IP Law Daily Hookah maker cannot recover damages for counterfeiting of unregistered marks
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Thursday, May 31, 2018

Hookah maker cannot recover damages for counterfeiting of unregistered marks

By Thomas Long, J.D.

A district court acted properly in granting a motion for reconsideration and reducing a jury’s award of damages to hookah maker Kaloud, Inc., for trademark infringement by competitor Shisha Land Wholesale, Inc., because the jury erroneously awarded statutory damages for marks that were not registered at the time of the infringement, the U.S. Court of Appeals for the Ninth Circuit has held. Statutory damages under the Lanham Act were available only for infringement of registered marks and not marks for which registration applications were pending. In addition, the district court did not abuse its discretion in granting Shisha Land’s motion for directed verdict with respect to trademark counterfeiting claims because the parties’ respective products were not identical. The appellate court also affirmed the district court’s grant of a permanent injunction and denial of attorney fees to both parties (Kaloud, Inc. v. Shisha Land Wholesale, Inc., May 30, 2018, Mendoza, S.).

Kaloud accused Shisha Land of selling 20 counterfeit units of Kaloud’s Lotus hookah charcoal housing product. Kaloud asserted five trademarks—two for flavoring for hookah base water and three for a hookah charcoal container. A jury found that Shisha Land had engaged in willful counterfeiting and returned a verdict of $400,000 per infringed mark under Section 35(c) of the Lanham Act, 15 U.S.C. §1117(c). Shisha Land challenged the verdict and argued that statutory damages were unavailable on the five marks at issue. The district court granted Shisha Land’s post-verdict motions, and Kaloud appealed. Shisha Land cross-appealed the district court’s grant of Kaloud’s request for a permanent injunction, and both parties appealed the district court’s denial of attorney fee awards.

Statutory damages for unregistered marks. Two of the five marks at issue were not registered at the time of infringement. Section 34(d) of the Lanham Act, 15 U.S.C. §1116(d) makes it clear that recovery for counterfeit is available only with respect to marks that are registered on the Principal Register. In the court’s view, the plain reading of the statute demonstrated that Congress intended to permit statutory damages for infringement of only registered marks and not for marks that were the subject of pending applications. The statute used a temporal modifier in the past tense—"registered"—instead of "mark pending registration" or "mark undergoing review." In other sections of the Act, when Congress intended to provide the same protections to both applicants and registrations, it made that intention explicit, the court said. Therefore, Kaloud was not entitled to remedies under Section 35(c) for marks not registered at the time of infringement.

Counterfeiting. The Ninth Circuit also held that the district court did not abuse its discretion in granting Shisha Land’s motion for directed verdict on the ground that counterfeit products must be identical to the product listed in the registered trademark. The district court had found that Kaloud’s trademarks for flavored hookah water did not provide protection under Section 35(c) for charcoal hookah containers. That section requires a plaintiff to prove that "the mark in question be (1) a non-genuine mark identical to the registered, genuine mark of another, where (2) the genuine mark was registered for use on the same goods to which the infringer applied the mark." A charcoal container was not the "same product" as flavored hookah water, the court noted. Accordingly, Kaloud was not entitled to statutory damages as a matter of law.

Permanent injunction. Granting Kaloud’s request for a permanent injunction was not an abuse of discretion, the appellate court said. The district court appropriately found that Kaloud had shown that all of the required elements for injunctive relief were present, including irreparable harm. The injunction barred Shisha Land from selling one type of hookah charcoal container. The jury found that Shisha Land willfully counterfeited Kaloud’s marks for these products. According to the court, confusion of these marks harmed consumers because of the health risk of using a lower-quality charcoal container. In addition, the sale of counterfeit, low-quality products would harm Kaloud’s reputation.

Attorney fees. Kaloud was not entitled to an award of attorney fees because it did not receive any damages, the Ninth Circuit said. Therefore, it did not qualify as a "prevailing party," even though it had obtained injunctive relief. Finally, the appellate court affirmed the district court’s denial of Shisha Land’s motion for fees because Shisha Land "at best conducted the present litigation inattentively, and at worst acted in bad faith."

The case is Nos. 16-56138 and 16-56401.

Attorneys: Peter Afrasiabi (One LLP) for Kaloud, Inc. Louis F. Teran (SLC Law Group) for Shisha Land Wholesale, Inc.

Companies: Kaloud, Inc.; Shisha Land Wholesale, Inc.

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