Negative publicity and cost limit trademark bullying

As a result, the problem isn't that the Lanham Act does not provide a cause of action for trademark infringement and counterfeiting that would apply where a broker sells parts bearing the trademark of the actual manufacturer but where the model numbers, date codes, serial numbers, or other markings have been changed. Instead, it seems more likely that trademark owners are either unwilling or unable to bring civil actions against counterfeiters. There are a number of reasons why they might be reluctant to do so.

B. Parts Manufacturers May Be Concerned that Filing Trademark Infringement Suits Will Damage Their Brands

Trademark owners are frequently concerned about negative publicity generated by filing a lawsuit. Researchers at Texas A&M found that filing a trademark infringement suit often has a negative impact on a company's stock price, apparently because this is the first point at which investors learn of the problem and have an opportunity to reassess expected future cash flows.317 Based on a review of 1,918 trademark infringement cases filed by U.S. companies between 2009-2014, they determined that the average cumulative abnormal return (CAR) at the time of filing across all types of trademark infringement cases was both negative and at least marginally significant. 318 Firms filing cases involving allegations of counterfeiting experienced the strongest negative stock market reaction.319 Allegations of online infringement were perceived to cause more damage to a brand than those taking place in traditional brick-and-mortar stores, and they also resulted in a more negative stock market reaction. In addition, the study showed that investors react more negatively to multiple cases of infringement, and the impact on share price was more severe for companies that did not frequently file trademark lawsuits. 320

The researchers hypothesized that investors may consider the damages already incurred by the company, the high legal costs that will be incurred upfront, and the lack of any assurance that those costs will eventually be recouped.321 While filing the lawsuit demonstrates that the company wants to protect its brand, investors apparently give more weight to the perceived downsides of litigation than to the prospect of potential relief from infringement.322 Investors reacted even more negatively when a company won a trademark infringement suit-apparently winning the case confirmed the validity of the threat, and it caused investors to downgrade their expectations for the future since uncertainty remained about the long-term impact of infringement. 323 The researchers did document more positive trends six months after winning a suit, suggesting that, "in the long run, firms are again able to exceed expectations, although not by as much as they did before the filing."324

The House Report accompanying the Anticounterfeiting Consumer Protection Act observed that consumer awareness of counterfeiting can also damage a company's reputation and reduce its sales.325 Trademark owners are aware customers may be "reluctant to buy a particular brand that is known to be counterfeited for fear that they may mistakenly purchase a substandard copy rather than the genuine article." 32 6 Indeed, the report noted that the House experienced difficulty in finding companies willing to testify at a subcommittee hearing. "Some companies that had experienced significant counterfeiting problems were reluctant to testify because their testimony might have generated publicity, and past acknowledgment of counterfeiting had historically led to significant sales losses." 327 Victims are equally concerned about negative perceptions and are "reluctant to publicly admit that they have been duped." 328

C. Any Potential Recovery May Not Be Justified by The Costs, Or the Counterfeiters May Be Beyond the Reach of the Courts

In addition to concerns about the negative impacts on brand value and sales, manufacturers may also feel that any potential recovery is not justified by the costs of filing a case alleging trademark infringement and counterfeiting. First, the amount of money at stake may be relatively insignificant in the eyes of the trademark owner, particularly in a case involving only a few counterfeit parts. The market value of the authentic parts could be only a few thousand dollars, or even less.

In comparison, trademark actions can be expensive to maintain, and it would not be unusual to incur legal fees and other costs totaling hundreds of thousands of dollars. 329 Based on data collected by the American Intellectual Property Law Association, in 2020 the average cost of litigating a trademark infringement action through trial ranged between $325,000 and $1 million, depending upon the amount in dispute. 330 The Lanham Act authorizes a court to enter an award of attorney's fees to a prevailing party in an exceptional case 331 (i.e., one in which the infringing party acts in a malicious, fraudulent, deliberate, or willful manner,332 such as willful infringement or using vexatious litigation tactics). However, the amount of the award is discretionary, and no award of attorney's fees or costs will be made until the case has successfully concluded in favor of the trademark owner. As discussed above, in a case involving the use of a counterfeit mark, Lanham Act § 35 also allows the plaintiff to elect to recover statutory damages instead of actual damages and profits. Again, the amount is entrusted to the discretion of the court. 333

Trademark owners may also be concerned that even if they are able to secure a judgment against a counterfeiter (including compensatory damages, attorney's fees, and costs), the defendant may be judgment-proof because it lacks the economic means to satisfy any judgment. Further, if the counterfeiter is located in another country, U.S. courts may be unable to exercise jurisdiction over them in the first place. Two trademark litigators explained:

The foreign or judgment-proof defendant has long been the bane of counterfeit litigation. Companies have exhausted entire legal budgets chasing defendants in mainland China with little or no chance of recovery. While foreign strategies are not without merit, they are expensive and transform the enforcement/legal department into an expensive cost center within a company. 334

In many instances, the trademark owner may not be able to identify the original counterfeiter and will be required to pursue other participants in the supply chain under a theory of joint and several liability.