Adidas Awarded $304.6 Million: Reasonable or Excessive?

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The nearly $305 million awarded to adidas in the adidas v. Payless "Shoesource case has been met with surprise by many intellectual property practitioners; a number of whom are questioning whether that level of damages is excessive or not. David Drews of CONSOR, one of the damage experts on the case, thinks the amount is reasonable.

The nearly $305 million awarded to adidas in the adidas America, Inc. Et Al V. Payless Shoesource, Inc., Civil Document for Case No: 01-1655-KI, United States District Court (District of Oregon) case has been met with surprise by many intellectual property practitioners; a number of whom are questioning whether that level of damages is excessive or not. But is that amount excessive?

In this case, the damages were based on recognized elements of trademark law, including the award of actual damages ($30.6 Million); disgorgement of infringer's profits ($137.0 million); and a doubling of disgorged profits in an effort to punish Payless's apparent willful infringement activity.

The actual damages represent the reasonable royalties that adidas should have been paid for their use of their IP, based on CONSOR's analysis. This figure was based largely on adidas' existing licensing program. Obviously, an award of actual damages that quantifies a reasonable royalty using existing licensing parameters and actual sales of related merchandise cannot be considered excessive.

Proving Payless's profits to the satisfaction of the jury should assure most observers that the unjust enrichment portion of the award is not excessive, since it is based on marketplace activity. Also, it is doubtful that the less than one-to-one ratio for the punitive damages portion in this case ($137.0 million for punitive damages, $167.6 million for other damages) should be considered excessive. At first, the $305 million award may seem excessive, but a closer look at the underlying elements shows this is not the case.

While the size of the award was unprecedented and captured the attention of many trademark litigators' attention, another surprising aspect of this case is that damages were awarded at all. As Weston Anson of CONSOR stated recently, damages are not awarded in most trademark cases because they are difficult to prove and the plaintiff is required to verify and quantify the royalties lost by the trademark owner.

As long as the damages can be proved and any punitive award is justified and not unreasonable, the absolute level of a damages award should not be a cause for alarm, no matter how large it may be.

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Doug Bania
CONSOR
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