UL LLC v. American Energy Products, LLC et al
Filing
130
MEMORANDUM Opinion and Order written by the Honorable Matthew F. Kennelly on 1/16/2019: The Court grants UL's motion for summary judgment [dkt. no. 105]. The Court directs the Clerk to enter judgment in favor of plaintiff UL LLC and against defendant Jude Shao in the amount of $500,000. Mailed notice. (pjg, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UL LLC,
Plaintiff,
vs.
AMERICAN ENERGY PRODUCTS, LLC
and JUDE SHAO,
Defendants.
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Case No. 17 C 7178
MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
UL LLC sued American Energy Products, LLC (AEP) and its then chief executive
officer Jude Shao, alleging violations of the federal Lanham Act and parallel state-law
claims. All of UL's claims arise from the defendants' allegedly unauthorized use of UL's
certification and service marks on butane containers sold by AEP. Both defendants
previously moved to dismiss UL's claims, and the Court denied their motion. See dkt.
no. 47. Defendant AEP then agreed to settle with UL. UL has now moved for summary
judgment on its remaining claims against Shao, who is no longer AEP's chief executive
officer. For the reasons stated below, the Court grants UL's motion.
Background
The following facts are undisputed except where otherwise indicated.
A.
Factual background
UL is an Illinois-based company that tests products and certifies that they meet
certain safety standards. Once certified, manufacturers are authorized to use the UL
marks on their products, which signals quality and enhances marketability. The
certification process has two steps. First, the manufacturer submits a representative
sample of its products to UL for testing. Second, UL initiates "follow-up services," which
include "inspection . . . of Covered Products or manufacturing process(s) and of
Manufacturing Locations." Pl.'s Rule 56.1 Stat., Ex. 6, Follow-Up Service Terms, dkt.
no. 108-5, ¶ 2. The first stage of follow-up services is the "initial product inspection,"
which is designed to assess the production process itself, "commencing with the very
first production run." Id. ¶ 9. After the initial inspection, follow-up services consist of
periodic examinations of products and production processes to ensure ongoing
compliance with UL standards.
AEP manufactured Sky Blue Butane canisters. In 2014, Shao sought UL
certification on behalf of AEP to enhance the marketability of its product. The parties
entered into a series of written agreements under which AEP agreed to submit
representative samples for testing so that UL could determine whether the canisters
were eligible to use its certification marks. After testing, UL indicated on October 16,
2014 that the samples provided by AEP satisfied safety standards. But, in a
contemporaneous letter, UL expressly cautioned that AEP was not yet authorized to use
UL's marks until an initial product inspection was completed. See Pl.'s Rule 56.1 Stat.,
Ex. 21, Letter to AEP Regarding Initial Product Inspection, dkt. no. 108-20 ("YOU ARE
NOT AUTHORIZED TO SHIP ANY PRODUCTS BEARING UL MARKS UNTIL THE
INITIAL PRODUCTION INSPECTION HAS BEEN SUCCESSFULLY
CONDUCTED . . . . An Initial Production Inspection . . . must be conducted prior to the
first shipment of products bearing the UL Mark.").
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Four days later, on October 20, UL inspector Clint Ferguson sent Shao an e-mail
seeking to schedule an initial product inspection and a training on follow-up services
program called the "FUStart presentation." Shao responded that he was interested in
the training but that an inspection was not warranted because AEP was still "working
out the kinks" in its production process. See Pl.'s Rule 56.1 Stat., Ex. 22, Oct. 20, 2014
e-mail from Shao to Ferguson, dkt. no. 108-21. He specifically told Ferguson that he
would give UL "at least two weeks" advance notice "before we go into production." Id.
Ferguson visited AEP fifteen days later, on November 4. According to an e-mail
Ferguson sent Shao the same afternoon, during his visit Ferguson gave the FUStart
presentation mentioned in the October 20 correspondence. But the parties dispute
whether Ferguson also completed an initial product inspection on November 4. UL
asserts that no production inspection was possible because, as Shao admitted, AEP
was not in production at the time. See Def.'s Rule 56.1 Stat., dkt. no. 122, ¶ 35. UL
also points to an e-mail Ferguson sent to another UL employee the same afternoon. In
that message, Ferguson told Tim Crews that he had given the FUStart presentation but
that he had come across "a few problems." See Pl.'s Rule 56.1 Stat., Ex. 23, Nov. 4,
2014 e-mail from Ferguson to Crews, dkt. no. 109-22. Chief among them, Ferguson
discovered that the canisters AEP used in its production process were actually
manufactured—and marked with the UL label—at another facility, meaning that UL
would "need a split inspection" of both locations. Id. UL also notes that Shao's own email scheduling the visit, sent only fifteen days earlier, represented that he would give
UL "at least two weeks" advance notice before scheduling an initial inspection.
For his part, Shao asserts that a complete initial product inspection occurred. He
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insists that, although "AEP had already completed its initial production and was not in
full production" on November 4, Ferguson nevertheless "inspected AEP's initial product
and examined AEP's machinery and equipment, automated production lines,
manufacturing process, and quality control plan at the time." Def.'s Rule 56.1 Stat., dkt.
no. 122, ¶ 35. In Shao's view, those actions amounted to a complete initial product
inspection. And he suggests that Ferguson's follow-up e-mail entitled "FUStart" was
intended to "announce the start of UL's Follow-Up Services" upon the completion of the
initial inspection, further supporting Shao's assertion that the inspection occurred.
Def.'s Br. in Opp. to Pl.'s Mot. for Summ. J., dkt. no. 121, at 8. UL counters that, even
accepting that Ferguson's e-mail announced the start of follow-up services, the relevant
contract defines the initial product inspection as the first step of follow-up services,
meaning that an email acknowledging the start of those services would not imply that an
initial inspection had already occurred—if anything, it would imply than an initial
inspection was impending.
Ferguson visited AEP twice more in the following months. In December 2014
and March 2015 he visited AEP's facility and issued reports to AEP stating, in relevant
part, that he could not inspect production because there was "no completed UL labeled
production at the time of inspection." Pl.'s Rule 56.1 Stat., Exs. 25-26, Inspection
Reports, dkt. nos. 108-24, 25. These reports made clear that AEP was "required to
contact [Ferguson] prior to any UL production." Id.
On March 10, Shao confirmed to Ferguson via e-mail that AEP was "not
producing any Listed product that needs to be inspected." Pl.'s Rule 56.1 Stat., Ex. 20,
Mar. 10, 2014 e-mail from Shao to Ferguson, dkt. no. 108-19. After Ferguson's third
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apparently unsuccessful attempt to inspect AEP's production, UL moved internally to put
AEP on "on-call" status, which requires less frequent inspections and correspondingly
lower fees, until it began production of UL-labeled products. See Pl.'s Rule 56.1 Stat.,
Ex. 27, Mar. 12, 2014 e-mail from Neumeier to Ferguson, dkt. no. 108-26. Shao
confirmed in mid-April that he understood AEP had been moved to on-call status and
that that the company was subject to annual inspection to ensure that it was "not
producing the products bearing UL Listed marks." Pl.'s Rule 56.1 Stat., Ex. 28, Apr. 15,
2014 e-mail from Shao to Ferguson, dkt. no. 108-27.
But it turns out AEP was using the UL marks all along. UL alleges that it
discovered this when Ferguson visited AEP in October 2015, several months after AEP
was placed into on-call status, and observed a large number of canisters bearing the UL
mark. He e-mailed Shao to inform him that use of the marks was not allowed because
AEP was still on call. An additional inspection in November 2015 resulted in another
notice that AEP was noncompliant. Ferguson directed AEP to immediately scrap the
UL-labeled canisters or cover the UL marks before shipping the products for sale. AEP
apparently agreed to do so and in November 2015 proposed placing a "made in the
USA" label over the UL mark.
Shao does not deny that AEP sold UL-labeled products. He argues, however,
that AEP was permitted to do so. Specifically, he asserts that an initial product
inspection occurred on November 4, 2014 and that use of the marks was therefore bona
fide and legitimate. And Shao contends that the sales of UL-marked products after
Ferguson's warnings that it must desist were also lawful, because the products had
been manufactured during the period AEP was permitted to use the marks.
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The undisputed record reveals that AEP in fact began using the UL marks long
before Ferguson's discovery. Indeed, it used the marks in its initial production run even
before Ferguson's first visit on November 4, 2014. And it continued to use the marks
after Ferguson's October and November 2015 warnings that it must desist. Shao insists
that these subsequent sales of product bearing UL marks consisted only of canisters
that had been manufactured "during the time AEP was authorized" to use the mark.
Def.'s Rule 56.1 Stat., dkt. no. 122, ¶ 58. AEP's sales of UL-labeled products continued
as late as October 2016, a full year after Ferguson's communication with Shao.
UL asserts that when the canisters were manufactured is immaterial. First, it
disputes that AEP was ever authorized, contending that no initial inspection was ever
completed—on November 4, 2014 or on any other date. UL contends that Shao
repeatedly and untruthfully represented that no UL-labeled products were being
manufactured. And, even if there was a period of time during which "use" of the UL
label was permitted, UL contends that AEP would not have been permitted to continue
sales of marked products after the contract lapsed because the follow-up services
agreement itself defined "Use of the UL Mark" to include not only manufacturing, but
also "sale, delivery, shipment, distribution or promotion of any Covered Product bearing
a UL Mark." Pl.'s Rule 56.1 Stat., Ex. 6, Follow-Up Services Terms, dkt. no. 108-5, ¶ 6.
In any case, the parties appear to agree that AEP sold at least $634,460—
perhaps significantly more—of Sky Blue butane canisters bearing the UL marks during
the relevant period. It made a profit of about 20 percent on those sales.
B.
Procedural history
UL sued AEP and Shao alleging they violated the Lanham Act and state law by
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using UL's marks in connection with their products. After the Court denied AEP's
motion to dismiss, it settled with UL. Shao, however, did not settle and says he
resigned from his role with AEP to pursue this litigation. UL now moves for summary
judgment on the remaining claims against Shao. Counts 1, 2, and 3 allege federal
trademark infringement; count 4 alleges deceptive trade practices under Illinois law; and
count 5 alleges consumer fraud under Illinois law.
In response to this motion, Shao contends that UL has fabricated its entire suit.
Indeed, he alleges that UL filed this action at the behest of AEP's competitors in the
consumer butane gas sector in order to undermine AEP. And, among other things, he
alleges that UL has forced or encouraged its employees to commit perjury in their
testimony in an effort to create a record upon which he could be held liable. The
evidence Shao cites in support of these assertions is limited, for the most part, to his
own declaration and the complaint from a lawsuit he and AEP filed against UL in Texas
state court before UL filed the present suit.
Discussion 1
Summary judgment is proper where there is no genuine dispute regarding any
Although the parties do not at this stage dispute personal jurisdiction, the Court
reiterates here that Shao established sufficient contacts with Illinois to "connect[ ] him to
the forum state in a meaningful way." See Walden v. Fiore, 134 S. Ct. 1115, 1125
(2014). Shao repeatedly reached out to UL, an Illinois company, about establishing a
contractual relationship; he visited Illinois in furtherance of establishing the business
relationship; he directed that AEP products be shipped to Illinois for inspection; and he
shipped a significant amount of the allegedly trademark-infringing product to Illinois
retailers for sale to the public. These are far more than the connections deemed
insufficient by the Seventh Circuit in Advanced Tactical Ordinance Systems, LLC v.
Real Action Paintball, Inc., 751 F.3d 796, 802 (7th Cir. 2014), because here the
"defendant himself create[d]" significant contacts with Illinois that directly gave rise to
the present suit. Walden, 134 S. Ct. at 1122 (internal quotation marks omitted).
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material fact and the moving party is entitled to judgment as a matter of law. Fed. R.
Civ. P. 56(a); Nicholson v. City of Peoria, 860 F.3d 520, 522 (7th Cir. 2017). In
assessing a motion for summary judgment, the Court views all facts in the light most
favorable to the nonmoving party and draws all reasonable inferences in that party's
favor. Carson v. Lake County, 865 F.3d 526, 532 (7th Cir. 2017). Unlike a motion to
dismiss, see Haines v. Kerner, 404 U.S. 519, 520 (1972), this standard remains
substantively unchanged where the nonmoving party is a pro se litigant, with the one
added requirement that the moving party must notify the pro se litigant of Rule 56's
requirements, see Timms v. Frank, 953 F.3d 281, 285 (7th Cir. 1992); Johnson v. City
of South Bend, 680 F. App'x 475, 479 (7th Cir. 2017) (explaining that, "in short," a pro
se litigant must be notified of the requirement of Rule 56 "that he cannot rest on his
pleadings" (internal quotation marks omitted)).
When a plaintiff that bears the burden of proof on its own claim moves for
summary judgment, as UL does here, it may prevail only if it can "lay out the elements
of the claim, cite the facts which it believes satisfies these elements, and demonstrate
why the record is so one-sided as to rule out the prospect of a finding in favor of the
non-movant on the claim." Hotel 71 Mezz Lender LLC v. Nat'l Retirement Fund, 778
F.3d 593, 601 (7th Cir. 2015).
Based on the undisputed facts presented in the record, the Court concludes that
no reasonable jury could find in Shao's favor and that UL is therefore entitled to
summary judgment.
A.
Trademark infringement and counterfeiting liability
UL alleges trademark violations under 15 U.S.C. § 1114, unfair competition
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under 15 U.S.C. § 1125(a), and parallel state law violations. 2 UL alleges that Shao
counterfeited the UL marks within the meaning of the trademark statue. 15 U.S.C. §§
1116(d), 1127. That is, it alleges that the labeling Shao unlawfully used was "identical
with, or substantially indistinguishable from" the UL marks. Id. § 1127.
"Each of the claims at issue in this motion involves the same elements and
proofs." KJ Korea, Inc. v. Health Korea, Inc., 66 F. Supp. 3d 1005, 1012 (N.D. Ill. 2014).
To prevail on each of its theories, UL must demonstrate that that: (1) it has a protectable
right in the asserted trademarks; and (2) the defendant's use of the marks is likely to
cause confusion. CAE, Inc. v. Clean Air Eng'g, Inc., 267 F.3d 660, 673-74 (7th Cir.
2001).
The Seventh Circuit has enumerated seven factors helpful for assessing
likelihood of confusion. See id. at 677-78. Three are particularly relevant here: the
similarity of the marks; the strength of the plaintiff's mark; and whether the defendant
intended to "palm off" his product as that of the plaintiff. Id. In CAE, the Seventh Circuit
confronted facts similar to those presented here; the plaintiff sued the defendant for
using a mark that was undisputedly "virtually identical" to the protected mark. Id. at 678.
And, as in CAE, there is no dispute that UL's mark is both protectable and quite strong.
See id. at 684-85. Indeed, one of the leading trademark treatises uses the UL mark as
a quintessential example of a "quality goods and services" certification mark. See 1
UL's Illinois state-law claims allege deceptive trade practices in violation of 815 Ill.
Comp. Stat. 510/1 and consumer fraud and unfair business practices under 815 Ill.
Comp. Stat. 505/1. Both claims are subject to precisely the same standards as the
federal infringement claims. See AHP Subsidiary Holding Co. v. Stuart Hale Co., 1
F.3d 611, 619 (7th Cir. 1993) (describing these state-law claims as "mirror[ing] our
infringement analysis"). Therefore, for the same reasons the trademark claims are fit for
summary judgment, so too are the state-law claims.
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McCarthy on Trademarks and Unfair Competition § 4:8 (5th ed.). Finally, the alleged
infringer's intent is also relevant to the likelihood of confusion. CAE, 267 F.3d at 686.
As discussed below, the record before the Court establishes beyond question that Shao
acted willfully. Taking these and the other factors from CAE together, the Court
concludes that any reasonable jury would have to find that Shao's use of perfect copies
of UL's marks to enhance the marketability of AEP's products was likely to cause
consumer confusion. Indeed, Shao's use constituted counterfeiting under the Lanham
Act. See 15 U.S.C. § 1116(d).
Shao does not meaningfully contest either of the elements of infringement.
Rather, his defense rests on a single factual issue that he claims is disputed: whether
there was an initial product inspection on November 4, 2014. Shao contends, without
evidentiary basis, that Ferguson conducted an initial inspection during his November 4
visit, that AEP's subsequent use of the UL marks was lawful, and that UL has
repeatedly lied to create a record to the contrary. UL disputes that an initial inspection
was ever conducted. And, indeed, all of the contemporaneous evidence strongly
supports UL's position. Internal communications from Ferguson about the November 4
visit, Shao's own responses to Ferguson's efforts to schedule an initial inspection, and
the contents of notices generated after Ferguson's December 2014 and March 2015
visits to AEP all unquestionably indicate that no initial product inspection occurred on
November 4—or, indeed, on any other date—and that AEP thus never satisfied the
preliminary requirements for use of the UL mark.
The record one-sidedly favors UL. In fact, Shao's only bases for his contrary
assertion are (1) his own declaration in support of this motion and (2) unreasonable
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inferences he claims follow from contemporaneous evidence—namely, that Ferguson's
e-mail about follow-up procedures after the November 4 visit signaled that an initial
inspection had already been completed.
A "dispute about a material fact is 'genuine'" only "if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 247 (1986). Even drawing all reasonable inferences in
Shao's favor, his conclusory averments in a declaration prepared for litigation do not
provide a basis upon which a reasonable jury could find in his favor. And it would be
unreasonable to infer that an e-mail about the start of follow-up services establishes that
an initial product inspection already occurred because, as noted previously, that
inspection is contractually defined to be part of those services.
Despite Shao's efforts to cast himself as an innocent, excusable infringer—
repeatedly reminding the Court that AEP was an American business and asserting
(without evidence) that UL is acting at the behest of shadowy foreign overlords—his
defenses fall flat. As the Seventh Circuit has held, a defendants' reputation or
citizenship does not give him "a license to steal trademarks from large nonresident
corporations, and the amount of harm that the infringer inflicts goes to the amount of
damages rather than to his liability for damages; the trademark laws do not excuse
modest infringements by petty pirates." See Gen. Elec. Co. v. Speicher, 877 F.2d 531,
537 (7th Cir. 1989); see also Louis Vuitton, S.A. v. Lee, 875 F.2d at 584, 589 (7th Cir.
1989) ("'Equity' is not a roving commission to redistribute wealth from large companies
to small ones. The Lanham Act was not written by Robin Hood.").
The record establishes that Shao counterfeited a perfect copy of UL's mark to
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enhance the marketability of AEP's products and that such use was likely to cause
consumer confusion. He did so without meeting the prerequisites for authorization from
UL. And, based on this record, no reasonable jury could conclude otherwise.
B.
Willfulness
Next, UL contends that Shao's misuse of its marks was willful. The Court has
little trouble concluding that any reasonable jury would have to agree. The willfulness of
a defendant's infringement is significant because, under the Lanham Act, a willful
infringer is subject to greater statutory damages. See 15 U.S.C. § 1117(c). It is not
necessary to produce direct evidence of willfulness to satisfy the statute. Rather, "it is
enough for these purposes that the defendant failed to inquire further because he was
afraid of what the inquiry would yield. Willful blindness is knowledge enough." Louis
Vuitton, 875 F.2d at 590.
Shao was repeatedly informed that he was not authorized to use the UL marks
unless and until an initial product inspection was completed. The record establishes
that no such inspection ever occurred. As a result, no reasonable jury could find that
that Shao's continued use of the marks was anything other than willful. See id.
C.
Damages
Having determined that summary judgment for UL is appropriate on liability and
the issue of willfulness, the Court turns finally to the question of damages. Because it
has demonstrated that Shao willfully counterfeited, UL has opted for statutory damages
under 15 U.S.C. § 1117(c). Under that provision, the Court may award anywhere from
$1,000 to $2,000,000 per trademark willfully infringed. "Section 1117 confers a wide
scope of discretion on the district court in fashioning a remedy for a trademark
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infringement subject to the principles of equity." Otis Clapp & Son, Inc. v. Filmore
Vitamin Co., 754 F.2d 738, 746 (7th Cir. 1985). UL proposes that the Court consider
the "common formulation" used in Sara Lee Corp. v. Bags of New York, Inc., 36 F.
Supp. 2d 161 (S.D.N.Y. 1999). There, the district court assessed (1) available
monetary data related to the infringement; (2) the defendant's willfulness; and (3)
deterrence. Id. at 166.
UL asks the Court to award it $1,000,000 in damages. Calculating based on the
profits Shao has admitted to making, UL further suggests that it should in no case
receive less than the $381,000 of damages—roughly three times the profit Shao
admitted AEP made from sales of products bearing the UL marks—that it could have
opted for under 15 U.S.C. § 1117(b).
Shao does not address the issue of damages in his submissions beyond
conceding, by omission, the sales and profits figures provided by UL. See Def.'s Rule
56.1 Stat., dkt no. 122, ¶ 66-67; see also Graziano v. Village of Oak Park, 401 F. Supp.
2d 918, 936 (N.D. Ill. 2005) (noting that a non-moving party's failure to properly deny an
assertion in their response to a Local Rule 56.1 statement amounts to an admission);
Ammons v. Aramark Unif. Servs., Inc., 368 F.3d 809, 817-18 (7th Cir. 2004) (discussing
minimum requirements for denying an allegation made in a moving party's Local Rule
56.1 statement).
The Court concludes that the appropriate damage award is $500,000. This is
well short of UL's proposal but strikes the appropriate balance of the equities. The
undisputed record established that at least $121,000 profits flowed from misuse of UL's
marks, which could have been trebled under section 1117(b). Likewise, the record
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establishes that the misuse was willful. The $500,000 damages amount places a
significant cost on Shao's willful conduct, awarding UL an extra $113,000 beyond treble
the value of profits earned by misuse of the marks.
The goal of deterrence does not warrant a higher damages award. The record
suggests that sale of Sky Blue Butane products has long since ceased, so the
importance of specifically deterring Shao from misusing UL's marks in the future is
relatively minimal. And the Court is satisfied that this significant monetary damage
award will serve to deter others from misusing UL's marks in the future.
Conclusion
For the foregoing reasons, the Court grants UL's motion for summary judgment
[dkt. no. 105]. The Court directs the Clerk to enter judgment in favor of plaintiff UL LLC
and against defendant Jude Shao in the amount of $500,000.
________________________________
MATTHEW F. KENNELLY
United States District Judge
Date: January 16, 2019
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