Don’t Go to the Trouble of Creating a Website and then Ignoring the Trademark Infringement Lawsuit – Neutron Depot LLC v. Bankrate, Inc.

If you’ve taken the time and effort to create a website in a competitive industry and your trademark is arguably close to an industry competitor, don’t make the mistake of ignoring a subsequent trademark infringement lawsuit.  In a recent case set in the federal court for the Southern District of Texas, Insurance Depot Marking Corporation did not file an answer to Neutron Depot’s lawsuit that alleged:

  • Trademark infringement
  • Unfair competition
  • Dilution
  • Cybersquatting

Neutron Depot owned the mark INSURANCE DEPOT.  Defendant Insurance Depot Marketing used the mark on its website.  Plaintiff asked for statutory damages under the Lanham Act and the Anti-Cybersquatting Consumer Protection Act based on Defendant’s use of INSURANCE DEPOT on its website that offered competing insurance services and use of the mark in website advertisements and links. Plaintiff also asked for an injunction against Defendant’s further use of the mark, an order of forfeiture or cancellation of the mark, a permanent injunction against use of the domain ‘www.insurancedepotamerica.com’, and attorney fees and costs.

Plaintiff’s complaint further alleged gross negligence, willful, deliberate, and intentional acts that were done with full knowledge and conscious disregard for plaintiff’s rights, i.e. Defendant knew Plaintiff owned the mark. This was important because these allegations made it an ­exceptional case.  The legal implication of this is that a prevailing party is entitled to its reasonable attorney fees in an exceptional case.

All the allegations went unchallenged because defendant did not file an answer and thus defaulted.  It is important to know that this court, and others, have found that defendants are deemed to have admitted knowingly and intentionally conduct when they default.

The evidence submitted at the final hearing were screenshots depicting search results for “Insurance Depot” that resulted in a link to Insurance Depot America’s website.  No evidence of defendant’s profits or saved expenses of developing the value of the mark was presented.

In a Lanham Act case, statutory damages are intended to provide adequate compensation and deter the use of counterfeit marks.  When a party elects to recover statutory damages the court has discretion to award an amount between $1,000 and $200,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed.  When the court finds willful use of a mark it can award up to $2 million per counterfeit mark.  Here the plaintiff asked for $100,000 for counterfeit use of the INSURANCE DEPOT mark and $1 million for willful infringement.

As to the claims for cybersquatting, statutory damages of $1,000 to $100,000 per domain name are available at the court’s discretion.  Here the plaintiff asked for $100,000—which the court awarded.  The total award for all statutory damages was $1.2 million.

It is important to note that the legal standard for establishing willful and intentional conduct is very high and requires evidence of a high degree of culpability, such as bad faith or fraud. As this case illustrates, a severe penalty can be imposed when a party defaults.  Not filing an answer can lead to deemed admissions of knowing, willful, and intentional conduct which can result in an award of attorney fees in addition to statutory damages.

An injunction against use of the subject mark can have severe consequences to a party that has invested time and resources in establishing consumer recognition under a trademark.  It makes sense for a party to invest in a trademark search well prior to formulating its marketing plan or designing its website using a trademark—especially in a competitive industry like insurance.

By Gregory Marcum

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