Designer group Hermès gets $100M default judgment against alleged counterfeiters

We’ve blogged repeatedly about trademark owners obtaining ex parte orders that provide extraordinarily broad relief, ranging from domain name seizures to orders directing search engines and social networks to “delist” or “deindex” certain websites. In the run-up to SOPA’s introduction and consideration, it seemed relevant to keep track of what relief courts were willing to order under current law that overlapped with SOPA. Hermès recently initiated just such a case. In a breathtakingly short amount of time, Hermès filed its complaint, obtained a temporary restraining order and then an injunction, and finally obtained a judgment—in the amount of $100 million. (!!)

The case follows a similar trajectory to other cases we’ve blogged about. Most importantly, the court grants broad relief, including domain name seizures on an ex parte basis. The court allows service of the lawsuit papers via email and then issues an injunction when the defendant does not respond. The court also orders injunctive relief directed at third parties, such as registrars, search engines and social networks, that are not before the court.

What’s most striking about this case is how the court grants astronomical damages without any supporting evidence of actual damages. Usually when someone asks for damages, even in a default judgment setting, the court has a prove-up hearing and requires the party put forth some evidence in support of their claim for damages. Granted, the evidence may not be subject to the rigorous examination of an adversarial proceeding, but the court is still supposed to take an independent look at the request for damages and make sure it’s kosher. (See, for example the Seventh Circuit’s decision in e360 v. Spamhaus: “Spamhaus off the hook for $11 million judgment.”) Here, there was no evidence of damages whatsoever. A party’s failure to “participate in litigation” or comply with court orders is sometimes used as a basis for a harsh award in the form of sanctions, but a court will almost always give the defendants a chance and warn them before making a decision. A party’s failure to respond to lawsuit documents that were emailed to them—particularly where there’s no proof even that the documents have been received by the defendants—is not the type of scenario where courts typically smack defendants for frustrating the judicial process.

Hermès filed a brief arguing that counterfeiting is a serious problem, and that defendants infringed willfully, failed to participate in the litigation, and frustrated Hermès’ efforts to obtain the necessary information that would otherwise support a number for default judgment purposes. There was no discussion whatsoever of numbers of products that defendants allegedly sold—even by estimation. There weren’t any details on the alleged relationship between the various defendants (if any).

It’s crazy to see judges sign off on these types of orders. Interestingly, as the memo filed by Hermès shows, this isn’t the first time. Cases brought by brands in the last year have resulted in laughably high damages awards against alleged “sprawling online counterfeit networks”: True Religion ($8,150,000); Tory Burch ($164,000,000); Burberry ($60,000); North Face ($78,000,000). (See also “Uggs Wins $686 Million Judgment in Counterfeit Cases Against Over 3,000 Knock Off Sites”.)

It remains to be seen whether these judgments are merely part of a PR push, somewhat similar to those pursued by ISPs against spammers, or whether the brands will do more than levy against the PayPal funds to collect. Either way, judges have shown a surprising willingness to sign off on whatever these types of trademark plaintiffs put in front of them. As anyone who has any experience in federal courts can attest, federal judges tend to be prickly about the orders they sign. I keep thinking one of these days a judge will issue a blockbuster order saying that while it’s appropriate for brands to pursue relief against infringers and counterfeiters, courts won’t simply rubber stamp their proposed orders.

Eric’s Comments

Raise your hand if you think Hermès actually lost $100 million of profits to this group of online foreign defendants. Anyone?

Raise your hand if you think it’s possible that Hermès could lose $100 million in profits to the entire collection of online counterfeiters throughout the world. Think about the market size in total and the mixed empirical results about counterfeiting as beneficial marketing/price discrimination. Anyone?

Raise your hand if you think Hermès will collect more than $1 in cash from any defendant in this case (other than seizing cash in the hands of third-party payment service providers). Anyone?

OK, so Hermès gets a big, empirically indefensible, uncollectable damages award ex parte. Um…yay…?

Can someone please explain to me how an award like this does any good for anyone? If anything, I think outcomes like this breed disrespect for trademark owners and for the judicial system. Trademark owners look like greedy SOBs making pie-in-the-sky demands using procedural shortcuts that almost certainly negate any possibility of opposition. (Anyone who wants to justify the award by saying “well, the judge signed off on it, so it must be OK” is cordially invited to stuff it). As we’ve protested before, ex parte judicial review is much more analogous to NO judicial review than to bona fide due process. When judges rubber-stamp BS requests like this, it makes me question the legitimacy of our judicial system. But because I actually think our judges really do try to do the best they can, outcomes like this are a warning sign we shouldn’t be asking them to make ex parte decisions. Screening ex parte demands doesn’t play to judges’ strengths.

Meanwhile, some of the relief authorized by the judge is disgusting. Sorry, I can’t think of a more appropriate word. The judge orders:

• Service provider cutoff: “domain name registry or other third party providers, including without limitation registrars, Internet Service Providers (“ISP”), back-end service providers, web designers, sponsored search engine or ad-word providers, merchant account providers, third party processors and other payment processing services, or shippers who receive actual notice of the terms of this Permanent Injunction, immediately and permanently cease rendering any services to the Defendants in connection with any of the Infringing Websites and Infringing Domain Names owned or operated by the Defendants”
• Future de-indexing if the judge finds that the defendants register any additional infringing domain names: “upon giving actual notice of such an Order to any Internet search engines including, but not limited to, Google, Bing, and Yahoo, and any social media websites including, but not limited to, Facebook, Google+, and Twitter, (collectively “Internet Search and Social Media Websites”), such Internet Search and Social Media Websites shall de-index and remove from any search results pages any Additional Infringing Domain Names and websites connected thereto, unless otherwise instructed by this Court or by the Plaintiffs that any such domain name is authorized to be reinstated, at which time it shall be reinstated to its former status within each search engine index from which it was removed” (So now the court will be telling search engines that they must reinstate content too? See my post about the virtual horses/bunnies dispute in Second Life)