Monetary Remedies in

Trademark Cases
Weston Anson, CONSOR Intellectual Asset Management
R. Charles Henn Jr., Kilpatrick Stockton LLP
Paul C. Llewellyn, Kaye Scholer LLP

May 25, 2010

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Growing Interest in Monetary Remedies

• Recent high profile verdicts

adidas $300+ million (→ $65.3 million)
any others?
• Pressure on enforcement budgets

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 Lanham Act Monetary Remedies

• Lost profits
– lost sales
– lost royalties
– price erosion
• Disgorgement of profits
• Loss of business value
• Corrective advertising expenses

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Threshold Requirements

• Actual injury and/or willfulness generally

required
• Courts have broad discretion
• Precise calculation not mandatory

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 Value Definitions
• Fair market value • Transaction value
• In-place value • Securitization value
• Fair value • Replacement or
• Liquidation value reproduction value
• Deal value • But-for value
• Licensing value • Opportunity cost value

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What is Damaged:
The Trademark Bundle
• Core brand
• Primary trademark
• Corporate name and logo
• Sub-brand names
• Worldwide trademark registrations
• Secondary trademarks
• Packaging design and copyrights
• Trade dress
• Logos

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 Opposing Valuation Conclusions: Case Study

Action: Federal trademark infringement

Cause: Infringing shoe logos and designs
Plaintiff: Large sporting goods company
Defendant: Large shoe retailer
Plaintiff's Expert: $40.0 million
Defendant’s Expert: $2.0 million
Award: $60.0 million

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Lost Sales

• Most common form of “damages sustained

by the plaintiff”
• Actual confusion or intentional deception
generally required
– Survey evidence sometimes accepted as
surrogate for actual confusion

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 Quantifying Lost Sales
Profits
Lost Sales
(in millions)
Infringing Sales $100.6
Allocated Direct Costs $30.3
Other Allocated Incremental Costs $25.0
Infringer’s Profits $45.3

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Lost Sales: Practical Considerations

• Generally Only in Point-of-Sale Cases
• Actual Confusion Evidence Key
– Early communication with sales force
– “Form” approach to gathering instances
• Plaintiff Must Disclose Its Margins
– Potential issues with jury perception
– Potential conflict with “lost profit” position

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 Reasonable Royalties
• Available as alternative measure of
damages in some circuits
• Actual confusion or intent to deceive
generally required
• Georgia-Pacific elements widely accepted
as factors to consider in awarding
royalties.

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Georgia-Pacific Elements
• royalty rates received by licensor in prior licenses;
• prior rates paid by licensee;
• licensor’s licensing policies;
• nature and scope of the infringer’s use;
• special value of the mark to the infringer;
• profitability of the infringer’s use;
• lack of viable alternatives;
• opinion of expert witnesses; and
• amount that licensor and licensee would have agreed
upon in voluntary negotiations
Georgia-Pacific Corp. v. U.S. Plywood-Champion Papers, Inc., 318 F. Supp. 1116
(S.D.N.Y. 1970), modified and aff’d, 446 F.2d 295 (2d Cir. 1971).
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 Establishing Comparable Royalty Rates
LICENSOR ROYALTY RATE COMMENTS TOTAL
Wimbledon / TM 6.0% 2-4% for advertising 8.0 – 10.0%
Rawlings 3.5% - 5.0% ------- 3.5% - 5.0%
NFL 8.0% – 15.0% 2% for advertising 10.0% - 17.0%
MLBB 6.0% - 12.0% 2% for advertising 8.0% - 14.0%
LA Gear 4.0% - 6.0% 1-3% for advertising 5.0% - 9.0%
Playboy 6.0% - 10.0% 2% for advertising 8.0% - 12.0%
Bancroft 3.0% - 5.0% Product design fees 3.5% - 5++%
Louisville Slugger 5.0% - 8.0% 2% for advertising 7.0% - 10.0%
RANGE 3.5% - 17.0%

SPREAD 485%

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Quantifying Reasonable Royalties

Simplified Damages Analysis
Annual Sales of Brand X Widgets $100,000

Industry Average Royalty Rate for Branded Widgets 15.0%

Estimated Annual Royalty Income $15,000

Extended for 10 years $150,000

Annual Discount Rate 15.0%

Total Value or Damage = $80, 730

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 Royalties : Practical Considerations

• Measuring value of the brand

• Analogous License Agreements
– From client and opponent
– From third-party sources
• The “We Never Would’ve Done It”
Defense

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Price Erosion

• Existence of infringement forces plaintiff to

lower its prices
• Accepted in patent cases but not generally
accepted in trademark cases
• Rejected where price competition caused
by factors other than infringement

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 Approaches to Quantifying Price Erosion
• Decrease in the number of units sold;
• Increase in production or management costs;
• Increases in R & D or capital costs;
• Increases in capital expenditures to run a business;
• Increase in working capital needed;
• Decreases in past sales or future sales;
• Changes in the price per unit charged;
• Changes in market share
• Reduction in market size
• The cost of not being the first to market.

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Price Erosion:
Practical Considerations

• Proof of causation critical

• Evidence regarding marketplace situation
in addition to evidence of plaintiff’s costs
and sales

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 Disgorgement of Profits
• Many circuits require willfulness, others
include it as a factor to consider
• Actual confusion not always required
• Plaintiff’s burden to establish defendant’s
revenue; defendant’s burden to prove
offsetting costs

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Calculating Infringer’s Profits

• Simplest of all in theory*, toughest in
practice:

Infringer’s Sales AAA

Less: Direct Costs BBB
Net Profits = Damages CCC

*With full discovery and disclosure – which is NEVER

forthcoming

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 Disgorgement of Profits:
Practical Considerations
• Remember Burden Allocation
– Missing expert disclosure dates
– Proof at trial (save profits expert for “rebuttal”)
• “Attributable to the infringement”
– Copyright standard (17 USC § 504(b))
– Sometimes imported into trademark cases
• Consider Giving Jury Alternatives
– The “but if...” approach
• Watch for Double Recovery
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Loss of Business Value

• Focus on change in worth of plaintiff’s

business caused by wrongful conduct
– breach of contract
– theft of trade secret cases
• Not yet accepted in trademark context

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Quantifying Loss of Business Value
Annual Sales $15.9 M $24.1 M
Operating Expenses $5.4M $6.3 M
Pre-Tax Margins (5 years) $10.5 M $17.8 M
Discount Rate 18.8% 18.8%
Net Business Value $7.2 M $24.9 M
LOSS IN BUSINESS VALUE: $17.7 M

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Loss of Business Value:

Practical Considerations

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 Corrective Advertising

• Rare but available in limited circumstances

• Courts look at necessity of corrective
advertising undertaken by plaintiff
• Actual confusion or marketplace injury not
always required

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Seeking Corrective Advertising Damages

• Only makes sense in cases of extensive

advertising of the infringing mark
• Decide early in the case
– Need discovery targeted at drilled-down
advertising expenditures
• Avoids “double recovery”

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 Other damages issues to keep in mind
• Treble damages / profits
• Enhanced and statutory damages for
counterfeiting (per mark)
• Attorneys’ fees
– Lots of case law on “block billing,” so consider
recording time differently from the beginning.
• Combining damages remedies

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Damages / Valuation Methodologies are Changing

• No longer: Cost, Comparables, Income, Relief

from Royalty

• The Brand Value Equation Methodology (BVEQ™) • Premium Pricing Analysis

• The Competitive Advantage Technique
• The Concept of Relative Incremental Value
• Decremental Cost Savings Valuation
• Enterprise Value Enhancement
• Imputed Income Analysis
• Income Capitalization or Direct Capitalization
Methodology
• Income Differential Analysis
• Liquidation Value
• Profit Split Methodology
• Rules of Thumb
• Snapshots of Value Approach
• Subtraction Method of Value or Benchmark
Method of Value
• The Technology Factor Approach
• The ValCalc Methodology
• Valmatrix Analysis Technique
• Options Pricing Technique (The Black-Scholes)

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 Problems in Litigation Damages Cases
• Purely defendant vs. plaintiff POV
• Adversarial, always
• Extremes in value, not midpoints
• Premiums above market values
• Enforced transaction assumptions
• Reliance on court decisions (e.g. GP) rather
than economic logic
• Too many hired gun experts – and too little real
IP experience

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