When in a trademark litigation involving a brand for a tech startup company, the goal is usually to settle before trial, provided a good settlement agreement can be reached. One deal point, or negotiation point, that may arise in trademark settlement negotiations, whether under FRE 408 or other negotiations, can be the inclusion of attorneys’ fees, or stipulated damages. What is the difference between these two clauses in the context of trademark litigation?
Attorneys’ Fees in Trademark Litigation Cases
An Attorneys’ Fees clause in a trademark litigation settlement agreement applies to both parties. This clause will typically cover any litigation or legal proceedings arising out of, or relating to, the Settlement Agreement. This includes an action by one party to enforce the covenants contained in the Agreement. The standard language in this clause creates a “loser pays” system. The losing party in the action arising out of the Settlement Agreement must pay to the prevailing party all reasonable (or actual) attorneys’ fees and expenses and court costs, in addition to any damages to which that party was entitled. An Attorneys’ Fees clause may be included in any contract and can apply in any jurisdiction.
In forming this clause, the parties must decide whether the payment is “actual” or “reasonable” attorneys’ fees. Actual attorneys’ fees can be any amount, while a “reasonable” attorneys’ fees clause provides the court with some discretion as to how much should actually be awarded to the prevailing party.
In the case of a Trademark Settlement Agreement, the trademark owner is more likely to bring suit arising from the Agreement than the alleged infringer. Therefore, including an attorneys’ fees clause is likely more beneficial to the trademark owner than it is to the alleged infringer. From the perspective of the alleged infringer, not including this clause may mean that the trademark owner is deterred from bringing small claims for any breaches of the Agreement by the alleged infringer.
Stipulated Damages in Trademark Litigation Cases
The Stipulated Damages clause in a Trademark Settlement Agreement is the payment specified for the alleged infringer to pay to the trademark owner. It will describe the amount of payment, the method or manner of payment, and the time period in which the payment must be made.
Similar to the Attorneys’ Fees clause, a Stipulated Damages clause can be included in any contract and may be enforceable in any jurisdiction.
Typically, the main goal of a trademark owner in any Trademark Settlement Agreement is to get the alleged infringer to agree to stop using the infringing mark. This agreement to stop using the mark can be all-encompassing, or may apply to only specific goods or services, or particular regions or markets. There are many cases where the alleged infringer is a small company that may not have the capability to pay meaningful damages to the trademark. Because of this, monetary damages are not as common in Trademark Settlement Agreements.
In those cases where monetary damages are agreed to, it is very important to include the timing of the payment(s). Without a specific stipulation of this time period, the alleged infringer has full discretion over when to make payments, making it very difficult to determine at what point the alleged infringer is in breach of the Trademark Settlement Agreement.
Of course, there is a difference between negotiated attorney fees in a contract, and statutory attorney fees under the Federal Trademark Act (Lanham Act). For a more detailed analysis, visit this blog where we discuss statutory attorney fees in trademark jurisprudence.
It is important for entrepreneurs engaged in settlement negotiations to understand the difference between these two significant clauses in Trademark Settlement Agreements. An omission of a proper attorneys’ fees clause can lead to a trademark owner incurring thousands of dollars in future attorneys’ fees and costs that could have been avoided through more careful drafting of the Settlement Agreement.
Any trademark owner that intends to enter into settlement negotiations with an alleged infringer of their trademark should consult an experienced trademark litigation attorney to ensure that they do not leave themselves exposed to any potential future liability that could have been avoided.