John Wiley & Sons, Inc. et al v. Book Dog Books, LLC et al
Filing
448
OPINION & ORDER re: (464 in 1:16-cv-07123-WHP-GWG) MOTION to Stay any Judgment Pending Appeal; (418 in 1:16-cv-07123-WHP-GWG) MOTION for Permanent Injunction , Final Judgment, and Disposition; (427 in 1:16-cv-07123-WHP-GWG) MOTION for Judgment as a Matter of Law; (436 in 1:16-cv-07123-WHP-GWG) MOTION for Attorney Fees and Costs: For the foregoing reasons, Defendants' motions for renewed judgment as a matter of law, remittitur, a new trial, and a st ay of enforcement of judgment are denied. Plaintiffs' motion for partial final judgment is denied as moot. Plaintiffs' motion for prejudgment interest is denied. Plaintiffs' motions for a permanent injunction, a disposition of infringi ng materials, and attorneys' fees and costs are granted in part and denied in part. Plaintiffs' counsel are awarded $4,137,081.70 in attorneys' fees and $694,096.29 in costs. This Court will issue a final judgment in the aggregate amount of $39,031,177.99 concurrent with this Opinion & Order. The Clerk of Court is directed to terminate all pending motions and to mark these cases as closed. (Signed by Judge William H. Pauley, III on 8/17/2018) (jwh)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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JOHN WILEY & SONS, INC., et al.,
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Plaintiffs,
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BOOK DOG BOOKS, LLC, et al.,
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Defendants.
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CENGAGE LEARNING, INC., et al.,
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Plaintiffs,
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- against :
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BOOK DOG BOOKS, LLC, et al.,
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Defendants.
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13cv816
16cv7123
OPINION & ORDER
WILLIAM H. PAULEY III, Senior United States District Judge:
On April 5, 2018, a nine-person jury found Defendants liable on Plaintiffs’
trademark infringement, copyright infringement, and breach of contract claims and awarded
Plaintiffs $34.2 million in statutory damages. In the wake of that verdict, the parties filed a
plethora of motions. Defendants move for: (1) renewed judgment as a matter of law, (2) a new
trial, (3) remittitur, and (4) a stay of enforcement of any judgment pending appeal. Plaintiffs
move for: (1) entry of a partial final judgment, (2) prejudgment interest, (3) a permanent
injunction, (4) disposition of infringing materials, and (5) attorneys’ fees and costs. For the
reasons that follow, Defendants’ motions are denied. Plaintiffs’ motion for partial final
judgment is denied as moot. Plaintiffs’ motion for prejudgment interest is denied. Plaintiffs’
motions for a permanent injunction, disposition of infringing materials, and attorneys’ fees and
costs are granted in part and denied in part.
BACKGROUND
The April 2018 verdict was the dénouement of a decade of litigation between the
parties. Plaintiffs are a consortium of textbook publishers: John Wiley & Sons, Cengage
Learning, Pearson Education, and McGraw–Hill Global Education. Defendants are used book
sellers owned and operated by Philip Smyres. (See Trial Tr. 765:3–767:14.)
In 2007, Plaintiffs sued Defendants for copyright infringement and trademark
infringement. (See Second Amended Complaint, No. 13-cv-816 (“BDB I”), ECF No. 263
(“BDB I SAC”), ¶ 3.) The parties settled that action with an agreement that Defendants would
cease importing and selling counterfeit books. (See PX127 (“Settlement Agreement”).) In 2011,
Plaintiffs discovered that Defendants were selling counterfeit books once again. (BDB I SAC,
¶ 4.) This time, settlement negotiations failed, and Defendants filed a preemptive federal action
against Plaintiffs in the Southern District of Ohio seeking a declaration that Defendants were not
violating Plaintiffs’ rights under the Copyright Act. See Book Dog Books, LLC v. Cengage
Learning, Inc., No. 12-cv-1165 (S.D. Ohio) (the “Ohio Action”). Plaintiffs responded by filing
the first action in this proceeding (“Book Dog Books I”), asserting trademark infringement,
copyright infringement, breach of the Settlement Agreement, and related claims. In 2013, the
2
Ohio Action was transferred to this Court, and the parties stipulated to dismiss it. (See Order,
No. 13-cv-6413, ECF No. 89.) In 2016, Plaintiffs filed Book Dog Books II, which identified
additional works that Plaintiffs claimed Defendants infringed during the pendency of Book Dog
Books I. (See Plaintiffs’ Second Amended Complaint, No. 16-cv-7123 (“BDB II”), ECF No.
30.) This Court consolidated both cases for trial. (See Scheduling Order, BDB II, ECF No. 28.)
Scorched-earth litigation ensued, including numerous discovery motions,
followed by appeals of determinations made by the Magistrate Judge, and multiple motions for
summary judgment (followed by motions for reconsideration). As the trial date loomed, the
parties filed nearly twenty motions in limine and five Daubert motions. The docket sheet for
each case approaches 500 entries. And on the eve of trial, Plaintiffs discovered that Defendants
had concealed certain business entities and profit distributions, prompting further litigation over
sanctions and adverse inference instructions.
Trial began on March 19, 2018 and spanned three weeks. The parties presented
hundreds of textbooks to the jury. Plaintiffs argued that this was “a case about a bookseller
swarming in counterfeits . . . who was caught, sued, and settled, [but] ignored the settlement and
ignored the law.” (Trial Tr. 40:11:14.) They averred that Defendants “knowingly purchased
counterfeits from known counterfeit suppliers,” “failed to maintain the kinds of records that
would allow anybody to track . . . what they did,” and “destroy[ed] evidence when they thought
that it might be useful.” (Trial Tr. 40:16–24.) Plaintiffs offered evidence that Smyres knew or
should have known that he was importing and selling counterfeits, but continued to do so with
reckless abandon. (See, e.g., Trial Tr. 891:23–892:2.) Plaintiffs’ financial expert testified that
from 2012 to 2016, Defendants earned more than $53 million in profits and generated $783
3
million in revenue, and that from 2008 to 2016 Smyres personally received over $47 million.
(Trial Tr. 1948:16–1950:19, 1975:23–1976:2.)
Defendants countered that their companies used robust procedures and training to
detect counterfeit books, but, like all booksellers, were unable to stop counterfeits from slipping
through the cracks. (See, e.g., Trial Tr. 3021:8–3022:25.) Defendants also argued that Plaintiffs
failed to prove that some or all counterfeits at issue originated from the Defendants.
At the end of Plaintiffs’ case-in-chief, Defendants moved for judgment as a matter
of law. (Trial Tr. 2079:2–2084:5.) This Court reserved decision. (Trial Tr. 2088:18.) During
its charge, this Court gave adverse inference instructions concerning the scope of Defendants’
business and profits, and their failure to maintain records. (Trial Tr. 3123:6–3124:3.) The jury
found that Defendants’ infringement was willful and chose to award Plaintiffs the maximum
statutory damages of $2 million for each of their 10 trademark claims, as well as $100,000 for
each of their 142 copyright claims. The jury also determined that Defendants breached the
Settlement Agreement.
DISCUSSION
I.
Judgment as a Matter of Law
A. Legal Standard
Under Federal Rule of Civil Procedure 50, within 28 days of a verdict, a party
“may file a renewed motion for judgment as a matter of law and may include an alternative or
joint request for a new trial under Rule 59.” Fed. R. Civ. P. 50(b). The movant must
demonstrate that “the evidence, drawing all inferences in favor of the non-moving party and
giving deference to all credibility determinations of the jury, is insufficient to permit a
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reasonable juror to find in [the opposing party’s] favor.” Lavin-McEleney v. Marist Coll., 239
F.3d 476, 479 (2d Cir. 2001). There must be “such a complete absence of evidence supporting
the verdict that the jury’s findings could only have been the result of sheer surmise and
conjecture . . . or pure guesswork.” Provost v. City of Newburgh, 262 F.3d 146, 156 (2d Cir.
2001) (citations and quotation marks omitted). The movant’s burden is “particularly heavy.”
Cash v. Cty. of Erie, 654 F.3d 324, 333 (2d Cir. 2011) (citation omitted). The court may not
“assess the weight of conflicting evidence, pass on the credibility of the witnesses, or substitute
its judgment for that of the jury.” Black v. Finantra Capital, Inc., 418 F.3d 203, 208 (2d Cir.
2005) (citation omitted).
B. Distribution
Defendants contend that Plaintiffs failed to show evidence of distribution for 116
works, meaning Plaintiffs did not establish that Defendants sold at least one counterfeit copy of
those works. This contention undergirded an earlier summary judgment motion. (See Mot. for
Partial Summ. J. by Defs., BDB I, ECF No. 266; Report & Recommendation, BDB I, ECF No.
308.) This Court declined to adopt that portion of a Report and Recommendation that had
concluded that Plaintiffs failed to show distribution for certain works. See John Wiley & Sons,
Inc. v. Book Dog Books, LLC, 2016 WL 11468565, at *1, *4–5 (S.D.N.Y. Mar. 29, 2016).
Noting that copyright infringement can be proven by circumstantial evidence, this Court held
that “a reasonable jury could find that Book Dog’s purchases from suppliers accused of dealing
in counterfeit textbooks, failure to keep accurate records, and destruction of potentially
infringing textbooks—combined with the counterfeit exemplars uncovered by the Publishers—
support the inference that Book Dog sold the counterfeit textbooks.” John Wiley & Sons, 2016
5
WL 11468565, at *5.
Defendants now resurrect that argument, contending that no reasonable jury could
find sufficient evidence of distribution for 116 works. But “direct proof of actual dissemination
is not required under the Copyright Act.” Capitol Records, Inc. v. Thomas, 579 F. Supp. 2d
1210, 1225 (D. Minn. 2008) (emphasis omitted). Indeed, in a case where there was no “direct
proof” that the defendant had infringed, the Second Circuit determined that there was “a
significant amount of circumstantial evidence that support[ed] the district court’s . . . finding of
liability,” including defendant’s (1) failure to keep adequate records, (2) failure “to adequately
check the authenticity of the goods it purchased,” (3) failure “to adequately inquire” about the
authenticity and sources of the goods purchased, and (4) return of merchandise after being sued.
Fendi Adele, S.R.L. v. Ashley Reed Trading, Inc., 507 F. App’x 26 (2d Cir. 2013) (summary
order).
Aside from direct evidence of distribution, the circumstantial evidence against
Defendants was legion and harmonizes with the indicia of liability described in Fendi.
Defendants admitted they sold at least some of the works. (Trial Tr. 3044:3–22.) The jury saw
“counterfeit exemplars,” or counterfeit works returned to Plaintiffs from Defendants’ customers
or found in Defendants’ warehouses. (See Trial Tr. 315:11–13.) Plaintiffs presented emails in
which Smyres and his staff recognized that they might have been buying counterfeits and had
counterfeits in their inventory. (Trial Tr. 334:10–17, 2371:8–17.) Defendants continued to
purchase from sources that they knew sold counterfeits. (Trial Tr. 823:17–824:23, 827:23–
828:1.) And they acknowledged that their procedures for checking counterfeits were ineffective.
(Trial Tr. 935:12–20, 1205:20–25, 1391:5–1395:12.) The jury also heard that other textbook
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distributors believed Defendants had sold them counterfeits and were “risky suppliers.” (Trial
Tr. 1913:2–16, 1932:3–12, 1943:21–1944:4, 2051:1–3.)
Further, the jury learned that Defendants kept inadequate records. (Trial Tr.
315:17–24, 2229:3–10.) Photographs of Defendants bulldozing counterfeit books for “fear of a
lawsuit” were received in evidence. (Trial Tr. 917:23–924:2.) And this Court instructed the jury
that they could “consider defendants’ document destruction practices and their failure to retain
records regarding those books in determining whether defendants infringed plaintiffs’ trademarks
and copyrights.” (Trial Tr. 3123:12–15.) Topping everything off, the jury was permitted to
“infer that the evidence that defendants failed to provide would have been unfavorable to
defendants.” (Trial Tr. 3123:24–3124:1.)
Defendants acknowledge that infringement can be established through
circumstantial evidence. (See June 26, 2018 Hr’g Tr., BDB II, ECF No. 485 (“Hr’g Tr.”) 11:24).
But they contend that Plaintiffs did not present a sufficient quantum. In making this argument,
Defendants separate the 116 works they challenge into four categories: (1) works found in
Defendants’ quarantine, (2) works for which Plaintiffs had no counterfeit exemplar, (3) works
found in other book distributors’ inventories, and (4) works for which Plaintiffs had evidence
from multiple sources. Defendants’ overly cramped analysis does not give proper weight to the
evidence.
First, Defendants contend that the works found only in their quarantine cannot
support an inference that Defendants also sold those works. But Plaintiffs’ Roadmap
summarized that Defendants purchased more of those works than were held in quarantine. And
the jury heard that Defendants inadequately checked books before selling them. Therefore, a
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reasonable jury could have inferred that other copies of that title had slipped through the cracks
and been sold. Combined with the circumstantial evidence described above, the jury could have
determined that it was more likely than not that a counterfeit copy in Defendants’ inventory
meant that Defendants also sold a copy of that work.
Second, Defendants challenge the five works for which Plaintiffs did not present a
counterfeit copy. However, the jury heard that Defendants had purchased copies of those works
from Best Books World, a known counterfeiter, returned some of them after determining that
they were counterfeit, keeping the rest, and that none were found in Defendants’ inventory. This
could support an inference that Defendants sold the copies they did not return. Indeed, when
Smyres sent some copies back to Best Books World, he wrote “I cannot trust that any of the[]
[books] are authentic.” (PX18; Trial Tr. 831:23–832:2.) Although Smyres doubted that any of
these copies were authentic, Defendants only shipped some back. The jury could have logically
concluded that Defendants sold the rest.
Third, some of the works that Plaintiffs offered were found in the inventories of
other book distributors. Defendants argue that those works could have come from other sources.
But deposition testimony revealed that those distributors considered Defendants to be one of the
most prevalent suppliers of counterfeit books and had ceased doing business with Defendants
based on their history of infringement. (See Trial Tr. 1913:2–16, 1932:3–12, 1943:21–1944:4,
2051:1–3.) And Plaintiffs’ Roadmap summarized that Defendants sourced these works from
known counterfeiters like Best Books World, the Blackerbys, and Morena.
Last, Defendants challenge works for which a copy was found both in
Defendants’ quarantine and a distributor’s inventory. But the evidence is even stronger for this
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category. As Plaintiffs aptly characterized it, the jury was presented with “counterfeit copies
swarming around Defendants—in their possession, their upstream supplier’s possession, and
their downstream customers’ possession.” (Mem. of Law in Opp. to Defs.’ Post-Trial Mots.,
BDB II, ECF No. 443, at 9.)
Considering the high burden on a motion for judgment as a matter of law,
Defendants fail to demonstrate that the verdict amounts to “sheer surmise and conjecture.” See
Rosas v. Balter Sales Co., 2018 WL 3199253, at *3 (S.D.N.Y. June 29, 2018) (citation omitted).
The jury was permitted to make inferences based on the totality of the evidence. Their
inferences were within reason and established by a preponderance of the evidence. See United
States v. Dibrizzi, 393 F.2d 642, 644–45 (2d Cir. 1968) (“[I]nferences may arise from a
combination of acts, even though each act standing by itself may seem to be unimportant.”).
C. Ownership
Defendants assert that Plaintiffs failed to demonstrate ownership for thirteen
titles, 1 meaning that Plaintiffs failed to establish statutory standing to sue for those works. See
Kwan v. Schlein, 634 F.3d 224, 229 (2d Cir. 2011) (a plaintiff suing for copyright infringement
must establish “ownership of a valid copyright”) (citation omitted); Davis v. Blige, 505 F.3d 90,
100 (2d Cir. 2007) (“[A]n exclusive licensee may sue others for infringement. . . .”).
Six of Defendants’ challenges are easily turned aside. First, no copyright
registration was necessary for Work 18 because Plaintiffs only pursued a trademark claim with
respect to that title. (See PX1, at 3.) Second, Plaintiffs submitted copyright registrations for
Works 66, 134, and 143, each listing a Plaintiff as the copyright claimant. (See PX5, at 185 &
1
Works 18, 29, 34, 55, 66, 71, 81, 84, 86, 134, 135, 143, and 147. (See PX13, at 1–3.)
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188–90; PX4, at 6; PX3, at 130–31.) Finally, Plaintiffs offered evidence of ownership for Works
34 and 86 by submitting copyright registrations for prior editions of those titles. (See PX5, at 44,
56.) Later textbook editions are derivatives of the original edition. See 17 U.S.C. § 101. Thus,
copyright registrations for the earlier editions constitute sufficient evidence of ownership. “[S]o
long as a copyright owner has registered the underlying work . . . she need not independently
register the derivative work to sue based on its unauthorized preparation or reproduction.”
Pearson Educ., Inc. v. Frances, 2012 WL 1788148, at *2 (S.D.N.Y. May 16, 2012).
With respect to the seven remaining Works (29, 55, 71, 81, 84, 135, and 147), five
of those titles are owned by Cengage and two by Pearson. In each instance, while the copyright
registrations submitted in evidence identified someone other than Cengage or Pearson as the
copyright holder, trial testimony established that the person or entity listed was either the
textbook’s author or a publishing company acquired by Cengage or Pearson. Plaintiffs
maintained that Cengage or Pearson were granted exclusive licenses for these works.
Although Plaintiffs did not submit documentation, Cengage representative Jessica
Stitt testified that Cengage owns or holds the exclusive license for every Cengage title. (Trial Tr.
1323:11–16, 1327:19–1328:3.) Pearson representative Richard Essig did the same for the
Pearson titles. (Trial Tr. 1619:22–1620:2.) Stitt and Essig explained that when an author is
listed as the copyright holder, the author signs “a written agreement that [the publishing
company] has the exclusive rights to market and distribute that particular title.” (Trial Tr.
1620:24–1621:5, 1324:16–19.) Similarly, Stitt and Essig explained that when Pearson and
Cengage acquire publishing companies, they acquire that company’s copyrights as a matter of
corporate practice. (Trial Tr. 1325:17–1326:18, 1621:8–17.)
10
Defendants never challenged this testimony, nor did they ask any questions
regarding Plaintiffs’ ownership of these works. No contradictory evidence of ownership
presented. The jury was entirely justified in concluding that Plaintiffs established ownership for
all works.
D. Preemption
Defendants assert that Plaintiffs’ breach of contract claim was preempted by the
Copyright Act. “Section 301 of the Copyright Act expressly preempts a state law claim only if
(i) the work at issue ‘come[s] within the subject matter of copyright’ and (ii) the right being
asserted is ‘equivalent to any of the exclusive rights within the general scope of copyright.’”
Forest Park Pictures v. Univ. Tel. Network, Inc., 683 F.3d 424, 429 (2d Cir. 2012) (citing 17
U.S.C. § 301(b)). Most “contract clams involving the subject matter of copyright do not contest
rights that are equivalent of rights under the Copyright Act, and thus are not preempted.” Forest
Park Pictures, 683 F.3d at 431. “A contract claim may escape preemption if it seeks to vindicate
rights, such as a promise to pay, that are qualitatively different from those included in the
Copyright Act.” We Shall Overcome Found. v. Richmond Org., Inc. (TRO INC.), 221 F. Supp.
3d 396, 412 (S.D.N.Y. 2016); see also Forest Park Pictures, 683 F.3d at 431.
Here, the rights provided by the Settlement Agreement are qualitatively different
from rights under the Copyright Act. The Settlement Agreement consists of mutual promises
and forbearances to resolve a prior lawsuit between the parties. (Settlement Agreement ¶ 1.) It
specifically provided for damages in the event of a breach, which included a “liab[ility] to pay
the reasonable costs and attorney’s fees incurred by the non-breaching party.” (Settlement
Agreement ¶ 17(a).) “A claim for breach of a contract including a promise to pay is qualitatively
11
different from a suit to vindicate a right included in the Copyright Act and is not subject to
preemption.” Forest Park Pictures, 683 F.3d at 433. Additionally, the Settlement Agreement
barred Defendants from assisting other infringers, regardless of whether Defendants knew they
were aiding and abetting infringement. (Settlement Agreement ¶ 5.) That clause confers a
broader right than the Copyright Act. Accordingly, Plaintiffs’ breach of contract claim is distinct
from their rights under the Copyright Act and is not preempted.
E. Importation
Defendants contend that Plaintiffs failed to introduce evidence of importation of
counterfeit books. They argue that PX1423, a PIERS report compiling bills of lading for cargo
vessels entering United States ports, and showing textbooks imported by SRockPaper Imports,
was the only evidence of importation. Defendants contend the PIERS report only showed
imports of textbooks from Thailand but did not indicate that those books were counterfeit.
Finally, they contend that SRockPaper Imports’s data cannot be linked to Defendants because
that entity was not named in the lawsuits.
However, while not a defendant in these actions, SRockPaper Imports is owned
by Smyres and within the constellation of companies he controls. (See Trial Tr. 1172:12–
1173:8.) And Defendants’ effort to discredit the PIERS report ignores other evidence in the
record. For instance, Smyres conceded that his companies paid “Best Books World shipping
costs to ship . . . books from Thailand to the United States.” (Trial Tr. 791:6–13.) And the jury
heard from Plaintiffs’ representative that Defendants had been importing hundreds of thousands
of textbooks from Thailand, the undisputed source of many counterfeits, “for years and right up
through 2017.” (Trial Tr. 1643:23–1644:1.) One of Defendants’ employees testified to
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receiving shipments of 50,000 books from foreign sources per year. (Trial Tr. 2309:18–2310:24;
see also PX154.) And Smyres stationed Defendants’ employees in Thailand in order to purchase
books. (Trial Tr. 854:1–9.) The jury reasonably concluded that counterfeit textbooks were
commingled with the hundreds of thousands of textbooks, many from counterfeit sources, that
Defendants purchased and imported each year.
But even if the jury found the evidence of importation insufficient, the verdict
would not need to be set aside. The verdict form did not require the jury to specify which right
they determined Defendants had infringed under the Copyright Act and the Settlement
Agreement. This Court instructed the jury that “[t]he right to distribute a copyright is violated by
someone other than the copyright holder importing, selling, renting, or otherwise transferring
ownership of an unauthorized copy.” (Trial Tr. 3111:11–14.) Similarly, the Settlement
Agreement required Defendants to “cease all sales and importation into the United States of any
pirated editions of the publishers textbooks, and to not assist any other individual or entity to sell
or import pirated editions . . . into the United States.” (Trial Tr. 3111:11–14, 3115:3–7 (citation
omitted).) Accordingly, the overwhelming evidence of Defendants’ sales and/or rentals of
counterfeit books was sufficient to sustain the jury’s liability determinations.
F. Duplicate Damages
Defendants allege that Plaintiffs were awarded double recovery under the Lanham
and Copyright Acts. Defendants rely on other courts that rejected attempts by the same Plaintiffs
to seek both trademark and copyright damages based on the same act of infringement. See
Cengage Learning, Inc. v. Globonline SDN, 2018 WL 1989574, at *2–3 (S.D.N.Y. Apr. 25,
2018) (“[T]he recent trend among Courts is to preclude double recovery in cases involving the
13
sale of pirated, copyrighted material.”); Cengage Learning, Inc. v. Shi, 2017 WL 1063463, at *3
(S.D.N.Y. Mar. 31, 2017) (same). But see Innovation Ventures, LLC v. Ultimate One Distrib.
Corp., 176 F. Supp. 3d 137, 175 (E.D.N.Y. 2016) (holding “that the injuries suffered by plaintiffs
for trademark and copyright infringement are distinct . . . neither of which precludes recovery
under both statutes”).
Defendants’ argument is misplaced. Although other courts have concluded that
Plaintiffs impermissibly sought both trademark and copyright damages for the same work,
Plaintiffs did not do so here. Rather, Plaintiffs sought trademark damages for one set of works
and copyright damages for another non-overlapping set. The jury was instructed to consider
Plaintiffs’ trademark and copyright claims separately and to “only make one award of statutory
damages for [each] title.” (Trial Tr. 3122:19–20.) The verdict sheet differentiated between the
works for which Plaintiffs sought trademark damages and the works for which Plaintiffs sought
copyright damages. During a charge conference, Defendants conceded that Plaintiffs were not
seeking duplicate recovery, stating “they are not asking for it. . . . They have not requested it,
therefore the jury may not award it. . . . [I]t’s perfectly clear that they are not requesting it.”
(Trial Tr. 2468:24–2469:19.)
Acknowledging that Plaintiffs avoided the double recovery conundrum,
Defendants also raise a novel argument that even if Plaintiffs cabined their claims to trademark
damages for some works and copyright damages for others, this nevertheless results in a double
recovery. Specifically, they assert that because the Lanham Act provides for damages “per type
of goods . . . sold,” 15 U.S.C. § 1117(c), statutory trademark damages provides an award to
Plaintiffs for each and every work bearing that mark, including those works for which Plaintiffs
14
sought only copyright damages. But no court has embraced such a theory.
Defendants offer no authority forcing a plaintiff to choose between a trademark
claim and a copyright claim when the claims are brought for separate works and no single work
is the predicate for both trademark and copyright claims. This Court repeatedly instructed the
jury to consider Plaintiffs’ trademark and copyright claims separately. And Defendants offer
nothing to suggest that the jury disregarded those instructions. Indeed, Defendants suggested a
verdict sheet structuring Plaintiffs’ trademark and copyright claims in the manner that they now
challenge. (See Defendants’ Proposed Verdict Form, BDB II, ECF No. 379-3 (delineating the
works for which Plaintiffs sought trademark damages and copyright damages).) That verdict
sheet, similar to the one this Court adopted, made clear that Plaintiffs’ were seeking trademark
damages on 19 works and that those works were to be considered separately from the 142 works
that were the subject of Plaintiffs’ copyright claims. (Verdict at 4.)
G. Willfulness
Defendants contend that no reasonable jury could find willfulness. They stress
that they never knowingly distributed counterfeits and that they had procedures in place to
protect against the sale of counterfeits. “To prove ‘willfulness’ under the Copyright Act, the
plaintiff must show (1) that the defendant was actually aware of the infringing activity, or (2)
that the defendant’s actions were the result of ‘reckless disregard’ or ‘willful blindness’ to, the
copyright holder’s rights.” Island Software & Computer Serv., Inc. v. Microsoft Corp., 413 F.3d
257, 263 (2d Cir. 2005); see also Bryant v. Media Right Prods., Inc., 603 F.3d 135, 143 (2d Cir.
2010) (holding that willfulness can be shown by a defendant’s “recklessly disregarding the
possibility” of infringement) (citation and quotation marks omitted). The same standard is used
15
for trademark infringement. See Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93, 109 (2d Cir. 2010).
Plaintiffs presented ample evidence that Defendants recklessly disregarded or
were willfully blind to infringement. Mere days after entering into the Settlement Agreement,
Smyres agreed to purchase books from Best Books World, a known counterfeiter. (See Trial Tr.
823:17–824:23, 827:23–828:1.) Moreover, after learning that another textbook supplier sold
counterfeits to Defendants, Smyres increased his purchases from that source. (Trial Tr. 891:23–
892:3, PX181.) Despite settling copyright infringement claims in 2007, Defendants thereafter
delayed implementing formal anti-counterfeiting procedures for years. (Trial Tr. 935:12–20,
1205:20–25.) And even after implementing basic procedures, Defendants failed to ascertain
where their suppliers sourced their books. (Trial Tr. 2391:10–16.)
Additionally, the jury learned that Defendants violated the Settlement Agreement
by failing to disclose the true sources of their textbooks. (Trial Tr. 1861:4–19.) By 2011,
Defendants were aware that they continued to source from counterfeit suppliers and that they had
counterfeit books within their inventory. (Trial Tr. 927:24–934:12.) And the jury saw graphic
evidence of Defendants’ destruction of counterfeit books—the bulldozing of counterfeit
textbooks at a municipal landfill—because they feared a lawsuit. (Trial Tr. 2920:19–22.)
In short, the evidence of Defendants’ reckless disregard of potential infringement
was overwhelming. See Fendi Adele, S.R.L., 507 F. App’x at 31 (district court’s finding of
willfulness was appropriate given that defendants were “clearly on notice that [they] might be
infringing trademarks” but “failed to adequately inquire about the authenticity and original
sources of the goods they purchased”); State of New York v. United Parcel Serv., Inc., 253 F.
Supp. 3d 583, 666 (S.D.N.Y. 2018) (“[T]he law deems a person to have ‘knowledge’ when he or
16
she has a strong suspicion that a fact exists, but intentionally avoids confirmation.”).
II.
New Trial Motion
A. Legal Standard
Federal Rule of Civil Procedure 59 permits the district court to grant a new trial.
Unlike a motion under Rule 50, “a trial judge is free to weigh the evidence himself, and need not
view it in the light most favorable to the verdict winner.” Manley v. AmBase Corp., 337 F.3d
237, 244–45 (2d Cir. 2003) (citation omitted). However, “jury verdicts should be disturbed with
great infrequency,” ING Glob. v. United Parcel Serv. Oasis Supply Corp., 757 F.3d 92, 99 (2d
Cir. 2014) (citation omitted), and the movant is “held to a heavy burden,” Toliver v. N.Y.C.
Dep’t of Corr., 202 F. Supp. 3d 328, 340 (S.D.N.Y. 2016) (citation and quotation marks
omitted).
A new trial on the basis of evidentiary error should not be granted unless “the
introduction of inadmissible evidence was a clear abuse of discretion and was . . . clearly
prejudicial to the outcome of the trial [such that] the verdict is a miscarriage of justice.” Luciano
v. Olsten Corp., 110 F.3d 210, 217 (2d Cir. 1997). An evidentiary ruling is a clear abuse of
discretion where it is based on “an erroneous view of the law or on a clearly erroneous
assessment of the evidence, or [where the court] rendered a decision that cannot be located
within the range of permissible decisions.” Vill. of Freeport v. Barrella, 814 F.3d 594, 611 (2d
Cir. 2016) (citation omitted). The error must not have been harmless. Leo v. Long Island R.R.
Co., 307 F.R.D. 314, 321 (S.D.N.Y. 2015).
B. Arguments Raised under Motion for Judgment as a Matter of Law
In a single sentence, Defendants seek a new trial on the same grounds that they
17
sought judgment as a matter of law. Such an argument deserves nothing more from this Court
than this single sentence rejecting the motion for the same reasons that the motion for judgment
as a matter of law was denied.
C. Admission of 2008 Settlement Agreement
Defendants contend that admission of the Settlement Agreement violated Federal
Rule of Evidence 408, led the jury to presume Defendants’ liability, and produced the large
damages award. Defendants posit that this Court compounded the error by excluding the amount
of the settlement. Rule 408 prohibits the introduction of evidence of “furnishing, promising or
offering—or accepting, promising to accept, or offering to accept—a valuable consideration in
compromising or attempting to compromise [a] claim” in order to “prove or disprove the validity
or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction.”
Fed. R. Evid. 408(a). However, Rule 408 permits the introduction of such evidence for other
purposes. Fed. R. Evid. 408(b).
The Settlement Agreement formed the basis of Plaintiffs’ breach of contract
claim. It would have been impossible for Plaintiffs to provide context for their claim without
referencing that agreement. It was also admissible on Plaintiffs’ trademark and copyright
claims—a defendant’s history of infringement is relevant in determining willfulness. See Gucci
Am., Inc. v. Guess?, Inc., 858 F. Supp. 2d 250, 253 (S.D.N.Y. 2012) (“[C]ourts frequently
consider prior judicial resolution of trademark disputes when discussing the alleged infringer’s
intent or bad faith.”); Stevens v. Aeonian Press, Inc., 2002 WL 31387224, at *3 (S.D.N.Y. Oct.
23, 2002) (after bench trial, court determined damages based on Defendants’ “habit of reprinting
works without permission from the copyright owners”).
18
Therefore, evidence of the Settlement Agreement was not offered for an improper
purpose. Cf. Starter Corp. v. Converse, Inc., 170 F.3d 286, 293 (2d Cir. 1999) (affirming use of
settlement negotiations to prove estoppel). Plaintiffs were entitled to offer the Settlement
Agreement as evidence of the breach of contract claim and to show that Defendants were on
notice of possible infringement. Further, because the amount of the settlement could have
unreasonably anchored the jury’s determination of damages, preclusion of that figure was
appropriate. (Trial Tr. 14:3–7, 65:6–9.)
Finally, after losing their motion in limine to exclude the Settlement Agreement,
Defendants were the party that offered it in evidence. (See Trial Tr. 190:23–191:4.) “‘A party
introducing evidence cannot complain on appeal that the evidence was erroneously admitted,’
even when that party loses a motion in limine and then preemptively introduces the evidence to
draw the ‘sting.’” In re Fosamax Prods. Liab. Litig., 509 F. App’x 69, 74 (2d Cir. 2013)
(summary order) (citing Ohler v. United States, 529 U.S. 753, 755 (2000) (alteration omitted).
D. Admission of Cease-and-Desist Letters
Defendants contend that the cease-and-desist letters regarding additional
infringements that Plaintiffs discovered during the pendency of this litigation were improperly
received in evidence. Their argument glosses over how those cease-and-desist letters came into
evidence.
At the motion in limine stage, this Court held that evidence of continuing
infringement would be “confusing and unnecessary” given “the staggering number of works the
jury will [already] have to wade through.” (Memorandum & Order, BDB II, ECF No. 270, at 6.)
Thus, before the jury was empaneled, the cease-and-desist letters were precluded. However,
19
prior to jury selection, Plaintiffs alerted this Court that Defendants planned to contrast the
number of works at issue in this lawsuit (161) with the total number of works Defendants sold
over a nine year period (1,081,000). This Court warned Defendants’ counsel that such a
comparison would misleadingly suggest that Defendants did not sell any other counterfeit
textbooks, and cautioned that such an argument would “open the door to the plaintiff examining
defendant and offering evidence on the fact that the defendant is continuing to sell counterfeit
books.” (Trial Tr. 26:17–20.) Nevertheless, Defendants’ counsel failed to heed the Court’s
warning and during opening statement contrasted the 161 works at issue with the “more than one
million titles that defendants sold between 2008 and 2017.” (See Trial Tr. 86:9–15.)
After opening statements, Plaintiffs moved for reconsideration of this Court’s in
limine ruling precluding cease-and-desist letters. In a ruling that could have hardly come as a
surprise, this Court concluded that Defendants “opened the door” to Plaintiffs “offer[ing]
evidence that [they] continue[] to find counterfeits in defendants’ inventory.” (Trial Tr.
146:6–18.) Accordingly, this Court determined “the plaintiffs are [now] entitled to rebut and
counter the argument that the defendants are getting better every day at what they are doing in
detecting counterfeits and stopping counterfeits.” (Trial Tr. 149:18–21.)
On cross examination, Plaintiffs confronted Smyres with the cease-and-desist
letters. (Trial Tr. 1026:10–1031:6.) In an effort to avoid confusion and prejudice, this Court
issued a preemptive limiting instruction to the jury prior to any offer of the letters in evidence.
Specifically, this Court instructed the jury that the letters were “only offered for the purpose of
showing that the defendants were on notice that the plaintiff publishers here believed that there
were other counterfeits. These counterfeits are not involved in the titles that are at issue in these
20
consolidated cases.” (Trial Tr. 1025:25–1026:4.)
Cease-and-desist letters are not hearsay when offered to show bad faith and
willful infringement. See Gucci Am., 858 F. Supp. 2d at 254 n.21. Here, Plaintiffs never
provided any evidence that the cease-and-desist letters referred to works definitively determined
to be counterfeit. Rather, they were offered only to show that Defendants were on notice that
Plaintiffs continued to collect potential evidence of infringement. This undercut Defendants’
argument that the jury should contrast the 161 works at issue with the 1,081,000 titles that
Defendants sold, as well as their argument that Defendants now take all reasonable efforts to
protect against the sale of counterfeit books.
Further, because Plaintiffs never attempted to initiate compromise negotiations
through the cease-and-desist letters, Rule 408 is inapplicable. See Atronic Int’l, GmbH v. SAI
Semispecialists of Am., Inc., 2006 WL 2654827, at *7 n.4 (E.D.N.Y. Sept. 15, 2006) (“Where a
letter provides solely demands and lacks any suggestion of compromise, such a document would
not be excludable by Rule 408.”). Defendants’ reliance on Vacation Rental Partners, LLC v.
VacayStay Connect, LLC, is distinguishable because those cease-and-desist letters stated that the
plaintiff “was interested in resolution ‘without litigation’ . . . which could be read as an invitation
to settle.” See 2017 WL 1150806, at *8 (N.D. Ill. Mar. 28, 2017). Finally, Rule 404(b) does not
preclude Plaintiffs’ letters because “evidence of [other] bad actions may be admissible to show
‘motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack
of accident.’ On this basis . . . [c]ourts . . . consider the alleged infringer’s receipt of and
response to cease-and-desist letters . . . .” Gucci Am., 858 F. Supp. 2d at 253 (citing Fed. R.
Evid. 404(b) and collecting cases).
21
E. Exclusion of Chegg and MBS Data
Like so many other issues in this case, Defendants reiterate all of their arguments
regarding their attempts to introduce spreadsheets created by Chegg and MBS (two other
textbook distributors). Defendants sought to use those spreadsheets to show that other textbook
distributors occasionally sell counterfeit books. At the motion in limine stage, this Court held
that this evidence was relevant on the question of “whether Defendants took sufficient
precautions to detect counterfeits.” (Memorandum & Order, BDB II, ECF No. 285.) Despite
that ruling in their favor, Defendants failed to lay a proper foundation for the admission of those
spreadsheets, and then had no witness who could testify about their meaning and significance.
To lay a foundation, Defendants first resorted to Federal Rule of Evidence 1006.
On March 5, 2018, this Court determined that Defendants’ proposed Rule 1006 summaries of the
Chegg and MBS spreadsheets were deficient. (Memorandum & Order, BDB II, ECF No. 370
(“Rule 1006 Op.”).) The Chegg summary misleadingly listed percentages of counterfeits found
in various textbook distributors’ inventory without revealing that different inspection criteria had
been used for each distributor. (Rule 1006 Op., at *2–3.) As for the MBS summary, this Court
found that it was impermissibly based on defense counsel’s own interpretation of the underlying
spreadsheet. (Rule 1006 Op., at *5–7.) Accordingly, this Court ruled that a witness from MBS
would be needed to interpret the spreadsheet if Defendants sought to use it at trial.
Defendants’ attempts to secure the appearance of an MBS representative at trial
took many avenues, including an aborted order to show cause, a telephonic conference with
MBS, and various letter motions, creating a diversionary sideshow. Ultimately, this Court
permitted Defendants to introduce the spreadsheets as Chegg and MBS business records. (See
22
DX341, DX371.) However, Defendants called no witness to explain them. This was a problem
of Defendants’ own making because they previously obtained permission to depose an MBS
representative, but then elected not to proceed with the deposition. Instead, they bargained with
MBS’s counsel for a Rule 902(11) certification that this Court ultimately determined was
improper. Then, at trial, Defendants sought to use their financial expert as a human calculator to
run various computations on the spreadsheet. (Trial Tr. 2570:5–2577:25.) This Court struck that
testimony because the witness had no affiliation with MBS or knowledge of the textbook
distribution business. (Trial Tr. 2577:8–13.)
Near the end of trial, Defendants offered excerpts of a deposition of a Chegg
representative concerning the Chegg spreadsheet. (See Trial Tr. 2675:10–14.) While this Court
permitted counsel to read that testimony to the jury, it warned Defendants not to “make any
percentage argument to the jury” based on the spreadsheets. (Trial Tr. 2675:11–13.) This Court
relied on the Second Circuit’s holding “that in the absence of explanatory testimony by a witness
[a] jury would be unable to understand [a] document[] without representations by counsel or
speculation, either of which would be improper.” United States v. Gupta, 747 F.3d 111, 138 (2d
Cir. 2014). Once again, Defendants’ counsel ignored this Court’s ruling and did precisely what
they were told they could not do. (Trial Tr. 3021:17–3022:20.) Accordingly, this Court gave a
curative instruction to the jury to disregard that fragment of Defendants’ closing that referred to
percentages from the spreadsheets. (See Trial Tr. 3096:8–10.) In any event, the jury heard
testimony and argument from Defendants that their infringement was modest and that other
textbook distributors also sold counterfeit works. (See Trial Tr. 231:22–232:1, 370:5–13,
1438:15–24, 3019:14–19, 3021:8–11.)
23
F. Plaintiffs’ Roadmap
In another argument reminiscent of Groundhog Day, Defendants challenge
Plaintiffs’ Roadmap. Plaintiffs’ Roadmap (PX13) was a 272-page Rule 1006 summary exhibit
condensing Plaintiffs’ evidence of infringement for the 161 works at issue. For months prior to
trial, Defendants challenged every aspect of the Roadmap. Finally, this Court ordered
Defendants to specify each objection that they intended to interpose to its admissibility. On
January 30, 2018, in response to that order, Defendants catalogued a staggering 772 objections.
After a laborious review, this Court overruled nearly all of them. (Memorandum & Order, BDB
II, ECF No. 371.)
Defendants now reassert the same objections and arguments. First, they contend
that the Roadmap was created by Plaintiffs’ attorneys. But “[s]ummary evidence can be properly
introduced through the testimony of a witness who supervised its preparation.” (Memorandum
& Order, BDB II, ECF No. 285, at *7 (citing UPS Store, Inc. v. Hagan, 2017 WL 3309721, at *5
(S.D.N.Y. Aug. 2, 2017).) Plaintiffs’ witness John Garry testified that he oversaw the creation of
Plaintiffs’ Roadmap. (Trial Tr. 309:16–310:14.) This is sufficient. See United States v.
Fahnbulleh, 752 F.3d 470, 479 (D.C. Cir. 2014) (allowing witness to introduce summary where
he “supervised others who prepared” it).
Second, Defendants argue that the Roadmap did not accurately summarize the
underlying evidence. Defendants cherry-pick a mistake that they now say they discovered in
preparing their post-trial motions. But a single error does not render an entire document
inadmissible. “The inaccuracy of a summary under Rule 1006 . . . goes to the weight, rather than
the admissibility, of the evidence.” BD ex rel. Doe v. DeBuono, 193 F.R.D. 117, 130 (S.D.N.Y.
24
2000). More fundamentally, it is too late to raise an argument that Defendants failed to assert at
trial or in the 772 objections lodged before trial.
At trial, Defendants highlighted other errors in the Roadmap. (See, e.g., Trial Tr.
459:15–18.) The jury was free to consider those errors in determining how much weight, if any,
to give to the Roadmap. Defense counsel argued vigorously to the jury that the Roadmap was
inaccurate and unworthy of belief. (Trial Tr. 3039:12–3040:10.) In its charge, this Court
instructed the jury that it “heard the parties challenge the accuracy of” Plaintiffs’ Roadmap and
“must decide how much weight, if any, [to] give to [it].” (Trial Tr. 3107:6–17.)
Finally, Defendants argue that the Roadmap’s underlying evidence was
inadmissible because Plaintiffs’ witness Richard Essig did not recall a single spreadsheet
referenced in the Roadmap. (See Trial Tr. 1708:14–18.) However, on redirect, Essig was shown
the cover email for that spreadsheet which refreshed his recollection and enabled him to recall
what the spreadsheet described. (See Trial Tr. 1711:18–1712:3.)
G.
Verdict Sheet and Charge
Defendants challenge the verdict sheet and certain elements of this Court’s
charge. Originally, the parties offered this Court radically different proposals for the verdict
sheet. (See Joint Letter, BDB II, ECF No. 379, Exs. 2 & 3.) Plaintiffs requested a 4-page verdict
sheet that required the jury to state whether Defendants had infringed any of Plaintiffs’
trademarks and/or copyrights, and if so, how many. Defendants asked for a 24-page verdict
sheet listing every work at issue and requiring the jury to separately check off each trademark
and copyright claim and specify the amount of damages awarded for each claim. After extensive
discussions with counsel, this Court prepared a 6-page verdict sheet that afforded three options:
25
(1) a determination that Defendants were liable for all of Plaintiffs’ claims, (2) a determination
that Defendants were liable for none of Plaintiffs’ claims, or (3) a determination that Defendants
were liable for some of Plaintiffs’ claims. If the jury determined that Defendants infringed some
of Plaintiffs’ claims, they were instructed to specify which works Defendants infringed on an
accompanying 10-page spreadsheet. In a parallel vein, the verdict sheet afforded the option to
choose the same amount of damages for each work infringed or to differentiate the damages
awarded for each work. (See Verdict.)
Defendants contend that the verdict sheet encouraged the jury to make globalized
determinations rather than individualized assessments. But this Court instructed the jury to make
individual determinations on a work-by-work basis. (Trial Tr. 3108:14–15, 3110:19–20.) All
indications are that the jury followed this instruction. In fact, even though the jury found that
Defendants infringed all of Plaintiffs’ trademarks and copyrights, they nevertheless completed
the accompanying spreadsheets, checking off every single work that they determined had been
willfully infringed and assigning a dollar amount of damages.
The verdict sheet was a reasonable compromise between the parties’ competing
proposals and, with this Court’s instructions, reasonably assured that the jury applied the law to
the facts. Defendants also challenge this Court’s determination that the jury need not perform an
arithmetic calculation to tally the statutory damages awarded. Defendants’ proposal did nothing
more than invite computational errors. See TeeVee Toons, Inc. v. MP3.Com, Inc., 148 F. Supp.
2d 276, 279 (S.D.N.Y. 2001) (ordering new trial based on jury’s errors in calculating verdict).
Defendants challenge this Court’s rejection of their request to charge the jury that
statutory damages must be proven by a preponderance of the evidence. Such an instruction is
26
wrong as a matter of law. The purpose of statutory damages is to allow a plaintiff to seek
damages where it is unable to prove actual damages. Requiring a plaintiff to prove statutory
damages is at odds with the “wide judicial discretion” and “necessary flexibility to do justice”
that statutory damages are meant to provide. See F.W. Woolworth Co. v. Contemporary Arts,
Inc., 344 U.S. 228, 232 (1952); see also L.A. News Serv. v. Reuters Television Int’l, Ltd., 149
F.3d 987, 996 (9th Cir. 1998) (“Because awards of statutory damages serve both compensatory
and punitive purposes, a plaintiff may recover statutory damages whether or not there is adequate
evidence of the actual damages suffered by plaintiff or the profits repeated by defendant . . . .”)
(citation and quotation marks omitted).
On the breach of contract claim, Defendants contend that this Court should have
instructed the jury on all elements required for such a claim, including the requirement that the
parties had a valid contract. But the existence of a valid and enforceable contract was already the
law of the case. See John Wiley & Sons, Inc. v. Book Dog Books, LLC, 2016 WL 1216583
(S.D.N.Y. Mar. 25, 2016). At trial, Plaintiffs needed only to prove that Defendants’ breached the
Settlement Agreement. To instruct the jury regarding validity would have raised the specter of a
jury decision inconsistent with this Court’s prior holding.
Finally, Defendants challenge the adverse inference instructions. As explained in
this Court’s April 2016 Memorandum and Order, a permissive adverse inference regarding
Defendants’ destruction of evidence was appropriate. (See Memorandum & Order, BDB I, ECF
No. 353, at *6–7.) And after reviewing Plaintiffs’ motions for sanctions, this Court explained its
decision regarding the adverse inference instruction on Defendants’ discovery misconduct.
(Trial Tr. 2811:1–2814:19.) Just days before trial, through an anonymous source, Plaintiffs
27
learned of entities and profit distribution agreements that Defendants concealed throughout
discovery. (Trial Tr. 2812:2–13, 2814:9–14.) This Court tempered Plaintiffs’ proposed
mandatory adverse inference instruction with a permissive instruction that the jury may make an
adverse inference based on discovery misconduct.
III.
Remittitur
Defendants move for remittitur, contending that the jury award was untethered to
Defendants’ profits and Plaintiffs’ losses and was inconsistent with the evidence presented at
trial. See Kirsch v. Fleet St., Ltd., 148 F.3d 149, 165 (2d Cir. 1998). Defendants blend an
argument for conditional remittitur with a constitutional due process argument.
Turning first to conditional remittitur, a “district court has authority to enter a
conditional order of remittitur, compelling a plaintiff to choose between reduction of an
excessive verdict and a new trial, in at least two distinct kinds of cases: (1) where the court can
identify an error that caused the jury to include in the verdict a quantifiable amount that should
be stricken, and (2) more generally where the award is intrinsically excessive, in the sense of
being greater than the amount a reasonable jury could have awarded.” Kirsch, 148 F.3d at 165
(citation, quotation marks, and alterations omitted). “The court is not free to set aside the verdict
merely because the judge might have awarded a different amount of damages . . . .” 11 Fed.
Prac. & Proc. Civ. § 2807; see Psihoyos v. John Wiley & Sons, Inc., 2012 WL 5506121, at *1
(S.D.N.Y. Nov. 7, 2012), aff’d 748 F.3d 120 (2d Cir. 2014) (noting that remittitur should be
done cautiously as it “encroach[es] on the role of the jury”).
Defendants do not contend that the jury made any particular error in quantifying
the verdict, but that the award is greater than what a reasonable jury should have awarded.
28
Relying primarily on cases granting default judgments, Defendants cite decisions awarding lower
amounts of statutory damages. Those cases are not persuasive. First, many courts have imposed
maximum statutory damages. See, e.g., Nike Inc. v. Top Brand Co., 2006 WL 2946472, at *2
(S.D.N.Y. Feb. 27, 2006) (recommending the maximum amount of statutory damages based on
“the size of the defendants’ infringing operations, . . . the willfulness of their conduct, and their
behavior in th[e] litigation”), report and recommendation adopted by 2006 WL 2884437
(S.D.N.Y. Oct. 6, 2006); Phillip Morris USA Inc. v. Marlboro Express, 2005 WL 2076921, at *6
(E.D.N.Y. Aug. 26, 2005) (finding “maximum statutory damages [was] warranted”).
More fundamentally, awards calculated on a motion for default judgment are
different in kind than factual determinations by a jury. While “[i]t is true that courts setting
statutory damages after bench trials or defaults have often awarded less than the jury did in this
case . . . the question is not what this [c]ourt would award were it deciding the question itself; the
question is whether the jury’s award is so excessive that the [c]ourt should intrude on [the jury’s]
prerogative to set damages.” Agence Fr. Presse v. Morel, 2014 WL 3963124, at *15 (S.D.N.Y.
Aug. 13, 2014).
Defendants’ argument that the jury’s award is disproportionate to their profits or
Plaintiffs’ losses is unpersuasive because “statutory damages are not meant to be merely
compensatory or restitutionary [but] also to discourage wrongful conduct.” Yurman Design, Inc.
v. PAJ, Inc., 262 F.3d 101, 113 (2d Cir. 2001) (citation and quotation marks omitted). In
Psihoyos, Judge Oetken discussed the reasons why such an argument lacks merit. Those factors
easily apply to this case:
Several of the [statutory damages] factors may well explain the
magnitude . . . of the jury’s award. . . . [E]vidence in the record
29
supports a finding that Defendant’s conduct was willful. Plaintiff
also demonstrated that Defendant garnered substantial profits from
its textbook sales. The jury also may have seen itself as deterring
‘others besides the defendant’ as well as ‘discouraging the
defendant’ itself. Indeed, given both the evidence presented to the
jury that Defendant continued to distribute copies of infringing
textbooks even after discovering that infringement had occurred, as
well as the evidence indicating that Defendant is a repeat infringer,
the jury’s determination as to the amount of statutory damages for
willful infringement was not erroneous.
Psihoyos, 2012 WL 5506121, at *3. On appeal, the Second Circuit agreed, rejecting the same
argument Defendants raise here, and holding that the jury, in its discretion, may have chosen a
larger award to reflect willfulness, defendant’s substantial profits, and the need to deter “a repeat
infringer.” Psihoyos, 748 F.3d at 127.
Statutory damages serve multi-faceted purposes, including compensating the
owner, penalizing the infringer, and deterring future infringement. (Trial Tr. 3116:23–25,
3119:13–16.) This Court explained that the jury may consider Defendants’ state of mind, the
profits they earned and expenses they saved in infringing, the revenue Plaintiffs’ lost, deterrence,
Defendants’ cooperation, the conduct and attitude of the parties, and “Defendants’ total profits
and the effect the award may have on other sellers in the marketplace.” (Trial Tr. 3117:4–15,
3119:23–3120:8.)
The evidence of willfulness was overwhelming. See Section I.G. “The jury could
have felt Defendants infringement . . . was not just willful but reflected a gross disregard for the
rights of copyright holders.” See Agence Fr. Presse, 2014 WL 3963124, at *15 (citation and
quotation marks omitted). The jury heard from Plaintiffs’ expert that those practices led
Defendants to earn $53,800,000 in profit in a four-year period. (Trial Tr. 1948:16–18.)
Considering Defendants’ lengthy history of infringement, the jury could have determined that
30
only a large award would effectively promote deterrence, especially given the evidence that
Defendants continued to infringe even days before trial. The jury could have concluded that the
award was necessary for general deterrence after learning how prevalent counterfeits are in the
textbook market. It also could have focused on the “conduct and attitude of the parties” and
compared it with this Court’s instructions indicating that Defendants destroyed evidence and
failed to comply with discovery orders. “Applying these factors is necessarily a subjective and
fact-intensive exercise.” Beastie Boys v. Monster Energy Co., 66 F. Supp. 3d 424, 464
(S.D.N.Y. 2014) (declining to reduce award where multiple factors supported substantial
damages).
Defendants fail to show why this Court should interfere with the jury’s reasonable
exercise of its discretion. This Court’s role is not to “average the high and low awards [but to]
focus instead on whether the verdict lies within the reasonable range.” Zeno v. Pine Plains Cent.
Sch. Dist., 702 F.3d 655, 671 (2d Cir. 2012) (citation, quotation marks, and alteration omitted).
Defendants also contend that the award violates due process. Statutory damages
may violate due process where “the penalty prescribed is so severe and oppressive as to be
wholly disproportionate to the offense and obviously unreasonable.” St. Louis, I.M. & S. Ry.
Co. v. Williams, 251 U.S. 63, 67–68 (1919). Because Congress specifically determined the
appropriate statutory range for damages in trademark and copyright actions, a court’s review of
such a reward “is extraordinarily deferential.” Zomba Enters., Inc. v. Panorama Records, Inc.,
491 F.3d 574, 587 (6th Cir. 2007); see Eldred v. Ashcroft, 537 U.S. 186, 212 (2003) (“[I]t is
generally for Congress, not the courts, to decide how best to pursue the Copyright Clause’s
objectives.”). “[I]n the specific context of statutory damages under the Copyright Act [and
31
Lanham Act], Congress has placed an upper bound on the damages that a jury can award, which
mitigates the risk of a truly untethered award.” Agence Fr. Presse, 2014 WL 3963124, at *15.
The jury’s award was within the range appropriate for willful infringement. In
creating that range, one of Congress’s goals was “to discourage wrongful conduct.” F.W.
Woolworth, 344 U.S. at 233. Although the award was large, it reflects an amalgam of ten
separate trademark infringement claims and 142 separate copyright infringement claims. The
jury determined that the upper limit of statutory damages was appropriate for Plaintiffs’
trademark claims, but exercised its discretion in awarding $100,000 out of a possible $150,000
on Plaintiffs’ copyright claims. Under these circumstances, an award of this magnitude was
foreseeable and is not “so severe and oppressive as to be . . . obviously unreasonable.”
Williams, 251 U.S. at 67–68.
Defendants also contend that the award violates the factors set out in BMW of
North America Inc. v. Gore. See 517 U.S. 559, 570 (1996). Although not yet considered by the
Second Circuit, other circuits agree that the Gore factors are inapplicable to statutory damages
awards. See Sony BMG Music Entm’t. v. Tenenbaum, 719 F.3d 67, 70–71 (1st Cir. 2013)
(“Williams applies to awards of statutory damages . . . while Gore applies to awards of punitive
damages . . . .”); Capitol Records, Inc. v. Thomas-Rasset, 692 F.3d 899, 907 (8th Cir. 2012)
(holding that the application of the Gore factors to statutory damages would be “nonsensical”);
Zomba Enters., 491 F.3d 588; accord Arista Records LLC v. Usenet.com, Inc., 2010 WL
3629587, at *4 (S.D.N.Y. Sept. 16, 2010).
IV.
Partial Final Judgment
Plaintiffs move for partial final judgment under Federal Rule of Civil Procedure
32
54(b). Because this Opinion & Order resolves all outstanding motions, no further issues need to
be addressed. Accordingly, this motion is denied as moot.
V.
Prejudgment Interest
Plaintiffs move for prejudgment interest. In trademark cases, awarding
prejudgment interest “is within the discretion of the trial court and is normally reserved for
‘exceptional’ cases.” Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 263–64 (2d Cir. 2014)
(citation omitted). For copyright, the question is unresolved in this Circuit, see Psihoyos v. John
Wiley & Sons, Inc., 2013 WL 1285153, at *5 n.5 (S.D.N.Y. Mar. 29, 2013), but district courts
hold that prejudgment interest may be awarded to “achieve the goal of restoring a party to the
condition it enjoyed before the injury occurred,” Barclays Capital Inc. v. Theflyonthewall.com,
700 F. Supp. 2d 310, 329 (S.D.N.Y. 2010) (citation omitted), rev’d in part on other grounds 650
F.3d 876 (2d Cir. 2011).
Plaintiffs contend that prejudgment interest is warranted based on the scope of
Defendants’ counterfeiting, their willfulness, and their failure to comply with court orders.
Defendants counter that the verdict already covers Plaintiffs’ losses and that this litigation was
prolonged by both sides.
This Court declines to award prejudgment interest. Although the jury found that
Defendants willfully infringed, “[t]he sizable damages already levied against [Defendants],
without the addition of pre-judgment interest, are sufficient to fully compensate Plaintiffs for
their injuries.” Capitol Records, Inc. v. MP3tunes, LLC, 2015 WL 13684546, at *4 (S.D.N.Y.
Apr. 3, 2015); see also In Design v. K-Mart Apparel Corp., 13 F.3d 559, 569 (2d Cir. 1994),
overruled on other grounds by Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994) (upholding district
33
court’s denial of prejudgment interest “in light of [plaintiff’s] sizable damage award and the lack
of . . . initiative . . . to shorten this litigation”); Coty Inc. v. Excell Brands, LLC, 277 F. Supp. 3d
425, 469–70 (S.D.N.Y. 2017) (declining to award prejudgment interest in trademark case).
VI.
Permanent Injunction
A. Legal Standard
The Copyright Act and Lanham Act provide for permanent injunctions. See 17
U.S.C. § 502(a); 15 U.S.C. § 1116. Such relief is not automatic. See Silverstein v. Penguin
Putnam, Inc., 368 F.3d 77, 84 (2d Cir. 2004) (injunctive relief “is an extraordinary remedy” and
“not compelled”). A plaintiff must demonstrate: (1) irreparable injury in the absence of an
injunction, (2) the inadequacy of monetary damages alone, (3) that “the balance of hardships tips
in [its] favor,” and (4) that a permanent injunction would not disserve the public interest. U.S.
Polo Ass’n, Inc. v. PRL USA Holdings, Inc., 800 F. Supp. 2d 515, 539 (S.D.N.Y. 2011) (citing
Salinger v. Colting, 607 F.3d 68, 80 (2d Cir. 2010)). “[C]ourts must not simply presume
irreparable harm. . . . Rather, plaintiffs must show that, on the facts of their case, the failure to
issue an injunction would actually cause irreparable harm.” Salinger, 607 F.3d at 82.
“Permanent injunctions are generally granted where liability has been established
and there is a threat of continuing infringement.” Complex Sys., Inc. v. ABN AMRO Bank
N.V., 2014 WL 1883474, at *11 (S.D.N.Y. May 9, 2014) (citation and alterations omitted). “In
many instances, injunctive relief may be the best or only way to preserve the exclusivity of a
copyright.” Silverstein, 368 F.3d at 84. A district court must ensure that a permanent injunction
is “narrowly tailored to fit specific legal violations” and does not “impose unnecessary burdens
on lawful activity.” Starter Corp., 170 F.3d at 299 (citation omitted).
34
B. Need for an Injunction
Plaintiffs have established the need for a permanent injunction. Evidence
presented at trial and in post-trial motions reveals that Defendants continue to sell counterfeits.
(See Trial Tr. 1026:9–1031:6; Decl. of Jeffrey M. Gould, BDB II, ECF No. 420 (“Gould Decl.”)
¶ 3.) The jury’s willful infringement determination and Defendants’ continuing infringement
post-verdict demonstrate that Plaintiffs are likely to suffer injury in the absence of an injunction
and that money damages alone are insufficient. See Warner Bros. Entm’t Inc. v. RDR Books,
575 F. Supp. 2d 513, 553 (S.D.N.Y. 2008). Defendants have been on notice of their
infringement for years but continue to sell counterfeits. This “hardly suggests that [they] will
refrain from infringing Plaintiffs’ copyright[s] in the future.” See Hounddog Prods., LLC v.
Empire Film Grp., Inc., 826 F. Supp. 2d 619, 634 (S.D.N.Y. 2011), report and recommendation
adopted.
The balance of hardships tips in Plaintiffs’ favor each time Defendants sell an
infringing work. “The only possible harm to Defendant[s] is the loss of the chance to sell an
infringing book, but the law does not protect this type of hardship.” Warner Bros., 575 F. Supp.
2d at 553; see WPIX, Inc. v. ivi, Inc., 691 F.3d 275, 287 (2d Cir. 2012) (“[A]n infringer of
copyright cannot complain about the loss of ability to offer its infringing product.” (citation
omitted)). And a permanent injunction would not disserve the public interest as it would prevent
the proliferation of counterfeit works.
In opposition, Defendants argue that they take all reasonable steps to protect
against infringement. But those platitudes are contradicted by Defendants’ history and current
conduct. Defendants do not grapple with the fact that they have been caught selling counterfeits
35
even after allegedly improving their practices. The jury found Defendants’ conduct willful—
emails showed that Defendants realized they might be selling counterfeits but willfully blinded
themselves to that possibility. “Courts are free to assume that past conduct is highly suggestive
of the likelihood of future violations.” United States v. Carson, 52 F.3d 1173, 1184 (2d Cir.
1995) (citation and quotation marks omitted). Accordingly, Defendants must be enjoined.
Defendants also contend that an injunction prohibiting them from selling or
renting counterfeit books would be inappropriate because like other large textbook distributors,
they occasionally sell a counterfeit copy despite their best efforts. Instead, Defendants propose
an injunction requiring that they “take all reasonable steps” to prevent infringement. But the
history of these Defendants over more than a decade demonstrate that such a vague and
aspirational undertaking would be tantamount to no injunction at all. It would not protect
Plaintiffs’ rights and would spawn additional litigation over compliance with an amorphous
standard. The time has come for an absolute bar. Trademark and copyright law prohibits all
infringement and does not just oblige businesses to “take reasonable steps.” Finally, enjoining
infringement by Defendants would only be improper if “compliance [was] beyond the realm of
possibility, not just difficult to achieve.” Nat’l Basketball Ass’n v. Design Mgmt. Consultants,
Inc., 289 F. Supp. 2d 373, 377 (S.D.N.Y. 2003) (citation omitted). Defendants fail to establish
that compliance is impossible. It may be burdensome, but the best way to prevent future
infringement is to enjoin future infringement.
C. Scope of Injunction
Defendants argue that it would be improper to enjoin those Smyres’ entities which
are not Defendants in this litigation. Under Federal Rule of Civil Procedure 65, an injunction
36
may bind those who receive actual notice, the parties, the parties’ officers, agents, servants,
employees, and attorneys, and “other persons who are in active concert or participation with” any
of the above. Fed. R. Civ. P. 65(d)(2). “A permanent injunction, through the automatic
operation of Rule 65(d)(2), may bind a non-party who is in active concert or participation with
the parties.” Ecopetrol S.A. v. Offshore Expl. & Prod. LLC, 172 F. Supp. 3d 691, 699 (S.D.N.Y.
2016). “Courts in this Circuit have found ‘active concert’ between non-parties and alreadyenjoined parties in cases where an enjoined party is substantially intertwined with a non-party,
including the shared occupation of office space, payment of employee expenses between the
non-party and enjoined party, considerable control by the enjoined party over the non-party’s
operations, and other substantial interconnections . . . .” In re Sledziejowski, 533 B.R. 408, 424
(Bankr. S.D.N.Y. 2015); see also N.Y. by Vacco v. Operation Rescue Nat’l, 80 F.3d 64, 70 (2d
Cir. 1996); Vuitton et Fils S.A. v. Carousel Handbags, 592 F.2d 126, 130 (2d Cir. 1979).
The trial evidence demonstrates that Smyres owns and/or controls all twenty-five
entities that Plaintiffs seek to enjoin, and that each plays some role in his textbook distribution
enterprise. (Trial Tr. 769:21–771:5, PX 1135.) Although Smyres does not own Matasa Agila
Holdings (“Matasa”), the evidence shows that Matasa conducts back-end operations for
Defendants’ rental business, works out of Defendants’ warehouse, has no employees of its own,
and is managed by Defendants on a day-to-day basis. (Trial Tr. 782:9–785:25.) Therefore,
enjoining all twenty-five entities is warranted and would provide the clarification necessary to
ensure compliance and enforcement.
Defendants also dispute that provision in the proposed injunction preventing them
from making assignments or transfers or forming new entities or associations outside of the
37
ordinary course of business with the purpose or effect of circumventing their payment
obligations. Defendants argue that enjoining transfers “with the effect of” reducing their ability
to pay is vague and threatens to block legitimate transactions. This objection is unpersuasive.
The proposed language of the injunction makes clear that this provision applies only to transfers
outside of the ordinary course of business. Reasonable businesspeople understand what is and
what is not in the ordinary course of business.
On the other hand, certain elements of Plaintiffs’ proposed relief push the
envelope too far. This Court may not “restrain the defendants from engaging in legal conduct, or
from engaging in illegal conduct that was not fairly the subject of the litigation.” City of New
York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 145 (2d Cir. 2011). Plaintiffs request that
going forward, Defendants be required to send Plaintiffs suspected counterfeit books they
receive and notify Plaintiffs of the source of those books, the source’s contact information, and
Defendants’ purchase price. When pressed at oral argument whether Defendants’ return of
counterfeits to suppliers would constitute an illegal distribution under the Copyright Act,
Plaintiffs acknowledged that it was an unresolved question. (Hr’g Tr. 54:3–9.) While Plaintiffs
contend that this provision would help interdict the sale of counterfeits, it has the effect of
enlisting Defendants in Plaintiffs’ efforts to determine if other entities are selling counterfeit
textbooks. Because Plaintiffs have not shown how this provision would restrain Defendants’
illegal conduct, nor provided authorities for such relief, this Court declines to include such a
provision in the permanent injunction. However, Defendants will be required to purge all
counterfeits currently in their inventory, which is standard relief under the Copyright Act and
Lanham Act.
38
Plaintiffs also ask that Defendants be required to provide a sworn declaration of
compliance with this Court’s injunction within 90–120 days from its issuance, and annually for
ten years thereafter. Defendants object to providing compliance reports for ten years. Courts
commonly require a certificate of compliance with an injunction. See Triangl Grp. Ltd. v.
Jiangmen City Xinhui Dist. Lingzhi Garment Co. Ltd., 2017 WL 2831025, at *4 (S.D.N.Y. June
22, 2017). Defendants will be required to provide such a report within 120 days and annually
thereafter for five years.
Finally, Plaintiffs ask that Defendants be required to provide notice of this
Permanent Injunction to all entities that it conducts business with, including Amazon, Barnes &
Noble, and eBay. But the authorities cited for such a provision concern false advertising and
ordered a corrective advertising campaign as a remedy. That is distinguishable from this case,
and this Court declines to include such a provision.
VII.
Disposition
Plaintiffs move for an order requiring Defendants to surrender to Plaintiffs all
suspected counterfeits of Plaintiffs’ works currently in their possession, custody, or control.
Plaintiffs agree to return any works determined not to be counterfeit. If Plaintiffs determine that
a work is counterfeit, they seek to impose on Defendants the requirement to notify Plaintiffs of
the source of the work and its purchase price.
Under the Copyright Act, “[a]s part of a final judgment or decree, the court may
order the destruction or other reasonable disposition of all copies . . . found to have been made
or used in violation of the copyright owner’s exclusive rights.” 17 U.S.C. § 503(b). Under the
Lanham Act, where a trademark violation has been established, a court may order infringing
39
material be “delivered up and destroyed.” 15 U.S.C. § 1118; see Jab Distrib., LLC v. Home
Linen Collections, 2016 WL 1255729, at *4 (E.D.N.Y. Mar. 30, 2016) (collecting cases). In
opposition, Defendants agree to destroy infringing materials and provide a certificate of
destruction, but ask that they not be required to deliver those materials to Plaintiffs, as they
allege it would be more costly and may lead to further litigation.
Requiring forfeiture is “discretionary relief” but “particularly appropriate where a
court seeks to prevent future infringements.” BMG Music v. Pena, 2007 WL 2089367, at *6
(E.D.N.Y. July 19, 2007); see also Rogers v. Koons, 960 F.2d 301, 313 (2d Cir. 1992) (holding
that requiring a defendant to turn over infringing works “is an equitable remedy issued under the
broad powers vested in a trial judge”).
Given Defendants’ long history of infringement, their breach of the Settlement
Agreement, and their distribution of counterfeit works during trial and post-verdict, a disposition
of infringing materials is the safest option to ensure Plaintiffs’ rights are protected. See
Hounddog Prods., 826 F. Supp. 2d at 624–25 (requiring defendants turn over infringing materials
based on their “continuing exploitation . . . rais[ing] a significant risk of future copyright
infringement”). Defendants asserted at trial how difficult it often is to determine which books
are counterfeits. Accordingly, Defendants will be required to send all suspect counterfeits
currently in their inventory to Plaintiffs at Defendants’ sole cost and expense. However,
Defendants will not be required to reveal where they purchased the works or the price they paid
as Plaintiffs offer no authority for this relief.
VIII.
Attorneys’ Fees and Costs
Plaintiffs move for an award of attorneys’ fees and costs under a trident of
40
authorities: (i) the fee-shifting provision of the Settlement Agreement, (ii) 17 U.S.C. § 505 for
copyright infringement, and (iii) 15 U.S.C. § 1117(a) for trademark infringement. Plaintiffs seek
approximately $5,910,000 in fees and $852,000 in costs. (See Declaration of Matthew J.
Oppenheim, BDB II, ECF No. 438 (“Oppenheim Decl.”), ¶¶ 20, 38.) Defendants contend that an
award of attorneys’ fees is inappropriate and alternatively argue that Plaintiffs’ fees and costs are
excessive.
A. Legal Standard
“In determining the amount of a fee award, district courts are to calculate the
‘presumptively reasonable fee.’” Capitol Records, Inc. v. MP3tunes, LLC, 2015 WL 7271565,
at *1 (S.D.N.Y. Nov. 12, 2015) (citing Simmons v. N.Y.C. Transit Auth., 575 F.3d 170, 172 (2d
Cir. 2009)). “A variety of factors informs the court’s determination of whether a requested
amount of attorneys’ fees is reasonable or unreasonable, including the difficulty of the questions
involved; the skill required to handle the problem; the time and labor required; the lawyer’s
experience, ability and reputation; the customary fees charged by the Bar for similar services;
and the amount involved.” F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1263
(2d Cir. 1987) (citation and quotation marks omitted). Courts aim to discern the “so-called
‘lodestar’ figure, which is arrived at by multiplying the number of hours reasonably expended on
the litigation by a reasonably hourly rate.” Kirsch, 148 F.3d at 172 (citation, quotation marks,
and alteration omitted).
Absent unusual circumstances, the submission of billing records is a
“‘prerequisite’ for the award of fees.” Scott v. City of New York, 626 F.3d 130, 133 (2d Cir.
2010) (citation omitted). The movant bears the burden of justifying the reasonableness of
41
requested fees. See Chambless v. Masters, Mates & Pilots Pension Plan, 885 F.2d 1053, 1059
(2d Cir. 1989). “As a concession to the mortality of judges, the law does not require a line-item
review.” Campbell v. Mark Hotel Sponsor, LLC, 2012 WL 4360011, at *2 (S.D.N.Y. Sept. 13,
2002); see also Lunday v. City of Albany, 42 F.3d 131, 134 (2d Cir. 1994) (courts need not “set
forth item-by-item findings concerning what may be countless objections to individual billing
items”). Instead, a court may “use a percentage deduction as a practical means of trimming fat
from a fee application.” McDonald ex rel. Prendergast v. Pension Plan of the NYSA-ILA
Pension Tr. Fund, 450 F.3d 91, 96 (2d Cir. 2006) (citation and quotation marks omitted).
B. Fees Based on Breach of the Settlement Agreement
Plaintiffs anchor one branch of their fee request to Defendants’ breach of the
Settlement Agreement. In March 2016, this Court adopted a Magistrate Judge’s finding that
Paragraph 17(a) of the Settlement Agreement unambiguously provided that in the event of a
breach, the breaching party would be liable to pay damages in the form of attorney’s fees and
costs incurred by the non-breaching party. See John Wiley & Sons, 2016 WL 1216583, at *2–3.
In adopting that finding, this Court determined that Defendants breached the forum selection
clause in the Settlement Agreement by filing suit against Plaintiffs in Ohio. John Wiley & Sons,
2016 WL 1216583, at *3. At trial, the jury determined that Defendants breached the Settlement
Agreement’s provision prohibiting the sale or importation of counterfeit books. (See PX127 ¶ 5;
Verdict, at 16.)
“As a general matter of New York law . . . when a contract provides that in the
event of litigation the losing party will pay the attorneys’ fees of the prevailing party, the court
will order the losing party to pay whatever amounts have been expended by the prevailing party,
42
so long as those amounts are not unreasonable.” F.H. Krear, 810 F.2d at 1250. “Because a feeshifting clause can produce perverse incentives for a litigant . . . courts must scrutinize fee
requests to ascertain whether they are reasonable.” Diamond D Enters. USA, Inc. v. Steinsvaag,
979 F.2d 14, 19 (2d Cir. 1992).
Defendants contend that Plaintiffs’ fee request based on breach of the Settlement
Agreement is improper because their request is not for the amount of fees that Plaintiffs actually
paid, but is instead based on a lodestar calculated by the total number of hours logged and
Plaintiffs’ counsel’s regular hourly rates. Plaintiffs’ counsel acknowledges that this lodestar
calculation does not reflect what Plaintiffs are obligated to pay. Instead, Plaintiffs will pay their
attorneys based on an undisclosed discounted rate coupled with a success fee arrangement.
(Oppenheim Decl. ¶ 19.) Defendants rely on the Second Circuit’s holding that a “court will
order the losing party to pay whatever amounts have been expended by the prevailing party, so
long as those amounts are not unreasonable.” F.H. Krear, 810 F.2d at 1263 (emphasis added).
Because Plaintiffs’ counsel does not disclose what Plaintiffs have paid, Defendants contend that
the fee application is inadequate.
Defendants misread F.H. Krear and the other decisions they rely on. Those
authorities simply require that a plaintiff not “demand from [the opposing party] greater
expenses than [it] has itself incurred.” Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine
Host Corp., 418 F.3d 168, 179 (2d Cir. 2005). Those decisions do not require that the lodestar
hourly rates harmonize with the hourly rates the client is actually paying. In other words, a
lodestar calculation is only impermissible where it exceeds the amount the client is obligated to
pay. For example, in Parker Hannifin Corp. v. North Sound Properties, the district judge took
43
issue with the fee application because it requested a lodestar amount nearly twice what the client
was obligated to pay. 2013 WL 3527761, at *2–3 (S.D.N.Y. 2013) (“[A] fee award must be
capped . . . at whatever amount the plaintiff will owe counsel under their retainer agreement.”).
That Plaintiffs’ counsel’s hourly billings do not match the fees that Plaintiffs
actually pay does not invalidate the fee application. As Plaintiffs’ counsel’s declaration makes
clear, the discounted rate that Plaintiffs are responsible for paying together with the percentage
fee of the verdict, will exceed the amount of the lodestar. (Oppenheim Decl. ¶ 19.)
C. Fees Based on Copyright and Trademark Violations
Plaintiffs contend that fees are also warranted under the Copyright and Lanham
Acts. Under the Copyright Act, “the court may . . . award a reasonable attorney’s fees to the
prevailing party as part of the costs.” 17 U.S.C. § 505. “Fee awards are not ‘automatic’ or
granted ‘as a matter of course,’ but rather are committed to the discretion of the court.” Barcroft
Media, Ltd. v. Coed Media Grp., LLC, 2018 WL 357298, at *1 (S.D.N.Y. Jan. 10, 2018) (citing
Fogerty, 510 U.S. at 533).
In 2016, the Supreme Court clarified the standard for awarding attorneys’ fees in
copyright cases. See Kirtsaeng v. John Wiley & Sons, Inc., 136 S. Ct. 1979 (2016). In
Kirtsaeng, the Supreme Court stressed that courts must give “substantial weight” to the
“objective reasonableness” of a party’s litigating position. Kirtsaeng, 136 S. Ct. at 1988.
However, objective reasonableness is not “controlling”—a district court may also “take into
account a range of considerations beyond the reasonableness of litigating positions,” such as
“frivolousness, motivation, . . . and the need in particular circumstances to advance
considerations of compensation and deterrence.” Kirtsaeng, 136 S. Ct. at 1959, 1988 (citing
44
Fogerty, 510 U.S. at 534 n.19). Accordingly, “in any given case a court may award fees even
though the losing party offered reasonable arguments. . . . For example, a court may order feeshifting because of a party’s litigation misconduct, whatever the reasonableness of his claims or
defenses. . . .Or a court may do so to deter repeated instances of copyright infringement . . . .”
Kirtsaeng, 136 S. Ct. at 1988–89. A court “retains discretion, in light of [all] factors, to make an
award even where the losing party advances a reasonable claim or defense.” Kirtsaeng, 136 S.
Ct. at 1983.
Here, fee-shifting is appropriate under the Copyright Act. Defendants took
unreasonable positions throughout this litigation. “[T]he courts of this circuit have generally
concluded that only those claims that are clearly without merit or otherwise patently devoid of
legal or factual basis ought to be deemed objectively unreasonable.” Silberstein v. Fox Entm’t
Grp., Inc., 536 F. Supp. 2d 440, 444 (S.D.N.Y. 2008) (citation omitted). Defendants provoked
this lawsuit by filing the Ohio Action despite the clear language in the Settlement Agreement
that all further litigation would be handled “in the federal or state courts located in the state of
New York.” (PX127 ¶ 19.)
In Book Dog Books II, Defendants pled 52 affirmative defenses, many of which
were previously stricken in Book Dog Books I. Then, in their proposed jury instructions,
Defendants requested separate instructions on six affirmative defenses: statute of
limitations/laches, innocent infringement, excessive statutory damages, lack of standing,
preemption, and bankruptcy discharge. (See Joint and Independent Proposed Jury Instructions,
BDB II, ECF No. 379-1.) However, none of those affirmative defenses were proper. Defendants
presented no evidence that Plaintiffs learned of their claims more than three years before filing
45
Book Dog Books II. Standing was an element of Plaintiffs’ case-in-chief, and innocent
infringement was an element of damages. Further, “excessive statutory damages,”
“preemption,” and “preclusion” are all matters of law for the court, not the jury. This Court
denied all six requests to charge affirmative defenses. This was another frolic that Defendants
foisted on the Court and Plaintiffs.
In closing argument, Defendants’ counsel acknowledged that Defendants sold at
least some of the works at issue. Fourteen titles bore Defendants’ stickers, leading counsel to
concede “it is more likely than not . . . that we distributed these books.” (Trial Tr. 3044:18–20.)
Defendants reiterated this concession at argument on the post-trial motions. (See Hr’g Tr.
68:24–69:2 (“There are a number of works in this case they bought directly from the defendants.
There are a number of books in this case that bear our stickers. There are books for which they
have evidence.”). But at trial, Defendants attempted to advance the untenable position that
Plaintiffs could not prove these particular works were actually counterfeit. They argued that
Plaintiffs’ representatives—employees whose duties are to identify counterfeit works—could not
differentiate between legitimate and illegitimate copies of their own textbooks. (See Trial Tr.
3046:1–8.) The failure to remove claims that could not be disputed from the jury’s consideration
was emblematic of the “give no quarter” approach taken by Defendants. See We Shall
Overcome Found. v. The Richmond Org., Inc., 2018 WL 3629597, at *5 (S.D.N.Y. July 31,
2018) (awarding fees based on “objectively unreasonable” litigating positions); Beastie Boys v.
Monster Energy Co., 112 F. Supp. 3d 31, 42 (S.D.N.Y. 2015) (finding defendant’s refusal to
admit clear copyright infringement objectively unreasonable).
Further, Defendants’ litigation conduct merits an award of attorneys’ fees under
46
the Copyright Act. See Matthew Bender & Co. v. West Publ’g. Co., 240 F.3d 116, 124–25 (2d
Cir. 2001) (a court may award fees if “a party’s conduct is unreasonable”) (emphasis original).
While there were many abuses, the paradigm of Defendants’ scorched-earth approach was their
willful concealment of business entities and profit distribution agreements, which required this
Court to issue an adverse inference instruction. Even then, this Court afforded Defendants the
opportunity to avoid such an instruction by reopening discovery so that Defendants could come
clean on their financial machinations. (See Scheduling Order, ECF No. 272.) But they doubled
down on their obstructive tactics. During trial, this Court explained why an adverse inference
instruction was necessary. (Trial Tr. 2810:20–2814:19.) Through an anonymous source,
Plaintiffs learned weeks before trial that Defendants had violated the Court’s Orders to reveal
“any entity” through which they conduct their businesses, to “produce their financials ‘in as
accessible and clear a form as possible,’” and to reveal “‘all distributions or other payments . . .
by any of the defendants to any other individual and/or entities that received distributions or
payment from profits.’” (Trial Tr. 2811:9–25 (citation omitted).) Defendants did not disclose
the existence of Matasa, the rental arm for Book Dog Books, or certain equity participation
agreements.
Aside from Defendants’ discovery evasions, this Court has described Defendants’
incomprehensible decision to plead 52 affirmative defenses in Book Dog Books II knowing that
many had been stricken in Book Dog Books I. This profligate pleading led to rebriefing at the
motion in limine stage. Finally, this Opinion & Order has detailed Defendants’ obsessive
relitigation of the Chegg and MBS spreadsheets. (See Section II.E.)
Defendants argue that their litigating positions were reasonable and stress that the
47
Magistrate Judge accepted their argument that Plaintiffs could not establish distribution for
certain works. The fact that Defendants raised a few reasonable arguments in an ocean of
unreasonable ones does not excuse their conduct. See Univ. Instruments Corp. v. Micro Sys.
Eng’g, Inc., 2018 WL 748871, at *2 (N.D.N.Y. Feb. 7, 2018) (granting attorneys’ fees where
party “litigated this case in an unreasonable manner that exacerbated the issues to be resolved
and the expenses incurred by all parties”); Megna v. Biocomp Labs. Inc., 225 F. Supp. 3d 222,
225 (S.D.N.Y. 2016). In briefing, Defendants do not address their conduct and how that factor
should be assessed in determining fees.
While Defendants cite Barcroft Media, that court declined to award fees because
the defendant “did not waste the [c]ourt’s resources,” “readily abandoned an argument that the
[c]ourt found unpersuasive,” “did not exhibit bad faith,” and upon receiving a cease-and-desist
letter “promptly took down all potentially infringing content . . . and implemented mechanisms
for preventing future infringement.” Barcroft Media, 2018 WL 357298, at *2, *3. The behavior
described there is diametrically opposite to the antics Defendants engaged in here.
Awarding fees is also appropriate based on the jury’s finding of willful
infringement for all works at issue. See Kepner-Tregoe, Inc. v. Vroom, 186 F.3d 283, 289 (2d
Cir. 1999) (finding fees warranted “based on the court’s finding of willfulness”). And fees are
warranted because Defendants are repeat infringers who were caught selling counterfeits over the
last decade and up to the present time. See Kirtsaeng, 136 S. Ct. at 1989 (“[A] court may [award
fees] to deter repeated instances of copyright infringement. . . .”); Beastie Boys, 112 F. Supp. 3d
at 45 (finding fees appropriate for deterrence)
The Lanham Act permits an award of attorneys’ fees “in exceptional cases.” 15
48
U.S.C. § 1117(a). “As the Supreme Court has explained with regard to the identically worded
fee-shifting provision of the patent laws, ‘an ‘exceptional’ case is simply one that stands out
from others with respect to substantive strength of a party’s litigating position (considering both
the governing law and the facts of the case) or the unreasonable manner in which the case was
litigated.’” Lightbox Ventures, LLC v. 3rd Home Ltd., 2018 WL 1779346, at *16 (S.D.N.Y.
Apr. 13, 2018) (citing Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749,
1756 (2014)). “As in the comparable context of the Copyright Act, ‘[t]here is no precise rule or
formula for making these determinations,’ but instead equitable discretion should be exercised . .
. .” Octane Fitness, 134 S. Ct. at 1756–57 (citing Fogerty, 510 U.S. at 534.)
For the reasons previously described, this case is also exceptional under the
Lanham Act. See Romeo & Juliet Laser Hair Removal, Inc. v. Assara I LLC, 2016 WL
1328936, at *3 (S.D.N.Y. Apr. 5, 2016) (finding trademark case exceptional based on “bad faith
litigation tactics”); Cognex Corp. v. Microscan Sys., Inc., 2014 WL 2989975, at *4 (S.D.N.Y.
June 30, 2014) (holding patent case exceptional based on weak defenses, “objectively high
likelihood” that defendants’ infringed plaintiffs’ patent, and defendants’ “unreasonable litigation
tactics that have wasted the [c]ourt’s time and have required plaintiffs to expend significant
resources”).
D. Plaintiffs’ Rates and Hours Billed
“A reasonable hourly rate is a rate in line with prevailing rates in the community
for similar services by lawyers of reasonably comparable skill, expertise, and reputation.”
McDonald ex rel Prendergast, 450 F.3d at 96 (citation and alterations omitted). “The court may
determine the reasonable hourly rates by relying both on its own knowledge of comparable rates
49
charged by lawyers in the district and on evidence proffered by the parties.” Congregation
Rabbinical Coll. of Tartikov, Inc. v. Vill. of Pomona, 188 F Supp. 3d 333, 338 (S.D.N.Y. 2016)
(citation and quotation marks omitted). Plaintiffs’ counsel’s hourly rates range from $375–$540
for partners, $325–$465 for senior counsel, $175–$430 for associates, and $100–$245 for
paralegals. (See Oppenheim Decl., ¶ 21 & Ex. 7.) 2 Ohio counsel billed between $290–$400 per
hour, and those rates have been reduced by 40% in Plaintiffs’ counsel’s fee application. (See
Oppenheim Decl. ¶ 30.)
Without any reasoned explanation, Defendants ask that Plaintiffs’ counsel’s
rates be reduced across the board by 50%. But counsel’s rates are in line with rates other courts
have accepted. See Capitol Records, 2015 WL 7271565, at *4 (in complex copyright litigation,
holding that rates between $517–$562 for partners and $315–$397 for associates were
reasonable); Beastie Boys, 112 F. Supp. 3d at 55–57 (approving hourly rates of $675 for
partners, $325–$505 for associates, and $200 for support staff). While a $245 hourly rate for
paralegals is higher than the limit customarily approved in this Circuit, see, e.g., Vaigasi v.
Solow Mgmt. Corp., 2017 WL 3868990, at *4 (S.D.N.Y. Sept. 5, 2017), the aggregate dollar
amount at issue is de minimis.
Given the overall reasonableness of the requested hourly rates, this Court turns to
whether the number of hours expended by counsel was reasonable. Counsel excluded certain
time from its fee request, including: (1) fees incurred in settlement discussions, (2) fees related to
administrative tasks and weekly update calls, (3) matters that were dismissed early on or related
to defending claims in the Ohio action, (4) fees incurred in pre-lawsuit investigations, and (5)
2
Counsel’s rates vary as widely as they do because this litigation spanned more than five years. (Oppenheim Decl.,
¶ 21.)
50
work performed by attorneys who were not directly on the case. (Oppenheim Decl. ¶ 29.)
Plaintiffs’ counsel represents that it excluded “at least $347,039.11” from their fee application.
(Oppenheim Decl. ¶ 31.) This is not inconsequential, but further reductions are warranted.
In determining reasonable hours, a “court looks to its own familiarity with the
case and its experience . . . generally as well as to the evidentiary submissions and arguments of
the parties.” Clarke v. Frank, 960 F.2d 1146, 1153 (2d Cir. 1992) (citation and quotation marks
omitted). “The touchstone inquiry is what a reasonable, paying client would be willing to pay.”
Filo Promotions, Inc. v. Bathtub Gins, Inc., 311 F. Supp. 3d 645, 650 (S.D.N.Y. 2018) (citation
and quotation marks omitted).
First, hundreds of Plaintiffs’ contemporaneous time entries are redacted. (See
Declaration of Robert Glunt, BDB II, ECF No. 446 (“Glunt Decl.”) Exs. 2–3, 9–10.) Some
redacted entries prevent any meaningful review by this Court, such as June 12, 2017’s entry for
“Analyze [REDACTED],” or July 26, 2017’s entry of “Strategize re [REDACTED].” (See
Glunt Decl., Ex. 3, at 12–13.) These entries deprive “the [c]ourt [of] an adequate basis for
reviewing the reasonableness of [the] claimed hours.” Osterweil v. Bartlett, 92 F. Supp. 3d 14,
31 (N.D.N.Y. 2015); see also Capitol Records, 2015 WL 7271565, at *3 (reducing fees based on
vague billing entries).
Second, hundreds of hours reflect internal meetings and conferences. (Glunt
Decl., Ex. 8.) Courts often discount or strike such hours from a fee application, especially when
they seem excessive. See Anthony v. Franklin First Fin., Ltd., 844 F Supp. 2d 504, 509
(S.D.N.Y. 2012) (reducing fees based in part on internal meetings).
Many of Plaintiffs’ counsel’s entries display block-billing. “As a general rule,
51
block billing is disfavored. It impedes the client’s ability to understand the precise time allocable
to the tasks for which it is being billed on an hourly basis.” Beastie Boys, 112 F. Supp. 3d at 53.
Although Plaintiffs’ often parsed out time spent on each task within an entry, block-billing
impeded this Court’s ability to survey 141 pages containing nearly 7,000 time entries.
Plaintiffs seek full reimbursement for approximately two hundred hours of travel
time. (Glunt Decl. Ex. 13.) The custom in this Circuit is to reduce billing rates for travel by
50%. See Spencer v. City of New York, 2013 WL 6008240, at *7 (S.D.N.Y. Nov. 13, 2013);
Adusumelli v. Steiner, 2013 WL 1285260, at *5 (S.D.N.Y. Mar. 28, 2013).
Finally, more time was devoted to some legal tasks than appears reasonable to this
Court. As Defendants point out, when Plaintiffs’ time entries are distilled, counsel, who are
highly experienced in copyright infringement and trademark infringement actions, expended 272
hours preparing jury instructions. In another vein, this Court cannot fathom how attorneys could
spend 467 hours preparing deposition designations when there were nowhere near that number of
hours of deposition in the case. (See Glunt Decl. Exs. 4 & 5.) This excessive expenditure of
time does not square with counsel’s expertise. In response, Plaintiffs contend that the totals
identified by Defendants are misleading because their block-billings include tasks other than
creating jury instructions and deposition designations. But that underscores the problem—
because Plaintiffs combine tasks, no one can easily quantify how long Plaintiffs spent on
particular tasks. “Trial courts need not, and indeed should not, become green-eyeshade
accountants.” Ernest Gene Therapeutic, LLC v. Sloan-Kettering Inst. for Cancer Research, 286
F. Supp. 3d 585, 588 (S.D.N.Y. 2018) (citing Fox v. Vice, 563 U.S. 826, 838 (2011)), report and
recommendation adopted by 2018 WL 3094913 (S.D.N.Y. June 21, 2018).
52
In determining the appropriate amount of fees, this Court balances the concerns
described above with its appreciation that this litigation was complex and hard-fought. See
Arbor Hill Concerned Citizens Neighborhood Ass’n v. Cty. of Albany, 522 F.3d 182, 184 (2d
Cir. 2008) (holding that in awarding fees a district court may consider the “complexity and
difficult of the case”). “It is common practice in this Circuit to reduce a fee award by an acrossthe-board percentage where a precise hour-for-hour reduction would be unwieldly or potentially
inaccurate.” Beastie Boys, 112 F. Supp. 3d at 57 (citation omitted).
Courts often “cut the fee award by 30% across the board due to deficiencies found
in counsel’s billing records.” See, e.g., De La Paz v. Rubin & Rothman, LLC, 2013 WL
6184425, at *4 (S.D.N.Y. Nov. 25, 2013). This Court exercises its informed discretion to reduce
the total attorneys’ fees sought by 30%. 3 See Hines v. City of Albany, 613 F. App’x 52, 55 (2d
Cir. 2015) (summary order) (upholding a reduction of fees by 30% where block-billing
“frustrated meaningful review of the reasonableness of the hours claimed”); Beastie Boys, 112 F.
Supp. 3d at 57 (“Fee reductions around 30% are . . . common in this District to reflect
considerations of whether work performed was necessary, leanly staffed, or properly billed.”).
This yields total attorney fees of $4,137,081.70. While this award is substantial, it reflects work
performed over five years in three lawsuits on behalf of four of the world’s major publishers
bringing 161 separate claims.
E. Costs
Plaintiffs’ counsel seeks $852,493.43 in costs. (See Oppenheim Decl. ¶ 38.)
3
Defendants’ assertion that Plaintiffs’ counsel’s hours should be subject to an across-the-board 90% reduction is
absurd. Given Defendants’ litigation conduct, they should have a clear and informed view of why their adversaries
were required to spend so much time and resources litigating this matter.
53
These include transcripts, service and filing fees, e-discovery, experts, and travel. (See
Oppenheim Decl. Ex. 9.) Defendants challenge (1) the $225,000 accounting expert witness fee,
(2) travel expenses totaling $132,621.84, (3) Lexis costs of $12,857.20, and other minuscule
expenses too trivial for consideration. In total, Defendants seek to cap Plaintiffs’ costs at
$400,000.
“Courts generally award costs to prevailing parties in cases [involving] claims
brought under the Lanham Act.” Farberware Licensing Co., LLC v. Meyer Mktg. Co., 2009 WL
5173787, at *3 (S.D.N.Y. Dec. 30, 2009). “Unlike the more limited costs recoverable under 28
U.S.C. § 1920, costs recoverable under section 505 of the Copyright Act include any ‘reasonable
out-of-pocket expenses incurred by attorneys and ordinarily charged to their clients.’”
TufAmerica Inc. v. Diamond, 2016 WL 1029553, at *7 (S.D.N.Y. Mar. 9, 2016) (citing U.S.
Football League v. Nat’l Football League, 887 F.2d 408, 416 (2d Cir. 1989)); see also Capitol
Records, 2015 WL 7271565, at *6. 4
Defendants’ challenge to the $225,000 accounting expert fee has some merit.
Plaintiffs did not submit any contemporaneous time records for their accounting expert.
Undoubtedly, significant professional time was needed to cut through the Gordian knot of
Defendants’ tangled financial relationships. And Defendants’ concealment of certain financial
transactions assuredly complicated Plaintiffs’ expert’s analysis. But Defendants paid their
4
There is substantial disagreement among courts regarding whether costs under the Copyright Act are limited to the
categories delineated in 28 U.S.C. § 1920. See Clarity Software, LLC v. Fin. Independence Grp., LLC, 2016 WL
3083383, at *6–7 (W.D. Pa. May 31, 2016) (summarizing the conflicting case law). For purposes of this Opinion &
Order, this Court utilizes its prior determination that the Copyright Act permits broader shifting of costs than the
categories listed in § 1920. This holding is in line with “the interests of the Copyright Act [including] raising of
objectively reasonable claims and defenses, which may serve not only to deter infringement but also to ensure that
the boundaries of copyright law are demarcated as clearly as possible in order to maximize the public exposure to
valuable works.” Capitol Records, Inc., 2015 WL 7271565, at *4 (citation, quotation marks, and alteration omitted);
see Kirtsaeng, 136 S. Ct. at 1986 (“[F]ee awards under § 505 should encourage the types of lawsuits that promote
the purposes of the Copyright Act.”).
54
accounting expert only a fraction of $225,000. (See Glunt Decl., Ex. 21.) Accordingly, the
accounting expert fee is reduced to $125,000.
The travel costs incurred in prosecuting this case reflect the fact that Defendants
are located in Ohio, witnesses were located in various cities across the United States, Plaintiffs’
counsel are located in Washington, D.C., and the action was litigated and tried in New York. To
the extent that Plaintiffs’ counsel travelled to New York for conferences and trial, that expense is
offset by the fact that counsel charged lower market rates than most major New York law firms.
Defendants also challenge an award of costs for Lexis fees. “[T]he cost of the
computer service used in the research is no more reimbursable than the cost of the West’s
Keynote Digests and the volumes of the Federal Report and the Federal Supplement that lawyers
used to use (and many still use) to find authority and research issues of law.” BD v. DeBuono,
177 F. Supp. 2d 201, 209 (S.D.N.Y. 2001). Accordingly, this Court declines to award
$12,857.20 in Lexis fees.
While Defendants do not challenge certain other trial costs, including
$112,850.13 for a trial support company and $81,807 for hotel accommodations during trial, this
Court finds them to be excessive. The trial lasted only three weeks. This Court reduces these
specific costs by 30%. This Court has reviewed the remainder of Plaintiffs’ costs and finds them
reasonable. Adjusting Plaintiffs’ costs based on this Court’s analysis, Plaintiffs’ counsel are
awarded $694,096.29 in costs.
IX.
Stay of Enforcement
Perhaps anticipating that their post-trial motions would be unsuccessful,
Defendants also move for a stay of enforcement of any judgment pending appeal without the
55
need to post a supersedeas bond. In the alternative, Defendants ask that they be permitted to post
a security interest in commercial property as a substitute for a bond. Although there is some
question whether Defendants’ motion is timely as no final judgment has been issued and no
appeal taken, the matter has been briefed and there is no need to delay adjudication.
Under Federal Rule of Civil Procedure 62(d), “[i]f an appeal is taken, the
appellant may obtain a stay by supersedeas bond.” Fed. R. Civ. P. 62(d); see 11 Fed. Prac. &
Proc. Civ. § 2905 (3d ed. 2018) (“The stay issues as a matter of right in cases within Rule 62(d),
and is effective when the supersedeas is approved by the court.”). “The bond serves three
purposes: (1) it ensures the judgment debtor may obtain a refund if he or she is meritorious on
appeal . . .; (2) it mitigates any risk that the judgment debtor may not be able to fulfill the
judgment after appeal; and (3) it guarantees that the appellee can recover damages caused by any
delay incident to the appeal, such as interest and costs.” SDF9 Cobk LLC v. AF & AR LLC,
2015 WL 3440259, at *1 (E.D.N.Y. May 27, 2015).
A Court may waive a supersedeas bond “if the appellant provides an acceptable
alternative means of securing the judgment.” In re Nassau Cty. Strip Search Cases, 783 F.3d
414, 417 (2d Cir. 2015) (citation and quotation marks omitted). In Nassau County Strip Search
Cases, the Second Circuit adopted a non-exclusive five-factor test for determining whether to
waive a supersedeas bond:
(1) the complexity of the collection process; (2) the amount of time
required to obtain a judgment after it is affirmed on appeal; (3) the
degree of confidence that the district court has in the availability of
funds to pay the judgment; (4) whether the defendant’s ability to pay
the judgment is so plain that the cost of a bond would be a waste of
money; and (5) whether the defendant is in such a precarious
financial situation that the requirement to post a bond would place
other creditors of the defendant in an insecure position.
56
783 F.3d at 417–18 (citing Dillon v. Chicago, 866 F.2d 902, 904–05 (7th Cir. 1988)). These factors
are meant to “ensure recovery for a party who ultimately prevails on appeal, and to protect the
judgment debtor from risk of losing their money if the decision is reversed.” Nassau Cty. Strip
Search Cases, 783 F.3d at 418.
Defendants ask this Court to apply a four-factor test often used in conjunction
with stays of injunctions. Those factors include likelihood of success on appeal, injury to the
movant, injury to the non-moving party, and the public interest. See Mohammed v. Reno, 309
F.3d 95, 100 (2d Cir. 2002). Although some courts in this Circuit have applied these factors to
cases involving monetary damages, in Nassau County Strip Search Cases the Second Circuit
rejected that practice, holding that the five-factor test “more directly address[es] the primary
purpose of Rule 62(d).” Nassau Cty. Strip Search Cases, 783 F.3d at 418.
This Court agrees with those courts holding the traditional four factors “appl[y]
only when the judgment sought to be stayed is for injunctive or equitable relief.” Moore v.
Navillus Tile, Inc., 2017 WL 4326537, at *4 (S.D.N.Y. Sept. 28, 2017); see also Butler v. Ross,
2017 WL 6210843, at *2 (S.D.N.Y. Dec. 7, 2017) (“[A] motion for a stay of money judgment is
assessed under the announced test for Rule 62(d), which is separate and apart from the test used
when assessing a Rule 62(c) motion.”)
The Nassau County Strip Search Cases factors weigh decisively against granting
Defendants a stay without posting a supersedeas bond. Those factors “contemplate waiving the
requirement of a supersedeas bond because a court is satisfied that the debtor would be able to
pay the judgment with ease.” Butler, 2017 WL 6210843, at *3; see Rivera v. Home Depot USA
Inc., 2018 WL 3105069, at *3 (S.D.N.Y. June 25, 2018) (waiving bond because Home Depot
57
had “extremely deep pockets” and would be able to pay any judgment). Here, Defendants
ground their stay request on their inability to pay the judgment. They provide documentation
showing that the award dwarfs their assets. But “the bond requirement will not be waived solely
on the basis that it will pose a severe financial hardship on the appellant.” 11 Fed. Prac. & Proc.
Civ. § 2905; Butler, 2017 WL 6210843, at *3 (denying waiver of bond where defendant “ple[d]
a case of impecuniosity”). In fact, a concession of inability to pay is often “determinative” in
this inquiry. Moore, 2017 WL 4326537, at *2.
Therefore, the fact that the need to post a bond may impair a business is
irrelevant. “The bond requirement is not designed to protect the judgment debtor’s ability to
continue in business. . . . .” Leevson v. Aqualife USA Inc., 2017 WL 6541766, at *2 (E.D.N.Y.
Dec. 8, 2017) (citation and alteration omitted), report and recommendation adopted by 2017 WL
6550683 (E.D.N.Y. Dec. 21, 2017); accord Allied Erecting & Dismantling Co. v. U.S. Steel
Corp., 2016 WL 1106854, at *17 (N.D. Ohio Mar. 21, 2016) (debtor’s bankruptcy “is precisely
the injury against which a supersedeas bond is designed to protect”). Here, a bond is necessary
to safeguard Plaintiffs’ recovery. See Howard Town Ctr. Developer, LLC v. Howard Univ., 288
F. Supp. 3d 11, 15 (D.D.C. 2017) (requiring full bond partly due to court’s “great concern” with
debtor’s “inability or unwillingness to satisfy the judgment”). Additionally, it appears that
Defendants’ net worth consists largely of illiquid assets, likely complicating any collection
effort.
Defendants cite Texaco Inc. v. Pennzoil Co., where the Second Circuit held that
“denial of a stay of execution unless a supersedeas bond in the full amount of the judgment is
posted can in some circumstances be irrational, unnecessary, and self-defeating [and] reduce . . .
58
appeal to a meaningless ritual.” Texaco, 784 F.2d 1133, 1154 (2d Cir. 1986), rev’d 481 U.S. 1
(1987). However, the Supreme Court’s reversal of Texaco undermines “[a]ny ‘precedential
value’” of that case and “does not justify overlooking [the more recent holding in] Nassau
County [Strip Search Cases].” Moore, 2017 WL 4326537, at *5.
Defendants’ proposal to substitute Defendants’ interest in two warehouses in
place of a $39,031,177.99 bond is inadequate. The value of those warehouses is a trivial fraction
of the obligation imposed by the judgment. See Leevson, 2017 WL 6541766, at *4 (rejecting
equity in a building equal to amount of the judgment). Where courts have permitted interest in
real property in place of a bond, the property was worth substantially more than the judgment,
meaning it provided clear assurance of payment. See Brooktree Corp. v. Advanced Micro
Devices, Inc., 757 F. Supp. 1101, 1105 (S.D. Cal. 1990) (permitting posting of property worth
twice the amount of judgment).
The fifth factor addresses whether requiring Defendants to post bond could
damage other creditors. But this factor requires the debtor to show that their inability to pay
other creditors would stem from the bond itself, not merely from the judgment. See Moore, 2017
WL 4326537, at *2. It “does not envisage waiving the bond requirement because a debtor
simply cannot pay.” Butler, 2017 WL 6210843, at *3. And even if the fifth factor favors a stay
without bond, it does not outweigh the other factors. See Butler, 2017 WL 6210843, at *3;
Moore, 2017 WL 4326537, at *3 (considering the fifth factor “a weak reed on which to premise
an argument that bond requirement should be waived”).
Because the Nassau County Strip Search Cases factors decisively weigh against a
stay of enforcement without the posting of a bond and Defendants fail to offer a sufficient
59
alternative, this Court declines to waive the requirement for a bond in the event that Defendants
appeal.
CONCLUSION
For the foregoing reasons, Defendants’ motions for renewed judgment as a matter
of law, remittitur, a new trial, and a stay of enforcement of judgment are denied. Plaintiffs’
motion for partial final judgment is denied as moot. Plaintiffs’ motion for prejudgment interest
is denied. Plaintiffs’ motions for a permanent injunction, a disposition of infringing materials,
and attorneys’ fees and costs are granted in part and denied in part. Plaintiffs’ counsel are
awarded $4,137,081.70 in attorneys’ fees and $694,096.29 in costs. This Court will issue a final
judgment in the aggregate amount of $39,031,177.99 concurrent with this Opinion & Order. The
Clerk of Court is directed to terminate all pending motions and to mark these cases as closed.
Dated: August 17, 2018
New York, New York
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