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Yahoo! Awarded over $610 Million in Statutory Damages against Nigerian and Thai E-mail Lottery Scammers

Wednesday, December 21, 2011

Yahoo! Inc. v. XYZ Cos., No. 08-CV-04581, 2011 BL 305834 (S.D.N.Y. Dec. 5, 2011) The U.S. District Court for the Southern District of New York awarded plaintiff Yahoo! Inc. over $610 million in statutory damages in a dispute involving Nigerian and Thai e-mail scammers. Yahoo alleged trademark infringement and counterfeiting in violation of 15 U.S.C. § 1114; unfair competition, false designation of origin, and passing off in violation of 15 U.S.C. § 1125(a); trademark dilution in violation of 15 U.S.C. § 1125(c); violations of the CAN-SPAM Act, 15 U.S.C. § 7701 et seq.; and numerous violations of New York statutory and common law and California state statutes. The court awarded the statutory damages under Sections 1114 and 7701 after the remaining defendants in the case defaulted.

The Lottery Scam

Defendants, including a group of Nigerian and Thai individuals, as well as a Nigerian corporation and a Thai corporation, allegedly perpetrated a fraudulent scam wherein they sent hoax e-mails to individuals telling them that they won a lottery that the individuals had never entered. The e-mails, which appeared to look as if they were associated with Yahoo!, instructed the individuals to pay a fee and provide personal information before they could collect their lottery winnings. The personal information was then used in additional scams and identity thefts. In an 18 month period Yahoo! catalogued 11,660,790 hoax e-mails sent by the defendants using Yahoo! Mail. Yahoo! alleged that the defendants deposited over $3 million in a bank account associated with the hoax, allegedly collected from unsuspecting individuals through the lottery scam.

Default Judgment Standard

To receive a default judgment, the court clerk must first file an entry of default against the defendant who fails to plead or defend the action, and then the court must determine if the plaintiff's allegations sufficiently plead a claim. See Fed. R. Civ. P. 55(b); Fed. R. Civ. P. 8(b)(6). The court evaluated the sufficiency of Yahoo!'s claims for trademark infringement and counterfeiting, as well as its claims under the CAN-SPAM Act, finding evaluation of the remaining claims unnecessary.

Trademark Infringement and Counterfeiting Claims

To establish a claim under Section 1114 of the Lanham Act, a plaintiff must prove that it has a valid, protectable mark and that the defendant used the mark or an imitation of the mark in commerce without authorization in connection with the sale or advertisement of goods and services. The plaintiff must also establish a likelihood of confusion created by the defendant's unauthorized use. Yahoo! alleged that the defendants gained commercially by the unauthorized use of the marks to send the hoax messages, misleading and confusing consumers. Accordingly, the court found that Yahoo! adequately pleaded its claims and, in light of the defendants' default, was entitled to statutory damages under 15 U.S.C. § 1117(c). The current statutory damage range is $1,000 to $2,000,000 per counterfeit mark per type of goods or services sold or distributed if the infringement was willful. Prior to October 13, 2008, the statutory maximum was $1,000,000 per counterfeit mark. To determine where in the range is appropriate in any given case, courts consider the defendant's profits, the plaintiff's lost revenues, the value of the mark, whether the defendant's actions were willful, the extent of the defendant's cooperation with the court, the scale of the defendant's activities, and the deterrent effect of the award on both the defendant and other potential offenders. Yahoo! at 11. Yahoo! argued that each e-mail was a separate "service" and that there were 134 different types of e-mails which included 816 violations of its trademarks prior to October 13, 2008, and 146 different types of e-mails which included 795 violations after October 13, 2008. Accordingly, Yahoo! contended that it should receive $816,000,000 in statutory damages under Section 1117(c) for the pre-October 13, 2008 violations and $1,590,000,000 for the post-October violations. The court, however, disagreed, concluding that the e-mails were not so different as to constitute separate services, and therefore, that the e-mails were all considered one service for purposes of awarding damages. The court concluded, however, that the defendants infringed nine different marks in association with this one service. While the court lacked information regarding the defendants' profits or Yahoo!'s lost revenue, it acknowledged that the YAHOO marks are well-recognized and noted the harm caused by the proven confusion. The court also noted that the defendants' actions were willful and that the defendants never responded to the lawsuit. The court therefore awarded $9,000,000 for those emails sent prior to October 13, 2008 and $18,000,000 for those e-mails sent after October 13, 2008, for a total of $27,000,000 in statutory damages under Section 1117(c), concluding that the damage award would have a deterrent effect on both the defendants and other potential violators.

CAN-SPAM Violations

Establishing a violation of the CAN-SPAM Act requires evidence that the defendant: "(1) transmitted commercial electronic mail messages; (2) to a protected computer; and (3) that those messages included header information or subject headings that were materially misleading." Yahoo! at 6; 15 U.S.C. § 7704(a)(1)-(2). The plaintiff must also show "that the emails did not clearly identify themselves as advertisements or solicitations." Yahoo! at 6; 15 U.S.C. §§ 7704(a)(3),(5). The court found that Yahoo! sufficiently alleged each of these factors and estimated that the defendants sent at least 11,660,790 e-mails between December 2006 and May 2009. The court explained that each e-mail was a separate violation of the CAN-SPAM Act, eligible for up to $100 per violation in statutory damages and, at the court's discretion, treble damages for willful violations. However, based on the significant statutory damages awarded under Section 1117, the court found that the full award of $100 per violation under Section 7704 was unwarranted for a deterrent effect. Instead, the court awarded $50 per violation and declined to treble the damages, for a total of $583,039,500 in statutory damages under Section 7704. However, the court found the defendants jointly and severally liable, and also awarded Yahoo! reasonable attorneys' fees. DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.

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