America v. Royal Food Distributors, LLC, the plaintiff was the owner of a mark which certified foods as being kosher, and brought suit against its licensee, Royal Food, which had been granted limited rights under a licensing agreement to use the mark in connection with the sale of certain foods. The plaintiff alleged that Royal Foods was using the mark on products outside the scope of the license agreement. Despite having been notified of violations in use of the mark on four specific products, Royal Food continued to use the mark. In the ensuing litigation, whether upon the advice of its counsel or not, Royal Food chose not to answer the complaint and the plaintiff obtained a default judgment against Royal Food for $300,000.00 in statutory damages, and $56,189 in attorneys fees.

In calculating damages, the Court noted that the plaintiff had opted to recover statutory damages (as opposed to actual damages, which could be difficult to prove, and/or be substantially less than the statutory damages permitted by statute). The statute, 15 U.S.C. 1117(c), permits plaintiffs to recover statutory damages between $1000 and $200,000 per counterfeit mark per type of goods or services sold, or, if the violation was willful, up to $2,000,000 per counterfeit mark per type of goods or services sold, all as the court considers just. In this case, the Court found that the violations were willful, given Royal Foods continued use of the marks despite the plaintiffs cease and desist letters, and its default in failing to answer the complaint. The Court thus found that it had discretion to award up to $8,000,000 in statutory damages, plus attorneys fees. The Court awarded $75,000 for each of the four violations, and in awarding $56,189 in attorneys fees (for the work in drafting a complaint which was defaulted on, mind you), acknowledged approximately 100 hours of work by three attorneys, (including a partner whose hourly rate was $735/hour and an associate whose hourly rate was $445/hour). Clearly, this Court had no problem imposing damages against this defendant.

So, if you are a licensee, let this be a lesson for you. This is not a rabbit-hole you want to go down. Dont put yourself in a position of having to defend a potentially winless case where the exposure could be substantial, and you could be at the mercy of the plaintiffs possibly expensive attorneys. Here are some practical business practice tips to avoid finding yourself in Royal Foods shoes:

  • Dont get too greedy; make sure that the products you sell under license fall within the scope of the license.
  • Make sure that the products you sell meet the any quality control standards set by the licensor, as well as the standards of any applicable public protection laws if the goods are subject to regulation. Periodic independent laboratory testing may be prudent.
  • Past approval doesnt predict future approval. If an approval process exists, dont assume that the licensor will grant approval on new products simply because approval has been given in the past.
  • This should be obvious, but comply with all material terms of the license agreement, including approval procedures, timely payment of royalties.
  • Maintain a file and regularly review all internal communications to ensure compliance.

David K. Hou is a Senior Associate in the Litigation Group at Boylan, Brown, Code, Vigdor & Wilson, LLP in Rochester, NY. For more information, please contact David at (585) 232-5300 or dhou@boylanbrown.com.

For more info on Boylan, Brown, Code, Vigdor & Wilson, LLP, visit the International Society of Primerus Law Firms or boylanbrown.com.

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