Desly International Corporation et al v. Otkrytoe Aktsionernoe Obshchestvo "Spartak" et al
MEMORANDUM, DECISION AND ORDER, For the reasons stated above, Spartak is not entitled to an award of profits from Desly's sale of the accused products. Desly is, however, permanently enjoined from using Spartak's name, marks, or logo in con nection with the sale of any products. Up to and including the entry of summary judgment, Spartak had prevailed on its claims arising, inter alia, under the Lanham Act and the exclusive agreement. Its claims failed thereafter. Within 10 days of the d ate this Memorandum, Decision and Order is docketed, Spartak shall notify the Court whether it intends to seek attorney's fees. No later than 10 days after the filing of any such notice of an intent to seek fees, the parties shall jointly propos e a briefing schedule for that purpose. If no such notice is given, within 10 days of the date such notice was due, the parties shall jointly propose a judgment or separately propose judgments for settlement, in accordance with this Order and the Court's 8/15/16 Memorandum and Order, Dkt. No. 104. (Ordered by Judge Eric N. Vitaliano on 10/28/17) c/m (Galeano, Sonia)
IN Cl Ei1K'S OFFICE
US DISTRICT COURT e.O.N.Y.
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
DESLY INTERNATIONAL CORPORATION;
MARAT NOVIKOV; OLGA NOVIKOV; ANDREY
NOV 05 2017
MEMORANDUM DECISION &
13-CV-2303 (ENV) (LB)
-againstOTKRYTOE AKTSIONERNOE OBSHCHESTVO
"SPARTAK" a/k/a SOVMESTNOE
PREDPRIY ATIE OTKRYTOE and a/k/a
AKTSIONERNOE OBSHCHESTVO "SPARTAK";
EURO IMPORT DISTRIBUTIONS INC.; EURO
IMPORT BEL LLC; EURO IMPORT INC.,
With overtones of international intrigue, this is but a case about the right to market
certain confectionary goods in the United States. In the last act of this litigation drama, trial to
the Court was had on a counterclaim against plaintiff Desly International Corporation ("Desly")
filed by defendant Otkrytoe Aktsionernoe Obshchestvo "Spartak" ("Spartak"). At an earlier
stage in the case (almost a year ago), it had been found that Spartak was the rightful owner of the
Spartak marks that were at dispute in the original trademark and contract action brought by
Desly against Spartak. 1 See Desly Int'/ Corp. v. Otkrytoe Aktsionernoe Obshchestvo "Spartak,,,
13-CV-2303(ENV)(LB), 2016 WL 4532113 (E.D.N.Y. Aug. 29, 2016) ("Desly I"). Damages
There are other parties named on each side of the central dispute but each is affiliated
with a main combatant in the litigation. For ease of discussion, reference will, for the most part,
be made only to these two principal litigants.
and a few other lingering counterclaims would be and were the subject of the trial. Id at* 1 n.2. 2
The demand for a jury having been dropped the day before, trial to the Court began on
June 26, 2017 and concluded the following day. The spotlight was on Spartak's claim that it was
entitled to the profits earned by Desly resulting from Desly's sale of certain gingerbread and
dried bread products (the "accused products"), which were sold in packaging bearing Spartak's
trademark labeled packaging, though not manufactured by Spartak. Post-trial briefs were
submitted by both sides. See Dkt. No. 186 ("Desly Br."); Dkt. No. 186-1; Dkt. No. 188
("Spartak Br."); Dkt. No. 189 ("Desly Reply"); Dkt. No. 190; Dkt. No. 191 ("Spartak Reply").
Having considered the testimony, the exhibits received in evidence, and the arguments of
counsel, this Memorandum Decision and Order, pursuant to Federal Rule of Civil Procedure 52,
constitutes the Court's findings of fact and conclusions oflaw.
Findings of Fact
Since the late 1920s, Spartak, a Belarusian joint venture open-type joint stock company,
has specialized in the production, manufacture, distribution, and sale of chocolate and
The litigation posture of the case did not remain static following summary judgment.
Without repeating the detail memorialized in the intervening court appearances and docket
entries, in the roughly 10-month period following the entry of partial summary judgment,
Spartak withdrew certain of its damages claims and theories. See Dkt. No. 146 at 6-7; Dkt. No.
160 at 2 n.2, 7; Dkt. No. 173 at 6; Dkt. No. 176 at 1; 6/23/17 Dkt. Order; see also 4/28/17 Pretrial Conference Transcript ("Conf. Tr.") at 5-7. Indeed, in the lead up to the trial, Spartak's
damages assessment changed almost daily. At times, the Court was left to wonder whether there
was any "earthly way of knowing which direction they are going." See WILL v WoNKA & THE
CHOCOLATE FACTORY (Paramount Pictures 1971 ). Also dismissed, upon Spartak' s
representation that it would not be presenting proof of causally-related damages, was Spartak's
claim for tortious interference. Conf. Tr. at 5; Dkt. No. 160 at 2 n.2. Additionally, Euro Import
Distributions Inc., Euro Import Bel LLC, and Euro Import Inc. (collectively, "Euro"), successors
to Desly, filed a stipulation of dismissal on the eve of trial as to all claims and counterclaims
between Euro and the Desly litigants. When Euro bowed out, just about any hope Spartak had of
proving tortious interference with business relations, specifically, any new distribution
agreement Spartak may have had with Euro, bowed out with it. See Dkt. No. 159.
confectionary goods, according to Marat Novikov ("Novikov"). Trial Transcript ("Tr.") at 20.
Novikov, a counterclaim defendant, 3 the Court finds, provided entirely credible testimony about
the relationships among the parties and their historical context. He was born in Belarus in 1949
and spent approximately 15 years in the Belarussian supermarket industry. Id. at 69-70. After
leaving Belarus for the United States in 1989, around the time of the collapse of the Soviet
Union-which would spell great change for former Soviet satellite states like Belarus-Novikov
returned to his native country a few years later to pursue a business venture relating to the
importation of food products into Belarus. Id. at 70-71. This entrepreneurship eventually led to
Novikov's involvement with Spartak. In fact, Novikov would be asked to sit on Spartak's
supervisory board. As a result, he would meet and work with the then general director of
Spartak, Alesia Samsonava. Id. at 73, 79, 107-09; see also Dkt. No. 32 ~ 28. All in all, Novikov
credibly testified that he spent a significant amount of time in Belarus at the Spartak factory and
became intimately familiar with Spartak' s machinery, manufacturing processes, and production
line. Tr. at 75-76, 80. With the assistance of his son and daughter, Novikov set out to build on
his relationship with Spartak, to expand Spartak's business through the creation of a distribution
network in his adopted American homeland for imported Spartak confectionary and baked good
products. That new distribution company would be located in Brooklyn. The new company, of
course, was Desly. Id. at 20, 32; DTX 63. 4 Desly identifies itself as a wholesaler for
confectionary goods in targeting a Russian-speaking market. Tr. at 28-29.
At the close of Spartak's case, judgment as a matter of law was granted in favor of the
individual counterclaim defendants, Marat Novikov, Olga Novikov, and Andrey Novikov, on
their Rule 50 motions. Tr. at 55-57.
References to "PTX" and "DTX" denote, respectively, Spartak's trial exhibits and
Desly' s trial exhibits.
On September 1, 2001, Spartak entered into a non-exclusive supply agreement with
Desly, under which Desly was authorized and did begin distributing Spartak's confectionary
goods in the United States. On July 21, 2006, Spartak and Desly extended that business
relationship, entering into a 25-year exclusive distributorship agreement (the "exclusive
agreement"). See Exclusive Agreement, DTX 7; Tr. at 111. The latter agreement granted Desly
the exclusive American distribution right to confectionary goods manufactured by Spartak.
Exclusive Agreement§ 2; Tr. at 32. In 2012, however, Spartak advised Desly of its discovery
that Desly had registered the Spartak marks with the United States Patent and Trademark Office
("USPTO"), three years prior, in breach of the exclusive agreement. Exclusive Agreement§§
2.4, 8.2; Desly I at *2. Beyond that breach, there is no dispute that both sides acted in general
conformity with the contract. Desly, for instance, made payments to Spartak for the Spartak
goods that it purchased from Spartak and sold in the United States. Tr. at 34-37, 42; DTX 42-47.
Desly's business, though, was not limited to the sale of Spartak-manufactured goods.
Beginning in or around 2011, Desly also purchased certain bread-based products (the accused
products) from the Lithuanian company, Javeine, and the Belarussian company, Minskhlebprom.
Tr. at 25, 27, 38, 85. The accused products were packaged and then shipped from Eastern
Europe to Desly in Brooklyn, occasionally in the same containers as Spartak products. Id. at 3839. Spartak did not make or sell these or any similar type products, but, nevertheless, Desly sold
these goods with Spartak marks and packaging. 5 And, it sold the accused products only in the
United States. Id.
By the time of Spartak's complaint about it, Desly's side business should not have come
Not only was Spartak not engaged in these product lines, it did not even possess the
manufacturing equipment to make such products. Id. at 51, 77, 80-81, 86, 114-15.
as a surprise to Spartak. As a member of Spartak's supervisory board, in or around 2011, Marat
Novikov brought the accused products, actually bearing the Spartak label, to a board meeting and
presented them to the other Spartak board members. Id. at 83-84. In fact, the general director of
Spartak from 2008 to 2012, Alesia Samsonava, testified at trial that she knew that Desly was
distributing such non-Spartak products in the United States under Spartak's mark. Id. at 118,
120. Put differently, despite the open and unhidden nature of Desly's side business, until it
claimed breach, no representative of Spartak ever advised anyone at Desly not to sell the accused
products or complained to Desly about such sale. Id. at 118. At the same time, however, Desly
acknowledged that it did not receive explicit permission from Spartak to sell the accused
products with Spartak's marks on the packaging. Id. at 117; Dkt. No. 187-3 at 164-65.
There is, moreover, certainly no genuine dispute about Desly using the Spartak mark on
the packaging of its non-Spartak produced goods. The packaging, reflected in the trial photo
exhibits below, confirm that, during the relevant time, the gingerbread cookies, sold as part of
the Desly's side business, displayed "Desly International Corp." in large blue and gold font and,
then, "Spartak" in white and gold lettering on the clear wrapping:
See PTX 10 at DES000387-389; Dkt. No. 81-36; Tr. at 21-22, 25, 41. Similarly, photos of the
dried bagel products show the words "Desly International Corp." in blue and gold lettering on
the front label, with the word "Spartak" in gold and white lettering on the clear, cellophane-like
wrapping. PTX 10 at DES000391-92.
Simply, there is no quarrel on this trial record that the Desly name and logo, in addition to
Spartak's name, appeared on all products that Desly purchased from Javeine and
Minskhlebprom. Tr. at 41. The accused products, since they were openly sold, appeared in a
showcase in Desly's warehouse, where Spartak employees visited from time to time. Id. at 39,
53, 65. Desly also advertised the accused products on a website that it operated at
www.spartakusa.com. PTX 155 (depicting sale of"Sushki" - dried bread products). 6
Desly stopped selling the gingerbread cookies and dried bagel products in packaging that
bore the Spartak name in 2014. Tr. at 27, 48. Its records reflect that it profited in the amount of
$572,578.81 from the sale of these accused products, which covered a period from 2011 to the
sales halt in 2014, see PTX 209, 210, 211. Spartak now seeks to disgorge Desly of these profits.
See Spartak Br. at 10, 12. During this same period, Desly, of course, continued to sell the
Spartak products it had acquired from Spartak under the exclusive agreement. Though it remains
hotly contested by Spartak, as the Court previously determined, Desly had a plain right to
By all accounts, the website was disabled a few weeks or months following this Court's
summary judgment determinations. Conf. Tr. at 41-45.
distribute these products for up to two years after Spartak terminated that agreement, see
Exclusive Agreement § 11.3, which it did terminate because Desly had unlawfully appropriated
the Spartak mark when it registered it with USPTO. See Desly I at *3.
The trial provided ample factual context about a good deal gone sour. Novikov was
removed from the Spartak supervisory board in 2012, at some point after Belarusian President
Alexander Lukashenko essentially seized control of the Spartak factory. Tr. at 82-83, 110; see
also Desly I at *4. Samsonova was also replaced that same year. Tr. at 110. Indeed, there is
little, if anything, in the record to rebut the torrent of testimony from Novikov and Samsonova
that, in sum and substance, Lukashenko had "Putinized" Spartak, purged its corporate structure,
turned it over to an oligarch and took steps to disrupt its existing business relationships. See,
e.g., Tr. at 110. With that handwriting on the wall, it made sense that Desly had to go.
Notwithstanding the hand in glove relationship that Desly and Spartak had had in prior years, the
new broom would sweep clean. Desly' s misconduct in registering on its own the Spartak mark
,in the United States provided the new Spartak team with the contractual right to terminate the
exclusive agreement. The point of trial, essentially, was to determine what damages, if any, were
owed to Spartak on its counterclaim as a result of Desly's misconduct under the Lanham Act
and/or under the contract.
Conclusions of Law
For all practical purposes, litigation of Spartak's counterclaim was bifurcated, with
competing claims for the right to the Spartak mark in the United States resolved at summary
judgment. See Desly I. More specifically, Spartak prevailed on its false designation of origin
claim in contravention of§ 43(a) of the Lanham Act. See 15 U.S.C. § l 125(a). Success on this
sort of claim entitles a plaintiff, "subject to the principles of equity, to recover (1) defendant's
profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action." 15 U.S.C. §
1117(a). Spartak, as a result, seeks an award based upon the profits generated by Desly's § 43(a)
violation. See Spartak Br. at 8; Conf. Tr. at 49.
Yet,§ 43(a) is a mere gateway to determining the propriety of our award of damages.
For example,§ 1117(a) provides helpful guidance regarding the burdens of proof with respect to
any assessment ofrelevant profits. Not surprisingly, it is the plaintiffs burden to prove a
defendant's offending sales. The burden then shifts to that defendant to prove deductible costs
and expenses included in the course of making the offending sales. Id In the event of a finding
that recovery based upon profits is "either inadequate or excessive," the trial court also has
discretion to enter judgment in an amount found to be just, according to the particular
circumstances of the case. 15 U.S.C. § 11l7(a). There is a further caution, too, that recovery for
a violation of the Lanham Act "shall constitute compensation and not a penalty." 15 U.S.C. §
An Award of Profits
Notwithstanding proof of a Lanham Act violation, an award of a defendant's profits is
not automatic. In fact, in the Second Circuit, there are only three circumstances in which an
accounting for profits is available: if the defendant is unjustly enriched, if the plaintiff sustained
damages from the infringement, or if an accounting is necessary to deter a willful infringer from
doing so again. Burndy Corp. v. Teledyne Industries, Inc., 748 F.2d 767, 772 (2d Cir. 1984). As
a foundational matter then, it is imperative that a claimant identify the precise ground or theory
that would justify an award of profits. See George Basch Co. v. Blue Coral, Inc., 968 F .2d 1532,
1537 (2d Cir. 1992). As Spartak has advanced absolutely no evidence that it has sustained any
damages as a result of Desly's distribution of the accused products, any award of profits would
have to be justified either by Desly's unjust enrichment or a need to deter repetition of the
A. Unjust Enrichment
As the seminal Basch case establishes, "a defendant becomes accountable for its
profits[,]" under a theory of unjust enrichment, "when the plaintiff can show that, were it not for
defendant's infringement, the defendant's sales would otherwise have gone to the plaintiff." 968
F.2d at 1538; see also Burndy Corp., 748 F.2d at 770, 773. This approach, too, is a dry hole for
Spartak. It has produced not a scintilla of evidence even hinting that Desly's use of the mark on
the accused products (gingerbread cookies and dried bagels) caused Spartak any monetary or
other damage based on diverted sales. See Basch, 968 F.2d at 1541 (noting that profits should
not be awarded when "there is nothing to suggest that [defendants'] sales were at [plaintiffj's
expense" (internal quotations and citations omitted)).
Factually, Desly introduced documents reflecting the payments made to Spartak by Desly
from 2007 to 2012, indicating that not only did Spartak continue to have a presence in the
Russian confectionary products American market during Desly' s distribution of those products,
but also that sales did not experience a decrease in the sale of genuine Spartak goods, even
though Desly engaged in its side business. Tr. at 34-37, 42; DTX 42-47. In fact, payments from
Desly to Spartak for genuine Spartak goods actually increased during this time from $936,331.36
in 2011 to $1,239,056.06 in 2012. DTX 46, 47. Far more significantly still, Spartak did not
even possess the equipment that would allow it to manufacture gingerbread cookies or bread
products during the relevant time period. Tr. at 51. By all accounts, the sale of the accused
products had no demonstrable negative impact on Spartak's business. There is no proof that
Spartak lost any sales to Desly. Indeed, the proof is compelling that the sale of the accused
products, if anything, bolstered the sale of Spartak' s genuine goods, strongly suggesting that
Desly's side business sales advanced Spartak's presence in the American market. Spartak's bald
assertion that the accused products "likely competed with and cannibalized sales of Spartak's
genuine products", while "the products would have sat side-by-side on the store shelves",
Spartak Reply at 3, is simply not supported by the record.
Additionally, a profits award, "premised upon a theory of unjust enrichment, requires a
showing of actual consumer confusion-or at least proof of deceptive intent so as to raise the
rebuttable presumption of consumer confusion." Basch, 968 F.2d at 1538. Finally, that there is
the availability of such a presumption provides great insight in understanding the concept of
unjust enrichment in a Lanham Act context. These precedents reflect the understanding that
"consumer confusion" is a motivating principle behind an award of profits under a theory of
unjust enrichment, even if deceptive intent is being used as a proxy for such confusion.
Following this guidance, the evidentiary bucket with respect to consumer confusion is
absolutely empty. There is not even the slightest indication of "actual" consumer confusion in
this market by either a retailer or purchaser. 7 While the Court made the requisite finding, in the
liability phase, that there was a "likelihood of confusion" and noted that some sort of "consumer
confusion [was] inevitable", there was no finding as to "actual confusion." Desly I at *9. At the
liability phase, moreover, it was not yet clear whether Spartak would offer evidence that Desly
had sold in the American market with the Spartak mark any products produced by another
manufacturer of the type manufactured and sold by Spartak. In any event, as Spartak should
have well understood, the Court's partial summary judgment determination did not alter its
Indeed, prior to trial, Spartak indicated that then-co-counter-plaintiff Euro would offer
evidence at trial of actual marketplace confusion. Conf. Tr. at 7-8. No such evidence was
introduced at trial.
obligation to show actual confusion. See Dkt. No. 79 at 8. Relatedly, as will be discussed infra,
Spartak has not shown that Desly operated with deceptive intent in selling the accused products,
which is a prerequisite to triggering application of the rebuttable presumption of consumer
confusion. In short, neither proof nor presumption sustains this contention.
A successful Lanham Act claimant already has one leg up in a deterrence based theory of
damages, since there has already been one proven violation and concern for a reoccurrence is
natural. Of course, the damages inquiry does not necessarily end there, though "a court may
award a [Lanham Act] defendant's profits solely upon a finding that the defendant fraudulently
used the plaintiffs mark," when based on this theory. Basch, 968 F.2d at 1539. At the same
time, this policy objective is best understood in the recognition that "[t]he rationale underlying
this holding is not compensatory in nature, but rather seeks to protect the public at large[,] [and]
[b]y awarding the profits of a bad faith infringer to the rightful owner of a mark, [a court]
promote[ s] the secondary effect of deterring public fraud regarding the source and quality of
consumer goods and services." Id.
Not even Spartak suggests that Desly's conduct was like that of a serial infringer, who
needs to be stopped from infringing again. Certainly, no evidence was proffered that Desly
was/is a "commercial racketeer" or has "taken up trademark infringement as its principal line of
business."8 Monsanto Chem. C
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