Opinion
Case No.: EDCV 17-548-CBM-RAO(x)
2021-04-12
MONSTER ENERGY COMPANY, Plaintiff, v. INTEGRATED SUPPLY NETWORK, LLC, Defendant.
Brian C. Horne, Knobbe Martens Olson and Bear LLP, Los Angeles, CA, Joseph R. Re, Marko R. Zoretic, Paul A. Stewart, Jason Alexander Champion, Steven J. Nataupsky, Lynda J. Zadra-Symes, Knobbe Martens Olson and Bear LLP, Irvine, CA, for Plaintiff. Cassandra B. Merrick, Pro Hac Vice, Christopher W. Madel, Pro Hac Vice, Jennifer M. Robbins, Pro Hac Vice, Stephen M. Premo, Pro Hac Vice, Madel PA, Minneapolis, MN, F. Michael Speed, Jr., Pro Hac Vice, Jeffrey S. Standley, Pro Hac Vice, Melissa A. Rogers McCurdy, Pro Hac Vice, Standley Law Group LLP, Dublin, OH, Douglas C. Smith, Smith Law Offices LLP, Riverside, CA, for Defendant.
Brian C. Horne, Knobbe Martens Olson and Bear LLP, Los Angeles, CA, Joseph R. Re, Marko R. Zoretic, Paul A. Stewart, Jason Alexander Champion, Steven J. Nataupsky, Lynda J. Zadra-Symes, Knobbe Martens Olson and Bear LLP, Irvine, CA, for Plaintiff.
Cassandra B. Merrick, Pro Hac Vice, Christopher W. Madel, Pro Hac Vice, Jennifer M. Robbins, Pro Hac Vice, Stephen M. Premo, Pro Hac Vice, Madel PA, Minneapolis, MN, F. Michael Speed, Jr., Pro Hac Vice, Jeffrey S. Standley, Pro Hac Vice, Melissa A. Rogers McCurdy, Pro Hac Vice, Standley Law Group LLP, Dublin, OH, Douglas C. Smith, Smith Law Offices LLP, Riverside, CA, for Defendant.
ORDER RE: PLAINTIFF'S MOTION FOR DISGORGEMENT OF PROFITS [613]
CONSUELO B. MARSHALL, UNITED STATES DISTRICT JUDGE
The matter before the Court is Plaintiff Monster Energy Co.’s ("Plaintiff's" or "Monster's") Motion for Disgorgement of Profits. (Dkt. No. 613.) The matter is fully briefed.
The parties filed supplemental briefs, as ordered by the Court, regarding whether there is an adequate remedy of law, the law of the case, and the Ninth Circuit's decision in Playboy Enterprises, Inc. v. Baccarat Clothing Co. , 692 F.2d 1272, 1274 (9th Cir. 1982). (See Dkt. Nos. 623, 624, 625.)
I. BACKGROUND
This is a trademark and trade dress infringement action brought by Plaintiff against Defendant Integrated Supply Network, LLC ("Defendant" or "ISN"). On November 16, 2018, a jury reached a verdict in favor of Plaintiff on its infringement claim as to its federally registered trademarks that include the word "Monster" and its trade dress, awarded zero dollars in compensatory damages to Plaintiff, and awarded $5,000,000 in punitive damages to Plaintiff upon finding Plaintiff proved by clear and convincing evidence that Defendant acted with malice, oppression, or fraud. (Dkt. No. 446.) The jury found in favor of Defendant on Plaintiff's infringement claim as to its unregistered mark "Monster" and federally registered trademarks that include the word "Beast," and found Plaintiff did not prove by a preponderance of the evidence that Defendant's infringement was willful. (Id. )
After trial, the Court awarded $2,740,650.07 in attorneys’ fees to Plaintiff upon finding Plaintiff was a prevailing party and the case was an "exceptional" case warranting an award of attorneys’ fees pursuant to the Lanham Act. (Dkt. No. 584.) The clerk taxed costs in the amount of $37,387.51. (Dkt. No. 592.) The Court denied Plaintiff's motion for a permanent injunction under the Lanham Act, dismissed its California Unfair Competition Law (UCL) claim for lack of standing, awarded Plaintiff $1 in nominal damages, and otherwise denied the parties’ post-trial motions. The parties filed cross-appeals. On appeal, the Ninth Circuit vacated this Court's dismissal of Plaintiff's UCL claim for lack of standing, vacated the nominal and punitive damages awards, vacated the attorneys’ fees and costs awards, and remanded to this Court for reconsideration/determination of various issues. (Dkt. No. 594 (hereinafter, "Ninth Circuit Memorandum Disposition").)
II. STATEMENT OF THE LAW
At the time of trial in this case, willfulness was a precondition to a disgorgement award under the Lanham Act. (Ninth Circuit Memorandum Disposition at 5 (citing Stone Creek, Inc. v. Omnia Italian Design, Inc. , 875 F.3d 426, 441 (9th Cir. 2017) ).) The jury found Plaintiff did not prove by a preponderance of the evidence that Defendant's infringement was willful (Dkt. No. 446), and the Court denied Plaintiff's motion for a new trial on the issue of willfulness (Dkt. No. 539). Therefore, Plaintiff did not move for disgorgement of profits based on the jury's finding that Plaintiff failed to prove Defendant's infringement was willful.
On appeal, the Ninth Circuit "exercise[d] [its] discretion to consider" whether willfulness is a precondition to a disgorgement award, and found "the Supreme Court has squarely rejected the reasoning that motivated Stone Creek " in Romag Fasteners, Inc. v. Fossil, Inc. , ––– U.S. ––––, 140 S. Ct. 1492, 1495-97, 206 L.Ed.2d 672 (2020) (holding willfulness is not a precondition to disgorgement of profits under the Lanham Act). (Dkt. No. 594.) Accordingly, the Ninth Circuit remanded the matter to this Court "to decide whether disgorgement of profits is appropriate in the circumstances of this case." (Id. (citing Romag , 140 S.Ct. at 1497 ).) 15 U.S.C. § 1117 of the Lanham Act provides:
When a violation of any right of the registrant of a mark registered in the Patent and Trademark Office, a violation under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action ..., the plaintiff shall be entitled, ... subject to the principles of equity , to recover ... defendant's profits.
(Emphasis added.) "Principles of equity" as used in § 1117 refers to "fundamental rules that apply more systematically across claims and practice areas," and include consideration of the defendant's mental state. Romag , 140 S.Ct. at 1497.
III. DISCUSSION
A. Defendant's State of Mind
In Romag , the Supreme Court noted: "[W]e do not doubt that a trademark defendant's mental state is a highly important consideration in determining whether an award of profits is appropriate" based on principles of equity. 140 S.Ct. at 1497. Here, the jury found Plaintiff proved by clear and convincing evidence that Defendant acted with malice, fraud, or oppression by infringing Plaintiff's federally registered trademarks that include the word "Monster" and its trade dress. (Dkt. No. 446.) Plaintiff offered evidence at trial that Defendant's executive stated in response to the announcement of Plaintiff's sponsorship of NASCAR that it "could be good for [Defendant's] Monster brand," and that it "certainly creates awareness!" (Ex. 237.) There was also evidence offered at trial demonstrating Defendant continued to sell the infringing products after it received Plaintiff's cease and desist letters and after Plaintiff filed the instant lawsuit. (See, e.g. , Exs. 176, 177, 268, 269, 270, 1837; Trial Tr. at 1754-56, 1758-61.) Such evidence demonstrates Defendant's bad motive for its infringement which weighs in favor of disgorgement of profits.
B. Deterrence and Fairness
Here, disgorgement of profits would assist in deterring Defendant from continuing to infringe on Plaintiff's trademarks, particularly since the jury awarded $0 in compensatory damages and the punitive damages award was vacated by the Ninth Circuit on appeal. See Playboy Enters. 692 F.2d at 1274 (finding the district court abused its discretion in denying an award of profits under the Lanham Act, noting the damages awarded by the district court was approximately one-tenth of the profits earned by the defendants from their infringement, and reasoning "an award of little more than nominal damages would encourage a counterfeiter to merely switch from one infringing scheme to another as soon as the infringed owner became aware of the fabrication. Such a method of enforcement would fail to serve as a convincing deterrent to the profit maximizing entrepreneur who engages in trademark piracy."). Fairness also supports disgorgement of profits so that Defendant does not profit from its unlawful infringement. See id. at 1275 ("Any other remedy" other than disgorgement of profits earned from the infringing activity "results in the defendants being unjustly enriched."); Fifty-Six Hope Rd. Music, Ltd. v. A.V.E.L.A., Inc. , 778 F.3d 1059, 1073-74 (9th Cir. 2015) ("In seeking to achieve equity between the parties, the court must fashion a remedy wherein the defendant may "not retain the fruits, if any, of unauthorized trademark use or continue that use [and the] plaintiff is not ... [given] a windfall.") (citation omitted).
C. Irreparable Harm
Defendant argues disgorgement of profits is not proper absent a showing of irreparable harm, and contends because this Court already found Plaintiff did not suffer irreparable harm in its order denying Plaintiff's motion for a permanent injunction, Plaintiff is precluded from obtaining a disgorgement of profits. However, the Ninth Circuit has expressly held: "Nothing in the Lanham Act conditions an award of profits on plaintiff's proof of harm, and we've held that profits may be awarded in the absence of such proof." TrafficSchool.com, Inc. v. Edriver Inc. , 653 F.3d 820, 831 (9th Cir. 2011). Defendant cites to no authority wherein a court has held that proof of irreparable harm is required to obtain disgorgement of profits under the Lanham Act.
In the Court's order denying Plaintiff's Motion for a Permanent Injunction, the Court found "Plaintiff fails to demonstrate actual irreparable harm required for a permanent injunction under federal law." (Dkt. No. 538.)
Defendant filed a notice of entry of order denying Monster's Motion for Preliminary Injunction in a separate action filed against Defendant, wherein the district court found Plaintiff failed to demonstrate a likelihood of irreparable harm. (Dkt. No. 629.) That order is not relevant to the instant Motion for Disgorgement of Profits in this case because it was decided at the preliminary injunction stage in a different case regarding Defendant's alleged infringement after the jury's verdict was rendered in this case, and irreparable harm is not a requirement for disgorgement of profits.
D. Adequate Remedy at Law
In Sonner v. Premier Nutrition Corp. , the Ninth Circuit explained:
Equitable relief in a federal court is of course subject to restrictions : the suit must be within the traditional scope of equity as historically evolved in the English Court of Chancery; a plain, adequate and complete remedy at law must be wanting ....
971 F.3d 834, 840 (9th Cir. 2020) (emphasis in original) (quoting Guaranty Trust Co. of New York v. York , 326 U.S. 99, 105-06, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945) ). The parties agree Plaintiff must demonstrate no adequate remedy at law exists in order to obtain disgorgement of Defendant's profits from its infringement, but disagree regarding whether an adequate remedy at law exists for Plaintiff's Lanham Act claim.
Defendant argues disgorgement is not proper because actual damages exist as a possible remedy under the Lanham Act, and therefore there is an adequate remedy at law for Plaintiff's Lanham Act claim. However, under Defendant's interpretation, disgorgement of profits could never be awarded because the Lanham Act provides for both damages and disgorgement of profits as a remedy for trademark infringement. Moreover, the Ninth Circuit has upheld damages awards and disgorgement of profits in one action, or ordered disgorgement in addition to damages in an action under the Lanham Act. See, e.g., Skydive Ariz., Inc. v. Quattrocchi , 673 F.3d 1105, 1113-14 (9th Cir. 2012) ; Playboy Enters. , 692 F.2d at 1274.
1. No Damages Supports a Finding of an Inadequate Remedy at Law
In Playboy Enterprises, Inc. v. Baccarat Clothing Co. , the Ninth Circuit found the district court abused its discretion in failing to award disgorgement of profits after it awarded the plaintiff compensatory damages equal to one-tenth of the profits earned from the defendants’ infringement. The Playboy court emphasized "the trial court's primary function should center on making any violations of the Lanham Act unprofitable to the infringing party." Id. at 1274 (emphasis added). The Ninth Circuit reasoned:
In the instant case the trial court found that PEI was damaged through the defendants’ sale of 20,000 pairs of jeans
bearing counterfeit PLAYBOY and RABBIT HEAD insignias. PEI established at trial that the defendants made a profit of at least six dollars per sale. The appropriate computation yields a profits award of $120,000 in contrast to the trial court's $12,750 [damages award]. After a quick comparison it becomes quite clear that the District Court awarded PEI approximately one-tenth of the benefits which accrued to the defendants through their trademark infringement.... Would a profit seeking businessperson, not unwilling to violating federal law, pay ten cents to make one dollar? If the answer is ‘yes’ then the trial court's decision did not follow this court's clear mandate in Maier to make willful trademark infringement unprofitable. Since the activities of [the defendants] yielded great financial reward, we believe the District Court abused its discretion in not granting PEI an accounting of the profits earned by the defendants. Any other remedy results in the defendants being unjustly enriched.
In Maier Brewing Co. v. Fleischmann Distilling Corp. , the Ninth Circuit explained that "granting an accounting of profits" is proper to prevent unjust enrichment by an infringer, reasoning "[s]uch an approach to the granting of accountings of profits would, by removing the motive for infringements, have the effect of deterring future infringements. The courts would therefore be able to protect the intangible value associated with trade-marks and at the same time be protecting the buying public from some of the more unscrupulous members of our economic community." 390 F.2d 117, 123 (9th Cir. 1968).
Applying the Ninth Circuit's reasoning in Playboy Enterprises , here, the $0 in damages awarded to Plaintiff for Defendant's infringement supports a finding that there is no inadequate remedy at law. See also Continental Airlines, Inc. v. Intra Brokers, Inc. , 24 F.3d 1099, 1105 (9th Cir. 1994) (noting "[t]he difficulty of establishing economic harm to [the plaintiff], lack of proof of damages, and possible immeasurability or uncertainty of them, does not mean [the plaintiff] was not harmed," and where "the measure of that injury defies calculation, damages will not provide a remedy at law"); i4i Ltd. Partnership v. Microsoft Corp. , 598 F.3d 831, 862 (Fed. Cir. 2010) ("Difficulty in estimating monetary damages is evidence that remedies at law are inadequate."), aff'd 564 U.S. 91, 131 S.Ct. 2238, 180 L.Ed.2d 131 (2011).
Accord. Neurovision Medical Products v. NuVasive, Inc. , 2014 WL 12554861 at *1 (C.D. Cal. Aug. 5, 2014).
Defendant argues the Playboy decision is factually distinguishable and therefore does not support an award of disgorgement of profits here because in Playboy , the defendant's infringement was "willful and deliberate," there was evidence that defendant's infringement "confused and deceived the public into believing that the counterfeit jeans originated with" Playboy, and the defendants "continually involved their Fifth Amendment privilege against self-incrimination." However, as discussed in the Ninth Circuit's Memorandum Disposition in this case, willfulness is no longer a requirement for disgorgement under the Lanham Act based on the Supreme Court's decision in Romag , 140 S. Ct. at 1495-97. Here, the jury found by clear and convincing evidence that Defendant acted with malice, oppression, or fraud by infringing Plaintiff's marks, the Court found Defendant had a bad motive for its infringement, and evidence was offered at trial demonstrating Defendant's executive stated in response to the announcement of Plaintiff's sponsorship of NASCAR that it "could be good for [Defendant's] Monster brand," and that it "certainly creates awareness!" and demonstrating Defendant continued to sell the infringing products after it received Plaintiff's cease and desist letters and after Plaintiff filed the instant lawsuit. Moreover, the jury necessarily found a likelihood of confusion in finding Defendant infringed Plaintiff's marks. (See Court's Instruction No. 16 (listing likelihood of confusion as an element for Plaintiff's trademark infringement claim).) Furthermore, the Playboy court did not determine an accounting of profits was warranted simply based on the defendant's Fifth Amendment invocations.
Therefore, Defendant fails to demonstrate that the reasoning set forth in Playboy would not support disgorgement of profits in this case.
2. Law of the Case
Defendant argues the law of the case precludes the Court from now finding there is no adequate remedy of law in ruling on Plaintiff's Motion for Disgorgement of Profits because the Court previously found in its order denying Plaintiff's motion for a permanent injunction that "Plaintiff fails to show an inadequate remedy at law exists" (Dkt. No. 538), and the Ninth Circuit affirmed there was no adequate remedy at law on appeal.
Under the "law of the case" doctrine, "a court is generally precluded from reconsidering an issue that has already been decided by the same court, or a higher court in the identical case." United States v. Alexander , 106 F.3d 874, 876 (9th Cir. 1997) (citations omitted). Contrary to Defendant's assertion, the Ninth Circuit's Memorandum Disposition did not address the issue of whether there was an adequate remedy of law. Moreover, if the Ninth Circuit had affirmed there was no adequate remedy at law as required for disgorgement of profits or decided the issue, it would not have remanded the matter back to this Court to consider whether disgorgement of profits would be appropriate based on the circumstances of the case. Furthermore, in affirming this Court's denial of Plaintiff's motion for a permanent injunction, the Ninth Circuit affirmed that this court "acted within its discretion in finding that [Plaintiff] did not show that [Defendant's] infringement was inflicting actual, irreparable harm." Therefore, the Ninth Circuit did not affirm this Court's finding in its permanent injunction order that Plaintiff failed to show an adequate remedy at law existed warranting an injunction. Thus, nothing in the Ninth Circuit's decision on appeal is binding regarding the issue of whether there is an adequate remedy at law for purposes of disgorgement of profits.
In its order denying Plaintiff's motion for a permanent injunction, this Court found Plaintiff failed to show an inadequate remedy at law existed because Plaintiff relied on purported irreparable harm which Plaintiff had failed to demonstrate it had suffered. (See Dkt. No. 538, Permanent Injunction Order ("Here, Plaintiff argues the irreparable harm to Plaintiff's goodwill and reputation cannot be adequately remedied by monetary damages. As discussed above, Plaintiff fails to demonstrate it has suffered irreparable harm.").) Moreover, the Court rejected Plaintiff's argument that "the disruption repeated litigation would cause to Plaintiff's business operations would also be irreparable and it would be forced to sue Defendant repeatedly absent an injunction." However, for purposes of determining whether disgorgement of profits is warranted, the availability of a separate lawsuit for Defendant's continued infringement after the jury's verdict would not compensate Plaintiff for Defendant's past infringement nor ensure Defendant has not been unjustly enriched by its past infringement. Because the Court's finding that Plaintiff failed to show an inadequate remedy at law existed was limited to its ruling on Plaintiff's motion for a permanent injunction, the law of the case does not apply here in determining whether an inadequate remedy of law exists for purposes of disgorgement of profits.
The fact that irreparable harm is not required for disgorgement of profits further demonstrates that the Court's finding that Plaintiff failed to show an inadequate remedy at law exists in denying Plaintiff's motion for a permanent injunction is not the law of the case for purposes of disgorgement of profits.
Even assuming the Court's finding in its order denying Plaintiff's motion for a permanent injunction that Plaintiff failed to show an inadequate remedy at law existed is the law of the case, "[a] court may have discretion to depart from the law of the case where: 1) the first decision was clearly erroneous; 2) an intervening change in the law has occurred; 3) the evidence on remand is substantially different; 4) other changed circumstances exist; or 5) a manifest injustice would otherwise result." Alexander , 106 F.3d at 876. Here, there was an intervening change in the law because after trial, the Supreme Court held irreparable harm is not required for disgorgement (see Romag , 140 S. Ct. at 1495-97 ). Moreover, a manifest injustice would result in applying the law of the case regarding the Court's prior finding that there was an adequate remedy of law for purposes of a permanent injunction for purposes of ruling on the instant motion for disgorgement of profits because, as discussed supra , Defendant would be unjustly enriched by its past infringement. Playboy , 692 F.2d at 1274-75.
Therefore, the Court finds Plaintiff demonstrates an inadequate remedy at law exists for purposes of disgorgement of profits.
* * *
Accordingly, considering the principles of equity, the Court concludes disgorgement of profits is warranted here.
E. Amount of Profits To Be Disgorged
Having found disgorgement of profits is appropriate in this case, the Court must assess Defendant's profits from its infringement. The Lanham Act provides: "In assessing profits the plaintiff shall be required to prove defendant's sales only; defendant must prove all elements of cost or deduction claimed." 15 U.S.C. § 1117.
At trial, Plaintiff's damages expert Dr. Mangum testified Defendant's profits from infringing sales was $10,401,782. (Ex. 1 at 1107:1-3, 1134:11-14, 1134:18-24.) He further testified that his $10,401,782 amount included a deduction of $22,637,154 in costs from Defendant's $33,038,935 in revenue on the infringing products, and was based on information reported in Defendant's financial documents. (Id. at 1130:21-1131:8, 1131:21-1132:10, 1132:20-1133:1, 1134:11-14.) Defendant's CFO Michael Deluca also declares Defendant has "profited $10,401,782 from the sale of Monster Mobile product from inception through August 2018." (Deluca Decl. ¶ 2.) Therefore, Plaintiff meets its burden of proving Defendant's sales.
Plaintiff states its damages expert calculated Defendant's profits only through August 2018 because that is the only information Defendant provided to Plaintiff. (See Ex. 1 at 1229:8-11.) The jury reached its verdict on November 16, 2018. (Dkt. No. 446.)
As to deductions and costs, Deluca declares Defendant incurred $22.6 million in "costs of sales" (the same costs figure already deducted by Plaintiff's expert Dr. Mangum) and declares another $6 million should be deducted for "Selling, General and Administrative Expenses" ("SGA") which "typical[ly]" include "costs incurred by manufacturers and distributors beyond Gross Profit include selling costs, shipping costs, rent, facility expenses, warehouse labor, electricity, advertising, and other expenses." (Deluca Decl. ¶¶ 3, 7.) Deluca declares another $2.9 million should be deducted for interest, taxes, and depreciation. (Id. ¶ 7.) Deluca thus declares, and Defendant argues, that Defendant's "net profit" on the infringing products from 2010 through 2018 is $1.5 million. (Id. ¶ 9.)
Plaintiff argues Deluca's declaration is improper and should not be considered by this Court because the parties were required to offer evidence regarding profits to the jury and Defendants failed to offer any evidence at trial regarding costs. Defendant argues it made a strategic decision not to offer evidence at trial regarding costs because it did not want to suggest to the jury that it conceded that it had infringed on Plaintiff's marks or that it owed damages to Plaintiff. Even if the Court considers Deluca's declaration, Defendant fails to demonstrate any of the additional costs discussed in Deluca's declaration are proper deductions. (See infra.)
Defendant, however, fails to carry its burden of demonstrating the purported SGA costs, interest, and depreciation costs actually contributed to the sale of the infringing products. See Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc. , 772 F.2d 505, 516 (9th Cir. 1985) ; Kamar Int'l, Inc. v. Russ Berrie & Co. , 752 F.2d 1326, 1332 (9th Cir. 1984). Defendant's damages expert Mr. Wagner opined in his report that he "was not able to discern any relationship between [Defendant's] net revenues and interest expenses." (Dkt. No. 182, Ex. 1 at ¶ 46.) Moreover, "income taxes paid during the period in question ... are not proper deductions" in the "absence of mitigating circumstances." Wolfe v. Nat'l Lead Co. , 272 F.2d 867, 873 (9th Cir. 1959), overruled on other grounds in Maier Brewing Co. v. Fleischmann Distilling Corp. , 359 F.2d 156 (9th Cir. 1966) ; see also Clamp Mfg. , 1987 WL 46520, at *7 ; McCarthy on Trademarks and Unfair Competition § 30:67 (5th ed. 2020) ("[S]uch a deduction would be unfair where the plaintiff would have to pay income tax on the profits it received from the infringer.").
Accord. Gray v. Perry , 2020 WL 1275221, at *16 (C.D. Cal. Mar. 16, 2020) (citing Kamar , 752 F.2d at 1332 ); Clamp Mfg. Co. v. Enco Mfg. Co. , 1987 WL 46520, at *6 (C.D. Cal. Aug. 10, 1987), aff'd , 870 F.2d 512 (9th Cir. 1989).
IV. CONCLUSION
Accordingly, the Court GRANTS Plaintiff's Motion for Disgorgement of Profits and orders Defendant to disgorge profits in the amount of $10,401,782.