Counterfeiters, beware. A federal jury in California has awarded $20 million in statutory damages to Gianni Versace, S.p.A. (“Versace”) in its lawsuit against Los Angeles-based manufacturing company Tres Hermanos, Inc. (“Tres Hermanos”) and its owner, Monir Awada (“Awada”). Gianni Versace, S.p.A. v. Monir Awada, No. cv 03-3254-GAF (C.D. Cal. 2010). In 2003, a coordinated series of court-ordered seizures occurred at nineteen Tres Hermanos retail store locations, yielding approximately 4,000 counterfeit items consisting of various styles of shirts, sweaters, jackets, jeans, and pants, each bearing one or more counterfeit Versace trademark. In its May 2003 complaint, Versace made several claims against sixty-seven named defendants, including counts of trademark counterfeiting and infringement, trademark dilution, false designation of origin, and conspiracy, as well as alleged violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act. The luxury Italian brand eventually prevailed after a grueling, seven-year court battle.

Versace owns numerous trademark registrations for its name and its famous “Medusa” logo. It uses these marks in connection with the manufacture and distribution of its fashion merchandise, which includes couture jeans, clothing, handbags, shoes, leather, and other accessories. According to Versace’s complaint, the defendants engaged in a conspiracy consisting of the manufacture, distribution, importation, and retail sale of counterfeit Versace merchandise at over eighty retail locations. Versace argued that the defendants peddled substantially inferior products under the pretense that they were genuine goods originating from and approved by Versace.

During pre-trial proceedings, the court determined that Awada and Tres Hermanos had offered for sale approximately 4,000 garments bearing counterfeit Versace marks and that these counterfeits were virtually indistinguishable from Versace’s genuine marks. Specifically, the counterfeit merchandise bore various combinations of the “Versace,” “Gianni Versace,” “Versace Jeans Couture,” “Versace Classic V2,” and “Medusa” marks. Due to Awada’s extensive experience in the clothing business, his familiarity with the significance of trademarks, his history of defending trademark infringement suits, and the 2001 termination of his company’s seven-year commercial account with Versace, the court found that the twenty-two distinct uses of the counterfeit marks were “willful,” thus allowing for the court to impose up to $1 million in damages per counterfeit mark per type of good infringed. The jury, which had wide discretion to determine the amount of statutory damages within that range, awarded the maximum $1 million for eighteen of the twenty-two infringements and $500,000 for each of the remaining four. This case marked the first time that a jury has awarded a verdict of this magnitude in a counterfeiting case within the fashion industry.

Earlier this year, a similar case arose in New York when Gucci America, Inc. (“Gucci”) sued Curveal Fashion (“Curveal”) for the sale of counterfeit Gucci handbags and other products through its website. Gucci America, Inc. v. Curveal Fashion, No. 09 civ. 8458(RJS) (S.D.N.Y. 2010). After entering a default judgment against Curveal for failure to respond to Gucci’s complaint or otherwise take any action in the case, the court awarded Gucci statutory damages in the amount of $13.5 million. The court found that Curveal’s blatant declaration that it sold “cheap fake bags and replica handbags” on its website demonstrated the willful nature of Curveal’s infringement of Gucci’s merchandise. Although the maximum statutory damages award available amounted to $508 million, Gucci requested and received only $13.5 million, asserting that a rate of $100,000 per counterfeit mark per type of good infringed represented an appropriate award. The court agreed, finding that this $100,000 rate would accomplish the law’s dual goals of compensation and deterrence.

In another similar case in New Jersey, Chanel, Inc. (“Chanel”) secured a default judgment against the operator of various websites through which counterfeit Chanel handbags, wallets, sunglasses, jewelry, and scarves were sold. Chanel, Inc. v. Gordashevsky, No. 05-5270 (RBK) (D.N.J. 2008). After the defendant declared his intention to remain in Israel and never return to the United States to contest Chanel’s allegations, the court granted Chanel’s motion for default judgment and awarded just over $2.2 million in statutory damages. The court reasoned that this amount, which was equivalent to Chanel’s estimate of the defendant’s profits from the counterfeiting venture, sufficiently compensated Chanel and deterred the defendant from future infringing conduct.

Arent Fox is continuing to monitor these issues. For more information on these cases or on anti-counterfeiting in general, please contact Anthony Lupo or Sarah Bruno.

Anthony V. Lupo
lupo.anthony@arentfox.com
202.857.6353

Sarah L. Bruno
bruno.sarah@arentfox.com
202.775.5760