Opinion
22-cv-04944-AGT
06-28-2024
XIAMEN ZHAOZHAO TRADING CO., LTD., Plaintiff, v. NINGBO JIANGBEI SHANGYU TRADING CO., LTD., Defendant.
REPORT AND RECOMMENDATION
Re: Dkt. No. 22
ALEX G. TSE, UNITED STATES MAGISTRATE JUDGE
Xiamen Zhaozhao Trading Co. (“Zhaozhao”), has moved for default judgment against Ningbo Jiangbei Shangyu Trading Co. (“Ningbo”). The undersigned issues this report, recommending that a district judge grant the motion.
The undersigned cannot “order the entry of judgment” because the defendant hasn't appeared and consented to magistrate jurisdiction. 28 U.S.C. § 636(c)(1).
I. BACKGROUND
A. Factual Background
Zhaozhao, a Chinese company, sells an “innovative line of cat houses” in the United States through its online business Rockever. Dkt. 1, Compl. ¶ 13. These houses are available for consumers to buy on Amazon.com. Id., Ex. B. Zhaozhao obtained a design patent (‘D465) from the United States Patent and Trademark Office for its cat houses on July 19, 2022. Id. ¶ 10. Ningbo, a different Chinese company, also sells cat houses on Amazon. Id. ¶¶ 19-20 & Ex. C. Ningbo's cat houses look a lot like Zhaozhao's.
Image Omitted
Id. ¶ 22.
B. Procedural Background
On August 29, 2022, Zhaozhao sued Ningbo for infringement of its design patent under 35 U.SC. § 271. Zhaozhao requested several extensions of the deadline for serving Ningbo with process, which the Court granted. Dkts. 10, 12, 15. On December 6, 2023, Zhaozhao filed proof of service through the Hague Service Convention and the Chinese Central Authority. Dkt. 16. Even after service, Ningbo did not, and still has not, responded to the complaint. The Clerk of Court entered default on December 26, 2023. Dkt. 18.
On March 22, 2024, Zhaozhao moved for default judgment. Dkt. 22.
II. DEFAULT JUDGMENT STANDARD
District courts must have personal and subject-matter jurisdiction over a dispute before granting default judgment. See In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). If the court has jurisdiction, it considers the seven Eitel factors: (1) the possibility of prejudice to the plaintiff if judgment isn't entered, (2) the merits of the plaintiff's claims, (3) the sufficiency of the complaint, (4) the sum of money at stake, (5) the possibility of a dispute concerning material facts, (6) whether the default was due to excusable neglect, and (7) the strong policy in favor of obtaining a decision on the merits. See NewGen, LLC v. Safe Cig, LLC, 840 F.3d 606, 616 (9th Cir. 2016) (citing Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986)). If these factors support default judgment, judgment may be entered in an amount that is supported by the evidence and that doesn't “differ in kind from, or exceed in amount, what is demanded in the pleadings.” Fed.R.Civ.P. 54(c).
III. DISCUSSION
Zhaozhao has satisfied the requirements for default judgment.
A. Subject-Matter Jurisdiction
Zhaozhao's sole claim is a federal patent infringement claim under 35 U.S.C. § 271. See Compl. ¶ 25. The Court has subject-matter jurisdiction over patent infringement claims under 28 U.S.C. § 1338(a).
B. Personal Jurisdiction
Zhaozhao has made out “a prima facie case” of personal jurisdiction. Brand v. Men-love Dodge, 796 F.2d 1070, 1072 (9th Cir. 1986). Zhaozhao served Ningbo with process, a prerequisite for personal jurisdiction, see Direct Mail Specialists, Inc. v. Eclat Computerized Techs., Inc., 840 F.2d 685, 688 (9th Cir. 1988), and Zhaozhao's allegations support personal jurisdiction under Federal Rule of Civil Procedure 4(k)(2).
1. Service of Process
Zhaozhao successfully served Ningbo in China under Article 5(a) of the Hague Service Convention. Dkt. 16 at 5. Service by this method was permitted by Rule 4, subsections (f)(1) and (h)(2), of the Federal Rules of Civil Procedure.
2. Rule 4(k)(2)
Rule 4(k)(2) applies when “(1) the plaintiff's claim arises under federal law, (2) the defendant is not subject to personal jurisdiction in the courts of any state, and (3) the exercise of jurisdiction satisfies due process requirements.” Merial Ltd. v. Cipla Ltd., 681 F.3d 1283, 1293-94 (Fed. Cir. 2012).
“[I]n cases concerning patent rights, the law of the Federal Circuit controls the district court's inquiry whether it has personal jurisdiction over a defendant.” Injen Tech. Co. v. Advanced Engine Mgmt., Inc., 270 F.Supp.2d 1189, 1193 (S.D. Cal. 2003); see also Avo-cent Huntsville Corp. v. Aten Intern. Co., 552 F.3d 1324, 1328 (Fed. Cir. 2008).
The first prong is satisfied because Zhaozhao's claim arises under federal patent law. The second prong is met because the burden is on the defendant-not the plaintiff or the Court-to establish that it is subject to personal jurisdiction in the courts of a particular state. See Touchcom, Inc. v. Bereskin & Parr, 574 F.3d 1403, 1415-16 (Fed. Cir. 2009). Ningbo hasn't attempted to satisfy that burden.
The third prong has been met as well. Because Ningbo is a foreign company, the Court must “contemplate[] . . . defendant's contacts with the entire United States, as opposed to the state in which the district court sits.” Synthes (U.S.A.) v. G.M. Dos Reis Jr. Ind. Com. De Equip. Medico, 563 F.3d 1285, 1295 (Fed. Cir. 2009). In evaluating those contacts, the Court considers “whether (1) the defendant purposefully directed its activities at residents of the forum, (2) the claim arises out of or relates to the defendant's activities with the forum, and (3) assertion of personal jurisdiction is reasonable and fair.” Id. at 1291.
Ningbo purposefully directed its activities at residents of the United States. The company sold its cat house on Amazon, where it listed the cat house's price in U.S. dollars, described the product in English, and offered shipping in the United States. See Compl. ¶ 20 & Ex. C. Other district courts have found substantially similar contacts sufficient to establish that a defendant purposefully directed its activities toward the United States. See Talavera Hair Prod., Inc. v. Taizhou Yunsung Elec. Appliance Co., 2021 WL 3493094, at *9-10 (S.D. Cal. Aug. 6, 2021); RE/MAX, LLC v. Shenzhen Remax Co., Ltd, 2019 WL 1081039, at *5 (D. Colo. Jan. 18, 2019).
The other due process factors tilt in Zhaozhao's favor as well: Zhaozhao's infringement claim arises from Ningbo's in-forum activities (selling cat houses on Amazon) and there is nothing in the record to suggest unfairness towards a defendant that has “failed to appear and defend this action.” Talavera, 2021 WL 3493094, at *11.
The Court has personal jurisdiction over Ningbo under Rule 4(k)(2). Having reached this conclusion, it is unnecessary for the undersigned to separately consider whether Ningbo is subject to personal jurisdiction under California's long-arm statute. See Supp. Brief, Dkt. 27 at 7-10 (asserting this alternative basis for jurisdiction).
C. Eitel Factors
All seven Eitel factors support the entry of default judgment.
1. Possibility of Prejudice
Zhaozhao will suffer prejudice if the Court does not enter default judgment because Zhaozhao will have no other judicial remedy.
2. Merits of Plaintiff's Claims
The test for infringement of a design patent is “whether an ordinary observer, familiar with the prior art, would be deceived into thinking that the accused design was the same as the patented design.” Egyptian Goddess, Inc. v. Swisa, Inc., 543 F.3d 665, 672 (Fed. Cir. 2008). It is not difficult to envision how an ordinary observer may mistake Ningbo's cat house for Zhaozhao's. See Part I.A., infra (comparing images of the cat houses).
The two cat houses feature near-identical roofs, windowsills, and doors for entry and exit. These features are also located in roughly the same places on the houses. Zhaozhao has plausibly alleged that Ningbo is infringing its design patent.
3. Strength of Plaintiff's Complaint
Zhaozhao's complaint is well pled. When the facts are accepted as true, they support Zhaozhao's infringement claim.
4. Sum of Money at Stake
There isn't much money at stake-Zhaozhao seeks only $8,243 as a reasonable royalty. Dkt. 22-1 at 11. This relatively small amount supports default judgment as it is “reasonably proportionate” to the harm caused by Ningbo's actions. Walters v. Statewide Concrete Barrier, Inc., No. C-04-2559 JSW (MEJ), 2006 WL 2527776, at *4 (N.D. Cal. Aug. 30, 2006).
5. The Possibility of a Dispute of Material Facts
Nothing in the record indicates a possible dispute concerning material facts.
6. Excusable Neglect
There is nothing in the record to suggest Ningbo's neglect is excusable. Ningbo was aware as early as 2022 that this action had commenced. See Dkt. 9-1, Tsai Decl. ¶¶ 2-3 (referencing a correspondence between Zhaozhao and Ningbo about service of process). Even after Ningbo was successfully served, the company chose not to participate.
7. Policy in Favor of a Merits Decision
Even though there is a strong policy favoring decisions on the merits, Ningbo's failure to answer the complaint renders a decision on the merits unfeasible.
D. Remedies
Zhaozhao seeks two forms of relief: compensatory damages in the form of a reasonable royalty, dkt. 22-1 at 11, and a permanent injunction barring Ningbo “from manufacturing, using, offering for sale, selling, or importing into the U.S. the Accused Products, or any other products featuring a design that infringes upon the '465 Patent,” Id. at 12. Both forms of relief are considered below.
1. Damages in the Form of a Reasonable Royalty
“When an established royalty does not exist, a court may determine a reasonable royalty based on ‘hypothetical negotiations between willing licensor and willing licensee.'” Wang Labs., Inc. v. Toshiba Corp., 993 F.2d 858, 870 (Fed. Cir. 1993) (quoting another source). To aid the Court in these hypothetical negotiations, Zhaozhao has provided the Court with third-party data on a portion of Ningbo's Amazon sales, as well as information from a different action, in which Zhaozhao sued (and settled with) a different defendant for infringement of two design patents, one of which was the '465 patent. See Dkt. 22-2, Tsai Decl. ¶¶ 4-5 & Exs. 1A-4B.
Zhaozhao's data is from before “the date when the infringement began.” Wang Labs, 993 F.2d at 870. The data captures Ningbo's Amazon sales from September 2021 through May 2022, Tsai Decl. ¶ 4, but the '465 patent was not issued until July 2022, Compl. ¶ 10. Still, “sales . . . information from before [a patent's] issuance date is also relevant to the reasonable royalty method of measuring damages.” Philippi-Hagenbuch, Inc. v. W. Tech. Servs. Int'l, Inc., 2013 WL 2419934, at *3 (C.D. Ill. June 3, 2013). Data from “before the issuance date[] [is] relevant to measuring the value . . . on the issuance date[], and so, relevant to calculating a reasonable royalty on the issuance date[].” Id.
Ningbo's Amazon sales totaled $22,896.86 between September 2021 and May 2022. Dkt. 22-2, Tsai Decl. ¶ 4. And the effective royalty rate for the '465 patent in the exemplary settlement was 36 percent. See id. ¶ 8. When Ningbo's Amazon sales are multiplied by 36 percent, the result is $8,243, Zhaozhao's proposed royalty. This proposed royalty is sufficiently supported by the record. On default judgment, without the benefit of discovery, it is a reasonable royalty.
2. Permanent Injunction
To obtain an injunction in a patent infringement case, the plaintiff must show:
(1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).
Zhaozhao has satisfied all four prongs of the eBay inquiry.
i. Irreparable Injury
“Courts routinely find irreparable harm, and therefore grant permanent injunctions where, as here, the infringer and the patentee are direct competitors.” Fresenius Med. Care Holdings, Inc. v. Baxter Int'l, Inc., No. C 03-1431-SBA, 2008 WL 928496, at *3 (N.D. Cal. Apr. 4, 2008) (collecting cases), aff'd in part, rev'd in part on other grounds sub nom. Frese-nius USA, Inc. v. Baxter Int'l, Inc., 582 F.3d 1288 (Fed. Cir. 2009). Zhaozhao and Ningbo sell near-identical cat houses “through the same sales channels.” Dkt. 22-2, Tsai Decl. ¶ 2. Every sale by Ningbo represents a lost sale to Zhaozhao.
Zhaozhao has suffered an irreparable injury.
ii. Inadequacy of Monetary Damages
“[B]ecause the principal value of a patent is its statutory right to exclude, the nature of the patent grant weighs against holding that monetary damages will always suffice to make the patentee whole.” Hybritech, Inc. v. Abbott Labs., 849 F.2d 1446, 1456-57 (Fed. Cir. 1988). Monetary damages are particularly inadequate when a plaintiff “[can]not adequately determine [its] damages . . . due to [a defendant's] failure to participate.” Area 55, Inc. v. Celeras LLC, 2011 WL 1375307, at *4 (S.D. Cal. Apr. 11, 2011). Because Zhaozhao obtained only limited data on Ningbo's sales, and the small royalty sought may not deter future infringement, the undersigned finds that monetary damages are inadequate.
iii. Balancing of Hardships
Zhaozhao seeks only to enjoin Ningbo from infringement. A defendant faces “no hardship in refraining from its infringement.” Amini Innovation Corp. v. KTY Int'l Mktg., 768 F.Supp.2d 1049, 1057 (C.D. Cal. 2011). A plaintiff, meanwhile “will be forced to engage in further litigation if [a defendant] infringes its patent[] again.” Funai Elec. Co. v. Daewoo Elecs. Corp., 593 F.Supp.2d 1088, 1111 (N.D. Cal. 2009), aff'd, 616 F.3d 1357 (Fed. Cir. 2010). The balance of hardships weighs in favor of Zhaozhao.
iv. Service to the Public Interest
A permanent injunction will serve the public interest. It will discourage further infringement and help safeguard future innovation.
Zhaozhao has satisfied all four eBay factors.
IV. CONCLUSION
On reassignment, the undersigned recommends that the district judge grant Zhaozhao's motion, enter default judgment in the amount of $8,243, and enter the permanent injunction Zhaozhao seeks. See Dkt. 22-10 ¶ 3. By July 3, 2024, Zhaozhao must serve Ningbo with a copy of this report, by any means reasonably calculated to provide actual notice, and file proof of service. Any party may object to this report within fourteen days of receiving it. See 28 U.S.C. § 636(b)(1)(C); Fed.R.Civ.P. 72(b)(2).
IT IS SO ORDERED.