Opinion
1:20-cv-08401 (PAE) (SDA)
03-02-2022
Allstar Marketing Group, LLC, Plaintiff, v. 4UTOTO, et al., Defendants.
TO THE HONORABLE PAUL A. ENGELMAYER, UNITED STATES DISTRICT JUDGE:
REPORT AND RECOMMENDATION
STEWART D. AARON, United States Magistrate Judge.
This is an action in which Plaintiff Allstar Marketing Group, LLC (“Plaintiff” or “Allstar”) alleges claims against Defendants, including those Defendants that have defaulted, for trademark infringement and counterfeiting of Plaintiff's federally registered trademark, false designation of origin, passing off, unfair competition, copyright infringement and related state and common law claims. (See Compl. ¶¶ 47-93.) After the Defaulting Defendants failed to respond to an Order to Show Cause why a Default Judgment should not be entered, and the Court entered a default judgment, this action was referred to the assigned Magistrate Judge for a damages inquest. (See 1/18/22 Order, ECF No. 43; Order of Reference, ECF No. 44.)
Defendants are merchants on the eBay online marketplace platform. (See Compl., ECF No. 7, ¶ 6.)
The Defendants that have defaulted are 4utoto, dongmakjhg, easybuying368, excellbuying, funnyatmosphere, gracefulvara, jewelryzhang888, lilybeibei, newlivehappy, priestlyy, qiangw21, s-2344, sgostore, shzh7, startingline59, stayreal999, st-ec, topbosss, tradeus8, winedya622, xen-9233, xovo1894, yangkent, yhxclx2010 and yoyomodel (hereinafter referred to as the “Defaulting Defendants”). (See Ex. C to Futterman 2/10/22 Aff., ECF No. 48-3.)
This case initially was assigned to Magistrate Judge Fox, but was reassigned to me upon his retirement.
For the reasons set forth below, I recommend an award of statutory damages in the amount of $50,000.00 against each of the Defaulting Defendants, for a total of $1,250,000.00, plus post-judgment interest.
PROCEDURAL HISTORY
On October 8, 2020, Plaintiff filed this action against Defendants. (See Futterman 8/25/21 Aff., ECF No. 37, ¶ 9.) Plaintiff moved ex parte for an order to seal the court file, a temporary restraining order (“TRO”), an order restraining certain merchant storefronts and Defendants' assets with certain financial institutions, an order to show cause why a preliminary injunction (“PI”) should not issue, an order authorizing bifurcated and alternative service and an order authorizing expedited discovery. (See id.) On October 9, 2020, the Court granted Plaintiff's application and entered the TRO. (See id. ¶ 11.)
The TRO required Defendants to appear on October 19, 2020 at the PI show cause hearing. (See Futterman 8/25/21 Aff. ¶ 12.) The TRO provided for alternative methods of service on Defendants of the Summons, Complaint, TRO and all documents filed in support of Plaintiff's application. (See id. ¶ 13.) On October 19, 2020, pursuant to the methods of alternative service authorized by the TRO, Plaintiff served on each Defendant all the required papers. (See id. ¶ 15.)
As such, Defendants had until November 9, 2020 to respond to the Complaint. (See Futterman 8/25/21 Aff. ¶ 16.)
On March 4, 2021, the Court entered the PI Order against all Defendants mirroring the terms of the TRO and extending through the pendency of the action. (See Futterman 8/25/21 Aff. ¶ 17.) Also on March 4, 2021, pursuant to the alternative methods of service authorized in both the TRO and PI Order, Plaintiff served the PI Order on each Defaulting Defendant, except excellbuying. (See id. ¶ 18.)
On August 17, 2021, Plaintiff requested an entry of default against the Defaulting Defendants from the Clerk of Court. (See Futterman 8/25/21 Aff. ¶ 19.) On August 18, 2021, the Clerk of Court entered a Certificate of Default against the Defaulting Defendants. (See Cert. of Default, ECF No. 35.) Thereafter, none of the Defaulting Defendants filed an answer with the Court, responded to the Complaint or otherwise appeared in this action. (See Futterman 8/25/21 Aff. ¶ 21.)
On August 25, 2021, Plaintiff filed its Motion for a Default Judgment against the Defaulting Defendants. (See Futterman 2/10/22 Aff., ECF No. 48, ¶ 6.) On December 15, 2021, the Court entered an Order to Show Cause why a default judgment and a permanent injunction should not be entered against the Defaulting Defendants. (See 12/15/21 Order, ECF No. 41.)
By Order dated January 18, 2022, Judge Engelmayer entered a default judgment against the Defaulting Defendants, and referred this action to the assigned Magistrate Judge for a damages inquest. (See 1/18/22 Order.) On January 20, 2022, I issued an Order requiring Plaintiff to serve and file by February 10, 2022 proposed findings of fact and conclusions of law concerning all damages and any other monetary relief sought, and requiring the Defaulting Defendants to serve and file their responses by February 24, 2022. (See 1/20/22 Order, ECF No. 45, ¶¶ 1, 4.) That Order also stated:
The Court hereby notifies the parties that it may conduct this inquest based solely upon the written submissions of the parties. See Bricklayers & Allied Craftworkers Local 2, Albany, N.Y. Pension Fund v. Moulton Masonry & Const., LLC, 779 F.3d 182, 189 (2d Cir. 2015) (quoting Action S.A. v. Marc Rich & Co., 951 F.2d 504, 508 (2d Cir. 1991)); Cement & Concrete Workers Dist. Council Welfare Fund, Pension Fund, Annuity Fund, Educ. & Training Fund & Other Funds v. Metro Found. Contractors Inc.,
699 F.3d 230, 234 (2d Cir. 2012) (citation omitted). To the extent that any party seeks an evidentiary hearing on the issue of damages, such party must set forth in its submission the reason why the inquest should not be conducted based upon the written submissions alone, including a description of what witnesses would be called to testify at a hearing and the nature of the evidence that would be submitted.(Id. ¶ 5.)
Plaintiff timely filed, on February 10, 2022, its proposed findings of fact (see Pl.'s FOF, ECF No. 47), as well as a supporting Affidavit of Danielle (Yamali) Futterman (see Futterman 2/10/22 Aff.) and a supporting memorandum of law. (Pl.'s 2/10/22 Mem., ECF No. 49.) On February 17, 2022, proof of service of these documents was filed. (Cert. of Service, ECF No. 51.)
No Defaulting Defendant has made any written submissions, nor has any Defaulting Defendant contacted my chambers in any fashion. Plaintiff has not requested an evidentiary hearing on the issue of damages. Because Plaintiff's inquest submissions provide a basis for damages, no hearing was required. See Bricklayers & Allied Craftworkers Local 2, 779 F.3d at 189.
To the extent that any finding of fact reflects a legal conclusion, it shall to that extent be deemed a conclusion of law, and vice versa.
The following findings of fact are based on the allegations contained in Plaintiff's Complaint:
In light of the Defaulting Defendants' default, the Court is required to accept all of Plaintiffs' allegations as true, except for those pertaining to damages. See, e.g., Finkel v. Romanowicz, 577 F.3d 79, 83 n.6 (2d Cir. 2009).
I. Allstar And Its Socket Shelf Product
Allstar is a leading developer, producer, marketer, and distributor of quality, innovative consumer products that it promotes and sells throughout the United States and the world through major retailers and well-known mass retail outlets, as well as through its retail customers' websites and a network of international distributors, among other channels of trade. (See Compl. ¶ 7.) One of Allstar's most popular and successful products is Socket Shelf, a unique surge protector device that provides six (6) power outlets and adds two (2) USB charging stations and a shelf to most three-prong outlets (the “Socket Shelf Product”). (See id. ¶ 8.) In addition to the channels described above, Allstar also markets and sells the Socket Shelf Product through its website entirely dedicated to the Socket Shelf Product, https://www.socketshelf.com/. (See id. ¶ 9.) The Socket Shelf Product has achieved great success and generally retails for $29.99. (See id. ¶ 10.)
While Allstar has gained significant common law trademark and other rights in its Socket Shelf Product, through use, advertising and promotion, Allstar has also protected its rights by filing for and obtaining a federal trademark registration. (See Compl. ¶ 11.) Allstar owns the Socket Shelf Mark, including U.S. Trademark Registration 6, 153, 908 for “SOCKET SHELF” for electronic docking station and charging station for electronic devices in Class 9. (See id. ¶ 12.) The Socket Shelf Mark is currently in use in commerce in connection with the Socket Shelf Product. (See id. ¶ 13.)
Allstar also owns registered copyrights related to the Socket Shelf Product, including U.S. Copyright Reg. Nos. PAu 4-030-375 (covering the Socket Shelf Commercial), VAu 1-365-330 (covering the Socket Shelf Deluxe Packaging), VAu 1-402-004 (covering the Socket Shelf Instruction Manual), VAu 1-347-375 (covering the Socket Shelf Packaging), VA 2-135-992 (covering the Socket Shelf Website) and VAu 1-365-333 (covering the Socket Shelf Packaging). (See Compl. ¶¶ 14-15.)
Allstar has spent substantial time, money and effort in building up and developing consumer recognition, awareness and goodwill in its Socket Shelf Product, the Socket Shelf trademark and the Socket Shelf copyrighted works. (See Compl. ¶ 16.) The success of the Socket Shelf Product is due in part to Allstar's marketing and promotional efforts, including advertising and promotion through television, its website, retailer websites, print and Internet-based advertising and placement of the Socket Shelf Product at dozens of authorized major retail outlets, both domestically and abroad, including New York. (See id. ¶ 17.) The success of the Socket Shelf Product is also due to its use of high-quality designs, materials and processes in making Socket Shelf Product. (See id. ¶ 18.)
II. Defaulting Defendants' Wrongful And Infringing Conduct
eBay.com is an online marketplace and e-commerce platform that allows manufacturers and other third-party merchants, like the Defaulting Defendants, to advertise, distribute, offer for sale and/or sell in what it characterizes as either auction-style or fixed-price formats and ship their retail products originating from China, among other locations, directly to consumers worldwide and specifically those residing in the U.S., including New York. (See Compl. ¶ 23.) The Defaulting Defendants are individuals and/or businesses, who, upon information and belief, are located in China but conduct business in the U.S. and other countries by means of user accounts and merchant storefronts on eBay. (See id. ¶ 27.) Through their merchant storefronts, the Defaulting Defendants offer for sale and/or sell counterfeit Socket Shelf products, and target and ship such products to customers located in the U.S., including New York, and throughout the world. (See id. ¶¶ 28, 33.) The Defaulting Defendants are not, and never have been, authorized by Allstar or any of its authorized agents, authorized licensees or authorized distributors to copy, manufacture, import, export, advertise, distribute, offer for sale or sell the Socket Shelf Product or to use the Socket Shelf trademark and copyrights, or any marks or artwork that are confusingly or substantially similar thereto. (See id. ¶ 34.)
LEGAL STANDARDS
Under the Lanham Act, at any time before final judgment is entered, a trademark owner may elect to recover an award of statutory damages, rather than actual damages, in cases of infringement. See 15 U.S.C. § 1117(c), (d). Statutory damages particularly are appropriate where actual damages are difficult to calculate. See Bus. Trends Analysts, Inc. v. Freedonia Grp., Inc., 887 F.2d 399, 406 (2d Cir. 1989). Indeed, the rationale underlying the Lanham Act's statutory damages framework “is the practical inability to determine profits or sales made by counterfeiters.” All-Star Mktg. Grp., LLC v. Media Brands Co., Ltd., 775 F.Supp.2d 613, 620-21 (S.D.N.Y. 2011) (citing Bus. Trends Analysts, Inc., 887 F.2d at 406); see also Sara Lee Corp. v. Bags of New York, Inc., 36 F.Supp.2d 161, 165 (S.D.N.Y. 1999) (“Statutory damages are most appropriate when infringer nondisclosure during fact finding leaves damages uncertain. This problem motivated the enactment of § 1117(c)[.]”).
For the use of a counterfeit mark, a court may award statutory damages in the amount of: (1) “not less than $1,000 or more than $200,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just, ” or (2) if the use of the counterfeit mark is found to be willful, up to “$2,000,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just.” 15 U.S.C. § 1117(c). “District courts have wide discretion in awarding statutory damages.” Malletier v. Artex Creative Int'l Corp., 687 F.Supp.2d 347, 355 (S.D.N.Y. 2010).
Under Section 1117(c)(2), the Lanham Act provides for enhanced statutory damages when the use of the counterfeit mark was willful. “The standard for willfulness is ‘whether the defendant had knowledge that [his] conduct represented infringement or perhaps recklessly disregarded the possibility.'” Kepner-Tregoe, Inc. v. Vroom, 186 F.3d 283, 288 (2d Cir. 1999) (quoting Twin Peaks Prods., Inc. v. Publications Int'l, Ltd., 996 F.2d 1366, 1382 (2d Cir. 1993)); see also Yurman Studio, Inc. v. Castaneda, 591 F.Supp.2d 471, 503 (S.D.N.Y. 2008) (quoting NFL v. PrimeTime 24 Joint Venture, 131 F.Supp.2d 458, 475 (S.D.N.Y. 2001)) (stating that willfulness can be measured by a defendant's “‘reckless disregard of the high probability' that it was infringing”). Such knowledge may be actual or constructive and may be inferred from a defendant's conduct rather than proven directly. See N.A.S. Imp., Corp. v. Chenson Enters., Inc., 968 F.2d 250, 252 (2d Cir. 1992) (holding that “for the purpose of awarding enhanced statutory damages, ” the knowledge component of willfulness “need not be proven directly but may be inferred from the defendant's conduct”).
Section 1117(c)(2) instructs courts to award a “just” amount and establishes a cap on the award; it provides no further guidance on determining damages. See All-Star Mktg. Grp., 775 F.Supp.2d at 621-22 (citing Malletier v. Carducci Leather Fashions, Inc., 648 F.Supp.2d. 501, 504 (S.D.N.Y. 2009)). Courts in this district have sought guidance from the analogous statutory damages provision in the Copyright Act, 17 U.S.C. § 504(c), which contemplates that a finding of willfulness should result in damages that are both compensatory and, as a deterrent, punitive. See id. at 622 & n.5 (citing cases); Sara Lee Corp., 36 F.Supp.2d at 166-67 (“The Copyright Act is not only similar in principle to the Trademark Act but identical in much of its statutory damages language. . . . [I]n interpreting Copyright Act language parallel to that in . . . 15 U.S.C. § 1117(c), the Second Circuit has held that uncapped statutory damages . . . may be punitive as necessary to deter the defendants, to deter others, and to redress wrongful litigation conduct.”). Relevant factors for determining the damages under Section 1117(c)(2) include:
(1) the expenses saved and the profits reaped; (2) the revenues lost by the plaintiff; (3) the value of the [trademark]; (4) the deterrent effect on others besides the defendant; (5) whether the defendant's conduct was innocent or willful; (6) whether a defendant has cooperated in providing particular records from which to assess the value of the infringing material produced; and (7) the potential for discouraging the defendant.All-Star Mktg. Grp., 775 F.Supp.2d at 622-23 (citations omitted).
CONCLUSIONS OF LAW
The Court makes the following conclusions of law after carefully considering Plaintiff's written submissions:
In its inquest memorandum, Plaintiff seeks statutory damages under the Lanham Act. (See Pl.'s 2/10/22 Mem. at 4.) The Court finds Plaintiff's request for statutory damages, in lieu of actual damages, appropriate given that (1) the Defaulting Defendants have produced no records on which the Court could calculate actual damages, and (2) the Defaulting Defendants engaged in willful conduct. Regarding this second point, the Court deems the Defendants' default and subsequent failure to participate in this inquest as an admission that their use of the counterfeit marks was willful under the Lanham Act standard. See Carducci Leather Fashions, 648 F.Supp.2d. at 504 (citing Cotton v. Slone, 4 F.3d 176, 181 (2d Cir. 1993)) (“Here, by virtue of its default, [the defendant] has admitted [the plaintiff's] allegation that it acted knowingly and intentionally or with reckless disregard or willful blindness to [the plaintiff's] rights.”); All-Star Mktg. Grp., 775 F.Supp.2d at 621-22 (“Defendants have defaulted . . . and by virtue of their default are deemed to be willful infringers.”) (collecting cases).
The seven factors that courts have considered in assessing statutory damages under the Lanham Act all favor Plaintiff or give rise to a reasonable inference in Plaintiff's favor. The first and second factors, i.e., the expenses saved and the profits reaped by the Defaulting Defendants as a result of their infringement and the revenues lost by Plaintiff, are unknown. Thus, the Court resolves any uncertainty in favor of Plaintiff so as not to allow the Defaulting Defendants to benefit from their lack of participation in this litigation. See Philip Morris USA Inc. v. A & V Minimarket, Inc., 592 F.Supp.2d 669, 674 (S.D.N.Y. 2009) (in trademark infringement suit, where defendants fail to respond to complaint or to papers seeking a default judgment and provide no information relating to their circumstances, “the Court draws every reasonable inference on these points against the defendants”); Sara Lee Corp., 36 F.Supp.2d at 169 (“The Second Circuit instructs that in determining infringement damages, courts are to resolve against the defendants any factual uncertainties, such as whether any portion of the defendants' revenue may be deducted from damages, when the defendants left the uncertainty by not responding to the evidence of counterfeit sales with evidence of their own.”).
Regarding the third factor, the Court finds Plaintiff's trademark to be highly valuable. Plaintiff has established through its inquest submissions that its Socket Shelf Product has achieved commercial success. Thus, the Court can “infer from the well-known reputations of most or all of the trademarks and the sea of advertising that presses them on the consciousness of the buying public that they are indeed valuable.” Lane Crawford LLC v. Kelex Trading (CA) Inc., No. 12-CV-09190 (GBD) (AJP), 2013 WL 6481354, at *4 (S.D.N.Y. Dec. 3, 2013) (citations omitted).
Factors four and seven, which relate to deterring the conduct of the Defaulting Defendants and others, weigh in Plaintiff's favor. “The need to deter other counterfeiters is particularly compelling given the apparent extent of counterfeit activity . . ..” Bumble & Bumble, LLC v. Pro's Choice Beauty Care, Inc., No. 14-CV-06911 (VEC) (JLC), 2016 WL 658310, at *5 (S.D.N.Y. Feb. 17, 2016), report and recommendation adopted, No. 14-CV-06911 (VEC) (JLC), 2016 WL 1717215 (S.D.N.Y. Apr. 27, 2016). A substantial award is necessary to discourage the Defaulting Defendants from continuing to engage in their illicit conduct. In addition, the Defaulting Defendants' willful misconduct and failure to appear in this litigation merit a finding that “a slight damage award is unlikely to deter them from continuing their illegal business.” See Louis Vuitton Malletier, S.A. v. LY USA, No. 06-CV-13463 (AKH), 2008 WL 5637161, at *2 (S.D.N.Y. Oct. 3, 2008) (citations omitted).
With respect to the fifth factor, “by virtue of their default [defendants] are deemed to be willful infringers.” Lane Crawford LLC, 2013 WL 6481354, at *3 (collecting cases); accord Tiffany (NJ) Inc. v. Luban, 282 F.Supp.2d 123, 124 (S.D.N.Y. 2003). With respect to the sixth factor, the Defaulting Defendants have failed to participate in this litigation, and thus have deprived Plaintiff of any records from which to assess the value of the infringing materials. Thus, the above seven factors justify a substantial award of statutory damages under Sections 1117(c) and (d).
The requested statutory damage award of $50,000.00 per Defaulting Defendant is reasonable when considering not only the factors outlined above, but also that the amount sought against each Defaulting Defendant is well below the maximum award of $2,000,000.00 that could be assessed against each of them for willful counterfeiting, and well within the range to awards granted by courts in this district in similar circumstances. See All-Star Mktg. Grp., LLC, 775 F.Supp.2d at 624 (collecting cases awarding between $25,000.00 and $250,000.00 per mark).
See also cases cited in Plaintiff's 2/10/22 Mem. at 9 n.7.
CONCLUSION
For the foregoing reasons, the Court recommends that Plaintiff be awarded damages in the amount of $50,000.00 against each of the Defaulting Defendants, for a total of $1,250,000.00, and that Plaintiff be awarded post-judgment interest pursuant to 28 U.S.C. § 1961.
No later than March 4, 2022, Plaintiff shall serve this Report and Recommendation upon the Defaulting Defendants pursuant to the alternative methods of service authorized in the PI Order (ECF No. 24), and shall file proof of service on the ECF docket.
NOTICE OF PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
The parties shall have fourteen (14) days (including weekends and holidays) from service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1)
and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed. R. Civ. P. 6(a), (d) (adding three additional days when service is made under Fed.R.Civ.P. 5(b)(2)(C), (D) or (F)). A party may respond to another party's objections within fourteen days after being served with a copy.
Fed. R. Civ. P. 72(b)(2). Such objections, and any response to objections, shall be filed with the Clerk of the Court. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Engelmayer.
THE FAILURE TO FILE THESE TIMELY OBJECTIONS WILL RESULT IN A WAIVER OF THOSE OBJECTIONS FOR PURPOSES OF APPEAL. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).