Repeat Trademark Infringer Slammed with Order to Pay $7.8 Million in Sanctions
In 2007, TracFone, the largest provider of prepaid wireless telephone service in the United States, filed suit against Defendants alleging that their sale of “unlocked” TracFone prepaid cell phones infringed TracFone’s trademarks and constituted unfair competition in violation of the Lanham Act. The District Court entered a Final Judgment and Permanent Injunction against Defendants in 2008 finding that Defendants had willfully infringed upon TracFone’s trademarks.
The Permanent Injunction enjoined Defendants from “purchasing, selling, shipping, transferring, or altering in any way” all “TracFone/NET10 Prepaid Phones.” It further enjoined Defendants from engaging in any purchase or sale of the “TracFone/NET10 Unlocking Solutions.” The injunction applied to all current, previous, and future phones sold by TracFone, and provided for payment of compensatory liquidated damages to TracFone in the amount of $5,000 per violation of the “Prepaid Phone” provision. TracFone’s prepaid phones retail from $5 to $80. The injunction similarly provided for $20,000 in damages per violation of the “Unlocking Solutions” provision.
TracFone discovered, through its own investigation, that the Defendants had been continuously violating the terms of the Permanent Injunction and in January 2012 filed a Motion to Reopen and for Contempt based on the Defendants’ alleged misconduct. In September of 2012, the Court entered an order reopening the case with respect to Defendants, held them in civil contempt, and granted expedited discovery to determine the scope of Defendants’ violations. Through discovery, TracFone was able to establish the (1) scope of Defendants’ violations and (2) that the violations were willful. The Court subsequently ordered the Defendants pay $7.8 million in sanctions.
The Court found, and the Defendants did not deny, that the Defendants had knowingly violated the “Prepaid Phones” and “Unlocking Solutions” provisions at least 4 and 386 times, respectively. The Court also found that the Plaintiff’s injuries consisted of attorneys’ fees, the cost of hiring an undercover investigator, loss of revenue, and loss of business reputation and goodwill among consumers.
Because the Defendants had been in civil contempt as of September 2012, the Court noted that it had “wide discretion to fashion a remedy.” Under Federal Rule of Civil Procedure 11(c)(4), a sanction “may include nonmonetary directives; an order to pay a penalty into court; or, . . . an order directing payment to the movant of part or all of the reasonable attorneys’ fees and other expenses directly resulting from the violation.” Although the Court noted its wide discretion to deal with civil contempt, outside of the $64,000 awarded in attorneys’ fees and costs, it merely enforced the compensatory liquid damages provision of the Final Judgment and Permanent Injunction: TracFone was entitled to $20,000 per “Unlocking Solutions” violation, and $5,000 per “Prepaid Phone” violation.
The case is TracFone Wireless, Inc. v. GCA Electronics, LLC et al., No. 1:07-cv-03084-TCB, in the United States District Court for the Northern District of Georgia, Atlanta Division.
The author would like to thank summer associate John Gerl for his substantial contribution to this post.