Trademark Infringement and Cybersquatting Analysis for Subway v. Subway.SY and Kotifani

On Wednesday I posted an article about how Subway.SY owner Hani Kotifani tried to represent himself pro se (without counsel) against the real Subway restaurant and failed miserably in a cybersquatting / trademark infringement lawsuit and promised that an analysis of the Court’s ruling would be soon to follow. That post can be found here (Trademark and Cybersquatting Lawsuit: Subway Awarded Permanent Injunction, Statutory Damages, and Attorney’s Fees, Against Subway.SY LLC)

Well, here’s the analysis for Doctor's Assocs. v. Subway.SY LLC, 2010 U.S. Dist. LEXIS 83223 (D. Minn. July 30, 2010).

Among its other requests, Subway asked the Court to permanently enjoin Kotifani and Subway.SY (Defendants) from using Subway trademarks. Judge Rosenbaum placed emphasis on a few critical factors in making his determination of whether to grant the permanent injunction. Specifically: Subway.SY website (www.subway-sy.com) still remains live even after Kotfani was asked to it, the website has the Subway.SY logo prominently displayed across the top, and Kotifani very recently registered the name ‘Subway.SY’ with the Minnesota Secretary of State.

When may an 8th Circuit court grant a permanent injunction? An injunction is typically granted in situations where the moving party can establish through a preponderance of evidence that such action is necessary to prevent an infringement of that party’s rights flowing from a federal trademark registered with the United States Patent and Trademark Office (USPTO). Judge Rosenbaum noted that in this situation, the Court weighed the following factors (from Taylor Corp. v. Four Seasons Greetings, LLC, 403 F.3d 958, 967 (8th Cir. 2005));

(1) The threat of irreparable harm to the moving party;
(2) The balance of harm between this harm and the harm suffered by the nonmoving party if the Court grants an injunction; and
(3) The public interest.

After weighing the Taylor Corp. factors, Judge Rosenbaum found that the facts of the instant case “overwhelmingly favor(s) entry of a permanent injunction.” at 5. Rosenbaum went on to elaborate that;

“In the face of defendant's unrelenting efforts to use and derive benefit from plaintiff's trademarks, the Court concludes a permanent injunction is necessary to protect plaintiff from ongoing harm.” Id.

Next the District Court for the District of Minnesota examined the availability of statutory damages against Kotifani and Subway.SY;

Likely in order to dissuade potential future infringers, Subway sought the maximum statutory damages under the Lanham Act and the Anti-Cybersquatting Consumer Protection Act (ACPA).

Under the Lanham Act, Subway sought statutory damages for Defendants ‘use of counterfeit marks’. Recourse to the Lanham Act (promulgated under the ACPA) enabled Subway to ask for statutory damages instead of going through the difficult process of having to prove actual damages and profits. The Lanham Act (15 U.S.C. § 1117(c)) provides for an award between $1,000 and $200,000 per counterfeit mark, or, alternatively, if a court finds that the infringements were willful, the Lanham Act provides for statutory damages up to $2,000,000 per counterfeit mark.

Even while trying to represent himself pro se, I think that the threat of two separate $2,000,000 penalties (one for his use of “Subway.SY” and one for “Eat Healthy”) should have galvanized Kotifani into realizing the seriousness of the charges against him and Subway.SY.

Examining the separate instances of trademark infringement, via Defendants’ counterfeit marks, under the statutory damages provision of the Lanham Act, Judge Rosenbaum wrote that;

“The statute "does not provide guidelines for courts to use in determining the appropriate award, and is only limited by what the court considers just." Tiffany Inc. v. Luban, 282 F. Supp. 2d 123, 124-25 (S.D.N.Y. 2003) (internal citations omitted). Here, plaintiff seeks $2 million, the statutory maximum, for defendant's infringement of its marks. Specifically, plaintiff argues defendant's bad faith intent to trade-off plaintiff's goodwill, coupled with defendant's continued infringement, warrants the maximum award.” at 8.

Then, before determining the proper statutory award, Judge Rosenbaum had to make the determination of whether the acts of trademark infringement were willful or not. Rosenbaum wrote;

“Before assessing an enhanced damage award, the Court considers whether defendant acted willfully. An infringer acts "willfully" if he knows his conduct constitutes infringement. See RCA/Ariola Int'l. v. Thomas & Grayston Co., 845 F.2d 773, 779 (8th Cir. 1988) (applying the willfulness standard in a copyright case); see also Kepner-Tregoe, Inc. v. Vroom, 186 F.3d 283, 288 (2d Cir. 1999) (defining the standard for willfulness as "whether the defendant had knowledge that [his] conduct represented infringement or perhaps recklessly disregarded the possibility.").” at 8-9.

Rosenbaum easily came to the determination that Kotfani’s conduct in using the counterfeit marks was willful;

“Here, the Court found defendant had infringed, and told him so. Nonetheless, his infringing conduct continued. On March 9, 2010, in the midst of this lawsuit, defendant registered the name Subway.SY with the Minnesota Secretary of State. On April 2, 2010, the Court told defendant, in no uncertain terms, his actions violated the law. Defendant, however, continues to operate his website — despite directly representing to the Court that it "ha[d] been removed from publication." (Def.'s Reply 3.) This is willful conduct.” at 10.

However, instead of clobbering Kotfani and Subway.SY with 1 or 2 $2 million statutory damage penalties, the Court exercised discretion and only awarded damages of $25,000.

Next, the Court examined the availability of statutory damages against Kotifani and Subway.SY under the Anti-cybersquatting Consumer Protection Act (ACPA) ;

The ACPA (15 U.S.C. § 1117(d)) is similar to the Lanham Act but instead of trademark infringement, the ACPA provides statutory awards for instances of infringing domain names. Pursuant to this, recourse to the ACPA enabled Subway to ask for statutory damages between $1,000 and $100,000 instead of having to prove actual damages and profits.

Analyzing Kotfani and Subway.SY’s liability for statutory damages under the ACPA, Rosenbaum stated;

“Here, plaintiff seeks $100,000 in damages under the Anti-Cybersquatting Act, where defendant continues to maintain his infringing domain name registration and display plaintiff's mark. Defendant argues that, because his website cannot divert consumers from plaintiff's website, there is no infringement. The argument is specious. Where the Court has already ruled defendant's website violates the Anti-Cybersquatting Consumer Protection Act [Docket No. 24], defendant's arguments are inapposite.” at 10.

The Court again exercised discretion. Subway was awarded only a quarter ($25,000) of the maximum statutory damage award under the ACPA.

Lastly, the Court considered Plaintiff Subway’s request for attorney's fees;

Subway requested that its attorney’s fees and costs for litigating this matter, totaling $20,066.25, be assessed against Kotifani and Subway.SY.

In another move obviously stemming from his (poor choice) to represent himself pro se against the largest restaurant chain in the world, Kotifani complained that the request “is not reasonable” and asked the Court to reconsider the amount requested.

How do you calculate how much attorney’s fees should be granted? Where a defendant’s bad faith conduct has been established, the Court awards the plaintiff's entire fee request. Pursuant to this, Rosenbaum wrote;

“The Lanham Act authorizes "reasonable attorney fees to the prevailing party" in "exceptional cases." 15 U.S.C. § 1117(a). "Courts have defined the characteristics of exceptional cases with adjectives suggesting egregious conduct by  a party." Aromatique, Inc. v. Gold Seal, 28 F.3d 863, 877 (8th Cir. 1994); see also Porous Media Corp. v. Pall Corp., 110 F.3d 1329, 1341 (8th Cir. 1997) (upholding attorney fee award where defendant's conduct was "deliberate and willful"). Here, the Court has found defendant intended to deceive the public through his website. His submarine sandwich venture intentionally ripped off the name and attempted to free-ride on the goodwill of the world's largest submarine sandwich shop. To this end, he directly copied pictures of products from plaintiff's website and lied in press materials. More troubling, defendant continues his attempts to mislead the public on his website and through Facebook. These facts constitute an exceptional case, and the Court proceeds accordingly.” at 10-11.

The court then found that Plaintiff Subway had properly calculated its attorneys fees utilizing the lodestar method and ruled that the Subway’s full request of $20,006.25 should be awarded.

Conclusion;

U.S. District Judge for the District of Minnesota James M. Rosenbaum delivered the ruling of the Court on July 30, 2010, ruling that Plaintiff Subway is awarded a permanent injunction, prevails on its claims of trademark infringement and cybersquatting, and that Defendants Subway.SY and Kotifani have to foot the $70,006.25 award.

The award can be broken down as follows;

$25,000 – violation of the Lanham Act for use of counterfeit marks
$25,000 – violation of the ACPA for the infringing domain name located at www.Subway-SY.com
$20,006.25 – attorney’s fees

Tip for Internet law firms, attorneys, and the general public;

Instead of opening yourself up to liability, next time you consider trademark registration or registering a new domain name, contact an internet lawyer.