Opinion
21-CV-8434 (AKH) (RWL)
05-19-2022
KELLY TOYS HOLDINGS, LLC, Plaintiff, v. ALIALIALILL STORE, et al., Defendants.
REPORT AND RECOMMENDATION TO HON. ALVIN K. HELLERSTEIN: DEFAULT JUDGMENT
ROBERT W. LEHRBURGER, UNITED STATES MAGISTRATE JUDGE
This is a trademark and copyright infringement case in which Plaintiff seeks relief against entities that have marketed and sold counterfeit versions of Plaintiff's Squishmallows line of collectible dolls. Following entry of a temporary restraining order and preliminary injunction, and default by 56 Defendants (the “Defaulting Defendants”), Plaintiff seeks (1) entry of a final judgment and permanent injunction; (2) statutory damages awards pursuant to 15 U.S.C. § 1117(c) in the amount of $50,000 against each Defaulting Defendant along with post-judgment interest; and (3) leave to serve restraining order notices on Defaulting Defendants and third-parties holding assets of the Defaulting Defendants pursuant to Fed.R.Civ.P. 69(a)(1) and N.Y. C.P.L.R. § 5222. For the reasons set forth below, I recommend that the Court award the relief requested.
A list of the 56 Defaulting Defendants appears in Attachment A to this Report and Recommendation.
The facts are drawn from the Complaint (Dkt. 8), the Declaration of Jonathan Kelly, CoPresident of Plaintiff, dated Oct. 6, 2021, (Dkt. 15) (“Kelly Decl.”); and the Affidavit of Danielle S. Futterman, Plaintiff's counsel, dated March 11, 2022 (Dkt. 30) (“Futterman Decl.”).
A. KellyToys' Business And Its Squishmallows Products
Plaintiff is a leading manufacturer and distributor of quality plush toys and gifts, and is known for brands such as Pillow Chums, Kellybaby, and Kellypet. (Kelly Decl. ¶ 3.) One of Plaintiff's most popular toy products is Squishmallows, a line of “loveable buddies” made with a “super-soft, marshmallow-like texture that comes in a variety of sizes from 3.5-inch clip-ons to extra-large 24-inch plush toys.” (Id. ¶ 5.) The Squishmallows products have expanded to include other styles, including Hug Mees, Stackables, Mystery Squad, and Flip-A-Mallows. (Id.)
Squishmallows products are sold by major U.S. retailers and e-commerce sites, such as Amazon, Target, and Walmart. (Id. ¶ 8.) Since their debut in 2017, over 73 million Squishmallows products have been sold worldwide. (Id. ¶ 6.) In 2020, Squishmallows products received a “Best Toy of the Year” award from Learning Express. (Id. ¶ 7.)
The success of Squishmallows products is due in part to the marketing and promotional efforts of Plaintiff and its predecessor. Those efforts include advertising and promotion, both domestically and abroad, through social media and Plaintiff's website entirely dedicated to the Squishmallows products, https://www.squishmallows.com. (Id. ¶ 15.) Plaintiff's success is also due to its use of high-quality materials and processes in making the Squishmallows products. (Id. ¶ 16.) Additionally, Plaintiff owes a substantial amount of the success of the Squishmallows products to its consumers, and word-of-mouth buzz that its consumers have generated. (Id. ¶ 17.)
As a result of Plaintiff's efforts, the quality of Plaintiff's Squishmallows products, and the interest generated by its consumers, the Squishmallows name and Squishmallows products have become prominently placed in the minds of the public. Members of the public have become familiar with the Squishmallows trademarks and Squishmallows products and have come to associate them exclusively with Plaintiff. (Id. ¶ 18.) Plaintiff has acquired a valuable reputation and goodwill among the public as a result of such association. (Id.)
While Plaintiff has gained common law trademark and other rights in its Squishmallows products through use, advertising, and promotion, Plaintiff has protected its rights by filing for and obtaining federal trademark registrations. (Id. ¶ 10.) For example, Plaintiff owns U.S. Trademark Registrations for “SQUISHMALLOW, ” “ORIGINAL SQUISHMALLOWS, ” “SQUISHMALLOWS HUGMEES, ” and “FLIP A MALLOWS” for goods in Class 28 (which includes playthings, amusements, and other goods) (collectively, the “Squishmallow Marks”). (Id. ¶ 11 and Ex. B.) Plaintiff also owns a U.S. Trademark Registration for KELLYTOY in Class 28. (Id.)
In addition to common law and registered trademarks, Plaintiff also owns registered and unregistered copyrights in and related to the Squishmallow products (collectively, the “Squishmallow Works”). (Id. ¶ 13 and Ex. C.) No one other than Plaintiff and its authorized licensees and distributors is authorized to manufacture, import, export, advertise, offer for sale, or sell any good using the Squishmallows Marks or Squishmallows Works without Plaintiff's express permission. (Id. ¶ 19.)
B. The Defaulting Defendants' Unlawful Conduct
Through investigation, Plaintiff has determined that the Defaulting Defendants were and/or are currently manufacturing, importing, exporting, advertising, marketing, promoting, distributing, displaying, offering for sale and/or selling counterfeit Squishmallow products. (Kelly Decl. ¶ 22 and Compl. Ex. D.) The Defaulting Defendants' counterfeit Squishmallow products are virtually indistinguishable from Plaintiff's authentic Squishmallow products. (Compl. ¶ 35 and Ex D.) And, each of the Defaulting Defendants displays marks that are virtually indistinguishable from the Squishmallow Marks in order to market and sell their counterfeit Squishmallow products. (Kelly Decl. ¶ 23 and Compl. Ex. D.) The Defaulting Defendants are located primarily in China but conduct their counterfeit Squishmallow business in the United States, including within this judicial district, and other countries through various user accounts with, and merchant storefronts on, online marketplace and e-commerce platforms, particularly Alibaba and AliExpress. (Kelly Decl. ¶ 21; Compl. ¶¶ 24, 27.)
C. Plaintiff's Damages
The Defaulting Defendants' failure to appear has deprived Plaintiff of the ability to confirm whether or not the Defaulting Defendants have ceased manufacturing, importing, exporting, advertising, marketing, promoting, distributing, displaying, offering for sale, and/or selling counterfeit Squishmallow products. (Futterman Decl. ¶ 21.) Plaintiff also was unable to engage in any meaningful discovery with the Defaulting Defendants regarding the scope of their sales, profits, and costs, among other discoverable issues. (Id. ¶ 22.)
Because of the difficulty in ascertaining with precision the full extent of the Defaulting Defendants' sale of and profit from counterfeit products, Plaintiff has elected to receive statutory damages pursuant to the Lanham Act as compensation for the Defaulting Defendants' sale of counterfeit products and infringement of Plaintiff's Squishmallows Marks. (Id. ¶ 24.) Plaintiff does not seek additional damages for infringement of its copyrighted works.
The statutory damages requested by Plaintiff are based upon an analysis of the Defaulting Defendants' wrongful use of the Squishmallows Marks. (Id. ¶ 25 and Ex. E.) A chart setting forth each Defaulting Defendant's wrongful use of the marks is attached as Attachment A to this Report and Recommendation. Supporting material for each Defaulting Defendant is cited within the chart.
Procedural Background
Plaintiff commenced this action on October 13, 2021, alleging several causes of action: trademark infringement of Plaintiff's federally registered trademarks in violation of the Federal Trademark Act (the “Lanham Act”), 15 U.S.C. §§ 051 et seq.; counterfeiting of Plaintiff's federally registered trademarks in violation of 15 U.S.C. §§ 114(1)(a)-(b), 1116(d), and 117(b)-(c); false designation of origin, passing off, and unfair competition in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); copyright infringement of federally registered copyrights in violation of the Copyright Act of 1976, 17 U.S.C. §§ 101 et seq.; and related state and common law claims. (Dkt. 8.) Plaintiff also moved ex parte for a temporary restraining order (“TRO”), expedited discovery, and other relief. (Dkts. 14-16.)
On October 25, 2021, the Court granted the TRO. (Dkt. 17 at p.15.) In addition to injunctive relief against the Defendants, the TRO included an asset restraining order on each Defendant's financial and online service accounts. (Id. at 9.) The TRO also required Defendants to appear on November 12, 2021, at a hearing to show cause why a preliminary injunction should not be issued. (Id. at 8.) On November 5, 2021, Plaintiff served each of the Defaulting Defendants with the summons against them, the Complaint, the TRO, and all papers filed in support of the TRO pursuant to the methods authorized by the TRO. (Dkt. 24.)
Plaintiff appeared at the preliminary injunction show cause hearing on November 12, 2021. (Futterman Decl. ¶ 15.) None of the Defaulting Defendants appeared. (Id.) The Court then entered a preliminary injunction order (the “PI Order”) against all Defaulting Defendants mirroring the terms of the TRO and extending through the pendency of the action. (Dkt. 10.) On November 15, 2021, pursuant to the methods of service authorized in the TRO and PI Order, Plaintiff served each Defaulting Defendant with the PI Order. (Dkt. 22.)
On March 9, 2022, Plaintiff requested an entry of default against the Defaulting Defendants. (Dkts. 25-26.) That same day, the Clerk of Court entered a Certificate of Default against each Defaulting Defendant. (Dkt. 27.) On March 11, 2022, Plaintiff filed its motion for default judgment against the Defaulting Defendants. (Dkts. 29-32.) On March 17, 2022, the matter was referred to me for report and recommendation. (Dkt. 34.)
The following day, March 18, 2022, the Court entered an Order to Show Cause in writing by April 16, 2022 why default judgment should not be entered against the Defaulting Defendants (the “Show Cause Order”). (Dkt. 35.) The Show Cause Order also directed Plaintiff to serve the Defaulting Defendants with the order by March 21, 2022. (Id.)
Plaintiff did so on March 18, 2022. (Dkt. 36.) None of the Defaulting Defendants filed any response to the Show Cause Order or otherwise appeared in the action then or since.
Legal Standards For Default Judgment And Relief
When a party seeking judgment or affirmative relief shows by affidavit that the opposing party has failed to plead or otherwise defend, the Clerk of Court must enter a default. Fed.R.Civ.P. 55(a). The non-defaulting party may then apply to the court to obtain default judgment. Fed.R.Civ.P. 55(b).
“In determining whether to grant a motion for default judgment, a court within this district considers three factors: (1) whether the defendant's default was willful; (2) whether defendant has a meritorious defense to plaintiff's claims; and (3) the level of prejudice the nondefaulting party would suffer as a result of the denial of the motion for default judgment.” Nespresso USA, Inc. v. Africa America Coffee Trading Co. LLC, No. 15-CV-5553, 2016 WL 3162118, at *2 (S.D.N.Y. June 2, 2016) (quoting Indymac Bank, F.S.B. v. National Settlement Agency, Inc., No. 07-CV-6865, 2007 WL 4468652, at *1 (S.D.N.Y. Dec. 20, 2007)); Mason Tenders District Council v. Duce Construction Corp., No. 02-CV-9044, 2003 WL 1960584, at *2 (S.D.N.Y. Apr. 25, 2003). Ultimately, the entry of a default judgment is entrusted to the sound discretion of the district court. Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir. 1993).
The court also “must determine whether the plaintiff has pleaded facts supported by evidence sufficient to establish the defendant's liability with respect to each cause of action”. Nespresso, 2016 WL 3162118 at *2; accord Finkel v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009) (“[A district court] is also required to determine whether [plaintiff's] allegations establish [defendant's] liability as a matter of law”). “It is an ancient common law axiom that a defendant who defaults thereby admits all well-pleaded factual allegations contained in the complaint.” City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011). A factual allegation will be deemed not well-pled “‘only in very narrow, exceptional circumstances.” Ideavillage Products Corp. v. Bling Boutique Store, No. 16-CV-9039, 2018 WL 3559085, at *2 (S.D.N.Y. July 24, 2018) (internal quotation marks and citation omitted). That said, a court “must still satisfy itself that the plaintiff has established a sound legal basis upon which liability may be imposed.” Jemine v. Dennis, 901 F.Supp.2d 365, 373 (E.D.N.Y. 2012) (citing Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981)).
Once liability is determined, the plaintiff bears the burden of establishing an amount of damages with reasonable certainty. RGI Brands LLC v. Cognac Brisset-Aurige, S.A.R.L., No. 12-CV-1369, 2013 WL 1668206, at *6 (S.D.N.Y. April 18, 2013) (collecting cases), R. & R. adopted, 2013 WL 4505255 (S.D.N.Y. Aug. 23, 2013); see also Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir. 1997). In conducting an inquest on damages, the court is charged with “‘determining the proper rule for calculating damages on such a claim, and assessing plaintiff's evidence supporting the damages to be determined under this rule.'” Tiffany (NJ) Inc. v. Luban, 282 F.Supp.2d 123, 124 (S.D.N.Y. 2003) (quoting Credit Lyonnais Securities (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999)). Further, the damages award on a default judgment “must not differ in kind from, or exceed in amount, what is demanded in the pleadings.” Fed.R.Civ.P. 54(c).
The Court has determined that no hearing is necessary to determine damages (no party has requested one), and that determination of damages can be resolved on the submissions and prior proceedings. See Tamarin v. Adam Caterers, Inc., 13 F.3d 51, 5354 (2d Cir. 1993); Fustok v. ContiCommodity Services, Inc., 873 F.2d 38, 40 (2d Cir. 1989).
Discussion
I. Jurisdiction
The Court has both subject matter jurisdiction over this case and personal jurisdiction over the Defaulting Defendants. Federal subject matter jurisdiction exists over Plaintiff's federal trademark claims pursuant to 28 U.S.C. § 1331 (federal question jurisdiction) and § 1338 (jurisdiction over trademark, copyright, and patent claims), 15 U.S.C. § 1121 (jurisdiction over federal trademark claims), and supplemental jurisdiction over related state claims pursuant to 28 U.S.C. § 1367(a).
The Court implicitly already made this determination in entering the earlier TRO and PI Order.
The Court has personal jurisdiction over the Defaulting Defendants pursuant to NY CPLR §§ 302(a)(1), (3). As set forth in the procedural background above, Plaintiff served all Defaulting Defendants with the requisite pleadings pursuant to the methods of service previously authorized by the Court. Accordingly, Plaintiff has established personal jurisdiction over the Defaulting Defendants.
II. Default Judgment
Default judgment is clearly warranted here. The Defaulting Defendants have willfully failed to appear, answer, or otherwise respond to the Complaint or comply with the expedited discovery ordered in the TRO and PI Order. (Futterman Decl., ¶¶ 20-23.) See Indymac Bank, F.S.B. v. National Settlement Agency, Inc. No. 07-CV-6865, 2007 WL 4468652, at *1 (S.D.N.Y. Dec. 20, 2007) (“Both NSA's and Steven Leff's non appearance in the action and both NSA's and Steven Leff's failure to respond to the Complaint and the instant motion practice indicate willful conduct”). By virtue of their failure to appear, Defaulting Defendants have likewise failed to present any meritorious defenses. Nespresso, 2016 WL 3162118 at *2 n.3; Indymac, 2007 WL 4468652, at *1. And, denying Plaintiff's motion for default judgment would be highly prejudicial to Plaintiff since Plaintiff would be left without any recourse to address Defaulting Defendants' unlawful conduct. See Nespresso, 2016 WL 3162118 at *2 n.3 (“Nespresso will be prejudiced if it is unable to defend the integrity of its trademark and trade dress in light of Libretto's default in this case”). Finally, as discussed next, the facts alleged establish Defaulting Defendants' liability.
III. Defaulting Defendants' Liability
Plaintiff's Complaint and other submissions establish a sound legal basis for finding the Defaulting Defendants liable for willful counterfeiting and infringement of Plaintiff's Squishmallow Marks and Squishmallow Works.
A. Liability For Trademark Infringement And Counterfeiting
Plaintiff alleges that the Defaulting Defendants engaged in trademark counterfeiting and infringement in violation of the Lanham Act, 15 U.S.C. §§ 1114(1)(a)-(b). The Lanham Act imposes liability on any person who in connection with the sale, offering for sale, or distribution of a good either uses a counterfeit of a registered mark or counterfeits such mark in advertising or packaging materials when such use or counterfeiting is likely to cause confusion. 15 U.S.C. § 1114(1)(a)-(b). To establish liability for trademark infringement, a plaintiff thus must show that (1) its marks are valid and entitled to protection, and (2) defendants' use of the plaintiff's marks is likely to cause confusion as to the origin or sponsorship of the defendants' goods. Tiffany (NJ) Inc. v. eBay, Inc., 600 F.3d 93, 102 (2d Cir. 2010). A counterfeit mark is a “spurious mark which is identical with, or substantially indistinguishable from, a registered mark.” 15 U.S.C. § 1127.
Here, Plaintiff's well-plead allegations easily satisfy those elements. First, Plaintiff has plead and demonstrated through the declaration of its Co-President, and copies of trademark registrations, that Plaintiff owns all rights, title, and interest to the Squishmallow Marks. (Compl. ¶¶ 14-16 and Ex. B; Kelly Decl. ¶¶ 10-12 and Ex. B.) See Faram 1957 S.P.A. v. Faram Holding & Furniture, Inc., No. 16-CV-2430, 2018 WL 1394178, at *10 (S.D.N.Y. March 19, 2018) (certificates of registration “are prima facie evidence that ‘the mark is registered and valid (i.e., protectible), that the registrant owns the mark, and that the registrant has the exclusive right to use the mark in commerce'”) (quoting Lane Capital Management, Inc. v. Lane Capital Management, Inc., 192 F.3d 337, 345 (2d Cir. 1999)).
Second, “the standard for consumer confusion is easily satisfied in the case of counterfeits because counterfeits, by their very nature, cause confusion.” Off-White LLC v. 5HK5584 , No. 19-CV-672, 2020 WL 1646692 at *5 (S.D.N.Y. Apr. 3, 2020) (quoting Coach, Inc. v. Horizon Trading USA Inc., 908 F.Supp.2d 426, 433 (S.D.N.Y. 2012). Plaintiff's well-plead allegations establish that the trademarks deployed by the Defaulting Defendants are counterfeit as they are virtually indistinguishable from Plaintiff's Squishmallow Marks. (Compl. ¶¶ 35-41 and Ex. D; Kelly Decl. ¶¶ 21-23.) Accordingly, the Court finds that default judgment on Plaintiff's trademark counterfeiting and infringement claims is warranted.
B. Liability For Copyright Infringement
Although Plaintiff does not seek damages based on copyright infringement, it does seek permanent injunctive prohibiting infringement of the Squishmallow Works. Accordingly, the Court addresses the Defaulting Defendants' liability for copyright infringement.
To prevail on a claim of copyright infringement, a plaintiff must establish (1) ownership of a valid copyright and (2) infringement of that copyright by the defendant. Feist Publications, Inc. v. Rural Telephone Services Co., 499 U.S. 340, 361, 111 S.Ct. 1282, 1296 (1991). As with registered trademarks, there is a statutory presumption that registered copyrights are valid. Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101, 109 (2d Cir. 2001). To establish infringement, the copyright owner must demonstrate (1) that the defendant has actually copied the owner's work and (2) that the copying is illegal because a substantial similarity exists between the defendant's work and the protectable elements of the owner's work. Id. at 110. Actual copying may be shown by indirect evidence; “[i]f the two works are so strikingly similar as to preclude the possibility of independent creation, copying may be proved without a showing of access.” Lipton v. Nature Co., 71 F.3d 464, 471 (2d Cir. 1995) (internal quotation marks and citation omitted). Substantial similarity, in turn, hinges on “whether an average lay observer would recognize the alleged copy as having been appropriated from the copyrighted work.” Hamil America, Inc. v. GFI, 193 F.3d 92, 100 (2d Cir. 1999).
Both elements of copyright infringement are met here. Plaintiff alleges that it is the owner of U.S. Copyright Registration numbers covering the Squishmallow Works. (Compl. ¶¶ 17-18 and Ex. C; Kelly Decl. ¶¶ 13-14 and Ex. C.) Those allegations suffice to establish the statutory presumption of validity, and are not contradicted by any other allegations or arguments before the Court. And for the same reasons that the allegations in the Complaint establish that the products at issue are counterfeits, Plaintiff has carried their burden of showing actual copying and substantial similarity. Plaintiff's allegations establish that Defaulting Defendants' products are so strikingly similar as to prove that Defaulting Defendants had access to their Squishmallow products and created works that are substantially similar to Plaintiff's Squishmallow Works and that the average lay observer would recognize Defaulting Defendants' alleged copies as being appropriated from Plaintiffs' work. (Compl. ¶¶ 35-42; Kelly Decl. ¶ 23.)
C. Willful Misconduct
The Defaulting Defendants are deemed to have acted willfully, merely by virtue of their default, and consequent failure to controvert the evidence of willful misconduct alleged in the Complaint. North Face Apparel Corp. v. Moler, No. 12-CV-6688, 2015 WL 4385626, at *6 (S.D.N.Y. July 16, 2015) (citing Lane Crawford LLC v. Kelex Trading (CA) Inc., No. 12-CV-9190, 2013 WL 6481354, at *3 (S.D.N.Y. Dec. 3, 2013) (collecting cases), R. & R. adopted, 2014 WL 1338065 (S.D.N.Y. April 3, 2014)), R. & R. adopted, 2015 WL 5472939 (S.D.N.Y. Sept. 16, 2015).
Even putting the fact of default aside, the conduct set forth in the Complaint and supporting evidence demonstrate that the Defaulting Defendants engaged in willful counterfeiting. See, e.g., Coach, Inc. v. Melendez, No. 10-CV-6178, 2011 WL 4542971, at *5 (S.D.N.Y. Sept. 2, 2011) (“Because the marks used by defendants on their products are virtually identical to the [Plaintiff] Registered Trademarks, the conclusion is inescapable that defendants' infringement and counterfeiting is intentional.”), R. & R. adopted, 2011 WL 4542717 (S.D.N.Y. Sept. 30, 2011); see generally N.A.S. Import, Corp. v. Chenson Enterprises, Inc. 968 F.2d 250, 252 (2d Cir. 1992) (holding that for “the purpose of awarding enhanced statutory damages, ” the knowledge component of willfulness “need not be proven directly but may be inferred from the defendant's conduct”).
Plaintiff has established the Defaulting Defendants' legal liability for willful counterfeiting and infringement of Plaintiff's registered Squishmallow Marks and Squishmallow Works.
IV. Permanent Injunctive Relief
Based on earlier evidentiary showings, Plaintiff obtained the TRO and PI imposing temporary injunctive relief. Following Defaulting Defendants' default, Plaintiff is now entitled to permanent injunctive relief to the same effect.
Under the Lanham Act and Copyright Act, a district court has authority to grant injunctive relief to prevent further violations of a plaintiff's trademarks and copyrights. 15 U.S.C. § 1116; 17 U.S.C. § 502. A district court also has the authority to grant a permanent injunction on a motion for default judgment. See, e.g., Moonbug Entertainment Limited v. A20688 , No. 21-CV-4313, 2022 WL 1239586, at *2 (S.D.N.Y. Apr. 26, 2022) (granting permanent injunction after default by counterfeiters of plaintiff's trademarks); WowWee Group Ltd. v. Meirly, No. 18-CV-706, 2019 WL 1375470, at *9 (S.D.N.Y. March 27, 2019) (granting permanent injunction after default by counterfeiters of plaintiff's trademarks and copyrights).
As explained above, Plaintiff has established Defaulting Defendants' liability for trademark infringement and counterfeiting as well as copyright infringement. In addition to succeeding on the merits, however, a permanent injunction will not be issued unless a plaintiff demonstrates “(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, 126 S.Ct. 1837, 1839 (2006). Those requirements are met here.
Under the remedial provisions of the Lanham Act, a plaintiff who has established infringement is entitled to a rebuttable presumption of irreparable harm. Regardless, courts have issued permanent injunctions in cases such as this, where intellectual property rights holders have shown a potential loss of goodwill and control over their trademarks. See, e.g., United States Polo Association v. PRL USA Holdings, Inc., 800 F.Supp.2d 515 (S.D.N.Y. 2011) (granting request for permanent injunction and finding irreparable harm where likelihood of confusion as to source and likelihood of injury to reputation and goodwill were shown); see also Really Good Stuff, LLC v. BAP Investors, L.C., 813 Fed.Appx. 39, 44 (2d Cir. 2020) (“[t]he loss of reputation and goodwill constitutes irreparable harm”). Here, by virtue of trafficking in counterfeit goods, particularly ones of inferior quality, Defaulting Defendants have caused unquantifiable irreparable harm to the goodwill and reputation associated with Plaintiff, its Squishmallow Marks, and its Squishmallow Works. (See Kelly Decl. ¶ 26). Given such injury to Plaintiff's goodwill and reputation, monetary damages alone are inadequate to compensate Plaintiff for the damage it has incurred and will continue to incur if an injunction is not entered.
Codification of a rebuttable presumption of irreparable harm was signed into law on December 27, 2020, as part of the Trademark Modernization Act of 2020 (codified as part. of the Consolidated Appropriations Act, 2021, Pub. L. 116-260). Amending the text of 15 U.S.C. § 1116(a), the relevant language reads as follows:
The several courts vested with jurisdiction of civil actions arising under this chapter shall have power to grant injunctions … to prevent the violation of any right of the registrant of a mark registered in the Patent and Trademark Office or to prevent a violation under subsection (a), (c), or (d) of section 1125 of this title. A plaintiff seeking any such injunction shall be entitled to a rebuttable presumption of irreparable harm upon a finding of a violation identified in this subsection in the case of a motion for a permanent injunction or upon a finding of likelihood of success on the merits for a violation identified in this subsection in the case of a motion for a preliminary injunction or temporary restraining order.
Even with respect to monetary harm, because of Defaulting Defendants' failures to appear in this action, Plaintiff was unable to obtain complete and accurate information regarding the actual profits derived from their sales of Counterfeit Products, making.
A showing that there is no adequate remedy at law “is satisfied where the record contains no assurance against defendant's continued violation” of a plaintiff's rights. Montblanc-Simplo GMBH v. Colibri Corp., 692 F.Supp.2d 245, 259 (E.D.N.Y. 2010). Indeed, in intellectual property actions, permanent injunctions are typically granted when there is “a threat of continuing violations.” Tiffany (NJ) LLC v. Dong, No. 11-CV-2183, 2013 WL 4046380, at *7 (S.D.N.Y. Aug. 9, 2013). “Where, ” as here, “the defendant defaults, a court may infer that the defendant is willing to, or may continue its infringement.” Mister Softee, Inc. v. Diaz, No. 19-CV-4857, 2020 WL 5665240, at *8 (E.D.N.Y. July 2, 2020) (cleaned up); see also William Mark Corp. v. 1 & CC, No. 18-CV-3889, 2019 WL 4195365, at *11 (S.D.N.Y. May 20, 2019) (“The Defaulting Defendants' past infringing behavior and potential for further activity across multiple marketplace platforms amply suggest that the Defaulting Defendants might continue to engage in infringing activities and counterfeiting unless enjoined by the Court, demonstrating the danger that monetary damages will fail to fully provide Plaintiffs with relief”) (internal quotation marks and citations omitted). Such an inference is warranted here.
To be sure, the threat of continued violations may be somewhat diminished to the extent that Alibaba and AliExpress have frozen the identified user accounts and merchant storefronts owned by Defaulting Defendants in compliance with the TRO and PI Order. But if such restraints are lifted, there remains a serious possibility that Defendants will
Plaintiff's actual damages effectively impossible to measure. (Futterman Decl. ¶¶ 20-23; 30-31). See, e.g., Mint, Inc. v. Iddi Amad, No. 10-CV-9395, 2011 WL 1792570, at *3 (S.D.N.Y. May 9, 2011) (finding irreparable harm where “determining the amount of damages from [defendant's] infringing conduct [is] especially difficult, if not impossible”). continue to infringe Plaintiff's intellectual property rights. See Allee v. Medrano, 416 U.S. 802, 810-11, 94 S.Ct. 2191, 2198 (1974) (“It is settled that an action for an injunction does not become moot merely because the conduct complained of has terminated, if there is a possibility of recurrence, since otherwise the defendants would be free to return to their old ways”) (internal quotation marks and citation omitted). Accordingly, an adequate remedy at law remains elusive.
Further, the balance of hardships overwhelmingly favors Plaintiff since it has suffered and will continue to suffer irreparable harm to its business, profits, goodwill and reputation as a result of Defendants' willful infringement of the Squishmallow Marks and Squishmallows Works in connection with the marketing and sale of counterfeit Squishmallow products. Finally, the public interest is served by a permanent injunction, as “the public has an interest in not being deceived - in being assured that the mark it associates with a product is not attached to goods of unknown origin and quality.” N.Y.C. Triathlon, LLC v. NYC Triathlon Club, Inc., 704 F.Supp.2d 305, 344 (S.D.N.Y. 2010) (granting motion to enjoin defendant from further trademark violations).
In short, all requirements for a permanent injunction are satisfied, and the injunctive provisions of the TRO and PI Order (other than those directed at Defaulting Defendants' assets) should be converted to a permanent injunction in favor of Plaintiff.
As discussed below, the appropriate mechanism to restrain and recover Defaulting Defendants' assets is through the procedures available for enforcement of money judgments pursuant to Fed.R.Civ.P. 69(a) and New York State law, not through a permanent injunction issued pursuant to Fed.R.Civ.P. 65.
V. Statutory Damages
As noted previously, Plaintiff seeks statutory damages in connection with Defaulting Defendants' trademark violations. Plaintiff is entitled to statutory damages against each of the Defaulting Defendants.
A. Law Applicable To Statutory Damages Under The Lanham Act
The Lanham Act permits plaintiffs to elect as a remedy either actual or statutory damages for the marketing, sale, and distribution of goods with counterfeit marks. 15 U.S.C. § 1117. 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., 262 F.3d at 113-14; 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”).
Section 1117(c) was enacted to address the type of scenario presented here - 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 this section is the practical inability to determine profits or sales made by counterfeiters.”); Gucci America, Inc. v. Duty Free Apparel, Ltd., 315 F.Supp.2d 511, 520 (S.D.N.Y. 2004) (“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)), amended by 328 F.Supp.2d 439 (S.D.N.Y. 2004).
Section 1117(c), however, “does not provide guidelines for courts to use in determining an appropriate award, as it is only limited by what the court considers just.” Duty Free Apparel, 315 F.Supp.2d at 520 (internal quotation marks and citation omitted). Many courts thus have looked to the analogous provision in the Copyright Act for guidance, 17 U.S.C. § 504(c), and have considered the following factors in setting statutory damage awards under the Lanham Act: (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) (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.
B. Analysis Of The Relevant Factors
The factors relevant to determining statutory damages collectively point to a substantial award of statutory damages.
With respect to the first, second, and sixth factors, the Defaulting Defendants' conduct - including their failure to appear, answer, or otherwise respond to the Complaint, or comply with the expedited discovery ordered in the TRO and PI Order - have made it impossible to determine the Defaulting Defendants' profits, quantify any expenses that the Defaulting Defendants may have saved by infringing Plaintiff's Squishmallow Marks, or assess revenues lost by Plaintiff as a result of the Defaulting Defendants' infringing and counterfeiting activities. As such, the Court may, and does, infer that the Defaulting Defendants financially benefitted to a significant degree by marketing and selling counterfeit Marshmallow products. See AW Licensing, LLC v. Bao, No. 15-CV-1373, 2016 WL 4137453, at *3 (S.D.N.Y. Aug. 2, 2016) (“courts have supported an inference of a broad scope of operations in cases dealing specifically with websites that ship and sell to a wide geographic range”).
The third factor - the value of Plaintiff's Squishmallow Marks - also weighs in favor of increased statutory damages. Again taking the allegations of the Complaint as true, together with the affidavit evidence and exhibits thereto, Plaintiff has established that Squishmallow products have achieved global recognition and success as a result of Plaintiff's efforts in building up and developing consumer recognition, awareness, and goodwill in those products. By virtue of the foregoing, the Squishmallow Marks are of substantial value to Plaintiff and identify Plaintiff as the exclusive source of the Squishmallow products to which it is applied.
The remaining factors - willfulness and deterrence - further support significant statutory damages awards against the Defaulting Defendants. The Defaulting Defendants are hardly innocent infringers; to the contrary, their conduct was willful as set forth above. Statutory damages thus should be substantial enough to deter both the Defaulting Defendants and others who may be inclined to engage in similar conduct. “The need to deter other counterfeiters is particularly compelling given the apparent extent of counterfeit activity” committed by the Defaulting Defendants. Bumble and Bumble, LLC v. Pro's Choice Beauty Care, Inc., No. 14-CV-6911, 2016 WL 658310, at *5 (S.D.N.Y. Feb. 17, 2016), R. & R. adopted, 2016 WL 1717215 (S.D.N.Y. April 27, 2016); see also Carducci Leather Fashions, 648 F.Supp.2d at 504 (“a statutory award should incorporate not only a compensatory, but also a punitive component to discourage further wrongdoing by the defendants and others”).
C. The Amount Awarded
Plaintiff has requested statutory damages in the amount of $50,000 against each Defaulting Defendant. Based on there being 56 Defaulting Defendants, the total statutory damages award sought by Plaintiff amounts to $2,800,000.
Other courts have considered statutory damages awards in cases similar to this one and awarded statutory damages for trademark counterfeiting in the range of $25,000 to $250,000 per mark or per infringer. See, e.g., Moonbug Entertainment, 2022 WL 1239586 at *3 (awarding statutory damages of $50,000 against each of 211 defaulting defendants); Shenzhen Smoore Technology Ltd. v. Anuonuo International Trade Company, No. 19-CV-9896, 2020 WL 7390518, at *9 (S.D.N.Y. Oct. 23, 2020), R. & R. adopted, Dkt. 86 (S.D.N.Y. Nov. 20, 2020) (awarding statutory damages of $50,000 against each of 86 defaulting defendants); WowWee Group Ltd. v. Haoqin, No. 17-CV-9893, 2019 WL 1316106, at *6 (S.D.N.Y. March 22, 2019) (awarding statutory damages of $25,000 against each of 62 defaulting defendants); Cartier International B.V. v. Ben-Menachem, No. 06-CV-3917, 2008 WL 64005, at *15 (S.D.N.Y. Jan. 3, 2008) ($50,000 statutory damages for each of 19 counterfeited marks is “sufficient to meet the goals of [15 U.S.C. § 1117(c)], including compensating the Plaintiffs and deterring future violations”); see also All-Star Marketing Group, LLC, v. Media Brands Co., 775 F.Supp.2d 613, 624-25 (S.D.N.Y. 2011) (collecting cases awarding between $25,000 and $250,000 per mark, and awarding $25,000 per mark for one set of marks and $50,000 for others).
Given that the Lanham Act provides for statutory damages of up to “$2,000,000 per counterfeit mark per types of goods or services sold, offered for sale, or distributed, as the court considers just, ” 15 U.S.C. § 1117(c)(2), an award of $50,000 for each Defaulting Defendant's willful violations is entirely reasonable. In sum, the Court finds that an amount of $50,000 per Defaulting Defendant is a reasonable and appropriate amount for statutory damages in light of the requisite factors discussed above and as a commensurate deterrent to future violations by both the Defaulting Defendants and others. Accordingly, the Court recommends an award of $50,000 against each Defaulting Defendant.
D. Post-Judgment Interest
The Lanham Act also permits a plaintiff to receive post-judgment interest “on any money judgment in a civil case recovered in a district court ... [to] be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment.” 28 U.S.C. § 1961(a). Accordingly, Plaintiff should be awarded post-judgment interest on the money judgment entered in this action. See, e.g., WowWee v. Haoqin, 2019 WL 1316106 at *4 (granting post-judgment interest on inquest following default by defendants who counterfeited plaintiff's marks and products); Bumble and Bumble, 2016 WL 658310 at *12 (granting post-judgment interest after plaintiff's success on the merits of trademark infringement claim).
VI. Restraining Order Notices
To further its prospects of recovering damages, Plaintiff seeks leave to serve restraining notices pursuant to N.Y. C.P.L.R. § 5222 on the Defaulting Defendants and third parties who hold the assets of Defaulting Defendants. Those third parties include financial services, such as PayPal and AliPay, and marketplace account services, such as Alibaba and AliExpress, which Defaulting Defendants use to facilitate their unlawful conduct.
As Plaintiff implicitly recognizes, the Court cannot impose an asset freeze by permanent injunction in this context and must instead pursue procedures provided by state law. See Allstar Marketing Group, LLC v. 158, No. 19-CV-4101, 2019 WL 3936879, at *2-4 (S.D.N.Y. Aug. 20, 2019) (denying request to include asset restraints and turnover requirements in injunction issued on default judgment but explaining that such measures can and should be pursued under Fed.R.Civ.P. 69 and state law procedural mechanisms); WowWee v. Meirly, 2019 WL 1375370at *11 (“to the extent Plaintiffs are concerned about the risk that Defaulting Defendants will dispose of, transfer, or hide their assets, it should turn to the remedies ordinarily applicable to enforcement of judgments at law under Rule 69 and N.Y. C.P.L.R. § 5222”). Recently, in Off-White LLC v. 2017pingan, et al., and two related actions, the plaintiffs did just that, and Judge Failla allowed the plaintiff to serve restraining notices on third-party service provider PayPal pursuant to N.Y. C.P.L.R. § 5222. 20-CV-5191, Dkt. 40 at 5 (S.D.N.Y. May 7, 2021).
The two related actions are Off-White LLC v. 24 Hours Delivery Store et al., 20-CV-5194, and Off-White LLC v. A9660 , et al., 20-CV-5196.
Pursuant to Fed.R.Civ.P. 69(a), “post judgment efforts to execute on a money judgment [must] comply with the procedural law of the forum state - unless a federal statute dictates to the contrary. The Lanham Act contains no such instruction. Accordingly, the applicable statute is [the New York C.P.L.R.].” Tiffany (NJ) LLC v. Dong, 2013 WL 4046380, at *10; see also Blue v. Cablevision Systems, New York City Corp., No. 00-CV-3836, 2007 WL 1989258, at *2 n.1 (E.D.N.Y. July 5, 2007) (finding that plaintiff's employment of judgment-enforcement procedures authorized by New York law, including N.Y. C.P.L.R. § 5222, and as incorporated by Fed.R.Civ.P. 69, was proper).
Under New York's statute governing enforcement of judgments, once a money judgment is rendered against a defendant, a federal district court in New York has the power to, among other things, restrain the defendant's assets until the judgment is satisfied. N.Y. C.P.L.R. § 5222; see Cruz v. TD Bank, N.A., 711 F.3d 261, 264 (2d Cir. 2013); Interpool Ltd. v. Patterson, No. 89-CV-8501, 1995 WL 105284, at *1 (S.D.N.Y. Mar. 13, 1995) (“A New York judgment creditor is entitled to a restraining notice on the debtor as a matter of right”). A restraining notice may be served on both the judgment debtor and third parties who hold asserts of the judgment debtor. N.Y. C.P.L.R. §§ 5222 (a) (restraining notice “may be served on any person ...”); 5222(b) (addressing restraining notices served both on judgment debtor and on “a person other than the judgment debtor”).
Based on the foregoing, pursuant to Fed.R.Civ.P. 69(a), the Court should permit Plaintiff to serve restraining notices on both the Defaulting Defendants and their service and financial providers who hold assets of the Defaulting Defendants.
Plaintiff also requests that it be permitted to serve the restraining notices immediately. Under the federal rules, “execution on a judgment and proceedings to enforce it are stayed for 30 days after its entry, unless the court orders otherwise.” Fed.R.Civ.P. 62(a). Plaintiff requests that the automatic 30-day stay be dissolved to prevent the Defaulting Defendants from potentially hiding their assets during that period. See Allstar, 2019 WL 3936879 at *4 n.6 (“if a plaintiff is concerned that defendants might attempt to conceal assets during the pendency of the automatic stay, it should include a dissolution of that stay as part of the relief requested in its proposed judgment.”). The Court finds such relief appropriate as have other courts in similar cases. See, e.g., Moonbug Entertainment, 2022 WL 1239586 at * 5 (dissolving 30-day stay and permitting plaintiff to immediately enforce judgment); Mattel, Inc. v. Agogo Store, No. 21-CV-1507, 2022 WL 525698 at *11 (S.D.N.Y. Jan. 31, 2022) (same).
The Court does not presently address procedures for effecting turnover of assets, which Plaintiff has indicated will proceed at a time after restraining notices are served.
Conclusion
For the foregoing reasons, I recommend that the Court enter judgment in favor of Plaintiff against each Defaulting Defendant that (1) makes permanent the injunctive relief previously imposed by the PI Order (except for asset-freeze provisions), (2) awards Plaintiff statutory damages pursuant to 15 U.S.C. § 1117(c) in the amount of $50,000 against each Defaulting Defendant along with post-judgment interest; and (3) grants permission to serve asset restraining order notices pursuant to N.Y. C.P.L.R. § 5222 and dissolves the 30-day stay that would otherwise delay Plaintiff's ability to serve the notices.
Procedure 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 Alvin K. Hellerstein, United States Courthouse, 500 Pearl Street, New York, New York 10007, and to the Chambers of the undersigned, United States Courthouse, 500 Pearl Street, New York, New York 10007. FAILURE TO FILE TIMELY OBJECTIONS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. Plaintiff is ordered to serve a copy of this Report and Recommendation on Defendants by May 23, 2022, using methods previously approved by the Court.
Plaintiff shall file proof of service of same by May 25, 2022.