Opinion ID: 3034224
Heading Depth: 3
Heading Rank: 3

Heading: Statutory Damages Award for Violation of the

Text: Lanham Act [12] The district court concluded that G&T violated the Lanham Act by purchasing bags bearing IPC’s certification mark and using them to package potatoes after G&T’s license to use the mark had expired. It went on to award IPC $100,000 in statutory damages under 15 U.S.C. § 1117(c). Section 1117(c) allows a plaintiff to opt for statutory damages in cases involving the use of a counterfeit mark. 15 U.S.C. § 1117(c). G&T contends that statutory damages were improper in this case, thus raising the question of whether its use of IPC’s mark constituted counterfeiting or mere infringement. The district court’s determination that G&T’s unauthorized use amounted to counterfeiting is a legal conclusion subject to de novo review. Humetrix, Inc. v. Gemplus S.C.A., 268 F.3d 910, 921 (9th Cir. 2001). In order to invoke § 1117’s special civil monetary remedies against counterfeiting, IPC must establish that: (1) G&T intentionally used a counterfeit mark in commerce; (2) knowing the mark was counterfeit; (3) in connection with the sale, offering for sale, or distribution of goods; and (4) its use was likely to confuse or deceive. See McCarthy § 25:15 (citing 15 IDAHO POTATO COMMISSION v. G&T TERMINAL 13939 U.S.C. §§ 1114(1)(a), 1117(b)). In this context, the mark used by G&T was counterfeit if: (1) it was a non-genuine mark identical to IPC’s mark; (2) IPC’s mark was registered on the Principal Register for use on the same goods to which G&T applied the mark; (3) IPC’s mark was in use; and (4) G&T was not authorized to use IPC’s mark on potatoes. See id. (citing 15 U.S.C. §§ 1116(d)(1)(B), 1127). G&T acknowledges that it was using IPC’s registered mark on packages of potatoes without a license to do so. The issue of whether its behavior constituted counterfeiting therefore turns on whether its use of IPC’s certification mark was likely to cause confusion. G&T contends that its unlicensed use of IPC’s mark was not likely to cause confusion because the potatoes it packaged were genuine Idaho potatoes. It points out that courts have held that the unauthorized sale of genuine goods does not constitute trademark infringement because it does not cause consumer confusion. See, e.g., NEC Elec. v. CAL Cir. Abco, 810 F.2d 1506, 1509 (9th Cir. 1987) (“[T]rademark law is designed to prevent sellers from confusing or deceiving consumers about the origin or make of a product, which confusion ordinarily does not exist when a genuine article bearing a true mark is sold.”). However, many cases have found a likelihood of confusion when a trademark owner was prevented from exercising quality control over the merchandise bearing its mark. See, e.g., Shell Oil Co. v. Commercial Petroleum, Inc., 928 F.2d 104, 107-08 (4th Cir. 1991); El Greco Leather Prods. Co., Inc. v. Shoe World, Inc., 806 F.2d 392, 395 (2d Cir. 1986) (“One of the most valuable and important protections afforded by the Lanham Act is the right to control the quality of the goods manufactured and sold under the holder’s trademark.”). In addition, many courts have held that an ex-licensee’s continued use of a trademark is enough to establish likelihood of confusion. See U.S. Structures, Inc. v. J.P. Structures, Inc., 130 F.3d 1185, 1190-92 (6th Cir. 1997) (holding that “proof of continued, unauthorized use of an 13940 IDAHO POTATO COMMISSION v. G&T TERMINAL original trademark by one whose license to use the trademark had been terminated is sufficient to establish ‘likelihood of confusion,’ ” noting that many courts have reached this conclusion, and affirming a treble damages award under 15 U.S.C. § 1117(a), which allows a court to assess treble damages in cases of mere infringement); see also Burger King Corp. v. Mason, 710 F.2d 1480, 1492 (11th Cir. 1983) (“The unauthorized use of a trademark which has the effect of misleading the public to believe that the user is sponsored or approved by the registrant can constitute infringement.”). But see U.S. Structures, 130 F.3d at 1192 (holding that exfranchisee’s unauthorized use of franchisor’s trademark did not constitute counterfeiting for purposes of awarding attorney’s fees under 15 U.S.C. § 1117(b)). In the certification mark context, the mark holder’s ability to institute quality controls seems vital if a mark is to serve its purpose. By licensing a party to use the “Idaho” mark, IPC certifies that the party’s potatoes meet the standards the mark represents. G&T asserts that its potatoes did meet IPC’s quality control standards because G&T procured its potatoes from licensed distributors. It stipulated, however, that it did not keep all of the records that it was required to keep under IPC rules. By depriving IPC of the opportunity to monitor and control quality, G&T created the potential for consumer confusion. See El Greco, 806 F.2d at 395 (noting that “the actual quality of the goods is irrelevant; it is the control of quality that a trademark holder is entitled to maintain”). G&T’s use of the certification mark implied that its potatoes had been produced and distributed in accordance with IPC’s quality control procedures, and the fact that this was not the case was likely to cause consumer confusion. See Shell Oil, 928 F.2d at 108 (noting that use of Shell’s mark “implies that the product has been delivered according to all quality control guidelines enforced by the manufacturer” and concluding that the defendant’s failure to follow those guidelines gave rise to “a likelihood of customer confusion as to the quality and source of the bulk oil”). If parties use IPC’s mark without abiding by IDAHO POTATO COMMISSION v. G&T TERMINAL 13941 IPC’s quality control provisions, as G&T did in this case, the certification mark may lose its value because goods bearing the mark do not consistently meet the standards the mark signifies. In addition, those making unauthorized use of the mark gain a market advantage by avoiding the expense of record keeping and following IPC’s other rules. Because IPC’s function is to police its mark, and not to make a profit from the goodwill associated with it as trademark owners do, IPC will have trouble establishing damages when it brings a court action against an unlicensed user. If its only remedy is injunctive relief, as G&T contends should be the case, then there is very little incentive for potato packers and distributors to obtain a license. Thus, the qualities that distinguish a certification mark from a trademark weigh in favor of making § 1117’s statutory penalties available in cases like this one, where an ex-licensee intentionally makes unauthorized use of a certification mark. [13] Because G&T’s unlicensed use of IPC’s certification mark was likely to cause confusion and to undermine the effectiveness of IPC’s certification mark licensing regime, we hold that G&T’s use constituted counterfeiting. Accordingly, we affirm the district court’s award of statutory damages.