Opinion
19-CV-3351 (VEC) (RWL)
07-16-2021
AQUAVIT PHARMACUETICALS, INC. Plaintiff, v. U-BIO MED, INC., GLOBAL MEDI PPRODUCTS, and NYUN SHI EUM a/k/a NYON-SIK EUM, Defendants.
REPORT AND RECOMMENDATION TO HON. VALERIE E. CAPRONI: SANCTIONS
ROBERT W. LEHRBURGER, United States Magistrate Judge.
This case arises out of the use of a trademark to which both Plaintiffs and Defendants have rights in different geographical domains. The parties use the mark at issue, AQUAGOLD, as a brand for their micro-injection devices that deliver health and beauty products under the skin. On April 15, 2019, the Court enjoined Defendants from engaging in certain conduct involving the AQUAGOLD mark, and other marks (together, the “Marks”). One year later, the Court found Defendants in contempt for numerous violations of the injunction.
This Report and Recommendation addresses several contempt-related issues: (1) the amount of profits that Defendants should disgorge to Plaintiff as compensatory sanctions for their contempt; (2) whether sanctions should be imposed for Defendants' deletion of an Instagram account; (3) whether sanctions should be imposed for Defendants' delayed and incomplete compliance with sanctions-related discovery; (4) whether coercive sanctions should be imposed; and (5) the amount of attorneys' fees and costs to be awarded in connection with Plaintiff's successful motion for contempt.
Factual And Procedural Background
The Court presumes the parties' familiarity with the facts and prior proceedings and recites only the background and facts material to the instant matters. Previous recitation of facts and procedural history can be found in earlier decisions issued by the Honorable Valerie E. Caproni, U.S.D.J. See, e.g., Aquavit Pharmaceuticals, Inc. v. U-Bio Med, Inc., No. 19-CV-3351, 2020 WL 1900502 (S.D.N.Y. April 17, 2020) (finding Defendants in contempt); Aquavit Pharmaceuticals, Inc. v. U-Bio Med, Inc., No. 19-CV-3351, 2020 WL 832249 (S.D.N.Y. Feb. 19, 2020) (denying motion to dismiss).
A. The Parties And Their Dispute
Plaintiff Aquavit Pharmaceuticals, Inc. (“Aquavit” or “Plaintiff”) makes and sells gold-plated micro-injection devices under the trademarked name AQUAGOLD® fine touch™ MICROCHANNEL TECHNOLOGY®. (Verified Complaint (“Compl.”), Dkt. 1, ¶¶ 17, 33.) Aquavit owns trademark registrations for AQUAGOLD, MICROCHANNEL TECHNOLOGY, and AQUAVIT in the United States and South Korea, and also owns common law rights to FINE TOUCH. (Compl. ¶¶ 46-47, 50-51.) Aquavit's AQUAGOLD mark is registered in international trademark class 10, which covers medical devices.(Compl., Ex. 4)
More specifically, Class 10 encompasses “surgical, medical, dental and veterinary apparatus and instruments; artificial limbs, eyes and teeth; orthopaedic articles; suture materials; therapeutic and assistive devices adapted for the disabled; massage apparatus; apparatus, devices and articles for nursing infants; sexual activity apparatus, devices and articles.” World Intellectual Property Organization, List of Classes, https:// www.wipo.int/classifications/nice/nclpub/en/fr/?classnumber=3&explanatorynotes'sh ow&lang=en&menulang=en¬ion=classheadings&version=20190101 (last visited July 12, 2021) (“Class List”). International trademark classes are established by the Committee Of Experts Of The Nice Union and set forth in the International Classification Of Goods And Services For The Purposes Of The Registration Of Marks, published by the World Intellectual Property Organization. U.S. Patent and Trademark Office, Nice Agreement, https://www.uspto.gov/trademarks/trademark-updates-and-announcements/ nice-agreement-current-edition-version-general-remarks (last visited July 12, 2021).
Defendant U-Biomed, Inc. (“U-Biomed”), is a Korean corporation that makes and sells micro-injection devices under two different trademarks: TAPPY TOK-TOK and AQUAGOLD. (Compl. ¶¶ 18, 52; Declaration of Nyeon-Sik Eum in Opposition to a Finding of Contempt (“Eum Decl.”), Dkt. 92, ¶¶ 19-20.) Defendant EUM, a Korean citizen, is the owner and Chief Executive Officer of U-Biomed. (Compl. ¶¶ 20, 53; Eum Decl. ¶ 1.) U-Biomed obtained trademark registrations for AQUAGOLD or variations thereof in different jurisdictions at different times as follows:
The listing of Defendants' trademarks is based on information stipulated to by the parties in response to this Court's request for updated information to be used in determining the instant motion. (See Dkts. 268-69.) Some of the information newly provided differs from information provided by Defendants earlier in the litigation. To the extent the earlier information conflicts with the recent stipulation, the Court relies on the latter.
COUNTRY
MARK
TYPE
CLASS
ISSUED
STATUS
Brazil
AQUAGOLD fine touch
Design
10
09/29/2020
Active
AQUAGOLD fine touch
Standard Character
01/28/2018
Active
European Union
AQUAGOLD Your Time Is Now fine touch
Standard Character
10
09/28/2018
Cancelled (06/03/2021)
India
AQUAGOLD
Standard Character
7/16/2019
Active
Malaysia
AQUAGOLD fine touch
Standard Character
10
07/07/2017
Active
South Korea
AQUAGOLD Your Time Is Now fine touch
Design
21
03/02/2020
Active
United Arab Emirates
AQUAGOLD fine touch
Standard Character
10
06/10/2021
Active
Vietnam
AQUAGOLD Your Time Is Now fine touch
Standard Character
10
10/22/2020
Active
On February 15, 2017, U-Biomed also received a “device design” registration in China. (Dkt. 269.)
International trademark class 3 is for “Non-medicated cosmetics and toiletry preparations; non-medicated dentifrices; perfumery, essential oils; bleaching preparations and other substances for laundry use; cleaning, polishing, scouring and abrasive preparations.” (Class List.)
International trademark class 21 is for “Household or kitchen utensils and containers; cookware and tableware, except forks, knives and spoons; combs and sponges; brushes, except paintbrushes; brush-making materials; articles for cleaning purposes; unworked or semi-worked glass, except building glass; glassware, porcelain and earthenware.” (Class List.) Defendants no doubt registered AQUAGOLD The Time Is Now fine touch in South Korea under class 21 because Aquavit already had secured trademark registration for AQUAGOLD in South Korea under class 10. It is not apparent to the Court how Defendants' micro-injection devices have anything to do with class 10, which generally is for kitchenware and cleaning items.
The fractured ownership of the AQUAGOLD trademark in connection with micro injection products is the outcome of a former business relationship between the parties. In 2013, Aquavit and U-Biomed, which already had been making and selling micro-injection technology under the TAPPY TOK-TOK mark, entered into an exclusive worldwide licensing agreement (the “License Agreement”). (Compl. ¶¶ 63-68.) The License Agreement gave Aquavit a perpetual, exclusive license for the worldwide commercialization of U-Biomed's micro-injection device technology. (Compl. ¶ 68.) The relationship did not go well, and the companies went their separate ways, with Aquavit claiming superior rights to use of the Marks.
On April 15, 2019, Aquavit filed this action alleging that Defendants breached the License Agreement and engaged in wide-spread trademark infringement, unfair competition, and a number of other transgressions by using the Marks in connection with marketing and promoting U-Biomed's micro-injection devices in the United States and other countries where U-Biomed does not own trademark registrations for the Marks.
B. The Injunction
Along with the Complaint, Aquavit moved by order to show cause for a temporary restraining order (“TRO”), which the Court granted. (Dkt. 3.) The Court extended the TRO into a preliminary injunction on April 29, 2019 (the “Preliminary Injunction”). (Dkt. 19.) Defendants, represented by counsel, then entered the case, moving to dissolve or modify the Preliminary Injunction. (Dkt. 32.) On June 21, 2019, the Court issued a modified preliminary injunction preserving the existing prohibitions but, subject to certain conditions, carved out Defendants' freedom to use the Marks in countries where Defendants own a trademark registration for the Marks (the “Modified Injunction” or, simply, “Injunction”). (Dkt. 65.)
The Injunction prohibits Defendants from engaging in an extensive array of actions involving use of Aquavit's Marks in the U.S., South Korea, and everywhere else except for the countries where Defendants own registrations for the Marks. Among other things, the Injunction prohibits Defendants, in sum and substance, from (1) using the Marks in connection with any of Defendants' goods, including in manufacturing, packaging, importing, exporting, advertising, marketing, promoting, distributing, displaying, offering for sale, selling, or otherwise dealing with micro-injection products (Injunction §§ 1(A)-(G)); (2) engaging in false designation of origin of Defendants' goods by using any language or symbols such as the American Flag, Aquavit's FDA product registration numbers, or Aquavit's product codes, or conveying that U-Biomed is a private-label manufacturer for Aquavit (Injunction §§ 1(H), (P)); and (3) disparaging Aquavit's devices as inferior or counterfeit in Defendants' sale or promotion of its devices. (Injunction § 1(P)).
The Injunction also requires that Defendants include a disclaimer in conjunction with any AQUAGOLD products sold by them in countries where they have AQUAGOLD trademark registrations (the “Disclaimer”). The Disclaimer must appear on both the packaging and product instructions in English, Korean, and the native language of the country in which rights are held, and it must indicate that Defendants' AQUAGOLD micro-injection products are manufactured by a different company than the company that designs and makes AQUAGOLD devices sold in the United States and South Korea. (Injunction § 1(P).) The Injunction also prohibits Defendants from transferring or withdrawing financial assets. (Injunction § 1(J).)
The Injunction warns that any violation by Defendants “may be considered and prosecuted as a contempt of this Court.” (Injunction § 5.)
C. Defendants' Contempt
On July 11, 2019, three weeks after entry of the Modified Injunction, Aquavit moved by order to show cause to hold Defendants in contempt. (Dkt. 84.) Aquavit alleged that Defendants continued to engage in a wide variety of infringing activities using the Marks in violation of the Injunction. In opposing the motion, Defendants submitted evidence that they had cured specific violations called out in Aquavit's moving papers or would shortly be doing so. (Dkt. 91 at 11-12.) In reply, Aquavit submitted numerous examples of what it alleged to be yet more, or continuation of the same, violations. (Dkt. 108.) Defendants submitted a surreply addressing the additional items. (Dkt. 115.)
On November 21, 2019 this Court held a hearing on the motion for contempt (the “Contempt Hearing”). At the Contempt Hearing, Aquavit acknowledged that some of the violations set forth in its opening motion papers (but not the reply) had been cured or were not presently at issue. (Tr. at 20.) Aquavit focused instead on presenting evidence of recent violations that it identified as taking place within the previous week or so.
“Tr.” refers to the transcript of the Contempt Hearing held on November 21, 2019 (Dkt. 161).
On December 16, 2019, this Court issued a Report and Recommendation finding that Defendants had willfully violated the Injunction in several respects (the “Contempt R&R”). (Dkt. 152.) Following objections from Defendants, Judge Caproni issued a decision and order on April 17, 2020 finding Defendants in contempt for the following violations of the Injunction (the “Contempt Order” (Dkt. 166)): (1) posting a video of Kim Kardashian using a micro-injection device with an AQUAGOLD caption and without the requisite Disclaimer; (2) posting a “Piracy Alert” that copied Aquavit's own piracy alert but swapped the identities so as to characterize Aquavit as the pirate; (3) advertising AQUAGOLD in Hong Kong where Defendants did not have a trademark registration; (4) several Instagram posts that were non-compliant for lack of appropriate Disclaimers or other reasons (such as one “with the word ‘liar' scrawled in red across Aquavit's original text, which among other things, had advised customers to contact Aquavit to purchase genuine AQUAGOLD devices”); (5) items in the prominent “News” section of the U-Biomed website, which displayed AQUAGOLD packaging with an American flag and an ABC news segment about Aquavit's product. (Contempt Order at 8, 12-14.)
Judge Caproni agreed with this Court that Defendants offered excuses for their repeated violations that were “specious, ” “unreasonable, ” and “lacked credibility.” (Contempt Order at 14, 18, 19.) Although Defendants made some efforts to comply with the Injunction, their lack of due diligence in attempting to comply with the Injunction in other respects was “glaring, ” “egregious, ” and “willful.” (Contempt Order at 20, 21, 2324.) Summing up, Judge Caproni observed that Aquavit had “identified numerous and diverse examples of non-compliance - some which are egregious - across multiple platforms, over a period of several months. And in response, Defendants have corrected some but not all identified instances of non-compliance and have, including in obvious cases, proffered risible interpretations of the [Injunction] as a defense or justification.” (Contempt Order at 22.)
As for sanctions, Judge Caproni awarded a compensatory sanction equal to 75% of Aquavit's attorneys' fees and costs “expended in connection with its contempt motion.” (Contempt Order at 24.) The Court did not award a full fee because some of the examples of allegedly contemptuous conduct identified by Plaintiff did not violate the Injunction. (Contempt Order at 23.) The Court did not order an inquest on damages other than fees and costs, finding that it was “unwarranted at this time” due to the likelihood that the costs of litigating the issue would dwarf any provable damages. (Contempt Order at 23-24.) Judge Caproni cautioned, however, that “[s]hould Defendants' non-compliance recur, then such an inquest may become warranted, ” and she gave Aquavit the opportunity to submit a letter motion for leave to submit proof of damages other than fees and costs. (Contempt Order at 23-24 & n.9.) Judge Caproni further found that coercive sanctions were “not necessary at this time.” (Contempt Order at 23.)
D. Defendants' Continuing Contempt, And Additional Sanctions
In the wake of the Contempt Order, Aquavit determined that the Defendants had continued to violate the Injunction and so informed the Court on May 1, 2020. (Dkt. 167.) Aquavit sought leave to file for additional compensatory damages based on disgorgement of the profits from Defendants' contemptuous sales of their AQUAGOLD devices. (Dkt. 167 at 1-2, 8.) On June 3, 2020, Defendants filed a status report claiming to be in full compliance with the Injunction, but at the same time acknowledging that they had sold products in violation of the Injunction. (Dkt. 175.) Defendants also reported that one of their two Instagram accounts, aquagoldubio, was “mistakenly deleted.” (Dkt. 175 at 3.)
On June 12, 2020, Aquavit filed a reply, identifying yet additional instances of noncompliance, including Defendants' YouTube channels and videos that continued to display AQUAGOLD marks without the requisite Disclaimer; promotion of a Kim Kardashian endorsement video that references use of Aquavit's device; an infringing sale to a buyer in South Korea on May 29, 2020; an infringing sale to a buyer in Poland on May 28, 2020; and an infringing offer of sale to a buyer in Mexico on June 1, 2020. (Dkt. 176 at 11-18, 21-22 & Exs. 72, 91.) Two weeks later, on June 26, 2020, Aquavit filed a supplemental response informing the Court that Defendants' website continued to display an AQUAGOLD sub-heading, combined with a small photograph suggesting Defendants have U.S. patent rights in AQUAGOLD. (Dkt. 178.)
As a result of Defendants' continuing contempt, Judge Caproni issued an order on August 11, 2020 (the “Second Contempt Order” (Dkt. 180)), awarding Aquavit additional compensatory sanctions of fees and expenses “incurred during the current sanctions phase, ” and “all profits earned or to be earned by Defendants from sales that violate or violated the [Injunction].” (Second Contempt Order at 2-3.) The Court further ordered Defendants to cure the additional instances of non-compliance identified by Aquavit no later than August 21, 2020, including by discontinuing “all usage of the Kardashian video(s) (unless Defendants can provide evidence that the referenced product was manufactured and sold by Defendants)”; adding the Disclaimer to Defendants' YouTube channels and videos; and removing “any suggestion of Defendants' ownership of U.S. patents or other U.S.-based intellectual property rights as to AQUAGOLD from all of Defendants' websites and social media pages.” (Second Contempt Order at 3-4.) The Court warned, “[f]urther non-compliance will result in an order to show cause for coercive sanctions.” (Contempt Order at 4.)
Defendants did not comply with the Second Contempt Order by August 21, 2020 as directed. Accordingly, on August 26, 2020, Aquavit moved by order to show cause why coercive sanctions should not be imposed. (Dkt. 185.) On August 31, 2020, however, Defendants moved to modify the Second Contempt Order in two respects. First, Defendants argued that much of what Aquavit earlier identified as contemptuous conduct was erroneous. Judge Caproni rejected that contention, noting that Defendants had not sought leave to reply to Aquavit's submissions. (Dkt. 194 at 6.)
Second, Defendants requested that the date for compliance with the Second Contempt Order be extended, retroactively, from August 21, 2020 to September 4, 2020. Defendants explained that defense counsel had had difficulties due to a tropical storm and did not learn of the Second Contempt Order until after Aquavit filed its order to show cause on August 26, 2020. (Dkt. 194 at 2-3.) While expressing sympathy with defense counsel's plight, Judge Caproni stated that defense counsel's difficulty “has no impact on the fact that the Defendants' remain out of compliance” with the Injunction. (Dkt. 194 at 6.) That said, Judge Caproni left open the issue whether Defendants were justified in delaying their compliance. (Dkt. 194 at 6.)
Judge Caproni has referred to the undersigned for report and recommendation several sanctions-related determinations emerging from the foregoing, including “the determination of the exact amount of compensatory sanctions” comprised of both “Plaintiff's fees and costs” and “Defendants' ill-gotten gains”; “the issue of Defendants' deletion of one of its Instagram accounts, ” and, “if the account is not recovered, whether the deletion was willful and whether additional sanctions are appropriate for destruction of evidence of contempt of infringement”; and Aquavit's motion for coercive sanctions. (Dkts. 180 at 4; 186; 194 at 6.)
E. Sanctions Discovery and Defendants' Delay
On September 3, 2020, the parties submitted a joint proposal for resolving the issues referred. (Dkt. 195.) The plan included briefing preceded by a short discovery period targeted at Defendants' sales and profits, as well as the deleted Instagram account. Pursuant to the plan, so-ordered by this Court on September 4, 2020 (Dkt. 196), Defendants' were to produce discovery material by September 28, 2020. (Dkt. 196 at 4.) Due to Defendants' delay, however, that did not happen.
On December 2, 2020, the parties filed a joint status report at which point Aquavit still had not received any responses to its abbreviated discovery requests for sanctions-related information. (Dkt. 202 at 3.) Defendants had sought, and Aquavit reasonably agreed to, multiple extensions of Defendants' production deadline based on Defendants' assurances in October 2020 that they were making progress. (Dkt. 202 at 2.) But little or no progress had been made, as Defendants still had not produced any material by the time of the status report.
Defendants offered several unconvincing excuses for not complying with their discovery obligations, including the COVID-19 pandemic, limited staffing, language barriers, distance, time differences, and the need “to direct efforts toward business unrelated to microneedle devices to survive under the circumstances.” (Dkt. 202 at 3.) Rather than comply with their discovery obligations, Defendants focused their attention on two arguments to derail the contempt proceedings. They argued that the injunctive relief should never have been issued, and that contempt discovery should be put on the same track as merits discovery for the overall case. (Dkt. 202 at 3-6.)
On December 7, 2020, this Court issued an order rejecting Defendants' attempt to further avoid their obligations:
Defendants' protestations and proffered excuses for not timely complying with sanctions-related discovery are not well taken. On September 3, 2020, the parties filed a joint proposal for discovery to be produced by September 28, 2020. The Court adopted the proposal in full on September 4, 2020. The concerns raised by Defendants now would have existed previous to the joint proposal. Defendants did not raise them then; they may not raise them now. Defendants' after-the-fact proposal and request that discovery on contempt now be scheduled to run concurrently with merits discovery is denied.(Dkt. 203 ¶ 1.) The order further directed that Defendants fully comply with sanctions-related discovery by December 16, 2020, and that failure to do so would result in discovery sanctions, including preclusion of later admission of such material offered by Defendants, and drawing of inferences adverse to Defendants on the subject matter of that discovery. (Dkt. 203 ¶ 2.) The order also set a briefing schedule for the sanctions-related motion papers. (Dkt. 203 ¶ 3.)
On December 17, 2020, Aquavit wrote to the Court requesting leave to file a motion for discovery sanctions. (Dkt. 206.) According to Aquavit, Defendants did not comply with the December 16, 2020 deadline and otherwise insufficiently complied with its contempt-related discovery obligations. The Court directed the parties to address the issue in the upcoming briefing of other sanctions issues. (Dkt. 208 ¶ 2.)
F. Briefing On Sanctions
The parties fully briefed the various issues by February 19, 2021. On March 11, 2021, however, Defendants requested permission to file a surreply, which they filed along with the request. (Dkts. 243, 244.) Aquavit opposed the request and, in the alternative, asked for an opportunity to reply. (Dkt. 247.) Aquavit's letter opposing the request amply replies to Defendants' surreply. The Court finds the additional submissions helpful and will consider both the surreply and Aquavit's response; no further response is warranted. On May 18, 2021, the Court solicited additional information from Plaintiff about its claimed attorneys' fees, which Plaintiff submitted. (Dkt. 258-267.) Similarly, on June 21, 2021, the Court asked for updated information about Defendants' trademark registrations, which the parties submitted on July 2, 2021. (Dkt.268-269.)
Two of the issues presented to the Court could have potential evidentiary implications for calculating Defendants' profits subject to disgorgement. Accordingly, the Court addresses the issues in the following order: (1) deletion of Defendants' Instagram account; (2) violation of contempt-related discovery orders; (3) disgorgement of profits; (4) coercive sanctions; (5) attorneys' fees and costs.
I. Deletion Of Instagram Account
The Court first examines whether sanctions should be imposed for Defendants' deletion of one of their two Instagram accounts. Defendants intentionally and permanently deleted the @aquagoldubio Instagram account, thus spoliating evidence and violating the Injunction. At the same time, the Court finds that Defendants did not act in bad faith and that deletion of the account has not prejudiced Aquavit. The Court therefore recommends imposing monetary sanctions (specifically Aquavit's recovery of its attorneys' fees and costs in connection with this aspect of its sanctions motion) but not the more severe sanctions of default, dismissal of Defendants' counterclaims, or an adverse inference.
A. Facts Relevant To Deletion Of The Instagram Account
Among other provisions, the Injunction forbids Defendants from “secreting, concealing, destroying, altering, ... or otherwise disposing of ... any [ ] records or evidence relating to the Defendants' ... social media pages.” (Injunction ¶ 1(I).)
On June 3, 2020, approximately one year after entry of the Injunction, Defendants informed the Court that their @aquagoldubio Instagram had been deleted. Defendant Eum submitted a declaration explaining how that happened. By mid-2020, Eum was feeling “overwhelmed” with managing both the @aquagoldubio Instagram account and Defendants' other Instagram account, @tappytoktok. (Eum Decl. ¶ 44.) Reflecting Defendants' reactive, rather than diligent, efforts to comply with the Injunction, the accounts “were a source of what seemed to be a never-ending stream of demands to make changes to accommodate the [Injunction].” (Eum Decl. ¶ 44.) “One day, [Eum] gave up and decided to be rid of it” and asked one of his employees to delete the @aquagoldbio account. Eum “believed at the time that it would be good to delete the account since Aquavit kept complaining about it. It made sense that both parties would be better off without it.” (Eum Decl. ¶ 44.)
“Eum Decl.” refers to the Declaration Of Nyeon-Sik Eum In Opposition To Plaintiffs' Motion For Sanctions, filed February 11, 2021 (Dkt. 231).
Later, however, Eum realized that he was “mistaken that the best thing to do was to delete the account.” (Eum Decl. ¶ 45.) Eum does not explain what caused him to change his view of the matter. Eum says that he tried to recover the account shortly after deleting it but was not able to do so. (Eum Decl. ¶ 45.) “After repeated tries, ” Eum instructed an employee on June 15, 2020 to discontinue efforts to recover the account because “it was a waste of resources, and we are always busy.” (Eum Decl. ¶ 45; Chang Decl., Ex. 15a.) Eum claims that he “tried to contact Instagram by telephone” but “could not find any number to call.” (Eum Surreply Decl. ¶ 7.)
“Chang Decl.” refers to the Declaration Of Sobin Chang In Support Of Plaintiff's Motion For Sanctions, filed January 21, 2021 (Dkt. 215).
“Eum Surreply Decl.” refers to the Surreply Declaration Of Nyeon-Sik Eum In Opposition To Plaintiff's Motion For Sanctions, filed March 11, 2021 (Dkt. 245).
As evidence of Defendants' efforts to recover the account, Eum submitted a copy of what he describes as a screen-capture of a request to Instagram to recover the account. (Eum Surreply Decl. ¶ 7 & Ex. 8.) The screen-capture, apparently from an employee's cell phone, appears mostly in Chinese characters, and Defendants have not submitted a certified translation (or any translation for that matter); the exhibit is therefore inadmissible. See, e.g., Chen v. 2425 Broadway Chao Restaurant, LLC, No. 16-CV-5735, 2019 WL 1244291, at *15 & n.10 (S.D.N.Y. March 18, 2019) (“Exhibits 21 and 22 to that affidavit are untranslated-handwritten-Mandarin documents which the Court does not accept as evidence”); Sicom S.P.A. v. TRS Inc., 168 F.Supp.3d 698, 709 & n.9 (S.D.N.Y. 2016) (foreign-language documents, even if authenticated, “cannot be reviewed or relied on by the Court ... unless they are accompanied by certified translations into English”); In Re Advanced Battery Technologies, Inc. Securities Litigation, No. 11-CV-2279, 2012 WL 3758085, *9 (S.D.N.Y. Aug. 29, 2012) (“The fact that the ABAT Defendants failed to provide certified translations of the words that appear on the screen shots precludes my consideration of them”).
Even if the screen-capture were admissible, and even if it is a communication from Defendants to Instagram about the account, that inquiry alone hardly demonstrates diligent efforts to recover the account. Per policy, Instagram does not delete account contents until thirty days after the deletion request is submitted and the account becomes inaccessible to other people using the platform. (Chang Decl. Ex 14.) Eum claims he was not aware of that policy at the time (Eum Decl. ¶ 46), even though it appears on Instagram's website on the very same page that provides instructions about deleting an account (Chang Decl., Ex. 14).
B. Sanctions Authority
Defendants' deletion of the Instagram account may warrant sanctions under two different rubrics: spoliation of evidence and contempt of the Injunction.
1. Spoliation
Sanctions may be imposed for the destruction, also referred to as spoliation, of evidence. West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999). The Court's authority to impose sanctions for spoliation arises from the Federal Rules of Civil Procedure and the Court's inherent powers. Id. Where, as here, the evidence at issue consists of electronically stored information, sanctions may be imposed if the “electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery.” Fed.R.Civ.P. 37(e). If the court finds that the loss or destruction prejudiced the other party, then the court may “order measures no greater than necessary to cure the prejudice.” Fed.R.Civ.P. 37(e)(1). More severe sanctions may be imposed “only upon finding that the party acted with the intent to deprive another party of the information's use in the litigation.” Fed.R.Civ.P. 37(e)(2). Such sanctions may include a presumption that the lost information was “unfavorable” to the party, an instruction to the jury that it may presume the information was unfavorable to the party, or even dismissal of claims or entry of default judgment. Fed.R.Civ.P. 37(e)(2)(A)-(C).
Even apart from Rule 37(e), a court has the inherent power to sanction a party for spoliation of evidence if the moving party demonstrates
(1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that
the records were destroyed with a culpable state of mind; and (3) that the destroyed evidence was relevant to the party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.Chin v. Port Authority Of New York & New Jersey, 685 F.3d 135, 162 (2d Cir. 2012) (quoting Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 107 (2d Cir. 2002)).
A party acts with the requisite culpable state of mind when they destroy evidence “‘knowingly' or ‘negligently.'” Khaldei v. Kaspiev, 961 F.Supp.2d 564, 571 (S.D.N.Y. 2013) (citing Byrnie v. Town Of Cromwell, Board Of Education, 243 F.3d 93, 109 (2d Cir. 2001)). When the spoliating party acts in bad faith, “[r]elevance and prejudice may be presumed.” Pension Committee Of University Of Montreal Pension Plan v. Banc Of America Securities, LLC, 685 F.Supp.2d 456, 467 (S.D.N.Y. 2010), abrogated on other grounds, Chin, 685 F.3d at 162; see also Residential Funding Corp., 306 F.3d at 109 (“bad faith alone is sufficient circumstantial evidence from which a reasonable fact finder could conclude that the missing evidence was unfavorable to that party”); Passlogix, Inc. v. 2FA Technology, LLC, 708 F.Supp.2d 378, 411 (S.D.N.Y. 2010) (“To have a sufficiently culpable state of mind warranting a relevance inference, the spoliator must have acted in bad faith - that is, intentionally or willfully”).
2. Contempt
Sanctions may also be imposed for violation of the Court's orders. The law of contempt is set forth in this Court's Contempt R&R (at pp. 12-14) and Judge Caproni's Contempt Order (at pp. 11-12, 17-19). In brief, a party may be held in contempt “if (1) the order the party failed to comply with is clear and unambiguous, (2) the proof of noncompliance is clear and convincing, and (3) the party has not diligently attempted to comply in a reasonable manner.” CBS Broadcasting Inc. v. FilmOn.com, Inc., 814 F.3d 91, 98 (2d Cir. 2016). As the moving party, Aquavit bears the burden of establishing each of the three elements, while Defendants, as the non-moving party, bear the burden as to any defense that compliance was factually impossible. Latino Officers Association City Of New York, Inc. v. City Of New York, 558 F.3d 159, 164 (2d Cir. 2009); Paramedics Electromedicina Comercial, Ltda. v. GE Medical Systems Information Technologies, Inc., 369 F.3d 645, 658 (2d Cir. 2004).
3. Analysis
There is no question that in deleting the Instagram account on June 3, 2020 Defendants spoliated evidence and committed yet another act of contempt. As to spoliation, Defendants had an obligation to preserve the Instagram account both because litigation had commenced long before and because the Injunction expressly prohibited deletion of evidence, including social media. Aquavit had extracted content from the Instagram account as proof both at the outset to obtain the Injunction and later to prove Defendants' contempt of the Injunction. Defendants necessarily were well aware that information on the Instagram account was relevant to the litigation. Far from taking reasonable steps to preserve the Instagram account, Defendant Eum purposefully and intentionally instructed his employee to delete it.
Defendants' conduct also constitutes contempt of the Injunction. The Injunction's prohibition against “destroying” “any ... evidence relating to the Defendants' ... social media pages” is clear. (Injunction ¶ 1(I).) Defendants do not contend otherwise. Defendants also do not contest that they intentionally deleted the account, and acknowledge that doing so was a “mistake, ” though not in the accidental sense. (Eum Decl. ¶ 45.) Proof of noncompliance is thus clear and convincing. For the same reasons, Defendants indisputably did not make diligent efforts to comply with the injunctive bar to destroying evidence. Nor did Defendants diligently pursue attempts to restore the Instagram account. While Eum claims that he tried to recover the account shortly after deleting it, he stopped because he considered it “a waste of resources” and was more concerned with his “busy” business. (Eum Decl. ¶ 45 & Ex. 15a.) Eum's claim that he “could not find any number to call” Instagram is not credible (Eum Surreply Decl. ¶ 7), nor is his claim not to have been aware of Instagram's delayed deletion policy, which appears on the same Instagram page as instructions for deletion (Eum Decl. ¶ 46; Chang Decl., Ex. 14). The evidence submitted by Eum shows, at best, feeble, not diligent efforts to restore the account.
Notwithstanding Defendants' intentional deletion of the Instagram account - an act of both spoliation and contempt - the Court does not recommend imposing the severe sanctions, suggested by Plaintiff, of default, dismissal of Defendants' counterclaims, or an adverse inference. (See Pl. Mem. at 8.) That is so for two reasons. First, although Eum intentionally deleted the account, he did not do so in bad faith. Rather, the Court credits his explanation that he deleted the account because he found it difficult to manage making frequent and consistent updates to two similar but not identical Instagram accounts (i.e., both the @aquagoldubio and @tappytoktok accounts). The Court also credits his explanation for deleting the @aquagoldubio account instead of the @tappytoktok account. It makes eminent sense that Eum deleted the account with the very trademark at issue in favor of preserving the account with the name that is not a subject of dispute (even if its content is). Rather than seeking to destroy evidence, Eum sought to delete the account about which Aquavit “kept complaining” and believed that “both parties would be better off without it.” (Eum. Decl. ¶ 44.) The Court therefore is not persuaded by Aquavit's argument that Defendants must have deleted the @aquagoldubio account for improper purposes because that account had considerably more “followers” and more “followed” accounts than the other account. (See Pl. Mem. at 4-5.)
‘Pl. Mem.” refers to Plaintiff's Motion For Sanctions For Defendants' Willful Deletion Of An Instagram Account, Discovery Sanctions, Compensatory Sanctions And Attorneys Fees, And Coercive Sanctions, filed January 21, 2021 (Dkt. 213).
Second, the Court finds that Aquavit has not been prejudiced by deletion of the account. The Instagram account primarily was a means for Defendants to market and advertise their products. Through its early and continuing monitoring of the Instagram account, among other of Defendants' media, Aquavit has downloaded and copied the items it has asserted to be infringing or the basis for contempt. Much, if not all, of that evidence has been preserved, as demonstrated for example, by the very evidence Aquavit has put forth in support of its motion. (See Pl. Mem. at 5-6.) Aquavit nonetheless claims prejudice based on its allegation that Defendants conducted business through the Instagram account, and, therefore, the account would have had information about actual sales that would be relevant to disgorgement of profits. Eum denies using the Instagram account to conduct sales. (Eum Decl. ¶ 49.) Rather, he explains, while Instagram may lead to contacts and attract customers, any actual business with those customers was conducted by email. Moreover, Eum avers, U-Biomed's financial records would disclose any sales-related information. The Court credits those assertions. Plaintiff's attempt to refute them are either inadequately supported or speculative.
The evidence that Plaintiff submits in support of its motion actually corroborates Eum's statement that the business that U-Biomed conducted with customers identified through Instagram took place by email. (See Pl. Mem. at 5 (“Defendants contacted AQUAGOLD users in the U.S. by email that it had identified using Instagram” and “falsely” claimed having certain rights).) Similarly, Plaintiff points to “lists of Plaintiff's AQUAGOLD customers” obtained by “mining Instagram” and used “for directly marketing to them.” Plaintiff has both the lists and the emails through which that marketing was executed. (See Pl. Mem. at 5 (citing Chang Decl., Exs. 6, 7, 8, 8a, 9).)
For both those reasons - lack of bad faith and prejudice - the severe sanctions requested by Plaintiff are not warranted under any theory. See Fed.R.Civ.P. 37(e)(1)-(2) (prejudice required to impose sanctions, and “intent to deprive” required for severe sanctions); Passlogix, 708 F.Supp.2d at 411 (bad faith required to warrant relevance inference for spoliation of evidence). That does not mean that Defendants should not be sanctioned for their conduct. As explained, deletion of the Instagram account was an act of contempt. Defendants' failure to adhere to the Injunction in this instance and their meager efforts to restore the account are all too representative of their contemptuous behavior throughout this litigation. Sanctions should be imposed both to compensate Aquavit for its losses incurred in connection with addressing the contempt and to deter similar conduct in the future. See Weitzman v. Stein, 98 F.3d 717, 719 (2d Cir. 1996) (“sanctions for civil contempt serve two purposes: to coerce future compliance and to remedy any harm past noncompliance caused the other party”).
Accordingly, the Court recommends that Defendants pay Aquavit 75% of its reasonable fees and costs expended in connection with its investigation of and motion for sanctions in connection with the deleted Instagram account. See 1199 SEIU United Healthcare Workers East v. Alaris Health At Hamilton Park, 809 Fed.Appx. 44, 45 (2d Cir. 2020) (compensatory damages for contempt include “‘appropriate attorney fees and costs'”) (quoting Weitzman, 98 F.3d at 719). The rationale for the 75% award is that the motion was reasonably justified given deletion of the account, but not fully so due to the lack of prejudice. The amount of those fees and costs are incorporated in the final section of this report and recommendation, which determines Plaintiff's fee and cost award related to the Contempt Order and motion for sanctions.
II. Contempt-Discovery Violations
Aquavit contends that Defendants violated orders governing contempt-related discovery and seek sanctions accordingly. The Court finds no reason to impose sanctions for contempt-related discovery violations at this time. This aspect of Aquavit's motion should be denied without prejudice.
A. Facts Relevant To Discovery Violations
As set forth earlier, on September 4, 2020, the Court so-ordered the parties' joint proposal for abbreviated discovery followed by briefing to address the contempt issues referred by Judge Caproni. (Dkt. 196.) Defendants failed to comply with their obligation to produce discovery material by September 28, 2020, and on December 2, 2020, the parties reported that Defendants still had not done so. (Dkt. 202 at 3.) Defendants offered no credible justification for not complying with the discovery schedule. The Court therefore issued an order on December 7, 2020 requiring Defendants to fully comply with sanctions-related discovery by December 16, 2020, and warning them that failure to do so would result in discovery sanctions. (Dkt. 203 ¶ 2.)
On December 16, 2020, Defendants produced written unverified responses to Aquavit's interrogatories and document requests but did not produce any documents. (See Chang Decl., Exs. 16-17; Pl. Mem. at 9-10.) On December 17, 2020, however, Defendants produced an electronic link to over 17, 000 pages of documents. (Pl. Mem. at 10.) Defendants designated every page as “Highly Confidential, ” thus precluding Aquavit's counsel from being able to show or discuss them with his client. (Pl. Mem. at 10.) Defendants did the same with their interrogatory responses and, additionally, responded to over half of the interrogatories by saying they would produce business records but without identifying those records from their production. (Chang Decl., Ex. 16.)
The Court cites to Aquavit's memorandum of law for some of the procedural facts where Aquavit does not cite a declaration or exhibit. The Court does so, however, only where Defendants have not disputed the asserted fact.
On December 17, 2020, Aquavit filed its request to move for discovery sanctions based on the foregoing. (Dkt. 206.) The following day, December 18, 2020, Defendants produced revised interrogatory responses, although still unverified, identifying the specific documents responsive to particular interrogatories. (Chang Decl., Ex. 18.) During the remainder of December 2020 and early January 2021, Aquavit repeatedly challenged Defendants on their having improperly designated every document as Highly Confidential, and explained how doing so severely impeded Plaintiff's ability to analyze and brief the sanctions issues. Defendants generally refused, claiming that virtually all of the material produced contained competitively sensitive information. (Pl. Mem. at 11-12; Chang Decl., Ex. 19.) Aquavit indicated to Defendants that it would “consider asking for the Court's assistance regarding the ‘Highly Confidential' designation issue, but may do that at a later stage so as to not delay the start of briefing” on the sanctions issues. (Pl. Mem. at 12.)
As to the content of the discovery received, Aquavit contends that the interrogatory responses do not sufficiently identify sales to particular countries. More broadly, Aquavit asserts that it “has reason to believe that Defendants might have withheld information relevant to compensatory sanctions” (Pl. Mem. at 16), “is concerned Defendants might not have fully admitted their contempt sales” (Pl. Reply at 4), and that analysis of the data so far reveals “inconsistencies and contradictions ... that are hard to reconcile” (Pl. Reply at 4.)
“Pl. Reply” refers to Plaintiff's Reply To Defendants' Opposition To Plaintiff's Motion For Sanctions, filed on February 20, 2021 (Dkt. 235).
B. Analysis
As with spoliation, the Court has authority to sanction litigants for other discovery abuses pursuant to the Federal Rules Of Civil Procedure and the Court's inherent authority. Pursuant to Rule 37, a court may impose sanctions for, among other transgressions, “evasive or incomplete” disclosures. Fed.R.Civ.P. 37(a)(4), (c)(1). Sanctions may be imposed pursuant to the Court's inherent powers upon “a particularized showing of bad faith.” United States v. International Brotherhood Of Teamsters, Chauffeurs, Warehousemen And Helpers Of America, 948 F.2d 1338, 1345 (2d Cir. 1991).
Aquavit argues for discovery sanctions on essentially four grounds: (1) prejudice resulting from at least three months of delay caused by Defendants' failure to produce documents until mid-December 2020; (2) overbroad and unjustified use of the Highly Confidential designation; (3) failure to provide sufficient information breaking sales down by country; and (4) Defendants' purported failure to fully disclose contempt-related sales. None of those separately or together merit sanctions at this juncture.
With respect to delay, Aquavit claims prejudice because it “is struggling” and “damaged financially” as Defendants' conduct “has necessarily delayed the recovery of any possible compensatory sanctions award.” (Pl. Mem. at 13-14.) Defendants were not justified in failing to comply with the Court's discovery order requiring production by September 28, 2020. Rather than seeking prompt relief, however, Aquavit did not inform the Court of any problem with the schedule until the December 2, 2020 status report. Had a delay of a few months been prejudicial to any meaningful degree, Aquavit should have raised the issue earlier. And although Defendants missed the newly imposed December 16, 2020 deadline by a day-and-a-half (having produced documents on December 17 and revised interrogatories on December 18, 2020), such a brief delay had no impact on Aquavit, particularly as Defendants agreed to add two days to Aquavit's deadline for filing its motion papers. (Pl. Mem at 12.)
The second issue - overuse of the Highly Confidential designation - is not ripe for the Court's consideration. As Aquavit acknowledges, as late as January 7, 2021 (fourteen days before the deadline for filing its opening papers in the instant matter), Aquavit “indicated” to Defendants that it would “consider asking for the Court's assistance” regarding the designation issue “but may do that at a later stage so as to not delay the start of briefing.” (Pl. Mem. at 12.) The same day, Aquavit wrote to the Court and noted that all of Defendants' production was designated as Highly Confidential. (Dkt. 209.) Instead of contesting the extent of designation as improper, however, Aquavit commented that it had reviewed the material, and requested an extension of time to file the instant motion due to the time it had taken to conduct that review. The first occasion on which the Court learned that the propriety of Defendants' designations were contested was in connection with the instant briefing.
That said, the Court agrees with Aquavit that Defendants likely have no basis for designating almost their entire production as Highly Confidential. See Closed Joint Stock Co. “CTC Network” v. Actava TV, Inc., No. 15-CV-8681, 2016 WL 1364942, at *4 (S.D.N.Y. March 28, 2016) (producing party may only designate documents as confidential after making a good-faith determination that there is a legitimate basis for the designation); Houbigant, Inc. v. Development Specialists, Inc., No. 01-CV-7388, 2003 WL 21688243, at *3 (S.D.N.Y. July 21, 2003) (rejecting producing party's argument that it should be able to designate its entire production as confidential even though at least some documents do not contain proprietary information).
Aquavit has demonstrated an instance or two where Defendants applied a Highly Confidential designation to publicly available documents (Pl. Mem. at 12); that is a clear abuse of the designation. And, the Court credits Plaintiff's argument that overdesignation, combined with the fact that many documents are in Korean, has impeded Aquavit's ability to develop the contempt-related facts. But neither party has presented to the Court a sufficient record on which to assess to what extent the designation has been overused. For that reason, the Court has issued a separate order requiring Defendants to review their entire production for proper designation of documents as Highly Confidential and produce revised designations within fourteen days of the order. See Quotron Systems, Inc. v. Automatic Data Processing, Inc., 141 F.R.D. 37, 40 (S.D.N.Y. 1992) (court gave the party which had been accused of over-designating documents as Highly Confidential ten days to reclassify). If issues remain following that process, Aquavit may raise them with the Court.
Aquavit contends it also is stymied from developing proof of which sales qualify as contemptuous as a result of Defendants failure to quantify sales country by country. The Court understands that the lack of such information is an impediment. In their opposition, however, Defendants present a chart that purports to show the number of sales, broken down by country, of AQUAGOLD products to countries where Defendants did not have a trademark registration from June 21, 2019 through the end of 2020. (Opp. Mem. at 3.) Aquavit questions the completeness of that information, but in its reply Aquavit does not continue to fault Defendants for not presenting a country-by-country breakdown.
“Opp. mem.” refers to Defendants Opposition To Plaintiff's Motion For Sanctions, filed February 11, 2021 (Dkt. 230).
Finally, Aquavit urges the Court to conclude that, and impose additional sanctions because, Defendants have not admitted the full extent of their contempt sales. Aquavit, however, has not provided a sufficient record on which the Court can reach such a conclusion at this time. Rather, Aquavit offers only speculation that it “has reason to believe” that Defendants “might” not have fully complied, based on “hard to reconcile” discrepancies in the data that Defendants have produced. (Pl. Mem. at 16; Pl. Reply at 4.) Such speculation is not sufficient to satisfy Aquavit's burden of proof that sanctions are warranted at this juncture.
The Court does not, however, reject the notion that Defendants' sales data may be incomplete or otherwise inadequate. As Plaintiff puts it, the information that Defendants have produced so far “raise[s] more questions than answers, ” and “[a] better accounting of Defendants' sales might be warranted.” (Pl. Reply at 7.) As discussed in the next section, the Court agrees but is concerned, as was Judge Caproni on the less- developed record before her, that the amount of “damages flowing from Defendants' infringing conduct will be difficult to prove, and the amount that can be confidently ascertained is likely to be dwarfed by the fees and costs needed to litigate the issue.” (Contempt Order at 23.) Proceedings since that prediction have shown it to be prescient.
Given all the foregoing - unresolved issues about completeness and adequacy of Defendants' production of contempt-related sales, as well as the cost-benefit tradeoffs of pursuing the inquiry further - the Court recommends the following course of action. Calculation of profits subject to disgorgement should be deferred until completion of both fact and expert discovery so that the Court has a more reliable and complete record on which to rule. In the meantime, the parties can further meet and confer, and the Court can resolve disputed issues relating to overuse of the Highly Confidential designation, sufficiency of interrogatory responses, and completeness of Defendants' document production. Consistent with that approach, the Court turns next to a discussion of compensatory sanctions, an explanation of categories of sales that should serve as a basis for disgorgement of profits, and more particularized identification of open issues that preclude determination at this time.
The Court is mindful that by their own dilatory conduct, Defendants have obtained, in part, what this Court previously denied: placing contempt sanctions discovery on the same track as full merits discovery. Even Aquavit concedes that questions remain and further analysis is warranted. That said, Defendants hardly have obtained a reprieve as there is no need to defer an award of that portion of compensatory damages for contempt that can be ascertained at this juncture: attorneys' fees and costs incurred by Aquavit in connection with moving for contempt and sanctions. That amount will be determined in the last section of this report and recommendation.
III. Compensatory Sanctions - Disgorgement of Profits
Pursuant to the Second Contempt Order, Aquavit is entitled to disgorgement of Defendants' profits from sales of micro-injection devices that violated the Injunction. To make that determination, Judge Caproni directed the undersigned to decide “in the first instance which categories of prohibited sales (sales in improper jurisdictions, sales without requisite disclaimers, or other) are ascertainable and for which the profits ought to be disgorged.” (Second Contempt Order at 4 n.2.) As noted above, much about Defendants' contempt-related sales data remains unclear, and the Court finds it premature to ascertain Defendants' contempt-related profits. The information is not sufficiently developed, and it would be inequitable for all parties to determine a disgorgement figure that is not based on a more fulsome record. The discussion that follows sets forth the currently available information, identifies the relevant categories of sales, and analyzes the relevant issues.
A. Facts Relevant To Disgorgement Of Profits
Disgorgement of profits requires consideration of Defendants' contempt-related sales and Defendants' costs. See Manhattan Industries, Inc. v. Sweater Bee By Banff, Ltd., 885 F.2d 1, 7 (2d Cir. 1989) (lost profits for contempt of trademark infringement injunction refers to net profits with burden on plaintiff to prove defendant's unlawful sales, and burden on defendant to prove any deduction of costs); accord 4 Pillar Dynasty LLC v. New York & Company, Inc., 933 F.3d 202, 214 n.11 (2d Cir. 2019) (quoting Manhattan Industries).
1. Total Sales Figures - Summary Sales Table
In response to interrogatories, Defendants provided total sales data for its AQUAGOLD products as well as its TAPPY TOK-TOK and unlabeled products (sold for private-labeling by others) by answering that they were relying on documents produced, including sales invoices and a summary sales table prepared by Defendants. (Chang Decl., Exs. 35-37.)
The summary sales table reflects the following sales totals for 2019 and 2020 combined: Total AQUAGOLD sales of $245,865; Total TAPPY TOK-TOK sales of $119,917; and total sales of unlabeled devices of $10,582. (Chang Decl., Ex. 36; Pl. Mem. at 36.) These figures are lacking in multiple respects. They do not break down sales by country, which Aquavit's interrogatories asked for and which are necessary to determine contemptuous sales. They also include all of 2019, even though the relevant contempt period starts April 29, 2020 (as discussed below).
Defendants' sales table appears largely in Korean. Aquavit has extracted the numbers into its brief at page 36. Defendants have not contested Aquavit's understanding of the table. Accordingly, the Court accepts for present purposes the figures presented by Aquavit as correctly translated from the sales table.
In opposition to the instant motion, Defendants revised their sales table numbers to subtract sales preceding June 21, 2019 (the date of the Injunction) and to add sales for October-December 2020. (Eum. Decl. ¶¶ 53-54.) Accounting for those adjustments the totals from June 21, 2019 are as follows:
(Nevrivy Reply Decl. ¶ 6.) The sales numbers, however, do not reflect sales starting at April 29, 2019 when the initial Preliminary Injunction went into effect. One way to address that is to supplement the numbers with those tabulated from Defendants' sales invoices as set forth next. When that is done, based on Aquavit's tabulation of invoices, the total figures for contempt sales after April 29, 2019 are the following:
Device
Units Sold
Price (USD)
Sales (USD)
AQUAGOLD
3, 520
37
$130,240.00
TAPPY TOK-TOK
1, 626
37
$60,162.00
Unlabeled
98
37
$3,626.00
Total
5, 244
37
$194,028.00
The sales figures remain deficient, however, because they still do not reflect country-by-country sales.
Device
Sales (USD) Apr. 29, 2019-June 20, 2019
Sales (USD) June 21, 2019-End 2020
Sales (USD) Total
AQUAGOLD
$55,315.82
$130,240.00
$185,555.81
$9,774.18
$63,788.00
$73,562.18
Total
$65,090
$194,028.00
$259,117.99
“Nevrivy Reply Decl.” refers to the Declaration Of Daniel J. Nevrivy In Support Of ulaintiff's Reply To Defendants' Reply In Opposition To ulaintiff's Motion For Sanctions, dated February 19, 2021 (Dkt. 233).
Aquavit did not allocate the April 29 - June 20, 2019 numbers between TAPPY TOK-TOK and Unlabeled devices sold by Defendants.
2. Total Sales Figures - Invoices
Country-by-country sales can be gleaned from combing through Defendants' sale invoices, which Defendants designated as an accurate source of its sales information, and totaling up figures. Aquavit did just that. (Nevrivy Decl. ¶¶ 14-26.) The country-by-country sales figures for Defendants' sale of AQUAGOLD during the contempt period based on invoices are as follows:
“Nevrivy Decl.” refers to the Declaration Of Daniel J. Nevrivy In Support Of Plaintiff's Motion For Sanctions For Defendants' Willful Deletion Of An Instagram Account, Compensatory Sanctions And Attorney Fees, Discovery Sanctions, And Coercive Sanction, filed on January 21, 2021 (Dkt. 214).
(Nevrivy Decl. ¶¶ 23-24.)
Country
AQUAGOLD Sales Apr. 29 -June 20, 2019
AQUAGOLD Sales June 21, 2019 - end 2020
AQUAGOLD Sales Apr. 29, 2019 - end 2020
Canada
$3,820.00
$3,820.00
Chile
$100.00
$100.00
Dominican Republic
$25,005.00
$25,005.00
Hong Kong
$2,940.00
$2,940.00
Hungary
$3,250.00
$3,250.00
Malaysia
$3,925.00
$3,925.00
Netherlands
$1700.00
$1,700.00
Poland
$47.00
$47.00
Singapore
$12,250.00
$12,250.00
South Africa
$3,000.00
$9,250.00
$12,250.00
South Korea
$4,800.81
$10,672.19
$15,473.00
Sweden
$2,480.00
$2,480.00
Thailand
$400.00
$400.00
United Arab Emirates
$1,400.00
$4,700.00
$6,100.00
United Kingdom
$8,381.00
$8,381.00
Vietnam
$6,870.00
$6,870.00
Total
$55,315.81
$49,675.19
$104,991.00
The country-by-country sales figures for Defendants' sale of TAPPY TOK-TOK (“TTT”) and unlabeled devices during the contempt period based on invoices are as follows:
(Nevrivy Decl. ¶¶ 25-26.)
Country
TTT/Unlabeled Sales Apr. 29 - June 20, 2019
TTT/Unlabeled Sales June 21, 2019 - end 2020
TTT/Unlabeled Sales Apr. 29, 2019 - end 2020
Australia
$810.00
$810.00
Canada
$4,000.00
$4,000.00
Hong Kong
$5,899.50
$5,899.50
Hungary
$147.00
$147.00
Japan
$1,500.00
$1,500.00
Malaysia
$4,540.00
$4,540.00
Netherlands
$1,400.00
$1,400.00
Russia
$781.00
$781.00
South Korea
$5,434.18
$25,302.70
$30,736.88
Sweden
$560.00
$560.00
Syria
$230.00
$230.00
United Arab Emirates
$200.00
$4,250.00
$4,450.00
United Kingdom
$100.00
$94.00
$194.00
United States
$2,640.00
$7,835.00
$10,025.00
Total
$9,774.18
$55,949.20
$65,723.38
3. Total Sales - Under-reporting?
As noted earlier, Aquavit has pointed to a number of discrepancies in Defendants' sales information. One example can be seen from a comparison of the above tables. The total AQUAGOLD sales for the contempt period set forth by Defendants in their summary sales table - not including the period between the initial Preliminary Injunction and the Injunction - is $130,240. The total AQUAGOLD sales derived from Defendants' invoices (as calculated by Aquavit), however, is $49,675.19. That of course is a discrepancy in Aquavit's favor. But Aquavit highlights indicia suggesting that Defendants have under-reported sales. These include, for instance, Eum's public statements about large-scale manufacturing capacity; sales figures from earlier years that would suggest higher future sales figures; and distribution agreements proposed by Defendants with minimum sales requirements for hundreds of thousands of units. (See Pl. Mem. at 3739.) Aquavit goes so far as to assert that inferences can be drawn that Defendants' total contemptuous sales based on public statements and currently listed prices are between $11.25 million and $102.43 million. (Pl. Mem. at 46.) While the Court agrees that Defendants' sales data disclosures are somewhat opaque and raise numerous questions yet to be answered, Aquavit's speculative inferences hardly provide a reliable basis for determining Defendants' profits to be disgorged. The gaping difference between the low and high of what Aquavit suggests is itself indicative of overly speculative projections.
Aquavit also asks the Court to draw three specific inferences about Defendants' summary sales table. (Pl. Mem. at 36.) Aquavit's first requested inference is that all of Defendants' 2019 reported sales were made after April 29, 2019 (the date of the Preliminary Injunction). In opposition, Defendants backed out sales data prior to June 21, 2019 (to align with the Modified Injunction). Accordingly, the Court will not draw the inference Aquavit requests. But because Defendants did not isolate sales data for the period between April 29, 2019 and June 20, 2019, the Court, for present purposes, will adopt Aquavit's methodology of accounting for that period through tabulating Defendants' own invoices. See Rodgers v. Wright, No. 04-CV-1149, 2011 WL 722772, at *3 (S.D.N.Y. March 1, 2011) (“If plaintiff is unable to prove defendants' actual sales and/or profits with hard numbers, it is reasonable and appropriate for the Court to estimate the correct amount using submissions from the parties”) (internal quotation marks omitted).
Aquavit's second requested inference is that all sales in Defendants' summary sales table are in countries where Defendants have no trademark rights to AQUAGOLD. The invoice data collected by Aquavit from Defendants' production demonstrates that not to be the case, as there are invoices for sales to countries where Defendants do or did have trademark registration for an AQUAGOLD mark. So, again, for present purposes, the Court will use the invoice data for country-by-country sales figures.
Third, Aquavit asks the Court to add the summary sales data table figures to the invoice sales figures compiled by Aquavit given that their relationship to each other is not clear. While there are stark discrepancies between those sources, the Court does not agree there is a sound basis for making that inference.
Accordingly, for present purposes, the Court will not assume sales figures in excess of what is in the invoices or that Defendants have admitted in their summary sales table and will not draw the inferences that Aquavit requests be made. To be clear, the Court rejects Aquavit's projections and requested inferences without prejudice to further adjustment of the numbers, or drawing reasonable inferences, based on full discovery.
4. Defendants' Costs And Profits
According to Defendants, the average price of its micro-needle devices is $37.00, and each costs Defendants approximately $25.21 (including overhead) to make and sell. (Eum Decl. ¶¶ 58-59.) Based on those numbers, Defendants' average per unit profit is $11.79. Aquavit contends that those numbers are not plausible because an invoice from May 2019 shows that Defendants sold a device for only $15 in the Dominican Republic; using Defendants' cost numbers, that would yield a loss of $10.21 per unit. (Nevrivy Reply Decl. ¶ 12 & Ex. 28.) The invoice to which Aquavit refers, however, indicates that the unit price of $15.00 was a “special” promotional price. (Eum Surreply Decl. ¶ 11; Nevrivy Reply Decl., Ex. 28.) Accordingly, at the present time, the Court accepts the cost and profit figures provided by Defendants for determining disgorgement of profits. Again, further discovery may demonstrate otherwise.
B. Determining What Qualifies As A Contempt-Related Sale
The Court begins its analysis with determination of several issues as to what exactly constitutes a contempt-related sale. Aquavit argues that all of Defendants' microinjection device sales, whether branded AQUAGOLD or otherwise, during the relevant period are contempt-related and merit disgorgement of profits. (Pl. Mem. at 36; Pl. Reply at 8-9.) The Court does not agree. At the same time, what qualifies as a contempt-related sale is not nearly so narrow as Defendants would have it.
In conducting the analysis, it is important to keep in mind that this case is for trademark infringement and false designation of origin pursuant to, inter alia, the Lanham Act. One of the remedies provided by the Lanham Act is disgorgement of profits, precisely the remedy at issue here. 15 U.S.C. § 1117(a). The statute explicitly addresses the parties' burdens of proof, stating, in relevant part, that “[i]n assessing profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed.” Id.
In applying that standard, courts have consistently required the defendant to prove not only costs to be deducted but also any apportionment of sales that should not be included in the profit calculation. E.g., International Star Class Yacht Racing Association v. Tommy Hilfiger U.S.A., Inc., 146 F.3d 66, 72 (2d Cir. 1998) (defendant bore burden to prove “any deduction for sales not based on the infringing mark”); MyPlayCity, Inc. v. Conduit Ltd., No. 10-CV-1615, 2013 WL 4105698, at *3 (S.D.N.Y. Aug. 12, 2013) (“It is defendant's burden to prove that any part of those sales is attributable other than to its infringing use of plaintiff's mark” (internal quotation marks omitted)), vacated on other grounds, 589 Fed.Appx. 559 (2d Cir. 2014); Pretty Girl, Inc. v. Pretty Girl Fashions, Inc., No. 11-CV-662, 2012 WL 13202313, at *2 (E.D.N.Y. March 13, 2012); Rexall Sundown, Inc. v. Perrigo Co., 707 F.Supp.2d 357, 359-61 (E.D.N.Y. 2010) (Bianco, J.) (applying same standard to false advertising action and collecting cases under Lanham Act). At the same time, however, if the court finds “that the amount of the recovery based on profits is either inadequate or excessive the court may in its discretion enter judgment for such sum as the court shall find to be just, according to the circumstances of the case.” 15 U.S.C. § 1117(a). “The Lanham Act is subject to the principles of equity, and the statute ... requires that any monetary award serve as ‘compensation and not a penalty.'” Rexall, 707 F.Supp.2d at 362 (quoting 15 U.S.C. § 1117(a)).
To be clear, the instant task is to determine profits for disgorgement as a sanction for contempt, which has its own legal framework as set out elsewhere herein. However, the specific sanction award at issue is compensatory, the purpose of which, like the Lanham Act damages provision, is to be compensatory, not a penalty. Accordingly, the standards for determining profits under the Lanham Act as a matter of liability align with those for determining profits to be disgorged for contempt of an injunction imposed pursuant to the Lanham Act. Other components of a sanctions award, however, may be assessed for coercive purposes. See CBS Broadcasting, 814 F.3d at 101 (“Civil sanctions have two purposes: to coerce compliance with a court order and to compensate a plaintiff”).
The allocation of burdens is particularly important here given the state of the record. At present, a credible argument could be made that with few exceptions, Defendants have not sufficiently proven to what extent its total gross sales figures should be reduced, and therefore Aquavit should be awarded profits based on Defendants' total sales figures. That, however, would not be equitable given the incomplete record. To be sure, as between Aquavit and Defendants, Defendants are wholly in control of their sales data. But as discussed below, there are several ways in which the allocation of burdens for proving relevant sales makes substantial difference in the ultimate number. Given that variability, and Aquavit's own concessions that the record merits further analysis, the ultimate determination of the sales dollar figure for which profits should be disgorged should await completion of all discovery and, if necessary, trial.
1. Relevant Time Period
The parties agree that the relevant contempt period begins at least from June 21, 2019, when the Modified Injunction was entered. The parties do not agree, however, on whether the contempt period also should include the time period between entry of the initial Preliminary Injunction on April 29, 2019, and entry of the Modified Injunction on June 21, 2019 (the “Interim Period”).
The Court's Second Contempt Order provides that compensatory sanctions “shall include ... all profits ... from sales that violate or violated the [Modified Injunction].” (Second Contempt Order at 2-3.) Elsewhere, the order uses more general terminology. For instance, it directs that determination of compensatory sanctions shall include “Defendants' ill-gotten gains.” (Second Contempt Order at 4.)
Plaintiff argues that any sales during the Interim Period that would have violated the Modified Injunction also violated the Preliminary Injunction, which included all the same restrictions but more so, and therefore qualifies as compensable events. (Pl. Mem. at 17-18.) That is not entirely accurate. The Modified Injunction was narrowed to recognize Defendants' right to sell AQUAGOLD in countries where they had trademark rights to that mark. The Modified Injunction permitted Defendants' to sell its AQUAGOLD product in those countries but at the same time required such sales be accompanied by the requisite Disclaimer. The Preliminary Injunction did not include the Disclaimer requirement, and Defendants received no directive as to what a disclaimer should include or where it should be included as was set forth in the Modified Injunction. Accordingly, for the Interim Period, Defendants' sales to countries where they had rights but did not include the Disclaimer should not be treated as relevant contempt sales even if sales to those countries violated the Preliminary Injunction regardless of whether a disclaimer was included or not.
That said, under both the Preliminary Injunction and Modified Injunction, Defendants were at least prohibited from selling AQUAGOLD in countries where they did not hold trademark rights. That restriction was imposed at the outset and did not change. Accordingly, it is appropriate to include as contempt sales the sales that Defendants made during the Interim Period to countries in which they did not hold trademark rights.
As for an end date, the Court uses year-end 2020, shortly before briefing of the instant issues commenced. Aquavit has accused Defendants of continuing acts of contempt. And Defendants supplemented their sales data to include the last quarter of 2020.
For the ensuing discussion, the Court uses the term “Relevant Period” to refer to the period between April 29, 2019 and the December 31, 2020 with respect to Defendants' sales to countries where they did not have relevant trademark registrations (and thus were subject to the same restrictions under both the Preliminary Injunction and the Modified Injunction), and between June 20, 2019 and December 31, 2020 with respect to Defendants' sales to countries where Defendants had relevant trademark registrations (and thus were subject to the disclaimer requirements imposed by the Modified Injunction).
2. Sales To Relevant Countries
There is one category of sales that the parties agree are appropriately included in the disgorgement calculus: sales of Defendants' AQUAGOLD products to countries in which Defendants did not own registration of the trademark at the time of sale. That is consistent with the Injunction, which bars Defendants from marketing or selling AQUAGOLD devices everywhere, except in those countries in which the relevant mark is registered to Defendants (and even then, subject to disclaimer requirements). (Injunction ¶¶ 1(A)-(C), (E)-(F), (P).) The Court thus must first ascertain in which countries Defendants own (or owned during the Relevant Period) trademark registration for an AQUAGOLD mark, and then the dollar amount of Defendants' AQUAGOLD device sales to those countries.
As set forth in the chart in the factual background section above, Defendants obtained certain AQUAGOLD-related registrations in different countries at varied times. When those registrations issued directly affects how to categorize particular sales. To the extent Defendants secured an applicable registration prior to June 20, 2019, any sales to that country following that date would be permissible but subject to disclaimer requirements. To the extent Defendants obtained the registration after the Relevant Period, all sales to that country for the Relevant Period would have violated the Injunction and should be included in the compensatory disgorgement calculation. Where a registration issued in the middle of the relevant period, however, only some sales from the relevant period would be contemptuous (again assuming other sales complied with disclaimer requirements). Defendants have or had AQUAGOLD registrations that fall into each of those categories.
As explained earlier in the text, defective disclaimer sales only qualify as contempt if they came after the Modified Injunction (June 20, 2019), which first imposed the disclaimer requirement.
Countries where Defendants obtained AQUAGOLD mark registrations prior to April 29, 2019, are Malaysia (AQUAGOLD fine touch), China (AQUAGOLD fine touch, but not the same class of goods) and the European Union (“E.U.”) (AQUAGOLD Your Time Is Now fine touch). Defendants' E.U. registration was cancelled, but not until June 3, 2021. Accordingly, Defendants' sales to E.U. countries during the Relevant Period would not be per se contemptuous.
The current E.U. member countries are: Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden. European Union, Countries, https://europa.eu/european-union/about-eu/countriesen (identified as an official website of the E.U.) (last visited on July 15, 2021).
The U.K. left the E.U. on January 31, 2020 but entered a transition period for withdrawal from the E.U. single market and customs union that officially ended as of December 31, 2020. UK Parliament House of Commons Library, Brexit Timeline, https:// commonslibrary.parliament.uk/research-briefings/cbp-7960 (last visited July 15, 2021). Accordingly, all sales to the U.K. for the Relevant Period fall within Defendants' E.U. registration for purposes of application of the Injunction.
For one country, Defendants obtained a registration after the Relevant Period -United Arab Emirates (“AQUAGOLD fine touch, ” issued on June 10, 2021). Defendants' other registrations issued at times within the Relevant Period, thus creating dividing lines between contemptuous sales and non-contemptuous sales (assuming compliance with disclaimer requirements). Those “cross-over” countries are Brazil (design mark issued Sept. 29, 2021); India (AQUAGOLD, issued July 16, 2019); South Korea (“AQUAGOLD Your Time Is Now fine touch, ” but not the same class of goods, issued March 2, 2020); and Vietnam (“AQUAGOLD Your Time Is Now fine touch, ” issued Oct. 22, 2020).
For the cross-over countries, neither party has apprised the Court what sales came before or after issuance of the respective registration. Because the burden of apportioning sales falls on Defendants, and absent Defendants' providing a basis to apportion sales from within each country, all of Defendants' sales to cross-over countries during the Relevant Period would be appropriately categorized as contemptuous. International Star Class Yacht Racing Association, 146 F.3d at 72; MyPlayCity, 2013 WL 4105698 at *3; Pretty Girl, 2012 WL 13202313 at *2; Rexall, 707 F.Supp.2d at 359-61.
Without apportioning, contempt-related sales based on sales of AQUAGOLD marked products to prohibited countries - based on Plaintiff's tabulations from invoices -are as follows:
Country
AQUAGOLD Sales Apr. 29 - June 20, 2019
AQUAGOLD Sales June 21, 2019 - end 2020
AQUAGOLD Sales Apr. 29, 2019 - end 2020
Canada
$3,820.00
$3,820.00
Chile
$100.00
$100.00
Dominican Republic
$25,005.00
$25,005.00
Hong Kong
$2,940.00
$2,940.00
Singapore
$12,250.00
$12,250.00
South Africa
$3,000.00
$9,250.00
$12,250.00
South Korea
$4,800.81
$10,672.19
$15,473.00
Thailand
$400.00
$400.00
United Arab Emirates
$1,400.00
$4,700.00
$6,100.00
Vietnam
$6,870.00
$6,870.00
Those dollar figures are based on Aquavit's calculations. The parties' calculations, however, do not always agree. For instance, Defendants put the total violatory AQUAGOLD sales to South Africa after June 20, 2019 at $7,400, whereas Aquavit places the total at $9,250. Similarly, Defendants put the total violatory AQUAGOLD sales to South Korea after June 20, 2019 at $6,720, whereas Aquavit places the total at $10,672.19. And, while Defendants tabulate only $111 for violatory sales to Vietnam after June 20, 2019, Aquavit's total is $6,870. The Court cannot resolve these conflicting numbers and contentions at this juncture due to the concerns raised by Aquavit about the state of contempt-related discovery.
In sum, the record is not sufficiently developed for the Court to determine the total sales to each prohibited country or any apportionment of sales for cross-over countries where Defendants' obtained AQUAGOLD trademark registrations sometime within the Relevant Period. These issues will have to be resolved on a fully developed record.
3. Defective Disclaimer Sales
A second category of contemptuous sales were sales to countries in which Defendants' owned trademark registrations for an AQUAGOLD mark but failed to satisfy the Injunction's disclaimer requirements. For cross-over countries, Defendants' sales prior to obtaining registration would be per se violatory as explained above, and sales made after obtaining registration would be violatory if they were made with defective disclaimers.
Defendants failed to fully comply with the Injunction's disclaimer requirements in at least the following respects. In Hungary, Poland, and Sweden, both the box label and instruction sheet for Defendants' AQUAGOLD products included the requisite Disclaimer language in English and Korean, but not the native language of those countries.Similarly, in Malaysia and South Korea, until at least August 30, 2020, the user sheet appeared in English but not in other languages. These lapses violated the Injunction which requires the Disclaimer to appear on “both the product packaging and any user instructions” and that it be presented in “English, Korean, and the native language of the country in which the mark is used in commerce.” (Injunction ¶ 1(P).)
As evidence of the content of Defendants' box and instruction sheet in Hungary, Poland, and Sweden, Plaintiff cites to “Dkt. 65 ¶ P; Dkt. 176, Exs. 54-61.” (Pl. Mem. at 27.) The first cite is merely to the Injunction, and the second cite is to materials purported to be from Defendants' product purchased from South Korea. Plaintiff thus has not cited to evidence supporting its assertion. That said, Defendants' response does not take issue with the assertion, instead focusing on defending the asserted description of its practices. Accordingly, the Court accepts as true for present purposes Plaintiff's assertion about the content of the box and instruction sheet for Defendants' product sold in Hungary, Poland, and Sweden.
As proof of its assertion about the content of Defendants' user sheet from Malaysia and South Korea, Plaintiff cites the same evidence offered in support of its assertion about the box and instruction sheet content of Defendants' products in Hungary, Poland, and Sweden. (Pl. Mem. at 27.) As noted in the preceding footnote, the material cited is for materials from only Defendants' Korean product. Nonetheless, Defendants do not contest the assertion with respect to Malaysia, and so the Court accepts it as true for present purposes.
Defendants' responses to its failure to fully comply with the disclaimer requirement are not particularly persuasive. First, Defendants argue that they should not be required to disgorge profits for sales to the E.U. where the product user manual appeared in English but not the native language of each E.U. country because English is one of the official languages of the E.U. as a whole. (Surreply at 6.) The Court is not unsympathetic to that argument, but the Injunction is express and plain that the Disclaimer's language must include the “native” language of the respective country. Similarly, Defendants argue that they should not be required to disgorge profits for sales to countries outside the E.U. where the user manual appeared in English only but could not be accessed without also seeing the disclaimer printed on the packaging in English, Korean, Chinese, and Malaysian. (Surreply at 6.) Again, while there is some logic to that argument, the Injunction explicitly requires that the Disclaimer appear on both the package and the instruction sheet in not only English, but also Korean and the native language of the respective country. In short, Defendants' disclaimer violations are not trivial oversights but rather direct and knowing violations of the Injunction. If Defendants had had any concern or problem with, for instance, being able to fit all languages on a box or instruction sheet, they should have raised the issue with the Court. (See Eum Surreply Decl. ¶ 10.) But they could not simply ignore the Injunction's requirements.
“Surreply” refers to Defendants Surreply In Opposition To Plaintiff's Motion For Sanctions, filed March 11, 2021 (Dkt. 244).
Defendants also argue that Aquavit cannot be compensated for sales of AQUAGOLD product with defective disclaimers unless it demonstrates that a particular sale was made because of the defective (or absent) disclaimer. (Opp. Mem. at 2.) The Court does not agree. Defendants' sale of any AQUAGOLD device in the E.U. that did not fully comply with the Disclaimer requirements was a contemptuous sale for which compensatory damages are recoverable.
Defendants cite as support for its position the Second Circuit's decision in Manhattan Industries and focus on the Court's statement that a disgorgement award “goes no further than to give to the plaintiff the profits derived by the defendant's wrongful conduct.” 885 F.2d at 6 (internal quotation marks omitted). Far from helping Defendants, however, Manhattan Industries does not require proof of causation as Defendants would have it.
In Manhattan Industries, the parties were subject to a consent judgment that allowed them both to use the same mark (“Kimberly”) as long as each use was accompanied by a source identifier (such as “Kimberly by Bayard”). The plaintiff, Bayard, not unlike Defendants here, failed to comply over the course of two years or so, making “repeated omissions” of the required source identifier on labels, tags, invoices, advertising, telephone listings, and at trade shows, and also repeatedly failed to timely comply with discovery. Id. at 4-5. The court characterized Bayard's transgressions as “widespread contemptuous conduct” and found that Bayard was not reasonably diligent in complying with its obligations. Id. The Second Circuit reversed the district court's failure to award compensatory sanctions in the form of disgorged profits despite the absence of proof from Sweater Bee, the compliant party, that it had suffered any damage as a result of the contemptuous conduct. The court then held that the Sweater Bee was “entitled to those profits derived by Bayard from the unlawful sales of Bayard's Kimberly merchandise - namely, the profits from sales made between February 27, 1981 and January 10, 1984, the period in which Bayard was in civil contempt.” Id. at 7. In other words, the Court awarded lost profits made on all of the contemnor's sales during the relevant period. Nowhere did the court require proof that any particular sale was made as a result of the failure to include the source identifier.
Perhaps recognizing their blunder in citing Manhattan Industries as supporting their position, Defendants try to distinguish the case in their surreply, newly contending that “the facts in Manhattan differ fundamentally from the facts here.” (Surreply at 5.)
Indeed, to require otherwise would contravene the burdens imposed by the Lanham Act. As noted earlier, Aquavit bears the burden to prove Defendants' sales. But Defendants bear the burden of proving any sales that should not be included in the profit calculation. See International Star Class Yacht Racing Association, 146 F.3d at 72; MyPlayCity, 2013 WL 4105698 at *3; Pretty Girl, 2012 WL 13202313 at *2; Rexall, 707 F.Supp.2d at 359-61. Accordingly, Plaintiff is entitled to recover Defendants' profits from sales of their AQUAGOLD products to Hungary, Poland, Sweden, Malaysia and Korea for the Relevant Period. Those sales, with the exception of Korea, based on Plaintiff's invoice tabulation, are as follows:
Defendants' sales to Korea already have been included in the previous tabulation of sales to prohibited countries and therefore are not included in the chart above to avoid double-counting. Aquavit is entitled to disgorgement of profits with respect to all of Defendants' sales in Korea, a cross-over country, during the Relevant Period because all sales before Defendants' obtained their trademark registration there were prohibited, and all sales after were of product with a defective disclaimer.
Country
Sales (USD) Apr. 29, 2019-June 20, 2019
Sales (USD) June 21, 2019-End 2020
Sales (USD) Total
Hungary
$3,250.00
$3,250.00
Malaysia
$3,925.00
$3,925.00
Poland
$47.00
$47.00
Sweden
$2,480.00
$2,480.00
Nonetheless, there are unanswered questions that remain with respect to defective disclaimer sales. First, there is an apportionment issue. As of August 30, 2020, Defendants started using a redesigned version of their user manual for its AQUAGOLD products sold to countries outside the E.U. that included the Disclaimer in multiple languages consisting of English, Korean, Chinese, and Malaysian. (Eum Surreply Decl. ¶ 10.) Aquavit therefore ordinarily would not be entitled to recover defective disclaimer profits on sales to Malaysia and Korea from or after August 30, 2020. But it remains Defendants burden to prove those apportioned sales.
Second, the parties have not presented a clear picture of the countries to which Defendants sold products with defective disclaimers. Aquavit identified Hungary, Korea, Malaysia, Poland, and Sweden. But Eum's description of the redesign of Defendants' user manual seems to imply that a defective disclaimer accompanied products sold to all countries outside the E.U. A fully-developed record should bring clarity to the issue.
4. TAPPY TOK-TOK And Unlabeled Product Sales
In addition to sales of AQUAGOLD branded products, Defendants also sold micro-injection devices under the brand name TAPPY TOK-TOK. They also sold unlabeled (i.e., unbranded) devices to customers to sell under their own private label. Aquavit asserts that disgorgement of profits should include not only those from Defendants' contemptuous sales of AQUAGOLD products, but also those from all of Defendants' TAPPY TOK-TOK and unlabeled product sales during the Relevant Period. Defendants argue that sales of its non-AQUAGOLD branded products are not prohibited by the Injunction. (Opp. Mem. at 2.) As a general statement, that is true. But it is not absolute.
Aquavit's justification for including profits from sales of TAPPY TOK-TOK and unlabeled products is that Defendants' advertising and marketing for them included misleading and false information in violation of the Injunction's requirement that Defendants “discontinue all sales and promotions of ... any non-‘Aquagold' injection devices that are sold using marketing materials and other messaging indicating that those devices are the same as ‘Aquagold.'” (Pl. Reply at 8-9 (emphasis in original) (quoting Injunction at 5-6).) Indeed, the Injunction prohibits Defendants from taking any action that is likely to cause confusion or mistake or to deceive consumers as to the affiliation, association, or connection of “any product” made or sold by Defendants with any product made or sold by Aquavit. (Injunction ¶ 1(D).) The Injunction also prohibits Defendants from using “any commercial advertising or promotion misrepresenting the nature, characteristics, qualities, or geographic origin of Plaintiff's or Defendant's goods or services.” (Injunction ¶ 1(G).) The Injunction thus does impose requirements on Defendants' sales of TAPPY TOK-TOK and their unlabeled devices as they are Defendants' “product” and “goods.”
Aquavit points to a variety of instances where Defendants' advertising suggests that their TAPPY TOK-TOK devices and unlabeled devices are the same as Plaintiff's AQUAGOLD or where Defendants used the AQUAGOLD mark in countries where Defendants did not have an applicable trademark registration for AQUAGOLD to leverage sales of TAPPY TOK-TOK and unlabeled devices. For example, Defendants sent emails to actual or prospective customers in Europe and Mexico with a subject line stringing together the trademarks “U-BioMed Inc. / Tappy Tok-Tok & AQUAGOLD fine touch.” (Dkt. 176, Exs. 64, 90.) On October 4, 2019, Defendants sent an email to a prospective customer in Bulgaria saying that the “AQUAGOLD fine touch that we are manufacturing is same with Tappy Tok-Tok with same technology and just different brand name.” (Chang Decl., Ex. 40.) Similarly, the U-Biomed Inc. website with a Korean top-level domain name promoted “AQUAGOLD fine touch / Tappy Tok Tok” products. (Dkt. 178, Ex. 4.)
Defendants contend that most or all of the above AQUAGOLD references are to their own AQUAGOLD product, not Aquavit's, and therefore not in violation of the Injunction. (Surreply at 6.) The problem with that argument is that most of the AQUAGOLD references in the cited materials appear to be “AQUAGOLD fine touch, ” which is Aquavit's mark, not Defendants' “AQUAGOLD The Time Is Now fine touch” mark registered in Korea and the E.U. And, as set forth above, Defendants did not obtain their Korean registration until March 2, 2020, and even then for a different class of goods. That said, many of those communications and materials do contain a disclaimer distinguishing Defendants' AQUAGOLD products from those of Aquavit. (E.g., Dkt. 176, Ex. 66 at ECF p.140 (“U-Biomed's Aquagold fine touch devices are designed and manufactured by U-BioMed, Inc., a company different from the one that makes ‘Aquagold' devices sold in the United States and Korea” and “may provide results different from” each other); Dkt. 178, Ex. 4 at ECF p.27) (same).)
Defendants' argument has more traction in countries where its trademark registration is for “AQUAGOLD fine touch”; namely, Brazil, China, Malaysia, and the United Arab Emirates. The examples of co-mingled trademark usage described above are not from those countries.
Other examples, however, are more blatant. For instance, in promoting their devices for private labeling, Defendants employed advertising depicting “AQUAGOLD fine touch” with an American flag in juxtaposition to a private label brand with another country's flag. (Dkt. 176, Ex. 66 at ECF p.149.) That is a direct violation of the Injunction, which prohibits Defendants' use of AQUAGOLD in a country where it has trademark registration rights if that use is accompanied by an American flag image. (Injunction ¶ 1(P).)
Aquavit claims to have lost U.S. customers in 2019 and 2020 “due to Defendants direct marketing.” (Pl. Mem. at 34.) Aquavit thus highlights an email exchange between Defendants and a company located in New York City discussing purchase of Defendants' products (referred to by the New York company variously as “Korea AQUAGOLD” or “AQUAGOLD tappy tok”) in place of “USA AQUAGOLD” or “AQUAGOLD USA” (again the New York company representative's terminology). (Chang Decl. Ex. 42a at UBM11987-88.) The cited email, however, sent in March 2019, preceded entry of the Preliminary Injunction. It thus does not evidence contemptuous conduct. Aquavit also points to one customer that stopped purchasing from it in July 2019 and then can be seen in a video using a micro-injection device and what “appears to be” an unlabeled glass vial. (Pl. Mem. at 34-35; Chang Decl., Ex. 44.) The information provided, however, is too scant and speculative to be meaningful.
As another example, Aquavit charges that “Defendants' business relationship with Skin Thesis is rooted in contempt.” (Pl. Mem. at 39.) Skin Thesis is the California clinic that produced the video of Kim Kardashian receiving micro-injection treatment that Defendants used to market their products. Skin Thesis had been a customer of Aquavit's AQUAGOLD devices. In November 2019, Defendants attended a trade show in Hong Kong where they had no AQUAGOLD trademark registration but nevertheless promoted their AQUAGOLD in violation of the Injunction. (See Contempt Order at 9.) According to Aquavit, Defendants made their first contact with Skin Thesis as a customer at that trade show (Pl. Mem at 39 (citing Chang Decl., Exs. 48-49)), and, shortly thereafter, Skin Thesis discontinued its relationship with Aquavit and became a private-label customer of Defendants branding its product as GOLDEN COCKTAIL FACIAL. In a sense then, Defendants' private-label business relationship with Skin Thesis was catalyzed through Defendants' contemptuous conduct.
As support for this statement, Plaintiff cites to the entire collection of Defendants' invoices without specifying those that pertain to Skin Thesis as distinct from other customers. (See Pl. Mem. at 39 (citing Chang Decl., Ex. 35).) Upon running separate “Find” searches for “Thesis” and “Hollywood” in the cited exhibit, the Court identified a single invoice to Skin Thesis for Defendants' TAPPY TOK-TOK product, dated December 4, 2019, just a few weeks after the trade show. (Chang Decl., Ex. 35 at ECF p. 217.) Plaintiff also has submitted a December 2020 “grant proposal” from Defendants proposing that Defendants provide its unlabeled micro-injection devices for “US brand Skinthesis.” (Change Decl. ¶¶ 8-9 & Ex. 73a at 1; Eum Decl. ¶ 25.) The proposal projects revenue of $500,000 for 2020 and approximately $2.4 million for 2022. (Change Decl. ¶ 14 & Ex. 73a at 7.) The record does not reveal the extent to which Defendants and Skin Thesis consummated such a deal.
But that does not mean that Aquavit is entitled to recover profits from all of Defendants' sales to Skin Thesis. Skin Thesis is well aware of the dispute between the parties in this litigation and apparently “tested” Aquavit's product but decided to work with Defendants instead. (Eum Decl., Ex. 2.) In January 2021, lawyers for Aquavit and Skin Thesis exchanged letters accusing each other of improper conduct. Even if Skin Thesis and Defendants first discussed business at a trade show where they were marketing their product in violation of the Injunction, Defendants' continuing relationship with Skin Thesis cannot, on the present record, fairly be attributed to that violation. Further, Skin Thesis is a private-label consumer, not a consumer that purchased AQUAGOLD branded product. It is certainly possible that Defendants promoted their private-label devices to Skin Thesis as the equal of Aquavit's AQUAGOLD devices or engaged in other misleading promotion, but that remains speculative.
Aquavit also uses several pages of briefing to describe Defendants' overtures to an Aquavit customer and U.K. distributor, Venn Healthcare (“Venn”), at a time when Defendants did not have a valid “CE” certification for sale of their devices in Europe. (Pl. Mem. at 18-22.) According to Aquavit, Defendants targeted Venn with a plan to eventually replace Aquavit's device sales with Defendants' device sales. Ultimately, however, Venn “backed off the deal” and remains Aquavit's customer. (Pl. Mem. at 22.) Although the incident demonstrates Defendants' direct efforts to convert Aquavit's customers, it does not provide a basis for ascertaining contemptuous sales.
The Court has reviewed all of the examples of contemptuous violations cited by Aquavit. Defendants clearly did “co-mingle” trademarks during the Relevant Period. There is insufficient evidence before the Court, however, that they did so in a way that equated Defendants' products with Aquavit's AQUAGOLD devices, particularly given disclaimer language in many of those examples. And while there are some blatant instances of Defendants' failure to comply with the Injunction, the Court does not find that Defendants violations were so pervasive or widespread during the Relevant Period that Aquavit would be entitled to all of Defendants' profits from their sales of TAPPY TOK-TOK and unlabeled devices during the Relevant Period.
C. Conclusion As To Contempt Profits
As set forth above, the Court cannot on the present record reasonably ascertain the amount of Defendants' profits to be disgorged for their contemptuous violation of the Injunction. There are several unresolved issues pertaining to the totality of Defendants' sales during the Relevant Period, allocation of sales on a country-by-country basis, apportionment of any non-contemptuous sales that would reduce the total, and discrepancies or inconsistencies warranting explanation. Determination of contempt-related lost profits must await completion of fact and expert discovery and should be determined on a complete record in the context of an analysis of damages for the entirety of Defendants' infringing conduct.
IV. Coercive Sanctions
In contrast to compensatory sanctions, which look to the past, coercive sanctions take aim at the future. “A sanction coerces a defendant when it ‘forces the contemnor to conform his conduct to the court's order.'” CBS Broadcasting, 814 F.3d at 101 (brackets omitted) (quoting New York State National Organization For Women v. Terry, 159 F.3d 86, 93 (2d Cir. 1998)). Judge Caproni's order issued on September 2, 2020 specifically framed the issue as “whether [Defendants] come into full compliance by September 4, 2020” and noted, “[a]fter all, if Defendants finally and fully comply with the [Injunction], there will be no need for coercive sanctions.” (Dkt. 194 at 6 (emphasis in original).) That statement remains true even after September 4, 2020. See Independent Living Aids, Inc. v. Maxi-Aids, Inc., 349 F.Supp.2d 509, 518 (E.D.N.Y. 2004) (coercive sanctions not warranted where defendant had come into full compliance); In Re Stockbridge Funding Corp., 158 B.R. 914, 918 (S.D.N.Y. 1993) (“Coercive sanctions afford a contemnor an opportunity to purge his contempt, and end as soon as that contemnor ‘ceases his contumacious behavior'”) (quoting Ochoa v. United States, 819 F.2d 366, 369 (2d Cir.1987)); but see CBS Broadcasting, 814 F.3d at 103 (affirming grant of coercive sanctions even after compliance where defendant had repeatedly failed to purge its contemptuous conduct). Accordingly, the question for this Court is whether and to what extent Defendants remain non-compliant even after September 4, 2020.
Aquavit contends that Defendants continue to violate the Injunction in five respects: (1) posting of a “snapshot” from the Kim Kardashian video that was required to be removed by the Injunction; (2) use of the mark “AQUAGOLD fine touch” on Defendants' tappy.co.kr website without disclaimers required by the Injunction; (3) display of Aquavit's South Korean AQUAGOLD mark on package instructions as shown on its @tappytoktok Instagram page; (4) failure to add the required disclaimers to Defendants' U-Biomed YouTube channel and videos; and (5) failure to remove a defamatory news video that was subject to the Injunction. (Pl. Mem. at 52.) The Court addresses each in turn.
Kim Kardashian snapshot: The Court is not persuaded that the snapshot -essentially one frame - from the Kim Kardashian video violates the Injunction. Display of the video was found to be in contempt because the video was captioned “Kim Kardasian AQUAGOLD fine touch, ” did not include any disclaimer as required by the Injunction, and was clearly aimed at American consumers (the video featured Kardashian and her California-based care-provider). (Contempt Order at 7, 21.) The snapshot, however, does not have those same characteristics. (See Nevrivy Decl., Ex. 50.) Most significantly, it does not have a caption mentioning “AQUAGOLD fine touch.” Moreover, it is not readily evident from the snapshot that the woman, whose head is wrapped in a towel, is Kim Kardashian, and there is no reference in the snapshot to her being Kim Kardashian, or any other reference indicating the marketing is directed to U.S. consumers or that the product being used is Aquavit's. In short, there is nothing about display of the single frame that is likely to cause confusion. Accordingly, posting of the snapshot does not warrant coercive sanctions.
Website - tappy.co.kr - disclaimer: Defendants have remedied the absence of the requisite disclaimers on its tappy.co.kr website and attribute the lapse to a third-party's “slip up.” (Opp. Mem. at 21; Eum Decl. ¶ 50 & Ex. 4.) As this item has been remedied, it does not present a basis for coercive sanctions.
@tappytoktok Instagram page: Aquavit complains that its Korean-registered “AQUAGOLD fine touch” mark (rather than Defendants' Korean-registered “AQUAGOLD Your Time Is Now fine touch mark”) appears on instructions for Defendants' product that are shown on Defendants' @tappytoktok Instagram page. (See Nevrivy Decl. ¶ 34 & Ex. 68.) The referenced screenshot shows a brochure (presumably the instruction manual) and display box that depict Defendants' Korean trademark, “AQUAGOLD Your Time Is Now fine touch.” A vial of liquid on the cover of the brochure, however, bears the phrase “Aquagold fine touch” in relatively tiny print.
Under the Injunction, Defendants generally may not use the mark “AQUAGOLD” in connection with marketing any goods or services. (Injunction ¶ 1(E).) Recognizing that Defendants own registered rights to AQUAGOLD-based marks in certain countries, the Injunction permits Defendants to use in commerce any AQUAGOLD marks “legally owned by [Defendants], ” provided that, inter alia, use of the mark is restricted to products sold in the countries where Defendants own such rights and that the products and user instructions include the requisite disclaimers mandated by the Injunction. (Injunction ¶ P.)
Defendants contend that because the mark used by them on the product instructions is Aquavit's South Korean mark, Aquavit must raise its concerns in South Korea under South Korean law. (Opp. Mem. at 21.) The fault with that argument is that the Injunction only allows Defendants to use an AQUAGOLD mark on products sold in the countries where Defendants are the legal owners of the mark. Defendants have not argued that they legally own the Korean mark for “AQUAGOLD fine touch.” Rather, Defendants focus on Aquavit's having referred to its South Korean mark as a “figurative” mark and argue that the Injunction does not apply to figurative marks. That argument overlooks the fact that regardless of what kind of mark it is, the instructions display the mark “AQUAGOLD fine touch, ” which is owned by Aquavit in both the United States and South Korea and is subject to extraterritorial proscriptions of the Injunction. (See Injunction at 5 (“the Court finds that the Vanity Fair factors justify extraterritorial application as to all remaining countries in which Plaintiff provides ‘Aquagold' devices for sale”).) Defendants use of a mark consisting of “AQUAGOLD fine touch” owned by Plaintiff, not Defendants, on social media is thus prohibited by the Injunction, and Defendants failure to cure the violation constitutes ongoing contempt.
YouTube videos - disclaimers: Aquavit contends that Defendants have not added the requisite disclaimers to their YouTube channel UBiomed INC and videos. (See Nevrivy Decl. ¶ 35 & Exs. 69-71.) In response, Defendants assert that the issue raised pertains to two videos appearing on YouTube, one of which was removed entirely. As for the second video, Defendants state that they deleted the word “Aquagold” from its caption. (Opp. Mem. at 21.) Defendants do not cite to any evidence to support these assertions. Defendants do, however, contend that “Aquagold fine touch” does not appear in the videos' “descriptions.” (Surreply at 9.) That is not correct; although “Aquagold fine touch” does not appear in the video captions, the screenshots of the videos in question presented by Aquavit do include the phrase “Aquagold Fine Touch” at some point in the click-through process. (Dkt. 247 at 3 (citing Nevrivy Decl., Exs. 69-71.) That reference is barely discernable in each screenshot, at least in comparison to everything else that is shown. Nonetheless, the inclusion of the term without the requisite Disclaimer continues to violate the Injunction.
News video: Finally, Aquavit points to a defamatory news video that remains on Defendants' website. (Nevrivy Decl. ¶ 36 & Ex. 72.) The Injunction forbids Defendants from selling or promoting their lawful products accompanied by disparagement of Plaintiff's products as inferior or counterfeit. (Injunction ¶ 1(P).) In its June 12, 2020 reply to Defendants' status report on its compliance (or lack thereof) with the Injunction, Aquavit informed the Court that Defendants posted a news video where they are interviewed and claim that Aquavit stole their technology. (Dkt. 176 at 8 & Exs. 32-34.) In the Second Contempt Order following the status reports, Judge Caproni expressly required Defendants to “remove the examples of non-compliance identified in [Aquavit]'s reports, Dkts. 176-178, no later than August 21, 2020.” (Second Contempt Order at 3 (emphasis in original).) Those examples included the news video at issue. (See Dkt. 176, Exs. 3234.) Inasmuch as Defendants have not removed that video, they remain in contempt.
In sum, the Court finds that three of the five instances Aquavit cites as continuing violations of the Injunction are in fact continuing violations. To determine whether and to what extent coercive sanctions should be imposed, the Court considers “(1) the character and magnitude of the harm threatened by the continued contumacy; (2) the probable effectiveness of any suggested sanction in bringing about compliance; and (3) the contemnor's financial resources and the consequent seriousness of the burden of the sanction upon him.” Dole Fresh Fruit Co. v. United Banana Co., Inc., 821 F.2d 106, 110 (2d Cir. 1987); see also Broker Genius Inc. v. Seat Scouts LLC, 2019 WL 2462333, *2 (S.D.N.Y. June 13, 2019) (quoting and applying the Dole factors).
Here, threatened continued harm is relatively modest. The violative conduct consists of (1) an Instagram posting of instructions in which the dominant mark shown is Defendants' “AQUAGOLD The Time Is Now fine touch” mark, while Plaintiff's “AQUAGOLD fine touch” mark appears in small print on a less pronounced portion of the visual, (2) two or three videos on YouTube in which “Aquagold fine touch” is easy to miss but nevertheless in information about the videos, and (3) the defamatory news video accusing Aquavit of pirating Defendants' technology. Compared to everything else on Defendants' website and social media, and the relative lack of prominence of the violations in question, the magnitude and character of harm of the first two violations is quite small. The news video, however, no doubt is of greater harm given its defamatory character.
As for probable effectiveness of sanctions, the procedural history of this case demonstrates that Defendants repeatedly have made inconsistent and incomplete efforts to comply with the Injunction and the Court's contempt orders. Moreover, Defendants remain defiant about maintaining the news video on their website and still have not cured all prohibited matter. Conditional monetary sanctions thus are necessary to compel compliance.
The Court has little information before it to directly assess Defendants' financial resources, but the primary corporate defendant, U-Biomed, is a small company, last reported to have only ten employees, three of whom are devoted to microneedle devices. (Eum Surreply Decl. ¶ 3.) Moreover, Defendants already are subject to a hefty motivator as they must pay compensatory sanctions comprised of both disgorged profits and three-quarters of Plaintiff's reasonable attorneys' fees and costs expended in connection with the contempt and sanctions proceedings to date. Those sanctions alone may provide incentive for Defendants to fully comply.
Taking account of the Dole Fresh Fruit factors, the Court finds that coercive sanctions are warranted but need not be extreme. The Court therefore recommends imposing coercive sanctions (1) requiring Defendants to remediate all continuing violations no later than seven days after issuance of a court order adopting this recommendation; and (2) if Defendants fail to so remediate, imposing sanctions of $2,500 for every day until Defendants come into full compliance. See CBS Broadcasting, 814 F.3d at 101-04 (affirming coercive sanctions in the amount of $10,000 per day); Jolen, Inc v. Kundan Rice Mills, Ltd., No. 19-CV-1296, 2019 WL 2949988, at *4 (S.D.N.Y. July 9, 2019) (imposing coercive sanction starting at $3,000 and doubling after every successive week of non-compliance with respect to anti-injunction restriction); A.V. By Versace, Inc. v. Gianni Versace, S.p.A., No. 96-CV-9721, 2002 WL 2012618, at *11 (S.D.N.Y. 2002) (imposing $2,000 daily coercive sanction on contemptuous trademark infringer).
V. Attorneys' Fees and Costs
Judge Caproni ordered Defendants to pay Aquavit 75% of its reasonable attorneys' fees incurred in connection with Defendants' contemptuous conduct. To arrive at that figure, the Court first needs to determine the amount of fees incurred by Aquavit's attorneys that are reasonable and relevant. Aquavit seeks a total fee and cost award, after adjustments, in the amount of $383,798.03. Defendants argue that that amount is far too high and includes expenditures on tasks and time for which Plaintiff should not be compensated.
These fees include those expended in connection with redressing Defendants' deletion of the @aquagoldubio Instagram account discussed above and which, like the other compensable fees, are to be awarded at 75% of the total reasonable amount.
A. Legal Principles Governing Attorneys' Fee Awards
In awarding legal fees, the Second Circuit uses the “lodestar” method to arrive at a “presumptively reasonable fee.” Arbor Hill Concerned Citizens Neighborhood Association v. County Of Albany And Albany County Board Of Elections, 522 F.3d 182, 183 (2d Cir. 2008). The lodestar amount “is the product of the prevailing market rate for lawyers in the district and the number of hours a reasonable attorney would spend to litigate the case effectively.” Tackie v. Keff Enterprises LLC, No. 14-CV-2074, 2014 WL 4626229, at *6 (S.D.N.Y. Sept. 16, 2014); see also Sandoval v. Materia Bros. Inc., No. 11-CV-4250, 2013 WL 1767748, at *3 (S.D.N.Y. March 5, 2013) (lodestar fee is calculated by multiplying “a reasonable hourly rate by the reasonable number of hours expended on the case”), R. & R. adopted, 2013 WL 1759581 (S.D.N.Y. April 24, 2013). “The presumptively reasonable fee boils down to what a reasonable, paying client would be willing to pay, given that such a party wishes to spend the minimum necessary to litigate the case effectively.” Simmons v. New York City Transit Authority, 575 F.3d 170, 174 (2d Cir. 2009) (internal quotation marks omitted). The fee applicant bears “the burden of documenting the hours reasonably spent by counsel, and the reasonableness of the hourly rates claimed.” Allende v. Unitech Design, Inc., 783 F.Supp.2d 509, 512 (S.D.N.Y. 2011) (internal quotation marks omitted).
Determining a reasonable hourly rate is “a case-specific inquiry into the prevailing market rates for counsel of similar experience and skill to the fee applicant's counsel, ” which may include “judicial notice of the rates awarded in prior cases and the court's own familiarity with the rates prevailing in the district.” Farbotko v. Clinton County, 433 F.3d 204, 209 (2d Cir. 2005). The hourly rates must be “‘in line with those [rates] prevailing in the community for similar services by lawyers of reasonably comparable skill, experience, and reputation.'” Reiter v. MTA New York City Transit Authority, 457 F.3d 224, 232 (2d Cir. 2006) (alteration in original) (quoting Blum v. Stenson, 465 U.S. 886, 895 n.11, 104 S.Ct. 1541, 1547 n.11 (1984)); see also Simmons, 575 F.3d at 174 (same). Here, the Southern District of New York is the relevant community.
After establishing the appropriate hourly rate, a court must determine how much time was reasonably expended in order to arrive at the presumptively reasonable fee. A court should exclude from the lodestar calculation “excessive, redundant or otherwise unnecessary hours.” Quaratino v. Tiffany & Co., 166 F.3d 422, 425 (2d Cir. 1999) “[I]n dealing with such surplusage, the court has discretion simply to deduct a reasonable percentage of the number of hours claimed as a practical means of trimming fat from a fee application.” Kirsch v. Fleet Street, Ltd., 148 F.3d 149, 173 (2d Cir. 1998) (internal quotation marks omitted). That said, “[t]he relevant issue ... is not whether hindsight vindicates an attorney's time expenditures, but whether, at the time the work was performed, a reasonable attorney would have engaged in similar time expenditures.” Grant v. Martinez, 973 F.2d 96, 99 (2d Cir. 1992); Mugavero v. Arms Acres, Inc., No. 03-CV-5724, 2010 WL 451045, at *6 (S.D.N.Y. Feb. 9, 2010) (same).
B. Determination Of Reasonable Fees And Work
Aquavit has cycled through several different firms during this action. Four different firms contributed work related to Aquavit's motion for contempt and briefing on sanctions. Those firms are Fisher Broyles LLP (“Fisher”); Dowd Scheffel PLLC (“Dowd); Hanor Law Firm PC (“Hanor”); and Nevrivy Patent Law Group P.L.L.C (“Nevrivy”), which worked at various times with one or more of the other firms.
On April 21, 2021, yet another law firm entered the case on behalf of Aquavit to take the reins. Aquavit has not submitted anything indicating that it seeks to recover any fees paid to that firm, presumably because that firm joined after the relevant contempt and sanctions work was performed.
As support for recovering fees paid to the first three of those firms, Aquavit initially submitted their invoices by way of a declaration from Plaintiff's CEO. (Chang Decl. ¶¶ 2932 & Exs. 63-65.) The invoices were redacted to omit tasks performed other than in connection with Defendants' contempt. At the request of the Court, Aquavit provided supplementary declarations from lawyers at each of the firms, which included additional information and unredacted versions of some of the previously redacted invoices. (Dkts. 259-61, 264-67.) The total amount sought for those three firms' work is $203,462.39, consisting of $48,415 for work performed by Fisher; $44,701.25 for work performed by Dowd; and $67,782.26 for work performed by Hanor.
The amount sought for the Fisher firm's work includes $1,725 expended for preparation of the firm's supplemental declaration requested by the Court to set forth the experience and credentials of the relevant attorneys and to address the issue of block billing charges that included both redacted and unredacted information. (See Dkt. 265 ¶ 17.)
Support for fees related to the fourth firm, Nevrivy, comes directly from Daniel J. Nevrivy, a member of the firm who worked on this matter and has submitted his firm's invoices related to contempt. The Nevrivy firm's invoices redact entries that are unrelated to Defendants' contempt. The total sought with respect to fees paid to the Nevrivy firm total $220,812.00. (Dkt. 264 at 2.)
The amount sought for the Nevrivy firm's work includes $4,119.50 expended in connection with responding to the Court's request for supplemental information related to attorneys' fees. (See Dkt. 266 ¶ 13.)
The rates charged by all of the individual attorneys and paralegals whose time was charged to this matter are quite reasonable and considerably below what many other attorneys of comparable experience and knowledge in this District charge for similar work. For example, Nevrivy has practiced as a lawyer since 2007 focusing in particular on intellectual property work. The Nevrivy firm specializes in representing clients in biotechnology and pharmaceuticals, an industry closely related to the subject of this litigation. Nevrivy, whose normal rate is $525 per hour, charged a discounted rate of only $450 per hour prior to his appearance in the action, and only $375 per hour after his appearance. That substantial discount is appropriate, as Mr. Nevrivy's appearance is his first in a litigation (as distinct from working behind the scenes). Just as reasonable, the hourly rate charged for Nevrivy's associate, Beatriz Castro, with five years of experience, was $210 or less per hour. The attorneys at the Fisher and Dowd firms charged higher rates of $575 and $600 per hour respectively for the attorneys who performed work, and the Hanor firm charged $400 for senior lawyer work and only $150 for junior lawyer work. While $575 and $600 hourly rates certainly are more than charged by the two other firms, they nevertheless are reasonable in this District for work on complex intellectual properties of the type at issue here. Accordingly, the Court does not see any reason to adjust the recoverable fees based on the hourly rates charged. Notably, Defendants have not challenged those rates as unreasonable.
Defendants do question whether some of the work performed could and should have been charged by lawyers at more junior levels and billing rates. Having reviewed the invoices, the Court does not find any need for adjustment on that basis.
Defendants do, however, challenge the work for which attorneys' fees should be awarded on several grounds. Some of Defendants' points are valid; some are not.
Defense counsel submitted a list of the specific entries that the Defendants contend should be excluded from a fee award and the specific reasons associated with each of those entries. (Declaration Of Thomas J. Vetter In Opposition To Plaintiff's Motion For Sanctions (Dkt. 229), Ex. 1.) The Court has reviewed each of the listed entries.
First, Defendants argue that work performed between entry of the initial Preliminary Injunction on April 29, 2019 and entry of the Modified Injunction on June 21, 2019 should be excluded entirely. The reason given is that the Preliminary Injunction was overbroad in failing to allow for Defendants' use of the Marks in countries where it had rights to do so. The Court does not agree with Defendants' contention. As explained above, most of the conduct prohibited by the Modified Injunction was also prohibited by the Preliminary Injunction. Even though the Preliminary Injunction included restrictions that were later lessened by the Modified Injunction, Aquavit can hardly be faulted for investigating and taking action with respect to contempt for conduct that in fact violated the Preliminary Injunction during the time that it was in effect. Aquavit thus should recover its fees and costs for time expended on contempt both before and after the Modified Injunction.
Second, Defendants contend that fees for which Aquavit seeks recovery were spent on work other than contempt, such as obtaining discovery from third parties or issuing takedown requests on social media. Defendants characterize such fees as “taken by the parties against each other, not through the Court, and not through any contempt process.” (Opp. Mem. at 16.) Defendant does not, however, deny that those measures were taken either to investigate Defendants' contemptuous acts or to combat violations of the injunction. The fees incurred in connection with those actions thus relate directly to the contemptuous conduct for which Aquavit is entitled to recover.
In a similar vein, Defendants assert that Aquavit should not recover fees expended for time spent monitoring Defendants' website and social media and that such activity does not address contempt. To the contrary, such vigilance was directly related to investigation of Defendants' contempt. Had Defendants fully and immediately complied and remained compliant, the extent of Aquavit's monitoring efforts may not have been warranted. But given that Defendants repeatedly engaged in, and failed to remedy, contemptuous activity on their website and social media and did so in multiple respects in varied ways, it was entirely reasonable for Aquavit to monitor Defendants' postings for just such contemptuous conduct. Fees incurred for policing Defendants' website and social media thus should not be deducted.
Fourth, Defendants point out that many of the fee entries cover both work related to contempt and work related to other subjects. That was particularly so with respect to the Fisher and Dowd firms' invoices, which used block billing entries. As initially submitted, the invoices from those firms did not indicate any adjustment made to the fees incurred for the entire “block” of time, which included both redacted, non-contempt-related portions and unredacted contempt-related portions. Because of the redactions, the Court could not discern what non-compensable tasks were performed that would enable the Court to apportion each block to the varied tasks within it. To address that concern, the Court solicited, and Aquavit provided, affidavits from the Fisher and Dowd firms. (Dkt. 260, 267.)
The additional information requested from and provided by Aquavit's law firms also included specific information about the experience and related information that further supports the reasonableness of the rates charged by those firms. (See Dkt. 260-61, 26566.)
For its part, Dowd conservatively estimated that the fees initially requested by Aquavit for contempt-related work should be reduced by 50% to reflect removal of charges for the redacted non-contempt-related work. Having reviewed the relevant affidavit from Matthew Dowd and re-reviewed the Dowd invoices, the Court finds the adjustment to be reasonable. (See Dkt. 260 at ¶¶ 23-27.) Accordingly, the amount of reasonable fees for the contempt-related work performed by the Dowd firm is $44,701.25 in fees and $472.63 in costs.
In contrast, the Fisher firm stands by the amount initially presented for its services. It submitted fully unredacted versions of its invoices but has not attempted to apportion the time in block billing entries that have both non-contempt-related work and contempt-related work. (Dkt. 267, Ex. 1.) Comparing the redacted and unredacted invoices confirms that the time and fees claimed for blocks of time having both contempt-related and non-contempt related work do not account for the non-contempt related work, nor for administrative tasks that are not appropriately charged at a rate of $575 per hour. Having reviewed the relevant entries, the Court finds that the amount of fees sought for reimbursement by the Fisher firm should be reduced by 50% of the total time accumulated for block entries that contain both contempt-related and non-contempt related work. That calculation becomes 50% of 70.4 hours x $575 per hour = $20,240. Reducing $48,415 by $22,240 results in compensable fees incurred by the Fisher firm in the amount of $26,175.
Fifth, Defendants charge that a substantial portion of the work was duplicative, resulting both from Aquavit's having repeatedly replaced counsel on this matter and from having more than one firm working on the same issue at the same time. That criticism is apt. The hiring of multiple firms, whether successively or simultaneously, inevitably leads to some duplication of work. That is particularly so where, as here, each firm would have had to become at least somewhat familiar with the record and proceedings that occurred prior to their involvement.
In response, however, Nevrivy asserts that “any duplicative time spent on the matter that was not efficiently performed, was reduced and not charged to the client” and is not included in the fees requested. (Nevrivy Decl. ¶ 13.) Although that statement is conclusory, does not explain what was deemed duplicative, and does not necessarily speak to the other three firms, the Court has reviewed the invoices submitted from all four firms and found few indicia of duplicative work. None of the firms except for the Hanor firm have any entries for work gaining familiarity with what already had transpired in the case that could have been avoided by less turnover in firms or fewer lawyers working during the same period of time; any such entries either were redacted or simply not invoiced. With respect to the Hanor firm, the Court deems four entries in November 2019 to be of the duplicative “getting-up-to-speed” type for a total reduction of $2,810, resulting in compensable fees of $64,972.26.
The Hanor firm entries that the Court has deducted as duplicative are: 11/8/19 (4.4 hours by C. Hanor, 11/11/19 (2 hours by C. Hanor), and 11/17/19 (5 hours by E. Russell).
Sixth, Defendants contend that some of the work performed was excessive and did not reflect the needs of the case. The Court does not agree. The billing records reflect work that was efficiently performed and commensurate with the issues, complexities, and difficulties of the case and the contempt and sanctions issues in particular.
Seventh, Defendants contend that the description of work in the Nevrivy firm invoices are too general and do not provide information to determine whether the work is sufficiently related to contempt to justify the fees. The Court agrees that many of the task entries are of the overly general variety, such as “draft motion, ” “prepare letter, ” or “legal research.” In other contexts, entries of that nature may well be insufficient. Here, however, the Nevrivy firm already has redacted entries related to other issues; the overall number of hours incurred for the unredacted entries strike the Court as highly reasonable in relation to the contempt-related events transpiring in the case during the Nevrivy firm's tenure; and surrounding entries that are more descriptive suggest that the less descriptive entries correspond to contempt-related work. There is one type of entry, however, that the Court finds beyond the pale: “work on matter.” That description gives no indication at all of what work was performed. Accordingly, the fees sought should be reduced for those entries, which total $2,996.50.
The Nevrivy firm entries that should be deducted for uninformative “work on matter” descriptions are: 11/22/19 (1 hour by DN); 5/11/20 (4.8 hours by DN); 5/13/20 (.2 hours by BC); 5/25/20 (.2 hours by BC); 5/26/20 (1 hour by BC); 6/19/20 (1.3 hours by DN).
Finally, Defendants contend that the attorneys' fees expended are not reasonable when considered in comparison to the amount of Defendants' revenue and profits from AQUAGOLD devices during the pendency of this case. (Opp. Mem. at 15.) That argument overlooks that in trademark infringement cases such as this much of the harm incurred is incalculable. See, e.g., United States Polo Association, Inc. v. PRL USA Holdings Inc., 800 F.Supp.2d 515, 540 (S.D.N.Y. 2011) (“Irreparable harm exists in a trademark case when the party seeking the injunction shows that it will lose control over the reputation of its trademark because loss of control over one's reputation is neither calculable nor precisely compensable) (internal quotation marks and ellipses omitted), aff'd 511 Fed.Appx. 81 (2d Cir. 2013); Bulman v. 2BKCO, Inc., 882 F.Supp.2d 551, 564 (S.D.N.Y. 2012) (likelihood of “future confusion” and “prospective loss of goodwill” despite no claim of “lost business, sales, or revenues” sufficient to establish irreparable harm). The Court finds that to be the case here. The relative dollar amounts that are actually measurable thus are not a valid measuring stick for the reasonableness of the attorneys' fees. And, in any event, Judge Caproni already has considered the percentage of reasonable fees to which Aquavit is entitled and discounted for the relative success of Plaintiff's contempt motion.
C. Costs And Disbursements
Aquavit has not separated out the amount of the costs and disbursements for which it seeks attorneys' fees. Rather, those costs and disbursements are included within the law firms' invoices. The Court has reviewed those costs and determined that they are reasonable and should be awarded to Aquavit. The Fisher firm invoices show no costs or disbursements specific to contempt-related work. Neither do the Nevrivy firm invoices. The Dowd firm charged a total of $472.63 for travel and printing costs. (See Dkt. 260 ¶ 27; Chang Decl., Ex. 64.) The Hanor firm charged a total of $2,142.26 for travel, copying, FedEx, and court reporting of conference transcripts. (See Chang Decl., Ex. 65.) Accordingly, Aquavit is entitled to receive $2,614.89 in costs and disbursements.
D. Calculation Of The Total Fee And Cost Award
Bearing in mind the total compensable fees is to be reduced by 25% pursuant to the Contempt Order, the total fee and cost award derived from the above analysis is $267,467.37 as follows:
Fees Sought
100% Compensable
75% Fee Award
Hanor Firm Fees
$67,782.26
$64,972.26
Dowd Firm Fees
$44,701.25
$44,701.25
Fisher Firm Fees
$48,415.00
$26,175.00
Nevrivy Firm Fees
$220,812.00
$217,815.50
Total
$381,710.51
$353,664.01
$265,248.00
Costs
$2,614.89
Grand Total Award
$267,862.89
Conclusion
For the foregoing reasons, I recommend:
1) Deferring determination of the dollar amount of profits to be disgorged as compensatory damages for Defendants' contemptuous violations of the Injunction until completion of all discovery and on a complete record in the context of ascertaining profits to be disgorged for the entirety of Defendants' infringing conduct;
2) Awarding Plaintiff sanctions for Defendants' deletion of their @aquagoldubio Instagram account, such sanctions being 75% of the fees, plus costs, incurred by Plaintiff in moving for sanctions with respect to that deletion (such amount being incorporated in the award of reasonable attorney's fees and costs set forth below);
3) Awarding Plaintiff no sanctions for Defendants' discovery violations with respect to contempt-related discovery but without prejudice to a later application at the conclusion of overall discovery;
4) Awarding coercive sanctions in the amount of $2,500 per day for every day that Defendants fail to cure their continuing violations of the Injunction, such sanctions to begin eight days after a court order adopting this recommendation;
5) Awarding Plaintiff reasonable attorneys' fees in the amount of $265,248.00, and costs in the amount of $2,614.89, expended in connection with Defendants' contempt and the sanctions to be imposed for that contempt and for deletion of the @aquagoldubio Instagram account.
Procedures For Filing Objections
Pursuant to 28 U.S.C. § 636(b)(1) and Rules 72, 6(a), and 6(d) of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days to file written objections to this Report and Recommendation. Such objections shall be filed with the Clerk of Court, with extra copies delivered to the Chambers of the Honorable Valerie E. Caproni, U.S.D.J., United States Courthouse, 40 Foley Square, New York, NY 10007, and to the Chambers of the undersigned, United States Courthouse, 500 Pearl Street, New York, NY 10007. FAILURE TO FILE TIMELY OBJECTIONS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW.