Aquavit Pharm. v. U-Bio Med, Inc.

Full title: AQUAVIT PHARMACUETICALS, INC., Plaintiff, v. U-BIO MED, INC., GLOBAL MEDI…

Court: United States District Court, S.D. New York

Date published: Feb 17, 2023

19-CV-3351 (VEC) (RWL) (S.D.N.Y. Feb. 17, 2023)

Opinion

19-CV-3351 (VEC) (RWL)

02-17-2023

AQUAVIT PHARMACUETICALS, INC., Plaintiff, v. U-BIO MED, INC., GLOBAL MEDI PRODUCTS, and NYUN SHI EUM a/k/a NYON-SIK EUM, Defendants.

ROBERT W. LEHRBURGER, UNITED STATES MAGISTRATE JUDGE.

TO HON. VALERIE E. CAPRONI, Judge.

REPORT AND RECOMMENDATION INQUEST AND MOTION TO MODIFY INJUNCTION

ROBERT W. LEHRBURGER, UNITED STATES MAGISTRATE JUDGE.

This is a breach of contract, trademark infringement, and defamation action involving micro-injection or microneedle devices used cosmetically to deliver health and beauty products under the skin. After repeated failures by the Defendants U-Bio Med, Inc. (“UBM”) and Nyun Shi Eum (“Eum”) to fully comply with the requirements of a modified preliminary injunction (“MPI”), to pay compensatory sanctions awards, and to pay coercive sanctions, Judge Caproni entered default judgment against them, issued a permanent injunction, and referred the matter to me for an inquest and consideration of Plaintiff's application to modify the scope of the injunction. As set forth below, I recommend awarding Plaintiff Aquavit Pharmaceuticals, Inc. (“Aquavit”) $5,871,316 in compensatory damages for breach of contract, $3,000,000 in statutory damages for trademark counterfeiting, $500,001 in nominal and punitive damages for defamation, attorney's fees in the amount of $678,349.21, and costs in the amount of $38,714.51. Monetary coercive sanctions payable by Defendants to the Clerk of Court have accrued to $7,281,000 as of September 28, 2022. Finally, I recommend that the permanent injunction not be modified.

Background

The factual and procedural background of this case has been set forth in several previous decisions finding Defendants in continuous contempt of the MPI and imposing both compensatory and coercive sanctions. 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) (“Contempt I”) (finding Defendants in contempt); Aquavit Pharmaceuticals, Inc. v. U-Bio Med, Inc., No. 19-CV-3351, Dkt. 180 (S.D.N.Y. August 11, 2020) (“Contempt II”) (defining scope of compensatory contempt sanctions, and requiring Defendants to discontinue violations); Aquavit Pharmaceuticals, Inc. v. U-Bio Med, Inc., No. 19-CV-3351, 2021 WL 3862054 (S.D.N.Y. August 30, 2021) (“Contempt III”) (imposing compensatory and coercive contempt sanctions on Defendants); Aquavit Pharmaceuticals, Inc. v. U-Bio Med, Inc., No. 19-CV-3351, 2022 WL 2093417 (S.D.N.Y. June 10, 2022) (“Contempt IV”) (imposing additional compensatory and coercive contempt sanctions and directing Plaintiff to move by order to show cause for default judgment if Defendants did not pay sanctions as required).¹ The Court sets forth here only limited facts and procedural matters to provide context for the determinations at hand.

1 See also 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); Aquavit Pharmaceuticals, Inc. v. U-Bio Med, Inc., No. 19-CV-3351, 2019 WL 8756622 (S.D.N.Y. Dec. 16, 2019) (R. & R. adopted as modified by Contempt I) (“Contempt I R&R”); Aquavit Pharmaceuticals, Inc. v. U-Bio Med, Inc., No. 19-CV-3351, 2021 WL 4312579 (July 16, 2021) (R. & R. adopted as modified by Contempt III) (“Contempt III R&R”); Aquavit Pharmaceuticals, Inc. v. U-Bio Med, Inc., No. 19-CV-3351, 2022 WL 1446551 (April 11, 2022) (R. & R. adopted by Contempt IV) (“Contempt IV R&R”).

A. The Parties And Their Dispute ²

2 Defendant Global Medi Products (“Global”) never answered or otherwise appeared in the action. The Court entered default judgment against it on September 1, 2020, stating that damages would be determined after the conclusion of the case against the remaining defendants. (Dkt. 192.) Aquavit's inquest filing, however, did not request any relief as against Global, and, at the inquest hearing, Aquavit represented that it is not seeking any relief as to Global. (Transcript of Inquest Hearing dated January 25, 2023 (Dkt. 414) (“Tr.”) at 4.)

Plaintiff Aquavit is a Delaware corporation located in New York. (Verified Complaint (Dkt. 1) (“Compl.”) ¶ 17.) Defendant UBM is a Korean corporation, and Defendant Eum, a Korean citizen, is its owner and Chief Executive Officer. (Compl. ¶¶ 18, 20.)

On July 14, 2013, Aquavit and UBM entered into an exclusive worldwide licensing agreement (the “License Agreement”). (Compl. ¶¶ 63-68 and Ex. 1.) At the time, UBM had been making and selling micro-injection technology under the trademark TAPPY TOK-TOK. The License Agreement, however, gave Aquavit a perpetual, exclusive license for the worldwide commercialization of UBM's micro-injection device technology.³(Id. ¶ 68.) Consistent with the exclusivity provisions, the License Agreement provided that Defendants would not “market or sell any product that is the same or similar” to the licensed technology. (Compl. Ex. 1 § 9.3.) In exchange, Aquavit agreed to pay a royalty on product supplied by UBM. (Compl. Ex. 1 § 5.)

3 The License Agreement permitted Defendants to continue fulfilling existing distribution agreements for the TAPPY TOK-TOK micro-injection device for a period of two years and to continue selling the TAPPY TOK-TOK product on a one-off basis for a period of one year. (Compl. Ex. 1 § 7.) Aquavit claims that Defendants breached those terms by continuing to systematically sell and distribute TAPPY TOK-TOK product after the end of those limited terms. (Compl. ¶ 77.)

The parties' arrangement contemplated that UBM would manufacture the microinjection devices for Aquavit. (Compl. ¶ 2 and Ex. 1 § 6.) By 2015, however, Aquavit was compelled to take steps to obtain its own manufacturing facility to manufacture the microinjection devices because shipments from UBM repeatedly arrived late and frequently were manufactured with sub-standard components, contained bent or broken needles, and were contaminated with dust or hair. (Compl. ¶¶ 12, 110-12.) UBM also failed to place all intellectual property and manufacturing specifications for the micro-injection technology into escrow as required by the License Agreement. (Compl. ¶ 82 and Ex. 1 § 8.) And, as Aquavit learned after entry into the License Agreement, and contrary to Defendants' contractual representations, UBM neither owned the complete rights in, nor had the capability to completely manufacture without outsourcing, the micro-injection device technology it had contracted to deliver to Aquavit. (Compl. ¶ 114.)

Aquavit thus turned to another entity to manufacture its products and secured patent rights to patented technology necessary to produce them. (Compl. ¶¶ 115-20.) Having secured its own manufacturing capability and patented technology, Aquavit makes and sells gold-plated micro-injection devices under the trademarked name AQUAGOLD^® fine touch™ MICROCHANNEL TECHNOLOGY^®. (Compl. ¶ 33.) Aquavit owns trademark registrations for AQUAGOLD and MICROCHANNEL TECHNOLOGY in the United States and AQUAGOLD FINE TOUCH in Korea, and also owns common law rights to AQUAVIT PHARMACEUTICALS, INC. and FINE TOUCH (collectively, the “AQUAGOLD Marks”). (Id. ¶¶ 46-47, 50-51.)

Despite the exclusive and global nature of Aquavit's license, and despite the agreement's express non-compete provisions, UBM has continued to make and sell micro-injection devices in competition with Aquavit. (Compl. ¶ 86.) Moreover, with the intention of confusing and misleading consumers, UBM makes and sells those devices under not only its TAPPY TOK-TOK trademark, but also using Aquavit's AQUAGOLD Marks, and in packaging that duplicates Aquavit's AQUAGOLD packaging. (Compl. ¶¶ 34, 52, 124, 138.) UBM also has marketed and sold its product using marks falsely affiliating it with the United States and using the same product code and FDA registration number as Aquavit. (Compl. ¶¶ 52, 138.)

Since at least September 2018, Defendants also have carried out an online campaign to further mislead consumers and disparage Aquavit, while also directly soliciting Aquavit's customers and distributors using false and misleading statements. (Compl. ¶¶ 13, 129, 147-56, 159-74, 182-87.) For example, by way of their website and social media, Defendants falsely claimed that UBM is the manufacturer and seller of the “real” AQUAGOLD and that AQUAGOLD is manufactured by UBM for Aquavit as a “private label” in the U.S. (Compl. ¶¶ 13, 136, 141, 143(b).) As another example, UBM posted a “Piracy Alert,” appropriating Aquavit's own piracy alert and switching the company names to portray Aquavit as the pirate selling counterfeit products. (Compl. ¶¶ 13, 125, 131-32.) And UBM defamed Aquavit by stating, variously, that Aquavit “stole” UBM's technology and is an “illegal U.S. operator” manufacturing “immoral products” using “fake patents” and “illegally using AQUAGOLD trademarks” to market “pirated copies of AQUAGOLD fine touch” that are of “sub-par quality,” and urging medical professionals and consumers to stop using Aquavit's “unsafe” devices. (Compl. ¶¶ 13, 122, 133-34, 143(g)-(i).)

On April 15, 2019, Aquavit filed this action alleging that Defendants breached the License Agreement and engaged in widespread trademark infringement, unfair competition, and a number of other transgressions by using the AQUAGOLD Marks in connection with marketing and promoting UBM's micro-injection devices in the U.S. and other countries. The Complaint alleges seven causes of action: (1) breach of the License Agreement; (2) trademark infringement in violation of federal law, 15 U.S.C. §§ 1114(1)(a) & (b); (3) false advertising, false designation of origin, and unfair competition in violation of federal law, 15 U.S.C. § 1125(a); (4) tortious interference with present and future business relations; (5) defamation; (6) common law unfair competition; and (7) violation of NY GBL § 349 (unlawful deceptive acts and practices).⁴

4 On November 6, 2019 Defendant UBM asserted counterclaims against Aquavit for declaratory judgment that the License Agreement is unenforceable, unjust enrichment, defamation, and, in the alternative to the claim of unenforceability, breach of the License Agreement based on Aquavit having retained a third-party manufacturer in place of UBM and on Aquavit not fully paying royalties. (Dkt. 129.) Aquavit moved to dismiss, and on August 5, 2020, the Court granted the motion in part, dismissing the counterclaims for declaratory judgment, unjust enrichment, and breach of contract based on Aquavit having switched manufacturers. Aquavit Pharmaceuticals, Inc. v. U-Bio Med, Inc., No. 19-CV-3351, 2020 WL 4504737 (S.D.N.Y. Aug. 5, 2020). Any remaining claims were extinguished by entry of default judgment against Defendants as described below.

B. The Modified Preliminary Injunction (“MPI”)

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. (Dkt. 19.) Defendants moved to modify the preliminary injunction, and on June 21, 2019 the Court did so, entering the MPI that preserved the previous prohibitions but carved out, subject to certain limitations, Defendants' freedom to use the AQUAGOLD Marks in Europe and any other country where Defendants own a trademark registration for the Marks. (Dkt. 65.⁵)

5 The MPI is also published at Aquavit Pharmaceuticals v. U-Bio Med, Inc., No. 19-CV-3351, 2019 WL 8756579 (S.D.N.Y. June 21, 2019). The Court refers to the original pagination of the MPI at Dkt. 65 when citing to it in this Report and Recommendation.

Among other restrictions, the MPI prohibits Defendants, in sum and substance, from (1) using the AQUAGOLD Marks in connection with any of Defendants' microinjection products or other goods (MPI §§ 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 by conveying that UBM is a private-label manufacturer for Aquavit (MPI §§ 1.H and 1.P); and (3) disparaging Aquavit's devices as inferior or counterfeit in Defendants' sale or promotion of its devices (MPI § 1.P).

The MPI also requires that in conjunction with any AQUAGOLD products sold by Defendants in countries where they own trademark rights, both the packaging and product instructions must contain a disclaimer indicating 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 Korea (MPI § 1.P). The MPI further prohibits Defendants from transferring or withdrawing financial assets. (MPI § 1.J.)

C. Defendants' Unceasing Contempt

Since the Court's entry of preliminary injunctive relief, the Defendants repeatedly have failed to fully comply. On April 17, 2020, the Court found Defendants in contempt for numerous continuing - and new - violations. Those included, among others, newly posting a video featuring Kim Kardashian with an AQUAGOLD caption and no disclaimer; newly posting a message on Instagram depicting Aquavit's warning to customers about counterfeit AQUAGOLD products over which Defendants superimposed the word “liar” scrawled in red; failing to remove the “Piracy Alert” falsely accusing Aquavit of piracy; failing to remove or correct various Instagram posts; and failing to remove videos and photographs in a “News and Video” section displaying AQUAGOLD packaging along with an American flag and an ABC News segment about Aquavit's product. Contempt I, 2020 WL 1900502, at *3-7. The Court agreed that, notwithstanding Defendants' having remedied some violations, Defendants had offered “specious” reasoning that “defies common sense” and had engaged in “egregious” conduct in “willful disregard” of the MPI. Id. at *6, 9. As a compensatory sanctions award, the Court awarded Aquavit 75 percent of its fees and costs expended in connection with the contempt motion. Id. at *10.

Defendants remained undeterred. On August 11, 2020, the Court issued its Contempt II order finding additional instances of Defendants' violation of the MPI occurring even after the Contempt I decision and despite Defendants having filed a status report claiming, falsely, that they had come into full compliance with the MPI. (Dkt. 180.) The Contempt II order reiterated Defendants' obligation to comply. (Id. at 3-4.) Additionally, the Court increased the compensatory sanctions imposed by awarding Aquavit the amount of Defendants' profits earned from violating the MPI. (Id. at 2-3.)

Approximately a year later, on August 30, 2021, the Court issued Contempt III. In that order, the Court found that Defendants still had not fully complied with the MPI. In particular, the Court identified four continuing violations related to use of the Kardashian video, infringing use of the AQUAGOLD mark on Defendants' Instagram pages, failure to add disclaimers to Defendants' YouTube channel and videos, and failure to remove a defamatory news video from Defendants' website. Contempt III, 2021 WL 3862054, at *3, *5. To further encourage Defendants' compliance, the Court imposed coercive sanctions of $3,000 for each day that any of the specified violations continued past September 3, 2021, and increasing by $500 every seven days thereafter. Id. at *6. The Court also quantified and ordered Defendants to pay by September 10, 2021 compensatory sanctions in the amount of $265,248 and $2,614.89, being 75 percent of the attorneys' fees and costs, respectively, incurred by Aquavit to address Defendants' repeated violations of the MPI. Id.

Despite yet another order requiring Defendants to comply and posing the threat of continued sanctions, Defendants' noncompliance persisted. Defendants did not pay any of the compensatory sanctions awarded. Defendants also did not cure all continuing violations. Accordingly, on June 10, 2022, the Court issued its Contempt IV order. In that order, the Court found Defendants in contempt of the Contempt III order requiring Defendants to pay Aquavit $265,248 in attorney's fees and $2,614.89 in costs. The Court also found that Defendants still had not yet cured all violations and imposed additional monetary awards and sanctions. Specifically, the Court ordered Defendants to pay to the Clerk of Court $301,000 in accrued coercive sanctions;⁶ ordered that additional monetary coercive sanctions continue to accrue until Defendants comply with the previous orders to remove the defamatory news video; imposed continuing coercive sanctions using the same formula until Defendants pay the compensatory sanctions awarded in Contempt III and cure additional violations of the MPI; and awarded Aquavit additional compensatory sanctions in the amount of its attorney's fees and costs incurred in connection with redressing Defendants' ongoing contempt. Contempt IV, 2022 WL 2093417 at *2.

6 The accrued coercive sanctions awarded by Contempt IV spanned the period from September 3, 2021 (when the coercive sanctions began) to November 2, 2021 (the date last captured in the papers filed by Aquavit in support of Contempt IV.

The Contempt IV order also warned Defendants that they were on the precipice of being further sanctioned by having judgment entered against them. The Court directed that if Defendants failed to cure all violations and pay the monetary sanctions imposed by July 15, 2022, Aquavit must move by order to show cause for judgment in Aquavit's favor “as a sanction for Defendants' repeated and continued violations of the MPI and Defendants' failure to pay the compensatory and coercive sanctions imposed against it.” Id.

Within a week after the Court issued the Contempt IV order, Defendants' attorneys moved to withdraw on the basis of Defendants' failure to pay fees. (Dkt. 350.) On June 21, 2022, the Court granted counsel's motion. The Court gave Defendants 30 days to retain new counsel and cautioned that absent appearance by counsel, Defendant Eum would be deemed proceeding pro se, and Defendant UBM would be in default because corporate entities cannot appear pro se. (Dkt. 353.) No attorney appeared on behalf of either Eum or UBM before or after expiration of the 30-day period.

D. The Default Judgment

As Defendants did not come into compliance as required and did not pay any of the sanctions imposed, Aquavit moved by order to show cause for entry of default judgment pursuant to the Contempt IV order. (Dkts. 368-73.) Aquavit requested that it be awarded extensive relief comprised of the following: (1) attorney's fees and costs for the entirety of the case, not merely those incurred in pursuing contempt sanctions; (2) compensatory damages for breach of contract damages in the amount of $19,855,782; (3) compensatory damages for defamation in the amount of $4,515,731 and an additional $40,641,579 as punitive damages; (4) nominal damages of one dollar for each of its five other causes of action; (5) $7,281,000 in accrued coercive sanctions payable to the Clerk of Court;⁷ (6) issuance of a bench warrant to Defendant Eum and imposition of jail time unless and until Defendants fully comply with injunction requirements and pay the compensatory damages awarded to Plaintiff; and (7) a permanent injunction incorporating the terms of the MPI but modifying the MPI to make it worldwide with no exception for locales where Defendants hold a foreign trademark registration for any of the AQUAGOLD Marks. (Dkt. 369 at 7-29.)

7 Aquavit initially calculated accumulated coercive sanctions through September 28, 2022 to be $7,322,000 but subsequently corrected the calculation. (See Dkt. 387.)

On November 1, 2022, finding that Defendants had been properly served with the order to show cause papers but did not respond to them, Judge Caproni entered default judgment against each of the Defendants as to liability on counts one through seven of the Complaint. (Dkts. 381-82.) The next day, November 2, 2022, Judge Caproni entered an injunction making permanent the terms of the MPI. (Dkt. 384.)

That same day, Judge Caproni referred the matter to me for an inquest on damages as well as for a report and recommendation regarding Aquavit's request to broaden the scope of the permanent injunction. (Dkt. 383.) Judge Caproni also later referred to me Aquavit's application for attorney's fees. (Dkt. 412.)

Legal Standards

When a defendant defaults, all well-pled facts alleged in the complaint, except those relating to the amount of damages, must be accepted as true. City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011) (“It is an ancient common law axiom that a defendant who defaults thereby admits all well-pleaded factual allegations contained in the complaint”) (internal quotations marks omitted); Finkel v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009) (trial court is “required to accept all of [the plaintiff's] factual allegations as true and draw all reasonable inferences in its favor”). “This principle applies regardless of whether default is entered as a discovery sanction or for failure to defend.” Walpert v. Jaffrey, 127 F.Supp.3d 105, 129 (S.D.N.Y. 2015) (internal quotation marks omitted). The court may also rely on factual allegations pertaining to liability contained in affidavits and declarations submitted by the plaintiff. See, e.g., Tamarin v. Adam Caterers, Inc., 13 F.3d 51, 54 (2d Cir. 1993); Fustok v. ContiCommodity Services, Inc., 873 F.2d 38, 40 (2d Cir. 1989). Nonetheless, the court “must still satisfy itself that the plaintiff has established a sound legal basis upon which liability may be imposed.” Shld, LLC v. Hall, No. 15-CV-6225, 2017 WL 1428864, at *3 (S.D.N.Y. April 20, 2017) (internal quotation marks omitted); see also Finkel, 577 F.3d at 84.

Once liability has been established, a plaintiff must provide admissible evidence establishing the amount of damages with reasonable certainty. Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., Division of Ace Young Inc., 109 F.3d 105, 111 (2d Cir. 1997) (District Court “could not just accept [Plaintiff's] statement” of damages at “face value” without satisfying “the court's obligation to ensure that the damages were appropriate”); see also Lenard v. Design Studio, 889 F.Supp.2d 518, 527 (S.D.N.Y. 2012) (in an inquest following a default, “[a] plaintiff must ... substantiate a claim with evidence to prove the extent of damages”).

To assess whether the plaintiff has established a sufficient basis for damages, a court has the discretion, but is not required, to hold a hearing. See Fed.R.Civ.P. 55(b)(2); Fustok, 873 F.2d at 40. An inquest into damages may be conducted on the papers, without an evidentiary hearing where there is a sufficient basis on which to make a calculation. See Bricklayers & Allied Craftworkers Local 2, Albany, New York Pension Fund v. Moulton Masonry & Construction, LLC, 779 F.3d 182, 189 (2d Cir. 2015); Tamarin, 13 F.3d at 53-54; Maldonado v. La Nueva Rampa, Inc., No. 10-CV-8195, 2012 WL 1669341, at *2 (S.D.N.Y. May 14, 2012).

Here, despite Aquavit's having filed several declarations in support of its request for damages and other relief, the Court had a number of questions and held an inquest hearing on January 25, 2023. The Court also solicited post-hearing briefing, which Aquavit filed on February 6, 2023. (Dkt. 417.) The post-hearing briefing revised the basis for some of Aquavit's damages and adjusted certain calculations. Those materials supplement the evidentiary material and briefing previously submitted in connection with Aquavit's motion for default judgment (Dkts. 369-73) and motion for attorney's fees (Dkts. 408-11).

Liability

Having entered default judgment and a permanent injunction, Judge Caproni already has determined that Defendants are liable for the seven causes of action asserted in the Complaint. (Dkt. 382 (“Order[ing], Adjudg[ing], and Decree[ing]” that Aquavit “have judgment, as to liability with a later determination of damages, on Counts 1-7 of the Verified Complaint” as to Defendant Eum); Dkt. 381 (same as to Defendant UBM).) Aquavit's right to recovery for each cause of action is based on the Complaint, Plaintiffs' evidentiary submissions in moving for default judgment and in support of the inquest, and all previous evidentiary hearings and submissions of record.

Damages

Although Defendants have been held liable for seven causes of action, Aquavit seeks damages for three of them: breach of contract, trademark infringement, and defamation. Because damages for the other four claims are effectively subsumed within damages for breach of contract and trademark infringement, Aquavit requests only nominal damages of one dollar for each of those four claims. Upon analysis, the Court finds that Aquavit should be awarded $5,871,316 in compensatory damages for breach of contract, $3,000,000 for trademark counterfeiting, and $500,001 in nominal and punitive damages for defamation.

A. Breach Of Contract Damages

Aquavit seeks recovery of damages for Defendants' breach of the License Agreement. Aquavit does not seek disgorgement of Defendants' profits (at least not with respect to its breach of contract claim), which had been awarded as compensatory sanctions in Contempt III. Instead, Aquavit bases its damages calculation on its own lost profits resulting from Defendants' breaches. The Court agrees that lost profits is an appropriate basis to award damages

1. General Principles

The Court begins its analysis with the “fundamental principle that damages for breach of contract should put the plaintiff in the same economic position he would have been in had the defendant fulfilled the contract.” Lucente v. International Business Machines Corp., 310 F.3d 243, 262 (2d Cir. 2002) (citing Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490, 495 (2d Cir.1995)). As the Second Circuit has explained, “a plaintiff may seek two distinct categories of damages” in a breach of contract case: “(1) general or market damages; and (2) special or consequential damages.” Schonfeld v. Hilliard, 218 F.3d 164, 175 (2d Cir.2000) (internal quotation marks omitted). “A plaintiff is seeking general damages when he tries to recover the value of the very performance promised” whereas consequential damages “compensate a plaintiff for additional losses (other than the value of the promised performance) that are incurred as a result of the defendant's breach.” Id. at 175-76 (internal citations and quotation marks omitted).

Once the fact of damages is established, a plaintiff is entitled to the general damages that are the natural and probable consequence of the breach. Kenford Co. v. County of Erie, 73 N.Y.2d 312, 319, 540 N.Y.S.2d 1, 3 (1989); accord Tractebel Energy Marketing, Inc. v. AEP Power Marketing, Inc., 487 F.3d 89, 110 (2d Cir. 2007) (“It has long been established in New York that a breaching party is liable for all direct and proximate damages which result from the breach”) (citing Wakeman v. Wheeler & Wilson Manufacturing Co., 101 N.Y. 205, 208, 4 N.E. 264, 266 (1886)). To collect consequential damages, however, a plaintiff must demonstrate that the parties contemplated those special damages as the probable result of the breach at the time of or prior to contracting. Kenford, 73 N.Y.2d at 319, 540 N.Y.S.2d at 3-4.

“[W]hen it is certain that damages have been caused by a breach of contract, and the only uncertainty is as to their amount, there can rarely be good reason for refusing, on account of such uncertainty, any damages whatever for the breach.” Tractebel, 487 F.3d at 110. “The burden of uncertainty as to the amount of damage is upon the wrongdoer,” and “the plaintiff need only show a stable foundation for a reasonable estimate of the damage incurred as a result of the breach.” Id. (internal quotation marks, citations, and modifications omitted). “Such an estimate necessarily requires some improvisation, and the party who has caused the loss may not insist on theoretical perfection.” Id., 487 F.3d at 111 (quoting Entis v. Atlantic Wire & Cable Corp., 335 F.2d 759, 763 (2d Cir.1964)).

2. The Relevant Period For Breach Of Contract Damages

Aquavit initially offered a damages calculation for breach of contract during the period 2015 to the present. That is not, however, the correct period for breach of contract damages. Under the License Agreement, for the first two years of the parties' relationship, Defendants were permitted to continue sales pursuant to existing distribution agreements. But as of July 14, 2015, Aquavit was contractually entitled to complete exclusivity on a global basis, and Defendants were contractually prohibited from selling the “same or similar” devices.⁸

8 The statute of limitations for breach of contract in New York is six years. NY CPLR § 213(2). Aquavit filed this action on April 15, 2019, less than six years since execution of the License Agreement. The entire period of Defendants' breach thus falls fully within the limitations period, and Aquavit may recover damages for the entire period.

In determining the period for which breach of contract damages is warranted, however, the Court must consider the License Agreement's termination provisions. Pursuant to the License Agreement, a default by UBM results in termination of the License Agreement. (Compl. Ex. 1§ 3.1.) UBM's default also triggers Aquavit's right to manufacture and produce the micro-injection device for itself. (Compl. Ex. 1 § 8.1.) Further, UBM's default starts a two-year restricted period during which UBM's obligation not to sell the same or similar product continues (the “Restricted Period”). (Compl. Ex. 1 §§ 9.1, 9.3.)

The Court must thus determine the beginning and end dates of the Restricted Period. At the hearing, Aquavit asserted that the License Agreement terminated upon UBM's default, around the time Aquavit was compelled to secure an alternative manufacturing source. (Tr. at 6-9.) In its post-hearing inquest submission, Aquavit clarified that, based on UBM's repeated failures to comply and cooperate, UBM's default occurred as of January 8, 2015. (Post-Hearing Mem. at 2-4.⁹) The Court agrees and finds that the restricted period began on January 8, 2015. Based on its two-year duration, the Restricted Period ended on January 7, 2017.

9 “Post-Hearing Mem.” refers to Plaintiff's Supplemental Brief Regarding Damages (Dkt. 417).

3. Calculation Of Damages For Breach Of Contract

Aquavit bases its claimed damages on the profits it would have earned on sales of its products lost as a natural and probable consequence of Defendants' breach. Aquavit has a sound basis for doing so. The License Agreement provided Aquavit with exclusive, worldwide rights to sell products using Defendants' micro-injection technology. (Compl. Ex. 1 §§ 2.3, 9.3.) That was the benefit of its bargain. When, in breach of the License Agreement, Defendants continued to sell the same devices, not only under the TAPPY TOK TOK mark but also Aquavit's AQUAGOLD Marks, they necessarily took away sales from Aquavit.¹⁰

10 Separate from breaching the exclusivity and non-compete provisions, Defendants breached several other aspects of the License Agreement, including by falsely representing that Defendants owned the intellectual property underlying the microinjection device; failing to manufacture devices in accordance with the agreement; failing to put intellectual property into escrow; and failing to obtain the required insurance. Aquavit did not set forth any calculation of damages for those breaches, presumably because there either were no damages from those particular breaches, or, to the extent there were damages, they are subsumed within the compensatory damages sought in connection with Defendants' breach of the exclusivity and non-compete provisions. Aquavit confirmed the same at the inquest hearing. (Tr. at 4-5.)

As support for its damages assessment, Aquavit has presented the declaration of John Rizzo, Ph.D., a health economist. (Dkt. 371 (“Rizzo Decl.”).) Dr. Rizzo presently is Professor of Economics and Professor of Preventative Medicine at Stony Brook University. (Id. ¶ 3.) Among other courses, he teaches a doctoral course on health economics and a master's level course in cost-benefit analysis. (Id.) Dr. Rizzo has held a number of other academic positions, including at Ohio State University, the Weill Medical College of Cornell University, and the School of Medicine at Yale University. (Id. ¶¶ 5-7.) One of Dr. Rizzo's research focus areas is applied economic studies of physician and pharmaceutical markets. (Id. ¶ 9.) He is widely published and has served as an economics expert in a variety of cases involving the pharmaceutical and medical industries. (Id. ¶ 13.) The Court accepts Dr. Rizzo as an expert in health economics. (See generally id. Ex. 1 (Dr. Rizzo's curriculum vitae).)

Calculating Aquavit's damages due to Defendants' breach of contract requires determination of both quantity (extent of sales lost) and profit (revenue less costs). With respect to quantity, Dr. Rizzo essentially deems every sale of Defendants' product during the Restricted Period to be a lost sale of Aquavit's product. (Id. ¶¶ 20, 24, and Ex. 7.) His reasoning is as follows:

U-Biomed in breach of contract sold their microneedle product in many of Aquavit's markets. It is reasonable that U-Biomed Unit Sales of microneedle devices would correspond to [Aquavit]'s lost sale because the microneedle devices of Defendants are generally identical to the microneedle products of [Aquavit]. This is especially so for Defendants' sales of AQUAGOLD which uses the same trademark as [Aquavit]. Both Defendants and [Aquavit] are thus direct competitors in the worldwide market for these microneedle devices that is embodied in and that is the subject of the [License Agreement]. Both companies were advertising in social media and on a global scale, via the Internet and other means. Thus, U-Biomed Unit Sales of its microneedle devices correspond to [Aquavit's] lost sales such that every market where U-Biomed's product were sold could just as easily have gone to Aquavit but for U-Biomed's breach of contract actions.

(Id. ¶ 20.)

The assumption that every sale of Defendants' product represents a lost sale of Aquavit's product raised a number of questions for the Court. These include whether Aquavit and UBM had other competitors (other than private labels for whom Defendants manufactured in violation of the License Agreement); whether Aquavit had the capacity to fill the additional sales it would have made in place of UBM; and the extent to which Aquavit and UBM operated in the same markets. The Court examined Dr. Rizzo about these issues at the inquest hearing. (See Tr. at 17-20.) Although Dr. Rizzo's answers were not particularly fulsome or based on first-hand knowledge, his answers satisfied the Court with respect to those issues. (See also Rizzo Post-Hearing Decl. ¶¶ 8-11.¹¹)

11 “Rizzo Post-Hearing Decl.” refers to the Declaration of John Rizzo, Ph.D., filed February 6, 2023 (Dkt. 417 Ex. 3.)

Finally, there is the issue of price. The average sales price of Aquavit's AQUAGOLD devices is higher than that of Defendants' devices. One might expect the price differential to potentially lead to lower demand and Aquavit sales even if Defendants had not been selling their product. Dr. Rizzo explains, however, that in a market for luxury goods - which include cosmetic treatments such as those at issue here - the relationship between price and sales is inverted.¹² (Rizzo Decl. ¶¶ 21-24.) In other words, the higher price of Aquavit's devices would actually increase sales of those devices. (Id. ¶ 24.) In determining Aquavit's damages, however, Dr. Rizzo conservatively assumed a one-to-one correspondence between Defendants' sales and Aquavit's lost sales. (Id.)

12 Such goods are called “Veblen goods,” in recognition of the economist Thorstein Veblen. The phenomenon that demand increases as price increases for luxury goods “has been accepted economic theory for more than a century.” (Rizzo Decl. ¶ 22.)

According to UBM's records, UBM sold 57,965 micro-injection devices from January 8, 2015 through January 7, 2017.¹³ (Rizzo Decl. ¶ 18; Rizzo Post-Hearing Decl. Ex. 6.) Turning to the amount of profit Aquavit lost for each wrongful sale of Defendants' product, based on Aquavit's business records, Dr. Rizzo determined Aquavit's average cost per unit. (Rizzo Post-Hearing Decl. ¶ 6; Chang Post-Hearing Decl. ¶ 3.¹⁴) He then calculated Aquavit's damages as follows: Aquavit's Lost Profits = (Aquavit Price - Aquavit Unit Cost) x (UBM Unit Sales). Applying that formula, Aquavit's lost profits from January 8, 2015 through January 7, 2017 amount to $5,871,316. (Rizzo Post-Hearing Decl. ¶ 13 and Ex. 6.) The Court finds that calculation to be reliable. Aquavit thus should be awarded $5,871,316 as compensatory damages for Defendants' breach of the License Agreement.

13 The document on which Aquavit relies for unit sales of UBM microneedle devices was produced by Defendants as Bates No. 013772. (Declaration of Daniel J. Nevrivy in Support of Motion for Default Judgment, filed September 29, 2022 (Dkt. 370) (“Nevrivy Decl.”), Ex. 13.) That document is titled “Total Sales Details of Microneedle” and consists of a table purporting to show Defendants' sales of microneedle devices from 2015 through April 2019 (the “Total Sales Table”). When asked to identify their unit sales by way of interrogatory, Defendants did not refer to the Total Sales Table but instead referred to another document with a similar format and title, Bates No. 027836, showing sales for only 2019 and 2020 and in lower quantities than what would be expected based on extrapolating forward in time from the sales shown in the Total Sales Table. (Nevrivy Decl. Exs. 12.) Bank statements produced by Defendants during discovery are more consistent with the sales figures appearing in the Total Sales Table than those appearing in document 027836. (See Nevrivy Decl. Exs. 10-11.) Accordingly, Dr. Rizzo bases his calculations on the Total Sales Table as proof of Defendants' unit sales.

14 “Chang Post-Hearing Decl.” refers to the Declaration of Sobin Chang, filed February 6, 2023 (Dkt. 417 Ex. 1).

B. Trademark Infringement Damages

For the period following the contractual Restricted Period, damages are available to Aquavit for Defendant's trademark infringement. (See Pl. Post-Hearing Mem. at 4-5.)

In this case, Aquavit may elect either actual damages or statutory damages. As to actual damages, the Act provides that a plaintiff may recover,

subject to the principles of equity ... (1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action. The court shall assess such profits and damages or cause the same to be assessed under its direction. In assessing profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed. In assessing damages the court may enter judgment, according to the circumstances of the case, for any sum above the amount found as actual damages, not exceeding three times such amount. If the court shall find 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. Such sum in either of the above circumstances shall constitute compensation and not a penalty.

15 U.S.C. § 1117(a). Where, as here, a defendant has knowingly used a counterfeit mark, the Court “shall” award treble actual damages, absent “extenuating circumstances.” 15 U.S.C. § 1117(b).

Alternatively, in a trademark counterfeiting case, “the plaintiff may elect, at any time before final judgment is rendered by the trial court, to recover, instead of actual damages and profits ... an award of statutory damages.” 15 U.S.C. § 1117(c). The range of available statutory damages is determined by whether or not the defendant's conduct was willful. Thus, statutory damages may be awarded in the amount of: “(1) not less than $1,000 or more than $200,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just; or (2) if the court finds that the use of the counterfeit mark was willful, not more than $2,000,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just.” 15 U.S.C. § 1117(c). Statutory damages against a defendant who acted willfully are intended to serve the dual role of compensating a plaintiff for injuries and deterring wrongful conduct by the defendant and others. Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101, 113-14 (2d Cir. 2001); Malletier v. Carducci Leather Fashions, Inc., 648 F.Supp.2d 501, 504 (S.D.N.Y. 2009) (“where . a defendant is shown to have acted willfully, a statutory award should incorporate not only a compensatory, but also a punitive component to discourage further wrongdoing by the defendants and others”).

Here, Aquavit equivocates as to whether it elects actual damages or statutory damages. On the one hand, Aquavit states that it “is seeking [treble] disgorged profits of Defendants' sales of AQUAGOLD.” (Pl. Post-Hearing Mem. at 5.) Aquavit reasonably calculates UBM's profits to be $240,869.70 through February 6, 2023 based on sales of 20,430 units.¹⁵ The Court agrees with Aquavit that the base profits calculation should be trebled pursuant to both 15 U.S.C. § 1117(a) and (b), due to Defendants' willful trademark counterfeiting. The amount of trebled actual damages totals $722,609.10. But after performing the analysis and calculation of Defendants' trebled profits, Aquavit asserts that they are inadequate to compensate Aquavit for its damages and additional harm including loss of good will and reputation. Aquavit therefore requests, “if the Court agrees,” statutory damages in an amount of up to the maximum of $2,000,000 for infringement of Aquavit's AQUAGOLD mark and the same amount for infringement of its MICROCHANNEL TECHNOLOGY mark. (Id. at 8.) The Court thus interprets Aquavit's election of actual or statutory damages to be “whichever is more” and will award statutory damages for Defendants' trademark counterfeiting.¹⁶

15 See Pl. Post-Hearing Mem. at 5-6. As with its determination of damages for breach of contract, Aquavit reasonably relies on and extrapolates from Defendants' Microneedle Sales Table at UBM Bates Number 013772. (Id. at 6 n.3.) One could quibble with the expert Rizzo's extrapolation of UBM's sales for the period April 2019 through the present based on the average of UBM's sales from 2016-2019. For instance, despite UBM's unceasing contempt, it is logical to conclude that its sales of AQUAGOLD devices diminished after the preliminary injunction issued and after UBM trademark registrations in Europe and Korea were determined to be invalid. But that would be a point for Defendants to prove, and they have sacrificed the right to do so by their failure to submit anything for the instant inquest.

16 The Court does not endorse an equivocal election of actual or statutory damages. The plaintiff is responsible for making that election. In the interest of bringing this litigation to closure, however, the Court accepts the “whichever is more” approach in this particular case.

Section 1117(c) “does not provide guidelines for courts to use in determining an appropriate award [of statutory damages], as it is only limited by what the court considers just.” Gucci America, Inc. v. Duty Free Apparel, Ltd., 315 F.Supp.2d 511, 520 (S.D.N.Y. 2004) (internal quotation marks and citation omitted), amended on other grounds by 328 F.Supp.2d 439 (S.D.N.Y. 2004). Many courts have looked to the analogous provision in the Copyright Act,¹⁷ U.S.C. § 504(c), for guidance, and have considered the following factors in setting statutory damage awards under the Lanham Act:

17 That Defendants' profits are reasonably determinable from material produced during discovery differentiates this case in some respects from the more typical trademark counterfeiting case in which a plaintiff elects statutory damages because of the difficulty of calculating actual damages caused by counterfeiters. See, e.g., Rodgers v. Anderson, No. 04-CV-1149, 2005 WL 950021, at *2 (S.D.N.Y. April 26, 2005) (“The rationale for [15 U.S.C. § 1117(c)] is the practical inability to determine profits or sales made by counterfeiters”); Gucci America, Inc., 315 F.Supp.at 520 (“Congress added the statutory damages provision of the Lanham Act in 1995 because ‘counterfeiters' records are frequently nonexistent, inadequate, or deceptively kept .., making proving actual damages in these cases extremely difficult if not impossible.'”) (omission in original) (quoting S. Rep. No. 104-177, at 10 (1995)).

(1) the expenses saved and the profits reaped; (2) the revenues lost by the plaintiff; (3) the value of the [trademark]; (4) the deterrent effect on others besides the defendant; (5) whether the defendant's conduct was innocent or willful; (6) whether a defendant has cooperated in providing particular records from which to assess the value of the infringing material produced; and (7) “the potential for discouraging the defendant.

Philip Morris USA Inc. v. A & V Minimarket, Inc., 592 F.Supp.2d 669, 673 (S.D.N.Y. 2009) (internal quotation marks and citations omitted); accord Sream, Inc. v. West Village Grocery Inc., No. 16-CV-2090, 2018 WL 4735706, at *3 (S.D.N.Y. Sept. 14, 2018), R. & R. adopted, No. 16-CV-2090, Dkt. 40 (S.D.N.Y. Oct. 1, 2018); Cengage Learning, Inc. v. Bhargava, No. 14-CV-3174, 2017 WL 9802833, at *4 (S.D.N.Y. Aug. 22, 2017), R. & R. adopted, 2018 WL 1989574 (S.D.N.Y. April 25, 2018); Deckers Outdoor Corp. v. TKM Forest Hills, LLC, No. 12-CV-5986, 2014 WL 4536715, at *7-8 (E.D.N.Y. Sept. 11, 2014). The Court finds it appropriate to consider those factors here.

By its calculation of Defendants' disgorgeable profits, Aquavit has already determined the “profits reaped” by Defendants - $240,869.70.17 That is just a starting point. As explained in the context of Aquavit's damages for breach of contract, Aquavit lost far more in profit per device sold than UBM gained. No dollar value has been placed on the value of the AQUAGOLD and MICROCHANNEL TECHNOLOGY trademarks, but the AQUAGOLD mark in particular is indisputably valuable in the microneedle industry as demonstrated by Defendants' insistence on repeatedly illegally using the mark and the fact that the industry lacks substantial direct competitors. There has been little evidence in the case, however, regarding Aquavit's MICROCHANNEL TECHNOLOGY mark, and the descriptive nature of the mark suggests its value likely would be less than that of the AQUAGOLD mark. See Star Industries, Inc. v. Bacardi & Co., 412 F.3d 373, 384-85 (2d Cir. 2005) (“Marks are classified, in ascending order of strength, as (1) generic; (2) descriptive; (3) suggestive; or (4) arbitrary or fanciful”) (internal quotation marks and brackets omitted); Kohler Co. v. Bold International FZCO, 422 F.Supp.3d 681, 718 (E.D.N.Y. 2018) (“Because a descriptive mark's distinctiveness (as well as its validity) is dependent upon external market forces, it is, at best, an inherently weak mark” while “a suggestive mark is, at best, of moderate inherent strength” because it has “descriptive qualities” and fanciful and arbitrary marks “have the greatest inherent strength” because “consumers instantly recognize [them] as source designators”).

Hefty statutory damages are all the more warranted given Defendants' willful and even malicious conduct. A substantial statutory award is necessary for purposes of deterrence. To a large extent, Defendants seem unfazed by the damages and penalties faced in this case. But a robust statutory award is necessary to deter others who think, like Defendants, it may be worth their while to brazenly infringe the trademark rights of others. Finally, Defendants have been anything but cooperative. When they did participate in the case, they did not comply with court orders and made obtaining discovery extremely difficult. And by simply deciding to disappear from the litigation, they have ended whatever little cooperation may previously have been pulled from them.

For all these reasons, the Court finds that Aquavit should be awarded statutory damages in the amount of $2,000,000 for Defendants' marketing and sale of counterfeiting AQUAGOLD goods, and $1,000,000 for counterfeiting of the MICROCHANNEL TECHNOLOGY mark, for a total trademark statutory damages award of $3,000,000.

C. Defamation

In addition to damages for breach of contract and trademark infringement, Aquavit seeks compensatory damages for defamation in the amount of $4,748,714. (Rizzo Post-Hearing Decl. ¶ 16 and Ex. 6.) Aquavit also requests punitive damages of nine times that amount, for an additional $42,738,426. (Pl. Post-Hearing Mem. at 9.) The Court does not recommend awarding that amount, or anything approaching it, which would be an undue windfall for Aquavit.

1. Compensatory Damages For Defamation

To be sure, Defendants defamed Aquavit, committing defamation per se by impugning Aquavit's business reputation. See Celle v. Filipino Reporter Enterprises, 209 F.3d 163, 180 (2d Cir. 2000) (“where a statement impugns the basic integrity ... of a business, an action for defamation lies and injury is conclusively presumed”) (internal quotation marks, brackets, and citation omitted); Yesner v. Spinner, 765 F.Supp. 48, 52 (E.D.N.Y.1991) (“It has long been the law in New York that a defamatory statement that is a direct attack upon the business, trade or profession of the plaintiff is considered defamation ‘per se,' and therefore actionable without any proof of special damages”). There are many egregious examples, including Defendants' falsely referring on their website and on social media to Aquavit as a “liar,” an “illegal USA operator,” and “criminal offender,” who “stole” Defendants' technology, and sells “pirated,” “counterfeit,” “fake and immoral AQUAGOLD” of “sub-par quality,” and “illegally us[es] AQUAGOLD trademarks.” (See, e.g., Compl. Exs. 12, 19-22, 24-25, 30-31; Dkt. 321 Ex. 5.)

As Dr. Rizzo attests, and literature confirms, a company's reputation is key to customer loyalty and retention, relationships with investors and stakeholders, sales, growth opportunities and more. (Rizzo Decl. ¶¶ 24-25 at ECF 8.) Yet, a company's reputation can be significantly damaged by negative publicity. (Id. ¶ 26.) Indeed, correspondence produced by Aquavit suggests that Defendants' defamation led potential deal partners to have concerns about Aquavit and, in some instances, not to do business with Aquavit, at least for the time being while Aquavit was embroiled in litigation.

For example, in an email sent to Aquavit on November 19, 2018, a company in Hungary expressed being “a bit confused” by Defendants having informed the company that Aquavit had “stolen” the AQUAGOLD product patent and “did not follow the quality needs.” (Compl. Ex. 30.) In another email sent on April 28, 2019, a Korean company expressed reluctance about meeting to discuss a potential business relationship with Aquavit based on Defendants' claiming to own the patent to AQUAGOLD in Korea. (Chang Decl. Ex. 5.¹⁸)

18 “Chang Decl.” refers to the Declaration of Sobin Chang in Support of Motion for Default Judgment, filed September 29, 2022 (Dkt. 373.)

Dr. Rizzo opines that the defamatory information disseminated by Defendants “[undoubtedly ... had a serious negative consequence for Aquavit's sales,” exacerbated by the fact that UBM's “false claims occurred early in Aquavit's product life cycle.” (Rizzo Decl. ¶ 30.) He further opines, “[c]onsistent with the literature,” that the “reputation damage” caused by UBM reduced Aquavit's sales by 50 percent, resulting in $4,515,731 in lost profits.¹⁹ (Id. ¶ 31.) According to Dr. Rizzo, the defamation-related damages are additional to those incurred based on Defendants' breach of contract. That is because “the breach of contract damages were based on sales data that occurred in a world where Aquavit's sales were already reduced, not only by breach of contract, but also by damage to Aquavit's reputation.” (Id. ¶ 33.)

19 Dr. Rizzo modified his calculation in his post-hearing declaration.

As further support for its calculation of defamation-related damages, Aquavit's CEO, Sobin Chang, attests in her declaration that “due to UBM,” a “large deal with Nestle Skin Health ... fell through,” “financing [from WTI] fell through,” many deals were “paused,” “several angel investors bailed out,” and “[m]any V[enture] C[apital] investors did not move for forward and indicated that they would wait until the lawsuit is over”; that the “City of Daegu canceled its annual grant of $300,000”; and that in 2017, Aquavit's manufacturing partner “ended the contract,” and Aquavit “clearly lost sales” with a Romanian distributor. (Chang Decl. ¶¶ 13-23, 27.)

The Court finds that Aquavit's theory and evidence of damages due to defamation is flawed in several respects. First, Dr. Rizzo's opinion that Aquavit's sales were reduced by 50 percent due to defamation alone is entirely speculative. Dr. Rizzo does not provide any numerical analysis to support that figure. Instead, he eschews analysis for the merely conclusory statement that Defendants' defamatory statements “undoubtedly” diminished Aquavit's sales. Perhaps. But neither Aquavit nor Dr. Rizzo provide any evidence to quantify the loss with any degree of reliability. (See Tr. at 27-28.)

Dr. Rizzo does point to a “study” finding that “[b]usinesses with just one negative article online risk losing up to 22% or prospective customers, and this number increases quickly; businesses with four or more negative articles can experience a loss of up to 70% of prospective customers.” (Rizzo Decl. ¶ 26 and Ex. 13.) The study, conducted by internet site “Moz” using Google Consumer Surveys, evaluated the extent to which consumer purchase decisions are affected by online reviews and negative articles found in Google search results. (Rizzo Decl. Ex. 13 at 3-4). That is hardly a reliable source for guesstimating a 50 percent loss of business due to Defendants' defamatory conduct.

While some “improvisation” may be warranted in estimating damages, Tractebel, 487 F.3d at 111, a plaintiff cannot pull a number out of thin air as to the extent of its damages. See Credit Lyonnais Securities (USA) v. Alcantara, 183 F.3d 151, 152 (2d Cir.1999) (on default judgment the court must “conduct an inquiry in order to ascertain the amount of damages with reasonable certainty”); Robertson v. Doe, No. 05-CV-7046, 2010 WL 11527317, at *3 (S.D.N.Y. May 11, 2010) (awarding only nominal damages despite finding defamation per se because “[t]he Court is in no position to choose any speculative figure”).

Second, the attestation of Aquavit's CEO is far too conclusory and vague. Chang refers to many deals that were “paused.” (Chang Decl. ¶¶ 15-19.) A deal that is paused or delayed is not necessarily one that is lost, and the Chang Declaration does not say that any of the paused deals were lost. At the inquest hearing, Change did testify that none of those deals had resumed negotiations; but at the same time, she suggested that bringing this lawsuit to its conclusion may be a basis for resuming discussions. (Tr. at 41-42.) Nor does the Chang Declaration, or her hearing testimony, set forth the nature of most of those deals (whether, for instance, they involved sales of AQUAGOLD product or some other opportunity), or any detail beyond the name of the prospective counterparty.²⁰ At the hearing, Ms. Chang elaborated on a couple of those opportunities, but even that testimony was overly vague and conclusory. (See Tr. at 37-40.)

20 Similarly, at the inquest hearing, Chang introduced a document produced during discovery but not previously submitted to the Court that is an announcement from UBM to various skin care centers and practitioners asserting that Aquavit stole UBM's technology and trade secrets. (Inquest Hearing Ex. 1 (Dkt. 418).) Aquavit did not, however, present any evidence of lost business or opportunities from those entities.

The Chang Declaration does offer additional information in regard to L'Oreal and Skinceuticals. Specifically, it references the declaration of Mark Toulemonde who worked for L'Oreal USA and serves on Aquavit's Corporate Advisory Board. The Toulemonde Declaration (Dkt. 372), however, does not mention any deal with L'Oreal (or any other company) that was lost. Rather, the declaration, a brief six paragraphs, opines generally that Defendants' marketing of counterfeit product would have been “a blocker to any potential partnership with other CPG [a term he does not define] or pharmaceutical companies.” (Toulemonde Decl. ¶ 5.) That opinion, which itself is highly conclusory, also says nothing about damage due to defamatory statements. Instead, it addresses the consequences of trademark counterfeiting.

Third, in addition to being vague and conclusory, several lost opportunities that Chang attributes to UBM appear to have nothing to do with lost sales of AQUAGOLD devices, and neither Chang nor Dr. Rizzo attempt to make the connection. These include the angel investors who purportedly “bailed out,” the “VC investors” who wanted to wait until this lawsuit was over, and the loss of a grant. (Chang Decl. ¶¶ 20-22.) And despite Chang's mention of the loss of its manufacturing partner in 2017, she nowhere suggests that it had an impact on Aquavit's sales.²¹ (See id. ¶ 23.)

21 Chang's averment that its manufacturing partner ended a contract due to UBM (Chang Decl. ¶ 23) appears at odds with Aquavit's statements in its Complaint that Aquavit acquired ownership of its own manufacturing facility to replace UBM. (See Compl. ¶¶ 114-120.)

Chang does present evidence of at least one distributor who stopped doing business with Aquavit. The communications are with a distributor in Romania who says that his company has stopped selling any AQUAGOLD product due to the “many issues and talks that effecting [sic] the market regarding whom the [sic] genuine and who not, with the last delays we faced from Aquavit for our orders that put our clients and us in a hectic situation.” (Chang Decl. ¶ 27, Ex. 6.) Even this example, however, does not support the proposition that Aquavit lost sales due to UBM's defamatory statements. As to cause, the email reflects concerns with Aquavit supply delays as well as the dispute about which source provides genuine AQUAGOLD. And while the Chang Declaration, which authenticates the emails, says that Aquavit “clearly lost sales with the account” and was “significantly humiliated,” it does not set forth the amount of sales that Aquavit had been doing with the distributor. And, even if it had, it would not support Dr. Rizzo's opinion that UBM's defamatory conduct caused Aquavit to lose half its sales from all its customers.

Additionally, there is overlap between the harm to Aquavit from trademark infringement and that from defamation. And whereas Dr. Rizzo opined that damages due to defamation were distinct from those due to breach of contract, he provided no such opinion with respect to damages for trademark infringement. Indeed, one of the reasons supporting Aquavit's election of statutory damages is the harm to “goodwill and reputation” associated with its trademarks. (Pl. Post-Hearing Mem. at 8.) Damage to reputation is the same type of harm that Aquavit attributes to Defendants' defamatory acts. To be sure, Defendants' defamatory email, postings, and the like may have compounded whatever loss of goodwill and reputation that may have occurred through trademark infringement alone. But there is insufficient evidence before the Court to fix a dollar amount to that incremental harm with any reasonable degree of reliability.

Again, there is no question that Defendants' false and defamatory statements have been egregious and harmful. The Court, however, cannot arbitrarily set a damages amount based on speculation about the extent of lost sales or business opportunities beyond whatever sales and opportunities are compensated for by damages for breach of contract and trademark infringement. See Robertson, 2010 WL 11527317, at *3. Accordingly, the Court recommends awarding nominal damages for defamation in the amount of one dollar. See Celle, 209 F.3d at 179 (affirming award of $1 in nominal damages for defamation per se).

2. Punitive Damages

Although the Court does not have a sufficient basis to fix a compensatory damages award for defamation, punitive damages may still be awarded in addition to nominal damages. Punitive damages should be awarded here because Aquavit has established the common-law malice required for an award of punitive damages in defamation cases.

a. Aquavit Has Proven Common-Law Malice

While compensatory damages compensate a plaintiff for a concrete loss suffered as a result of a defendant's conduct, punitive damages “are aimed at deterrence and retribution.” State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408, 416, 123 S.Ct. 1513, 1519 (2003). “An award of punitive damages” therefore “is not a matter of right but is within the discretion of the trier of the facts and will depend upon the degree of wanton and willful conduct of the defendant.” Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974).

“Under New York law, punitive damages may only be assessed in a defamation case if the plaintiff has established the existence of common-law malice on behalf of the defendant.” Robertson, 2010 WL 11527317 at *5 (citing Celle, 209 F.3d at 184). Common-law malice is not the same as actual malice, which “‘is insufficient by itself to justify an award of punitive damages, because that malice focuses on the defendant's state of mind in relation to the truth or falsity of the published information.'” Celle, 209 F.3d at 184 (quoting Prozeralik v. Capital Cities Communications, Inc., 82 N.Y.2d 466, 479, 605 N.Y.S.2d 218, 226 (1993)). Common-law malice, in contrast, “‘focuses on the defendant's mental state in relation to the plaintiff and the motive in publishing the falsity.'” Robertson, 2010 WL 11527317 at *5 (quoting Prozeralik, 82 N.Y.2d at 480, 605 N.Y.S.2d at 226). Punitive damages for defamation thus may be appropriate when the defendant has acted “out of hatred, ill will, [or] spite” toward the plaintiff. Id. (quoting Prozeralik, 82 N.Y.2d at 480, 605 N.Y.S.2d at 226).

“Common-law malice may be established by either direct or circumstantial evidence, including ‘threats, prior or subsequent defamations, subsequent statements of the defendant, [or] circumstances indicating the existence of rivalry, ill will or hostility between the parties.'” Robertson, 2010 WL 11527317, at *6 (quoting Herbert v. Lando, 441 U.S. 153, 164 n.12, 99 S.Ct. 1635, 1643 n. 12 (1979)).

Where, as here, “there has been no trial of the facts,” there is generally “no basis for determining how egregious or opprobrious [the defendant's] conduct has been” for purposes of assessing whether punitive damages are warranted. Robertson, 2010 WL 11527317, at *6. “The requirement for actual proof” means that, on default, “‘a plaintiff cannot rely on the well-pleaded allegations of its complaint to support a prayer for punitive damages.'” Id. (quoting Deshmukh v. Cook, 630 F.Supp. 956, 960 (S.D.N.Y. 1986)) (citing Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974)). In this case, however, Aquavit has presented sufficient proof that Defendants acted with common-law malice in defaming Aquavit. Aquavit and Defendants are rivals, who had a falling out from their initial business relationship. Far from engaging in only one or a couple of instances of defamation, Defendants repeatedly defamed Aquavit and did so in multiple executions. Going further, Defendants continued to defame Aquavit in repeated violation of the Court's injunctive orders. And Defendants used words or phrases that are defamatory per se and of the kind that are meant to cause harm (e.g., characterizing Aquavit as a “liar” engaging in “illegal” and “immoral” activity). All of this is supported by the evidentiary submissions filed in connection with Aquavit's motions for contempt. Aquavit has established Defendants' common-law malice.

b. The Amount Of Punitive Damages

In assessing the amount of punitive damages, courts must consider the three “guideposts” established by the Supreme Court in BMW of North America, Inc. v. Gore, 517 U.S. 559, 116 S.Ct. 1589 (1996), namely “(1) the degree of reprehensibility of the tortious conduct; (2) the ratio of punitive damages to compensatory damages; and (3) the difference between this remedy and the civil penalties authorized or imposed in comparable cases.” Lee v. Edwards, 101 F.3d 805, 809 (2d Cir.1996) (citing Gore, 517 U.S. at 575, 116 S.Ct. at 1589-99). As stated in Gore, “[p]erhaps the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant's conduct.” 517 U.S. at 575, 116 S.Ct. at 1599.

The three “guideposts” are non-exhaustive, and “[i]n reviewing punitive damages awards, courts in this Circuit often compare the award to rulings on awards in other cases.” Jennings v. Yurkiw, 18 F.4th 383, 390 (2d Cir. 2021). In determining whether a punitive damages award is excessive, a court must “keep in mind the purpose of punitive damages: to punish the defendant and to deter him and others from similar conduct in the future.” Lee, 101 F.3d at 809 (internal quotation marks and citation omitted); accord Bouveng v. NYG Capital LLC, 175 F.Supp.3d 280, 344 (S.D.N.Y. 2016) (due process requires that “the magnitude of punitive damage awards ... be reasonable in their amount and rational in light of their purpose to punish what has occurred and to deter its repetition”) (internal quotation marks and citations omitted). And “‘[e]ven when the punitive award is not beyond the outer constitutional limit marked out ... by the three Gore guideposts,' a court must separately determine whether the award is ‘so high as to shock the judicial conscience and constitute a denial of justice.'” Bouveng, 175 F.Supp.3d at 345 (quoting Mathie v. Fries, 121 F.3d, 808, 816-17 (2d Cir. 1997) (quoting Zarcone v. Perry, 572 F.2d 52, 56 (2d Cir.1978)).

Consideration of the requisite factors compels a finding that the Court should award some amount of punitive damages for Defendants' defamatory conduct. First, as discussed above, Defendants' conduct was egregious and unceasing.

Second, the Supreme Court has acknowledged that a high ratio of punitive damages to compensatory damages is not dispositive in cases, like this one, where conduct is particularly egregious and compensatory damages may be difficult to determine:

“[L]ow awards of compensatory damages may properly support a higher ratio than high compensatory awards, if, for example, a particularly egregious act has resulted in only a small amount of economic damages. A higher ratio may also be justified in cases in which the injury is hard to detect or the monetary value of noneconomic harm might have been difficult to determine.”

Gore, 517 U.S. at 582, 116 S.Ct. at 1602; see also State Farm, 538 U.S. at 426, 123 S.Ct. at 1524. Accordingly, “an award in a defamation case of nominal compensatory damages and substantial punitive damages is within the court's province under the applicable New York law.” Fischer v. OBG Cameron Banfill LLP, No. 08-CV-7707, 2010 WL 3733882, at *3 (S.D.N.Y. Sept. 24, 2010)

As for the third guidepost, comparable cases - those in which plaintiff claiming defamation received an award of only nominal damages but also received punitive damages - suggests that punitive damages in that context are quite modest. See Celle, 209 F.3d at 191 (upholding an award of $1 nominal damages, and remitting a $15,000 punitive damages award to $10,000 where the Court found that only two of the three allegedly defamatory articles were in fact defamatory, totaling $5,000 per defamatory newspaper article published); Fischer, 2010 WL 3733882, at *4-5 (awarding $1 in nominal damages and $7,500 in punitive damages where defendant used defamatory statements in an email exchange and directed the recipient of his emails to include defendant's defamatory statements in a letter to Immigration and Naturalization Services in an effort to have plaintiff removed from the United States).²²

22 Punitive damages awards on top of nominal damages in other contexts (such as civil rights or a fiduciary relationship), have been substantially greater. See, e.g., Lee, 101 F.2d at 813 (where jury awarded $1 nominal damages for malicious prosecution, court awarded $75,000 punitive damages); King v. Macri, 993 F.2d 294, 299 (2d Cir. 1993) (where jury awarded no compensatory damages for excessive force, court awarded punitive damages of $100,000 to one defendant, and $50,000 to the second defendant); Juniper Entertainment, Inc. v. Calderhead, No. 07-CV-2413, 2013 WL 120636, at *7 (E.D.N.Y. Jan. 9, 2013) (awarding plaintiff $10 nominal damages and $225,000 in punitive damages despite inability to prove actual damages because of defendant's egregious breach of employment contract and fiduciary duty to employer).

As an additional consideration, the Court takes into account the Defendants' wherewithal to pay punitive damages. See Vasbinder v. Ambach, 926 F.2d 1333, 1344 (2d Cir.1991) (“Punitive damages are to be tailored to the defendant's ability to pay”); Tyco International Ltd. v. Walsh, No. 02-CV-4633, 2010 WL 3000179, at *1 (S.D.N.Y. July 30, 2010) (“A defendant's net worth is only relevant if there is a finding that punitive damages should be awarded”); Sabatelli v. Allied Interstate, Inc., No. 05-CV-3205, 2006 WL 2620385, at *1 (E.D.N.Y. Sept. 13, 2006) (the “court may take a defendant's financial circumstances, wealth, or net worth into consideration when determining the exemplary damages to be awarded against that defendant”) (internal quotation marks omitted). The Second Circuit has cautioned that punitive damages “should not be so high as to result in the financial ruin of the defendant” nor “constitute a disproportionately large percentage of a defendant's net worth.” Vasbinder v. Scott, 976 F.2d 118, 121 (2d Cir. 1992).

There is little reliable evidence of Defendants' finances and wherewithal to pay a substantial punitive damages award on top of a substantial compensatory damages award. Aquavit concedes that what evidence there is (such as limited bank records) is somewhat “opaque” and “speculative.” (Tr. at 43.) What little there is, however, suggests that UBM is not a large company, although likely comparable to Aquavit. (Tr. at 44.) There is no evidence with respect to Defendant Eum, who is an individual, and there is no sufficient basis for the Court to infer that he is particularly wealthy or poor.

Considering the three guideposts together, together with assessment of Defendants' financial wherewithal and the circumstances of the case as a whole, I recommend that the Court exercise its discretion to award punitive damages in the amount of $500,000. That amount is greater both in absolute amount and relative to the nominal damages award as compared to the cases, such as Celle and Fischer, awarding quite modest punitive damages awards for defamation where only nominal compensatory damages have been awarded. A greater amount in this case is justified by virtue of Defendants' repeated acts of defamation and repeated failure to cure them; Defendants did not merely send one or two emails or post a couple of articles. Instead, they engaged in a multi-year campaign.

The amount of punitive damages awarded will adequately serve the purposes of punitive damages, particularly when considered in the context of the other financial awards and penalties to be imposed on Defendants. As discussed below, pursuant to the License Agreement, Aquavit is entitled to recover its attorney's fees and costs, not merely those incurred in connection with its motions for sanctions. Those fees are substantial, approaching $680,000 (in addition to over $267,000 previously imposed as compensatory sanctions), and when supplemented by the over $7,000,000 in contempt sanctions imposed on Defendants (discussed below), plus the compensatory damages award over $5,000,000 for breach of contract and the statutory damages award of $3,000,000 for trademark counterfeiting (discussed above), should be deterrence enough both to Defendants and others who defame competing enterprises with no sense of impunity. Anything more would be an unwarranted windfall to Aquavit. See Vasbinder v. Scott, 976 F.2d at 121 (“because neither compensation nor enrichment is a valid purpose of punitive damages, an award should not be so large as to constitute a windfall to the individual litigant”) (internal quotation marks and citation omitted).

C. Remaining Claims

With respect to the four causes of action apart from breach of contract, trademark infringement, and defamation, Aquavit requests nominal damages of one dollar for each claim. Aquavit's rationale is that compensatory damages for these four remaining claims are subsumed within or duplicative of the damages for breach of contract and/or defamation. (Pl. Mem. at 16-17, 22-23.²³) The Court agrees and, accordingly, does not recommend an award of compensatory damages for Claims 3, 4, 6, and 7.

23 “Pl. Mem.” refers to Aquavit's Memorandum of Law in Support of Motion for Default Judgment, filed September 29, 2022 (Dkt. 369).

But that does not justify an award of nominal damages for the remaining claims. Even though nominal damages are trivial in amount, they still provide compensation. See Uzuegbunam v. Preczewski, __ U.S. __, 141 S.Ct. 792, 801 (2021) (rejecting view that nominal damages are purely symbolic and stating: “Nominal damages are not a consolation prize for the plaintiff who pleads, but fails to prove, compensatory damages. They are instead the damages awarded by default until the plaintiff establishes entitlement to some other form of damages, such as compensatory or statutory damages”). Inasmuch as Aquavit concedes that damages under each of the five remaining claims are subsumed in or duplicative of its breach of contract and/or defamation claims, no further award, even nominal, is warranted.

Accordingly, the Court recommends that no separate award of damages, nominal or otherwise, be made in connection with Aquavit's third (federal false advertising), fourth (tortious interference with present and prospective business relations), sixth (common law unfair competition), and seventh (violation of NY GBL § 349) claims for relief.

D. Coercive Sanctions

Both Contempt III and Contempt IV imposed coercive sanctions on Defendants. Defendants nonetheless have done nothing to cure their contempt. The Court thus will address both the amount of coercive sanctions accrued and whether, as Aquavit requests, further and different sanctions are warranted.

1. Calculation of Coercive Damages

Defendants have not paid any of the coercive sanctions imposed due to their failure to comply with the Court's orders. Nor have they come into full compliance with injunctive requirements or paid any compensatory amounts previously awarded. As a result, total coercive sanctions accrued up to Aquavit's filing for default totals $7,281,000 dollars. That figure is arrived at as follows.

In Contempt III, the Court imposed coercive sanctions as of September 3, 2021, requiring Defendants to pay $3,000 for each day that they failed to remove the defamatory news video and cure other violations of the MPI (the “Contempt III Sanctions”), and increasing the daily coercive sanction by $500 each successive week. In Contempt IV, the Court imposed additional sanctions, starting June 10, 2022, using the same Daily Coercive Sanction formula, until such time as Defendants cured additional violations of the MPI and paid Aquavit the compensatory sanctions awarded in Contempt III (the “Contempt IV Sanctions”).

Defendants continue to be in contempt of both Contempt III and Contempt IV. The defamatory news video they were required to remove in Contempt III remains posted in various forms on Defendants' websites (ubiomed.co.kr and tappy.co.kr) and YouTube channel (eunmi kim). (Nevrivy Decl. ¶¶ 4-6, 9-10 and Exs. 1-4, 7-8.) Additionally, in violation of Contempt IV, Defendants continue to display AQUAGOLD packaging without the required MPI disclaimer and to display an AQUAGOLD figurative mark that is confusingly similar to Aquavit's AQUAGOLD South Korean figurative mark. (Nevrivy Decl. ¶ 7-8 and Exs. 5-6.) Defendants also are in contempt because they have not, as ordered, paid any compensatory sanctions due to Aquavit and the coercive sanctions due to the Court.

Coercive sanctions thus have been accruing on two tracks - the Contempt III Sanctions and the Contempt IV Sanctions. The Contempt III Sanctions commenced on September 3, 2021 and have continued to accumulate ever since because Defendants have not cured the defamatory news video. The Contempt IV Sanctions started to accrue on June 10, 2022. Those too have continued to accumulate because Defendants paid neither the compensatory sanctions due to Aquavit nor the coercive sanctions accrued as of Contempt IV. Taken together, the total coercive sanctions accrued, and as yet unpaid, under Contempt III and Contempt IV through September 28, 2022 (when Aquavit moved for default judgment), amount to a total of $7,281,000. (Nevrivy Decl. ¶ 11 (providing week-by-week calculations); Dkt. 387 (correcting total amount).)

2. Whether Defendant Eum Should Be Arrested and Jailed

Monetary coercive sanctions have not motivated Defendants to purge their contempt. Aquavit therefore asks the Court to issue a warrant for Defendant Eum's arrest and that he be jailed until Defendants remove the contemptuous content from their websites as required by Contempt III and Contempt IV and pay Aquavit the compensatory sanctions imposed pursuant to Contempt IV. (Pl. Mem. at 10-11.) Aquavit posits that although it might not be possible to extradite Defendant Eum from South Korea where he lives, “having an outstanding U.S. warrant could complicate his affairs, impact his ability to freely travel, especially in the United States, and might motivate him to come into compliance with the Court's orders.” (Id. at 10)

In determining an appropriate coercive sanction, the court must weigh three factors: “(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.” Weston Capital Advisors, Inc. v. PT Bank Mutiara, Tbk, 738 Fed.Appx. 19, 22 (2d Cir. 2018) (internal quotation marks omitted) (summary order). The court has authority to conditionally confine a persistent contemnor for whom financial coercive sanctions have had no effect. International Union, United Mine Workers of America v. Bagwell, 512 U.S. 821, 828, 114 S.Ct. 2552, 2557 (1984) (“The paradigmatic coercive, civil contempt sanction ... involves confining a contemnor indefinitely until he complies with an affirmative command such as an order to pay alimony, or to surrender property ordered to be turned over to a receiver, or to make a conveyance”) (internal quotation marks and citation omitted).

The Court does not recommend issuing an arrest warrant at this time. First, the default judgment, pursuant to which this report and recommendation is being prepared, is itself an additional sanction imposed by the Court. Contempt IV, 2022 WL 2093417, at *2 (referring to entry of judgment in Aquavit's favor “as a sanction for Defendants' repeated and continued violations of the MPI and Defendants' failure to pay the compensatory and coercive sanctions imposed against it”); see Vista Food Exchange, Inc. v. Lawson Foods, LLC, No. 17-CV-7454, 2020 WL 7390224, *4 (S.D.N.Y. Oct. 26, 2020) (declining to recommend confinement as sanction for civil contempt despite defendant's failure to comply with order and coercive monetary sanctions, because the Court recommended “the ultimate sanction of a default,” making coercive sanctions “no longer relevant”), R. & R. adopted, 2020 WL 7022461 (S.D.N.Y. Nov. 30, 2020). Judge Caproni directed Aquavit to brief “why that sanction is appropriate,” and to submit a proposed judgment detailing the amounts owed to Aquavit in compensatory damages, to the Clerk of Court in coercive sanctions, and for Aquavit's damages for the causes of action in the Complaint. Contempt IV, 2022 WL 2093417, at *2 (emphasis added). Judge Caproni did not ask either Aquavit or this Judge to recommend a new form of coercive sanctions.

Aquavit points to a case bearing some similarities to this one as support for the Court issuing a warrant. See A.V. by Versace, Inc. v. Gianni Versace, S.P.A., No. 96-CV-9721, 2004 WL 691243 (March 31, 2004). Versace was a trademark infringement case in which the court ordered incarceration for a defendant's ongoing violations of a preliminary injunction, failure to pay fines levied against him, and failure to meet his burden of production showing an inability to pay. In that case, however, the procedural posture was different; the court had not, as here, entered default judgment as an additional sanction. Further, before ordering the defendant's confinement, the court “offered him a final chance to purge his contempt ... and gave him explicit instructions as to how he could do so.” Id., 2004 WL 691243, at *1. The Court has not done so here. Accordingly, a bench warrant should not issue at this time, although the time may come to do so.

Attorney's Fees

Aquavit requests recovery of $760,364.46 in attorney's fees and costs. (Dkt. 403 at 5-6.) That sum does not include the $267,862.89 previously awarded in connection with Contempt III. The Court agrees that an award of the attorney's fees and costs requested is warranted. Aquavit is entitled to an award of its attorney's fees and costs pursuant to both the License Agreement (§ 18.3), and, with respect to Defendants' violation of Aquavit's trademark rights, because the Court finds that this is an exceptional case under 15 U.S.C. § 1117.

A. Aquavit's Entitlement To Recover Reasonable Fees

The License Agreement provides that the “prevailing party” in an action to enforce the terms of the agreement “shall be reimbursed by the other party for its attorney's fees and costs and other expenses incurred with the investigation, preparation and prosecution of such action, unless otherwise determined by judgment. (Compl. Ex. 1 § 18.3.) “As a general matter of New York law . when a contract provides that in the event of litigation the losing party will pay the attorneys' fees of the prevailing party, the court will order the losing party to pay whatever amounts have been expended by the prevailing party, so long as those amounts are not unreasonable.” F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1263 (2d Cir. 1987); accord Equitable Lumber Corp. v. IPA Land Development Corp., 38 N.Y.2d 516, 524, 381 N.Y.S.2d 459, 465 (1976) (“While plaintiff may enter into any fee arrangement it wishes with counsel, it should not be permitted to manipulate the actual damage incurred by burdening the defendant with an exorbitant fee arrangement”); Antidote International Films, Inc. v. Bloomsbury Publishing, PLC, 496 F.Supp.2d 362, 364-66 (S.D.N.Y. 2007) (quoting and applying Krear). Aquavit thus is contractually entitled to recover its attorney's fees, at least with respect to that portion of the case for which it has requested and is being awarded damages for breach of contract.

With respect to trademark infringement, a prevailing plaintiff, such as Aquavit, may be awarded reasonable attorney's fees in an “exceptional case.” 15 U.S.C. § 1117(a); see Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 265-66 (2d Cir. 2014). In the Second Circuit, attorneys' fee awards under § 1117(a) are available to plaintiffs who, like Aquavit, opt to receive statutory damages under § 1117(c). Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83, 111 (2d Cir. 2012). An “exceptional” case is “one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554, 134 S.Ct. 1749, 1756 (2014).²⁴ Whether a case is exceptional is determined on a case-by-case basis, considering the totality of the circumstances. Id. Courts may consider various factors, including “‘frivolousness, motivation, objective unreasonableness ... and the need in particular circumstances to advance considerations of compensation and deterrence.'” 4 Pillar Dynasty, 933 F.3d at 215 (quoting Octane Fitness, 572 U.S. at 554 n.6, 134 S.Ct. at 1756 n.6). The Court finds this case exceptional. The case is exceptional because Defendants have acted willfully; maliciously and repeatedly violated court orders imposing prohibitions on use of the AQUAGOLD Marks; and repeatedly failed to cure their contempt, all of which has unfolded over a period of years.

24 Although Octane Fitness was a patent case, its standard for awarding attorney's fees applies to Lanham Act cases as well. 4 Pillar Dynasty LLC v. New York & Company, Inc., 933 F.3d 202, 206 (2d Cir. 2019).

B. Determination Of Reasonable Fees

The traditional approach to determining a reasonable fee award is the “lodestar” calculation, which is the number of hours reasonably expended multiplied by a reasonable hourly rate. See Healey v. Leavitt, 485 F.3d 63, 71 (2d Cir. 2007); Tackie v. Keff Enterprises LLC, No. 14-CV-2074, 2014 WL 4626229, at *6 (S.D.N.Y. Sept. 16, 2014). The Second Circuit has held that “the lodestar . creates a ‘presumptively reasonable fee.'” Millea v. Metro-North Railroad Co., 658 F.3d 154, 166 (2d Cir. 2011) (quoting Arbor Hill Concerned Citizens Neighborhood Association v. County of Albany, 522 F.3d 182, 183 (2d Cir. 2008); and then citing Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 552, 130 S.Ct. 1662, 1673 (2010)); see also Stanczyk v. City of New York, 752 F.3d 273, 28485 (2d Cir. 2014) (reaffirming Millea). To arrive at a lodestar calculation, “[t]he party seeking an award of [attorney's] fees should submit evidence supporting the hours worked and rates claimed.” Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933, 1939 (1983). Plaintiff has submitted such evidence here, including declarations from counsel and the CEO of Aquavit and copies of contemporaneous records of time expended by attorneys. (See Dkts. 404-06.)

1. Hourly Rates

Courts assess the reasonableness of a proposed hourly rate by considering the prevailing market rate for lawyers in the district in which the ruling court sits. Polk v. New York State Department of Correctional Services, 722 F.2d 23, 25 (2d Cir. 1983). “The rates used by the court should be current rather than historic hourly rates.” Reiter v. Metropolitan Transportation Authority of New York, 457 F.3d 224, 232 (2d Cir. 2006) (internal quotation marks omitted). “[C]ourts may conduct an empirical inquiry based on the parties' evidence or may rely on the court's own familiarity with the rates if no such evidence is submitted.” Wong v. Hunda Glass Corp., No. 09-CV-4402, 2010 WL 3452417, at *2 (S.D.N.Y. Sept. 1, 2010) (internal quotation marks omitted). Additionally, “the range of rates that a plaintiff's counsel actually charges their clients ... is obviously strong evidence of what the market will bear.” Rozell v. Ross-Holst, 576 F.Supp.2d 527, 544 (S.D.N.Y. 2008); see also Lilly v. County of Orange, 910 F.Supp. 945, 949 (S.D.N.Y. 1996) (“The actual rate that counsel can command in the market place is evidence of the prevailing market rate”).

In Contempt III, the Court awarded attorney's fees and costs to Aquavit in connection with the work performed on sanctions motions to that point. The Court thus already is familiar with the rates and work of Aquavit's counsel. There have been several such firms as Aquavit has cycled through different firms over time. Those firms are Fisher Broyles LLP (“Fisher”); Dowd Scheffel PLLC (“Dowd”); Hanor Law Firm PC (“Hanor”); Nevrivy Patent Law Group P.L.L.C (“Nevrivy”); and Fallon IP, LLC.²⁵ For all but the last, who had not yet performed any relevant work, the Court found that “[t]he 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.” Contempt III R&R, 2021 WL 4312579, at *28. Even Defendants did not challenge the hourly rates charged. Id.

25 An additional attorney, Jennifer Bayles, worked briefly in an in-house capacity on the case and other matters for which she received a fixed monthly fee; Aquavit does not seek recovery of fees expended for Ms. Bayles' work. (Declaration of Sobin Chang filed January 13, 2023, Dkt. 405 (“Chang Fees Decl.”), ¶ 7.) According to its CEO, Aquavit also retained a firm in April 2021 on a contingency basis but also with payment of an initial retainer of $2,500. (Id. ¶ 5.) Aquavit has not provided any proof of any work performed by that firm. Accordingly, there is no basis for awarding Aquavit the retainer amount, and that amount does not appear to be included among the fees for which Aquavit seeks reimbursement. (See Dkt. 403 at 6-7 (table identifying firms and fees sought).)

Since that juncture, only the Nevrivy firm and Joseph Fallon of Fallon IP have worked on this matter. The Court has reviewed yearly changes to the Nevrivy firm rates and finds them no less reasonable than rates charged in earlier years.²⁶ The Fallon firm did not perform work until after Contempt III. The Court therefore has not had occasion previously to review their rates. Having now done so, the Court finds those rates reasonable and, like the other firms Aquavit has used for this case, quite modest for this District for complex commercial and intellectual property litigation.²⁷

26 Since the Court last reviewed the Nevrivy firm's rates (in connection with awarding compensatory sanctions in Contempt III), the firm's rates have continued to be more than reasonable. For instance, Mr. Nevrivy's current regular hourly rate is $595, but the hourly rate charged to Aquavit is only $385. In addition to Mr. Nevrivy, one other attorney (at a rate of $310, and previously $265), and an experienced paralegal (at a rate of $225 despite a regular rate of $240), worked on the case. The blended value of the rates charged is a virtual bargain for a complex intellectual property case litigated in the Southern District of New York.

27 The fees charged by the Fallon firm were for its name partner Jonathan Fallon. The hourly rate Mr. Fallon charged Aquavit for work on this case was $495, which is ten percent less than his regular hourly billing rate of $550. (Declaration of Jonathan Fallon, filed January 13, 2023 (Dkt. 404), ¶ 8.) Mr. Fallon has been practicing law since 2006, with most of his practice focused on intellectual property matters. (Id. ¶¶ 3-4.) He is a licensed patent attorney and has been involved with dozens of intellectual property litigation matters in federal courts. (Id. ¶¶ 5-6.)

2. Hours Worked

To determine the compensable hours, “the court must examine the hours expended by counsel and the value of the work product of the particular expenditures to the client's case.” Tlacoapa v. Carregal, 386 F.Supp.2d 362, 371 (S.D.N.Y. 2005) (citing Gierlinger v. Gleason, 160 F.3d 858, 876 (2d Cir. 1998)). “In making this examination, the district court does not play the role of an uninformed arbiter but may look to its own familiarity with the case and its experience generally as well as to the evidentiary submissions and arguments of the parties.” Gierlinger, 160 F.3d at 876 (internal quotation marks and citation omitted). “The 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); see also Mugavero v. Arms Acres, Inc., No. 03-CV-5724, 2010 WL 451045, at *6 (S.D.N.Y. Feb. 9, 2010) (same). A court thus should exclude from the lodestar calculation “excessive, redundant or otherwise unnecessary hours.” Quaratino v. Tiffany & Co., 166 F.3d 422, 425 (2d Cir. 1999); see also Luciano v. Olsten Corp., 109 F.3d 111, 116 (2d Cir. 1997) (“If the district court concludes that any expenditure of time was unreasonable, it should exclude these hours from the lodestar calculation”). “[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).

The Court has reviewed the extensive and thorough billing and time records submitted by Aquavit. The various firms have either cut or indicated no charge for tasks that were deemed duplicative or the result of multiple law firm transitions. With those items having been excised, and other than as set forth below, the Court finds the time spent to be reasonable. The work performed is of the nature and type that would be expected for an infringement and unfair competition case such as this one. The hours spent, broken down by each individual and supported by contemporaneous documentation, were all reasonably necessary for the litigation of Aquavit's claims. Work appears to have been appropriately delegated, and there is no apparent duplication of tasks or obvious inefficiencies.

In Contempt III, Defendants raised several arguments challenging the fees sought by Aquavit. Defendants argued, for example, that work performed by Aquavit's firms was duplicative and excessive. Upon review of the records, however, the Court found that they “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.” Contempt III R&R, 2021 WL 4312579, at *30. After thorough review of the records for the entirety of the case, and except as otherwise specified below, the Court reaches the same conclusion with respect to the work performed in addition to that performed in connection with Contempt III.

Another issue concerns time spent on motions or efforts that proved unsuccessful. Here, Aquavit was successful in obtaining preliminary injunctive relief, contempt at multiple junctures, and eventually default judgment against the Defendants. That is not to say that Aquavit was successful in every respect; it did not prevail on every discovery issue, and not every alleged violation of the MPI was found to be a violation in fact. But litigants are rarely 100 percent successful even if they ultimately prevail. Accordingly, a prevailing party can recover fees for failed efforts otherwise reasonably pursued. See, e.g., Gortat v. Capala Brothers, Inc., 621 F. App'x. 19, 23 (2d Cir. 2015) (summary order) (“there is no rule that [p]laintiffs need achieve total victory on every motion in pursuit of a successful claim in order to be compensated for the full number of hours spent litigating that claim”); Ni v. Bat-Yam Food Serices Inc., No. 13-CV-7274, 2016 WL 369681, at *8 (S.D.N.Y. Jan. 27, 2016) (awarding attorneys' fees for hours spent on discovery, discovery-related motions, failed settlement negotiations, and summary judgment motions); Easterly v. Tri-Star Transportation Corp., No. 11-CV-6365, 2015 WL 337565, at *10 (S.D.N.Y. Jan. 23, 2015) (approving fees for time spent, inter alia, preparing pleadings prior to the commencement of the action, discovery, discovery disputes, summary judgment motions, and a damages inquest). Being familiar with virtually every aspect of the litigation, the Court readily concludes that all efforts for which Aquavit seeks recovery of attorney's fees were reasonably pursued.

There are, however, certain respects in which the submitted fees warrant adjustment. These adjustments are law firm-specific and addressed as such.

Fisher Firm:

The time records for the Fisher firm are detailed and thorough. The one aspect that concerns the Court are entries for administrative or basic legal tasks performed by lawyers charging $575 per hour that more appropriately should have been performed by lower cost personnel such as a paralegal or legal secretary. Examples include: preparation of summons 4/3/19 (Dkt. 405-1 at ECF 8); finalizing exhibits 4/6/19 (id.); print and bind complaint and other papers 4/15/2019 (id. at ECF 9); preparation of exhibits for complaint 4/19/2019 (id. at ECF 11); calendaring deadlines and corresponding with express delivery service 5/6/2019 (id. at ECF 15). There are a variety of similar entries, but because the attorneys used block billing, the Court cannot discern the specific amounts of time devoted to those tasks. Accordingly, the Court employs the percentagereduction method and finds that a reduction of 10 percent of the total Fisher firm fees is appropriate. The Court also determines that it would not be appropriate to reward Aquavit for repeatedly changing counsel and therefore deducts the charges associated with counsel's efforts to be relieved as counsel and the concomitant tasks such as transferring files to new counsel. Those charges total $9,487.50. (Id. at ECF 33.) Deducting that amount from the total fees sought and then reducing the total by 10 percent results in a total fee award in connection with the Fisher firm (again, exclusive of Contempt III fees awarded) of $258,286.43.

Dowd Firm:

The Dowd firms' time records are detailed and thorough and reflect a number of “no-charge” items. However, the invoices reflect interest on past amounts due from Aquavit. Aquavit should not be rewarded by recovering charges incurred for late payment. Those charges total $28,600. (Dkt. 405-1 at ECF 105, 107, 112, 114, 116, 119, 121, 123, 126, 128, 130.) As with the Fisher firm, the Court also deducts the fees associated with the Dowd firm's withdrawal as counsel and Aquavit's non-responsiveness to counsel, which total $5,520. (Id. at ECF 160-61.)

Hanor Firm:

Like the Fisher firm, the Hanor firm invoices reflect certain tasks performed by partners that more appropriately should have been performed by lower-cost personnel. The total for these is $2,400 for preparing documents and emails for production on 12/15/2019 and 12/31/2019. (Dkt. 405-1 at ECF at 222, 224.) The other charges that should be deducted from the Hanor firm emails are those associated with the firm's motion to withdraw. That total is $645. (Dkt. 405-1 at ECF 206, 228.)

Fallon Firm:

The only adjustment to be made to the Fallon firm fees are for billing entries indicating work performed for matters other than the instant case. The attorneys appear generally to have excluded such items, but there are some instances where such efforts fell short. Those “unrelated” entries are for review of stock options and work on an infringement letter concerning “Suneva.” (Dkt. 404-1 at ECF 6.) The total for those entries is $1,113.75.

Nevrivy Firm:

The Court previously found “beyond the pale” billing entries for the Nevrivy firm that were overly vague and provided no indication at all of the work that was performed; specifically, those entries in the Nevrivy firm records reading simply “work on matter.” (Contempt III R&R, 2021 WL 4312579, at *30.) Conscious of that concern, the Nevrivy firm appears to have deducted any such entries as well as a host of others that attorney Nevrivy determined, in his discretion, to deduct. Those entries include time spent getting other counsel up to speed, assisting with withdrawal of counsel, assorted communications, and more. The total for those deductions is $14,574, and, as noted, are already excised from the total fees sought in connection with the Nevrivy firm. (Declaration of Daniel J. Nevrivy filed January 13, 2012, Dkt. 406, at ¶ 16.) The Court has reviewed the Nevrivy firm invoices and finds no other entries warrant deduction.

Taking account of the amounts requested and the deductions to be made, the following table summarizes the Court's assessment of reasonable fees to be awarded, exclusive of the fees previously awarded in connection with Contempt III.

Firm	Fees Claimed	Deductions	Fees Awarded
Fisher	$296,472.42	$38,185.99	$258,286.43
Dowd	$180,259.29	$34,120.00	$146,139.29
Hanor	$20,902.74	$3,045.00	$17,857.74
Nevrivy	$209,907.00	$0.00 *	$209,907.00
Fallon	$47,272.50	$1,113.75	$46,158.75
TOTAL	$760,364.46	$74,764.76	$678,349.21

* As explained above, the total Nevrivy fees claimed already reflect deductions of $14,574.

Based on the foregoing analysis, the Court finds that Plaintiff should be awarded attorney's fees in the amount of $678,349.21.

Costs

A prevailing party is entitled to recover costs. See Fed.R.Civ.P. 54(d)(1) (“Unless a federal statute, these rules, or a court order provides otherwise, costs - other than attorney's fees - should be allowed to the prevailing party”). Plaintiff is the prevailing party by default and entitled to an award of costs. See, e.g., Malletier v. Artex Creative International Corp., 687 F.Supp.2d 347, 365 (S.D.N.Y. 2010) (costs such as filing fees, shipping costs, and research fees are “typically awarded when a defendant defaults”) (citing Arbor Hill Concerned Citizens Neighborhood Association, 369 F.3d at 98). More broadly, as the prevailing party, Aquavit is entitled to “other costs and expenses” pursuant to the License Agreement. (Compl. Ex. 1 § 18.3.)

Aquavit seeks costs billed to it by its law firms, as well as certain other costs. The firm-billed costs, exclusive of costs previously awarded in connection with Contempt III, total $5,550.51.²⁸ The Court has reviewed the records associated with those costs and finds them to be adequately supported and properly compensable. See, e.g., Rubenstein v. Advanced Equities, Inc., No. 13-CV-1502, 2015 WL 585561, at *9 (S.D.N.Y. Feb. 10, 2015) (itemized, documented expenditures for court fees, filing fees, legal research expenses, attorney travel expenses, and printing and binding fees were “properly included” in award of costs pursuant to contractual prevailing party).

28 The firm-billed cost total is comprised of: Hanor firm costs ($952.31), Dowd firm costs ($1,764.37), Fisher firm costs ($2,281.49), Nevrivy firm costs ($352.34), and Fallon firm costs ($200).

Aquavit also seeks to recover, however, additional costs totaling $51,917, comprised of the following:

Vendor	Amount
Consillio LLC (software)	$13,184
John Rizzo (expert)	$14,500
Translation Expenses	$10,330
Ana Jimenez	$150
JD&P Patent Attorneys	$760
Hardware	$2,000
Software	$600
Travel & Expenses	$9,193
FedEx	$1,200

Some but not all of those costs are recoverable. The Court addresses each in turn.

Although identified as “software” by Aquavit, the Consillio LLC invoices appear to be for data hosting as would be used to maintain discovery material. Indeed, Consillio styles itself an e-discovery vendor. (See www.consillio.com.) That cost is recoverable. See, e.g., Vista Outdoor Inc. v. Reeves Family Trust, 16-CV-5766, 2018 WL 3104631, at *10 (S.D.N.Y. May 24, 2018) (awarding e-discovery vendor costs, which “are reimbursable under fee-shifting agreements”). Expert Rizzo's fees are also recoverable. See, e.g., Themis Capital v. Democratic Republic of Congo, No. 09-CV-1652, 2014 WL 4379100, at *9 (S.D.N.Y. Sept. 4, 2014) (“courts in this District routinely reimburse prevailing parties for the costs of expert witnesses and consultants, regardless whether the expert testified at trial”); Weiwei Gao v. Sidhu, No. 11-CV-2711, 2013 WL 2896995, at *6 (S.D.N.Y. June 13, 2013) (awarding fees paid to valuation expert under contractual provision awarding prevailing party attorney's fees and “other costs incurred”). Translation fees are recoverable as many of the Defendants' documents material to the action were written in Korean. See, e.g., Themis Capital, 2014 WL 4379100 at *12 (awarding reimbursement of substantiated translation costs). But Aquavit has presented invoices for only $5,480 in translation services, not the $10,300 listed in the Chang declaration submitted in support of attorney's fees and costs. (Compare Dkt. 405 at 4 with Dkt. 405-1 at ECF 249-53.) Accordingly, only $5,480 in translation costs should be awarded.

There is an invoice for Ana Jimenez but no indication of what work she did. (Dkt. 405-1 at ECF 254.) The Court thus has no basis to award the cost associated with that invoice. Similarly, there is an invoice in the amount of $760 for JD&P Patent Attorneys indicating costs for obtaining and shipping evidence from U-Biomed Korea, but no indication or explanation of any connection of that evidence to the instant case as opposed to some other dispute (such as the inapt charges relating to a different dispute described above and removed from the Fallon firm entries). There thus is no basis for the Court to award costs for that invoice. There also is no basis to award costs for the generalized “software” and “hardware” entries - no invoices or receipts have been filed and no explanation has been provided as to why items of that nature would not be considered non-case-specific costs. Finally, although Aquavit lists travel and expense fees and FedEx fees, it has not submitted any invoices or receipts to support those numbers. Accordingly, those costs should not be awarded. See, e.g., Crye Precision LLC v. Bennettsville Printing, 2019 WL 6388636, at *10 (E.D.N.Y. Aug. 13, 2019) (denying all costs for lack of substantiation), R. & R. adopted, 2019 WL 4463298 (E.D.N.Y. Sept. 18, 2019); Inter-American Development Bank v. Venti S.A., No. 15-CV-4063, 2016 WL 642381, at *3 (S.D.N.Y. Feb. 17, 2016) (“As with attorneys' fees, the requesting party must substantiate the request for costs”) (citing CJ Products LLC v. Your Store Online LLC, No. 11-CV-9513, 2012 WL 4714820, at *2 (S.D.N.Y. Oct. 3, 2012) (denying reimbursement for undocumented costs)).

In total, then, properly supported and recoverable costs that should be awarded to Aquavit in addition to those charged by the various law firms total $33,164.00. Taking account of both the firm-billed costs and the costs directly incurred, Aquavit should be awarded costs of $38,714.51.

Modification Of The Injunction

The Court already has issued permanent injunctive relief against Defendants, making permanent the terms of the MPI. Aquavit asks that the injunction be modified to eliminate the exception previously made for allowing Defendants to use AQUAGOLD marks in countries where Defendants have legally valid trademark rights. The Court recommends that that request be denied because the evidence before the Court shows that Defendants still own AQUAGOLD trademarks in a handful of other countries.

The basis on which the Court granted injunctive relief against Defendants throughout this case has been their violation of Aquavit's trademark rights. Initially, the Court's injunctive relief prohibited Defendants' use of AQUAGOLD and Aquavit's other Marks on a worldwide basis. The MPI entered on September 29, 2022, however, modified the scope of injunctive relief because it was undisputed that Defendants owned registered trademark rights in AQUAGOLD in at least the European Union and its member countries. (MPI at 3.) Cautious of over-extending the extraterritorial reach of federal trademark law, the Court narrowed the relief granted with respect to the EU and any other country where Defendants legally owned AQUAGOLD marks. (Id. at 2-5.) Rather than barring Defendants use of the marks outright in those countries, the Court imposed requirements that any AQUAGOLD products sold in those countries must be accompanied by a disclaimer on both the product and its packaging and must not be accompanied by any comparison to Aquavit's devices or any American or Korean symbols associating Defendants' products with Aquavit's American or Korean trademarks. (MPI § 1(P).)

During the course of these proceedings, the Court requested, and the parties filed, a joint submission identifying the countries in which Defendants had applied for and obtained registration of an AQUAGOLD trademark. (See Dkts. 268-69.) The filing identified several countries in addition to the EU. Those countries are: United Arab Emirates, Brazil, China, India, Korea, Malaysia, and Vietnam.²⁹ (Dkt. 69.)

29 The Korean mark is for a design registration; Aquavit otherwise owns the AQUAGOLD word mark in Korea.

On March 2, 2021, however, the European Union Intellectual Property Office (“EUIPO”) declared Defendants' AQUAGOLD registration to be invalid. (Dkt. 238-2.) The EUIPO found that UBM had filed its application for the AQUAGOLD mark in bad faith, having violated “the duty of fair play” existing by virtue of Aquavit and UBM's business relationship (i.e., the License Agreement). (Id. at 11.) Aquavit argues that the EUIPO decision invalidating Defendants' EU registration due to bad faith eliminates the “original rationale” that led the Court to modify the injunctive relief in the MPI. (Pl. Mem. at 23.) Although the EUIPO decision only applies within the EU, Aquavit asserts that the decision's evidence of bad faith “is a basis to establish invalidity for Defendants' AQUAGOLD trademarks elsewhere, because bad faith is generally considered a basis to invalidate in the majority of jurisdictions around the world.” (Id.)

While there is some appeal to Aquavit's argument, it does not stand up to scrutiny. The Court cannot just assume that because Defendants' AQUAGOLD mark was declared invalid in the EU that other countries will similarly find bad faith and follow suit. While that well could happen, the Court must be mindful of restrictions on the extraterritorial reach of the Lanham Act, the federal trademark law, just as it was when it first modified the injunction based on the same concerns.

As Judge Caproni explained in the MPI, “[w]hen determining whether a defendant's extraterritorial conduct is subject to the Lanham Act, courts in the Second Circuit must consider, ‘(1) whether the defendant's conduct has a substantial effect on United States Commerce; (2) whether the defendant is a citizen of the United States; and (3) whether there exists a conflict between defendant's trademark rights established under foreign law, and plaintiff's trademark rights established under domestic law.'” (MPI at 2 (quoting Sterling Drug, Inc. v. Bayer AG, 14 F.3d 733, 745-46 (2d Cir. 1994).) “Undergirding this analysis is not merely concern for the foreign litigant's rights but also principles of international comity.” (MPI at 2 (citing Aerogroup International, Inc. v. Marlboro Footworks, Ltd., 955 F.Supp. 220, 228 (S.D.N.Y. 1997), aff'd, 152 F.3d 948 (Fed. Cir. 1998).)

Applying the requisite factors, Judge Caproni found that while Defendants' conduct at issue has a substantial effect on U.S. commerce, the other two factors countenanced against an outright injunction on Defendants' use. Defendants indisputably are not U.S. citizens. As for the third factor, at the early stages of the case, Defendants came forward with proof of having obtained an AQUAGOLD mark registration in only the EU. Although Aquavit had planned to contest the validity of Defendants' EU mark, Defendants, at the time, owned rights in the mark that “are presumptively valid until European authorities decide otherwise.” (MPI at 3.) The Court noted that while it may be possible for Aquavit “to rebut the presumed validity of Defendants' marks by showing that European authorities are likely to invalidate Defendants' marks,” Aquavit had “not made an adequate showing thus far” and thus “reasons of comity counsel against this Court deciding preemptively the likely validity of a foreign trademark.” (Id.) In so finding, Judge Caproni noted the Second Circuit's caution that “we do not think it the province of the United States district courts to determine the validity of trade-marks which officials of foreign countries have seen fit to grant.” (Id. (quoting Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633, 643 (2d Cir. 1956).)

To be sure, the fact that the EU authorities have declared UBM's AQUAGOLD mark invalid means that the permanent injunction in its current form (i.e., duplicating the terms of the MPI), prohibits Defendants from using any AQUAGOLD marks in the EU -without limitation - as most everywhere else. But that does not mean that the same unqualified prohibition should be extended to other countries where Defendants still currently have registered marks (if any remain). In the MPI, Judge Caproni focused only on the EU precisely because, at that time, “Defendants do not purport to own any trademark rights to AQUAGOLD in any jurisdiction other than the EU that may conflict with the injunction.” (MPI at 5.) The landscape has since changed with the parties having jointly acknowledged Defendants' registered AQUAGOLD marks in a handful of other foreign countries apart from the EU. It may well be that those countries, like the EU, will invalidate Defendants' registrations for AQUAGOLD marks, but the Court cannot conclude whether or not they are “likely” to do so. Indeed, Aquavit has not even put forward evidence that it has challenged validity of Defendants' marks in those countries. But even if Aquavit were to do so, the Court still must heed the Second Circuit's nod to comity and against “determin[ing] the validity of trade-marks which officials of foreign countries have seen fit to grant.” Vanity Fair Mills, 234 F.3d at 643.

Accordingly, I recommend that the Court not modify the injunction as requested by Aquavit.

Conclusion

For the foregoing reasons, I recommend that the Court:

A. Award Aquavit:

1. Compensatory damages for breach of contract in the amount of $5,871,316;

2. Statutory damages for trademark counterfeiting in the amount of $3,000,000;

3. Nominal damages for defamation in the amount of $1;

3. Punitive damages for defamation in the amount of $500,000;

4. Attorney's fees in the amount of $678,349.21;

5. Costs in the amount of $38,714.51; AND

B. Enter judgment against Defendants requiring them to pay to the Clerk of Court a total of $7,281,000 in coercive contempt sanctions; AND

C. Deny Aquavit's request to modify the currently operative permanent injunction.

Service

Within three days after entry, Plaintiff shall serve this Report and Recommendation on Defendants through means previously approved by the Court. Within seven days after entry, Plaintiff shall file proof of service.

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.