Default Is Not Damages Proof: Lanham Act Plaintiffs Must Support Enhanced Statutory Damages After Default

Introduction

In Shenzhen Huajie Technology Co., Ltd. v. Shenzhen Leyibei Technology Co., Ltd., the Seventh Circuit affirmed a Northern District of Illinois judgment awarding only minimum statutory damages after default in a Lanham Act trademark-counterfeiting and cybersquatting case.

Huajie, a China-based clothing seller using the “bellelily” mark and domain www.bellelily.com, sued Leyibei, another China-based seller, after Leyibei allegedly used the similar domain www.bellelliy.com and sold similar clothing. Huajie sought maximum statutory damages: $2 million for willful counterfeiting and $100,000 for cybersquatting.

Leyibei stopped participating. The district court entered default, granted injunctive relief, but awarded only $1,000 for counterfeiting and $1,000 for cybersquatting—the statutory minimums. Huajie appealed, arguing that the district court abused its discretion by failing to explain why it awarded so little.

Summary of the Opinion

The Seventh Circuit affirmed. The majority held that although district courts generally should explain discretionary rulings, Huajie had failed to contemporaneously support its request for maximum statutory damages after default. Its proposed final judgment order contained no reasoning, no developed damages analysis, and no citation back to its earlier summary judgment arguments.

The court emphasized that default establishes liability, but not entitlement to a particular amount of damages. A plaintiff who wins default must still “prove up” damages. Because Huajie did not do so, the district court did not abuse its discretion by awarding the minimum statutory amounts.

Judge Pryor dissented. In her view, the district court’s order was too bare to permit appellate review. She would have vacated and remanded for the district court to explain why it chose the minimum amounts, regardless of Huajie’s shortcomings.

Analysis

Precedents Cited

Liu v. Monthly and Eicher Motors Ltd. v. P'ships & Uninc. Ass'ns Identified on Schedule "A": These cases supplied the broader context of “Schedule A” litigation—mass intellectual property suits against online sellers, often foreign merchants, involving ex parte asset restraints, electronic service, and frequent defaults.
Broad. Music, Inc. v. Star Amusements, Inc.: The court cited this case for the highly deferential standard of review applicable to statutory damages awards within the authorized statutory range.
Patton v. MFS/Sun Life Fin. Distribs., Inc.: This precedent states that a discretionary ruling should show that the district court considered relevant factors and actually exercised discretion. The majority acknowledged this principle but held that the district court was not required to develop arguments Huajie itself failed to present. The dissent relied heavily on this case to argue that the absence of explanation required remand.
In re Catt: This case was central to the majority’s reasoning. It distinguishes between entry of default and entry of default judgment, and confirms that even after default, the prevailing party must establish entitlement to the requested relief.
Domanus v. Lewicki: The court used this case to reinforce that default establishes liability but does not automatically prove damages.
Video Views, Inc. v. Studio 21, Ltd., abrogated by Fogerty v. Fantasy, Inc.: The majority drew from Video Views the principle that awards above the statutory minimum need evidentiary support and explanation. The dissent distinguished it, arguing that it did not excuse the district court from explaining why it rejected a request for enhanced damages.
Chi-Boy Music v. Charlie Club, Inc.: Cited for factors relevant to statutory damages, including difficulty of proving actual damages, circumstances of infringement, and deterrence.
Von Duprin LLC v. Major Holdings, LLC, Hatahley v. United States, Smith v. Village of Maywood, and Freeman v. Franzen: The dissent invoked these authorities for the proposition that unexplained discretionary decisions can prevent meaningful appellate review.
Spectrum Ass'n Mgmt. of Texas, L.L.C. v. Lifetime HOA Mgmt. L.L.C. and Emps. Council on Flexible Compensation v. Feltman: The dissent cited these cases as examples of courts evaluating factual considerations and aggravating or mitigating factors in Lanham Act statutory damages awards.

Legal Reasoning

The majority’s reasoning turns on the distinction between liability and damages. By defaulting, Leyibei admitted the well-pleaded allegations sufficient to establish willful counterfeiting and cybersquatting. But that did not mean Huajie automatically deserved the maximum statutory award.

The Lanham Act permits statutory damages “as the court considers just.” For willful counterfeiting, the available range is $1,000 to $2 million. For cybersquatting, the range is $1,000 to $100,000. Because the statute gives the court discretion, the plaintiff must provide a basis for the amount requested.

Huajie had earlier requested maximum damages in its summary judgment motion, arguing deterrence and compensation. But after default was entered, it submitted only a bare proposed judgment. It did not file a developed motion for default judgment, did not attach evidence, and did not direct the district court back to its earlier arguments. The majority therefore held that Huajie “invited” the result and was not entitled to a second opportunity on appeal.

The dissent focused on institutional review: even if Huajie failed to support maximum damages, the district court still had to explain its exercise of discretion. Judge Pryor would have remanded, not because Huajie necessarily deserved more money, but because the appellate court could not know why the district court selected the minimum amounts.

Impact

Although the disposition is nonprecedential and may be cited only under Federal Rule of Appellate Procedure 32.1, it sends an important practical message to intellectual property plaintiffs, especially in Schedule A cases:

Winning default is not the end of the case.
A plaintiff seeking enhanced statutory damages must provide evidence and argument after default.
A proposed judgment order is not a substitute for a damages memorandum.
Courts are not required to search the record for earlier arguments supporting a damages request.
Minimum statutory damages may be affirmed where the plaintiff fails to prove entitlement to more.

The decision may encourage district courts to give at least brief explanations when awarding minimum damages, especially in light of the dissent. But it also warns plaintiffs that appellate courts may affirm sparse district court orders when the plaintiff itself failed to build a damages record.

Complex Concepts Simplified

Schedule A litigation: A common form of online IP enforcement where a plaintiff sues many online sellers, often foreign merchants, listed in a sealed schedule attached to the complaint.
Default: A procedural consequence when a defendant fails to respond or participate. It generally establishes liability but not the amount of damages.
Statutory damages: Damages set within a range created by statute, available even when actual losses are hard to prove.
Trademark counterfeiting: Use of a mark that is identical or substantially indistinguishable from a registered trademark in a way likely to confuse consumers.
Cybersquatting: Registering or using a domain name confusingly similar to another’s distinctive mark with bad-faith intent to profit.
Abuse of discretion: A deferential appellate standard asking whether the district court made a serious error in judgment, applied the wrong legal rule, or lacked support for its decision.

Conclusion

The key takeaway is straightforward: in Lanham Act default cases, liability by default does not establish entitlement to maximum statutory damages. Plaintiffs must still present a contemporaneous, supported damages case.

The majority affirmed the minimum award because Huajie failed to prove up damages after default. The dissent would have required the district court to explain its reasoning before appellate review. Together, the opinions highlight a tension between efficient handling of high-volume Schedule A litigation and the need for reasoned damages determinations.