KAO KABUSHIKI KAISHA et al v. SAMI KHALES

Filing 89

AMENDED MEMORANDUM & ORDER that, no later than October 1, 2020, the parties shall (i) file a joint brief defending the consent order as-is, in light of the issues the Court has raised, and/or (ii) file an amended consent order revising or excising the portions of the consent order found questionable in the foregoing Memorandum. (This order is amended to correct typographical errors. There is no change in substance.) Signed by Judge Kevin McNulty on 9/3/2020. (nic, )

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Not for Publication
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

KAO KABUSHIKI KAISHA
t/a KAO CORPORATION AND
KAO USA INCE.,
Plaintiffs,
v.
SAMI KHALES, ABCA RECYCLING,
AND JOHN DOES 1-10
Defendants.

Civil Action No. 17-12312 (ES)
(MAH)
MEMORANDUM & ORDER
(Amended)

MCNULTY, DISTRICT JUDGE
This action involves claims of trademark infringement by Plaintiffs Kao
Kabushiki Kaisha t/a Kao Corporation and Kao USA Inc., against Defendants
Sami Khales, ABCA Recycling, Inc., and John Does 1-10. (See generally DE 62).
In their amended complaint, Plaintiffs allege that Defendants knowingly used
Plaintiffs’ registered trademarks to sell similar but lower-quality skincare
products within the United States. (Id. at 7–13).
On August 18, 2020, Plaintiffs submitted a joint stipulation for voluntary
dismissal of Defendants Khales and ABCA Recycling. 1 (DE 86). On August 19,
Plaintiffs submitted a proposed consent order, which applies only to Defendant
Khales. (DE 87). The proposed consent order would enjoin Defendant Khales
from engaging in certain acts that would violate the Lanham Act, 15 U.S.C.
1114 et seq.; New Jersey trademark law, N.J. Stat. Ann. §§ 56:3-13.16, 56:313.20, and 56:4-1; and New Jersey common law. However, the consent order
would also grant certain forms of prospective prophylactic relief which cause
the Court some concern.
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The stipulation does not mention Defendants John Does 1-10 or indicate that
they have ever been identified.

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First, the consent order would enjoin Defendant Khales from “falsely
representing himself as being connected with Plaintiffs or engaging in any act
which is likely to cause the trade, retailers and/or members of the purchasing
public to believe that Defendant is associated with Plaintiffs.” (DE 87 at 2).
Applied literally, this language would likely encompass conduct that is not
proscribed by federal or state law. The “falsely represented” clause in particular
would seem to apply to any conversation, public or private, in which Khales
described a “connection” (whatever that means) between himself and the
Plaintiffs. Indeed it is possible that such an injunction, as worded, would
violate the First Amendment, although I doubt that was the intent. See United
States v. Alvarez, 567 U.S. 709, 722–23 (2012) (“Still, the sweeping, quite
unprecedented reach of the statute puts it in conflict with the First
Amendment. Here the lie was made in a public meeting, but the statute would
apply with equal force to personal, whispered conversations within a home. The
statute seeks to control and suppress all false statements on this one subject
in almost limitless times and settings. And it does so entirely without regard to
whether the lie was made for the purpose of material gain.”). This language
should be tightened up, and I will give counsel the opportunity to do so.
Second, the consent order would enjoin Defendant Khales, for a period of
five years, from “selling any goods” bearing Plaintiffs’ registered marks. (DE 87,
at 3 (emphasis added)). Once again, the parties probably did not intend to be
overbroad, but the language is imprecise. Read literally, this provision would
prohibit Defendant Khales from, e.g., working as a sales person for a licensed
retailer of Plaintiffs’ goods. If the intent was to prohibit Khales from passing off
Plaintiffs’ goods as his own, the language should be tightened. As drafted the
prohibition goes farther than necessary to “further the objectives of the law
upon which the complaint was based.” Teamsters Local 177 v. United Parcel
Serv., 966 F.3d 245, 254 (3d Cir. 2020).
Third, the consent order contains a liquidated damages provision in the
amount of $50,000.00 for any violation of the consent order “that is not cured

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as set forth in Paragraph 11 of the Settlement Agreement.” (DE 87 at 3–4).
Plaintiff did not attach the “Settlement Agreement” to the proposed consent
order; it is asking the Court to enforce an obligation that the Court has not
seen. Relatedly, the Court cannot determine whether this liquidated damages
provision, in the amount of $50,000.00 for any violation, is legally enforceable.
See Harris v. City of Philadelphia, 47 F.3d 1311, 1323 (3d Cir. 1995) (“[A]
consent decree may contain a provision for liquidated damages for breach of
the decree in the same manner as a contract which sets the damages at an
amount that is reasonable in light of the anticipated or actual loss caused by the
breach and the difficulties of the proof of the loss.” (emphasis added)). At least
without further facts, I cannot approve this provision.
Fourth, the consent order states that “[t]he terms of this Injunction shall
be applicable worldwide.” (DE 87 at 3). That the Lanham Act may apply
extraterritorially is established, but such application depends on a number of
factors. See Steele v. Bulova Watch Co., 344 U.S. 280, 286 (1952); Scanvec
Amiable Ltd. v. Chang, 80 F. App’x 171, 181 (3d Cir. 2003) (“A proper
invocation of extraterritorial jurisdiction under the Lanham Act depends on: 1)
whether the defendant is a United States citizen; 2) conflicts between the
defendant’s trademark rights under foreign law and the plaintiff’s rights in the
United States; and 3) whether the defendant’s conduct has a substantial or
significant effect on domestic commerce.”). But cases addressing the
extraterritorial application of the Lanham Act involve instances where, unlike
here, trademark holders sought to enjoin conduct already taken abroad.
Indeed, the issue in the recent case of IMAPizza, LLC v. At Pizza Ltd. seemed to
be that the conduct was almost solely taken abroad. 965 F.3d 871, 874 (D.C.
Cir. 2020) (“Because At Pizza operates only in the United Kingdom, IMAPizza’s
claims test the limits of the extraterritorial application of the Copyright and
Lanham Acts.”).
Here, by contrast, there is no allegation that Defendant Khales has ever
engaged in any infringing conduct in another country, or expressed an intent to

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do so. As a matter of equitable discretion, I will not enjoin extraterritorial
conduct that has neither been performed nor threatened. Indeed, such an
order flirts with the limits on a court’s subject matter jurisdiction. See Sansom
Comm. by Cook v. Lynn, 735 F.2d 1535, 1538 (3d Cir. 1984) (“We recognize
that some consent decrees may be beyond the power of a federal court to
approve. Thus, a district court cannot wield its equitable power beyond the
realm of its federal subject matter jurisdiction.” (internal citation omitted)); City
of Los Angeles v. Lyons, 461 U.S. 95, 105 (1983) (“[S]tanding to seek the
injunction requested depended on whether he was likely to suffer future injury
. . . .”); see also Salazar v. Buono, 559 U.S. 700, 731 (2010) (Scalia, J.,
concurring in the judgment) (“A plaintiff cannot sidestep Article III’s
requirements by combining a request for injunctive relief for which he has
standing with a request for injunctive relief for which he lacks standing.”
(emphasis added)). Of course, should extraterritorial acts of infringement
occur, Plaintiff may return to Court to seek additional relief.
ORDER
Accordingly, IT IS this 2d day of September 2020,
ORDERED that, no later than October 1, 2020, the parties shall
(i)

file a joint brief defending the consent order as-is, in light of the
issues the Court has raised, and/or

(ii)

file an amended consent order revising or excising the portions of
the consent order found questionable in the foregoing
Memorandum.
/s/ Kevin McNulty
_____________________________
Hon. Kevin McNulty, U.S.D.J.

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