Sream Inc. v. West Village Grocery Inc. et al

Filing 40

MEMO ENDORSED ORDER ADOPTING REPORT AND RECOMMENDATIONS for 39 Report and Recommendation. ENDORSEMENT: No objections have been reserved. Today was the last day for filing same. Therefore, the Court accepts the Report and adopts it as the opinion of the Court. Clerk to enter judgment. Remove Docket # from the Court's list of open motions. (Signed by Judge Colleen McMahon on 9/28/2018) (mml) Transmission to Orders and Judgments Clerk for processing.

rl u v
II 'lS''C ,D-1,'Y
...,.

Ii DOCUMENT

"
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

I ELECTRONICALLY FILED
l

i DOC#: _____-+-!---;--

-------------------------------------------------------------x

'.~ :~ · ,'.-~ n: ,r-:n:_JP

SREAM, INC.,

,..,,,,

Plaintiff,
-against-

-

}d lt

....... ---~, _ _ __:_,.;._,_;__ _ _ _ .!

16-CV-2090 {CM} {OTW)

WEST VILLAGE GROCERY INC., et al.,

REPORT & RECOMMENDATION

Defendants.

-------------------------------------------------------------x
ONA T. WANG, United States Magistrate Judge:

To the Honorable Colleen McMahon, Chief United States District Judge:

I.

Introduction
On March 22, 2016, Plaintiff Sream, Inc. {"Sream") brought this action against

Defendants West Village Grocery Inc.; Pinaz Enterprise Inc. a/k/a 6th Ave News & Tobacco
a/k/a Newstand & Tobacco; Digital Palace Inc. a/k/a Digital Palace; Delancey's Orchard LLC
a/k/a/ Freshco Grocery; and Does 1-10, for damages arising under the Lanham Act, 15 U.S.C. §
1051 et seq. {Comp!. ,i 1, ECF 1.) On May 9, 2017, the Court entered a default judgment against
West Village Grocery Inc., Pinaz Enterprise Inc., and Delancey's Orchard LLC as to liability as
they failed to appear in the action. {ECF 22.) The case was referred to Magistrate Judge Barbara
C. Moses on September 18, 2017 for an inquest after default. {ECF 26.) After the default was
granted in favor of Sream, Sream filed a Notice of Voluntary Dismissal as to West Village
Grocery Inc. {ECF 33.) The case was reassigned to me on March 5, 2018. On May 30, 2018, I
directed Sream to submit proposed findings of fact, conclusions of law, and damages
calculations. {ECF 35.) Sream filed Proposed Findings of Fact and Conclusions of Law on July 2,

1/JrjdfJli , . ~k.. ;e,u-,nA ; ; ~ ~ '½ µ
'Jljodi~ ~~~~!'> ✓-r- ~
4; ~ ~
~le ~ ~ 7·«/J
yte;;:::,::~~V6~jA!I
~
P- r _ ~

~~~

f~

1 h~L--._

()_{fl

s-

2018. (ECF 36.) Neither Pinaz Enterprise Inc. ("Pinaz") nor Delancey's Orchard LLC, ("Delancey's
Orchard"), the two remaining defaulting defendants, filed any opposition.
After a careful review of Sream's submissions, I recommend that Sream be awarded
statutory damages of $20,000 against Pinaz and $25,000 against Delancey's Orchard.

II.

Factual Background
This case arises from Sream's allegations that Defendants sold counterfeit glass water

pipes and related materials that were branded with the "RooR" mark, of which Sream is the
exclusive licensee. 1 Martin Birzle d/b/a RooR ("RooR") is a German-based designer and
manufacturer of "smoker's products." (Compl. 1] 11.) These prqducts are "widely recognized
and highly acclaimed" and thus the company is "one of the leading companies in the industry
and has gained numerous awards and recognition for its innovative products and designs. (/d.)
RooR has been producing glass water pipes for "nearly two decades" and their products have "a
significant following and appreciation amongst consumers in the United States." (Id. ,i 12.)
RooR is the exclusive owner of several federally registered and common law trademarks,
including for the word mark RooR and related logos. (Id. ,i 14.) Since at least 2011, Sream has
been the exclusive licensee of the RooR mark in the United States. (Id. 11 13.) Under the
licensing agreement, Sream has manufactured water pipes under the RooR mark and also
advertises, markets, and distributes water pipes, parts, and other smoker's articles "in

1 The facts are based on Sream's allegations and evidentiary support. The allegations are accepted as true, and
Sream is "entitled to all reasonable inferences from the evidence offered," for purposes of its motion for default
judgment. Gray v. Proteus Sports & Racing Cars Ltd., 13-CV-8717, 2014 WL 7330859, at *4 (S D N.Y Dec. 23, 2014)
(quoting FED. R. CIV. P. 55(a)); see also Transatlantic Marine Claims Agency, Inc v. Ace Shipping Corp, 109 F 3d 105,
108 (2d Cir 1997) ("It is, of course, ancient learning that a default judgment deems all the well-pleaded allegations
in the pleadings to be admitted.").

2

association with the RooR mark." (Id.) Because RooR and Sream "have built up and developed
significant goodwill in the entire RooR product line," consumers are willing to pay higher prices
for them. (Id. ,i 14-15.) "For example, a RooR-branded 45 cm water pipe retails for $300 or
more, while a non-RooR product of equivalent size will usually sell for less.than $100." (Id.
,i 15.) Because of the "higher sale value of RooR branded products ... RooR products are

targets of counterfeiters." (Id. ,i 16.) Sream has been granted all enforcement rights to obtain
injunctive and monetary relief for past and future infringement of the RooR marks. (Id. ,i 17.)
Pinaz operates a retail smoke shop, named 6th Avenue News & Tobacco, in Manhattan.
(Id. ,i 7.) Delancey's Orchard also operates a retail smoke shop, named Freshco Grocery, in

Manhattan. (Id. ,i 9.) Sream had been investigating the counterfeit sale of RooR products at
stores similar to those operated by Defendants. {Id. ,i 20.) On April 2, 2015, an investigator
hired by Sream, James Orfanos, purchased a glass pipe bearing the RooR mark from Pinaz for
$15, (Id. ,i 22), after observing four pipes bearing the RooR mark in the store. (Id. Ex. B.) Sream
inspected the purchased pipe and confirmed that it was not an authentic RooR product, and, as
neither Sream nor any other agent had authorized Pinaz to use the RooR Marks, it "was in fact a
counterfeit." (Id. ,i 23.) On April 28, 2015, Orfanos purchased a glass pipe bearing the RooR
mark from Delancey's Orchard for $32.65, (Id. ,i 26), after observing five pipes bearing the RooR
mark in the store. (Id. Ex. D.) Sream inspected the purchased pipe and confirmed that it was not
an authentic RooR product, and, as neither Sream nor any other agent had authorized
Delancey's Orchard to use the RooR Marks, it "was in fact a counterfeit." (Id. ,i 27).
Sream alleges that both Pinaz and Delancey's Orchard intentionally use a mark
confusingly similar to or identical to the RooR mark to confuse customers, to aid in the

3

promotion and sales of its counterfeit products, and "to receive higher profit margins." (Id.
,i,i 19, 30.) Pinaz and Delancey's Orchard have "traded upon and diminished the goodwill of the

RooR Marks" as well as infringed upon RooR's federally registered trademarks. (Id. ,i 32)

Ill.

Procedural Background
Sream filed its Complaint on March 22, 2016, alleging counterfeiting, trademark

infringement, false designation of origin, and unfair competition under the Lanham Act, 15
U.S.C. § 1051 et seq.; trademark dilution under New York State General Business Law§ 360(1);
unlawful deceptive acts and practices under New York State General Business Law§ 349; and
unfair competition under New York State Law. Under its claim for trademark infringement,
Sream alleges that it is "entitled to injunctive relief and to recover Defendants' profits, actual
damages, enhanced profits, and damages, costs, and reasonable attorneys' fees under 15 U.S.C.
§§ 1114 and 1116." (Com pl. ,i 45.) For its claim of trademark counterfeiting, Sream alleges 1t is
entitled to an award of "statutory damages of up to $2,000,000 per mark infringed under 15
U.S.C. § [] 1117(c)(2)." (Id. ,i 54.) Sream further contends that "[i]n the alternative, and at a
minimum, Plaintiff is entitled to injunctive relief and to recover Defendants' profits, actual
damages, enhanced profits, and treble damages, costs, and reasonable attorneys' fees under 15
U.S.C. § [] 1117(b)." (Id. ,i 55.)
The Summons and Complaint were served on both Pinaz and Delancey's Orchard on
March 31, 2016, at their respective stores. (Affidavit of Service at 2, 4, ECF 9.) Pinaz and
Delancey's Orchard failed to timely move, answer, or otherwise respond to the Complaint and
Sream asked the Clerk of Court to enter default against them. (ECF 11.) The Clerk issued
Certificate of Defaults against both on February 1, 2017. (ECF 13, 15.) On March 27, 2017,

4

Sream moved for default judgment. {ECF 19.) On May 9, 2017, Judge McMahon granted the
motion and referred the case to the Magistrate Judge Moses for an inquest on damages. (ECF
22, 26.) The case was reassigned to me on March 5, 2018. I ordered Sream to submit proposed
findings of fact, conclusions of law, and damages calculations by July 2, 2018, with opposition
papers due by July 16, 2018. (ECF 35.) Sream submitted Proposed Findings of Fact and
Conclusions of Law on July 2, 2018. (ECF 36.) Neither Pina;z nor Delancey's Orchard submitted
any papers.
IV.

Discussion
A. Jurisdiction and Venue

This Court has subject matter jurisdiction over federal law claims in this action in
accordance with 28 U.S.C. § 1331 (federal question jurisdiction), 15 U.S.C. §§ 1051 et seq.
{Lanham Act), 28 U.S.C. §§ 1338{a) (trademark) and {b) (unfair competition). This Court has
supplemental jurisdiction over the state law claims in accordance with 28 U.S.C. § 1367 because
the state law claims form part of the same case or controversy as the federal law claims. Venue
is proper in this court in accordance with 28 U.S.C. § 1391(b) and (c).
B. Default Judgment and Inquest Standard

The Clerk of Court must enter default against a defendant who has failed to plead or
otherwise defend an action, and that failure is shown by affidavit or otherwise. FED. R. Clv. P.
55{a). Following a default judgment, all well-pied factual allegations of the complaint, except
those relating to damages, are accepted as true, and "a factual allegation will be deemed not
well-pied only in very narrow, exceptional circumstances." ldeavillage Products Corp. v. Bling

5

Boutique Store, 16-CV-9039 (KMW), 2018 WL 3559085, at *2 (S.D.N.Y. July 24, 2018) (quoting
Trans World Airlines, Inc. v. Hughes, 308 F. Supp. 679, 683 (S.D.N.Y. 1969)).
At an inquest on damages, the plaintiff bears the burden of establishing an amount of
damages with reasonable certainty. RGI Brands LLC v. Cognac Brisset-Aurige, S.A.R.L., 12-CV1369 (LGS) (AJP) 2013 WL 1668206, at *6 (S.D.N.Y. Apr. 18, 2013) (collecting cases). An inquest
into damages may be conducted "on the papers," without an ev1dentiary hearing. See Tamarin
v. Adam Caterers, Inc., 13 F.3d 51, 53-54 (2d Cir. 1993); Fustok v. ContiCommodity Services, Inc.,
873 F.2d 38, 40 (2d Cir. 1989); Maldonado v. La Nueva Rampa, Inc., 10-CV-8195 (LLS) (JLC) 2012
WL 1669341, at *2 (S.D.N.Y. May 14, 2012) ("A hearing is not required where a sufficient basis
on which to make a calculation exists."). In this case, no hearing was requested or held, as
Sream requested an award of statutory damages under the Lanham Act.

C. Statutory Damages

1. Applicable Law
The Lanham Act, 15 U.S.C. § 1051 et seq., permits plaintiffs to elect as a remedy either
actual or statutory damages for the sale of goods with counterfeit marks. 15 U.S.C. § 1117.
Statutory damages may be awarded in the amount of:
(1) not less than $1,000 or more than $200,000 per counterfeit mark per type of goods
or services sold, offered for sale, or distributed, as the court considers just; or
(2) if the court finds that the use of the counterfeit mark was willful, not more than
$2,000,000 per counterfeit mark per type of goods or services sold, offered for sale, or
distributed, as the court considers just. Id.§ 1117(c).

6

Although§ 1117 provides no further guidelines for assessing appropriate statutory
damages, courts generally refer to the factors considered in cases regarding an analogous
provision of the Copyright Act, 17 U.S.C. § 504{c), which provides for statutory damages for
willful infringement of a copyright. See AW Licensing, LLC v. Bao, 15-CV-1373 (KBF), 2016 WL
4137453, at *3 (S.D.N.Y. Aug. 2, 2016); Gucci Am., Inc. v. Duty Free Apparel, Ltd., 315 F. Supp.
2d 511, 520 (S.D.N.Y. 2004). The factors considered by courts include:
(1) "the expenses saved and the profits reaped;" (2) "the revenues
lost by the plaintiff;" (3) "the value of the copyright;" (4) "the
deterrent effect on others besides the defendant;" (5) "whether
the defendant's conduct was innocent or willful;" (6) "whether a
defendant has cooperated in providing particular records from
which to assess the value of the infringing material produced;" and
(7) "the potential for discouraging the defendant."
Gucc, Am. Inc., 315 F. Supp. 2d at 520 (quoting Fitzgerald Pub. Co., Inc. v. Baylor Pub. Co,
Inc., 807 F.2d 1110, 1117 (2d Cir. 1986)).

In cases falling under both statutes, statutory damages against a defendant who acted
willfully are intended to serve the dual role of compensating a plaintiff for injuries and
discouraging wrongful conduct by the defendant and others. Yurman Design, Inc. v. PAJ, Inc.,
262 F.3d 101, 113-14 (2d Cir. 2001); Louis Vuitton Malletier v. Carducci Leather Fashions, Inc.,
648 F. Supp. 2d 501,504 (S.D.N.Y. 2009). ("Where a defendant is shown to have acted willfully,
a statutory award should incorporate not only a compensatory, but also a punitive component
to discourage further wrongdoing by the defendants and others.")
Plaintiffs may also obtain injunctive relief, including an order enjoining defendants from
future sale of goods with the counterfeit marks, "according to the principles of equity and upon
such terms as the court may deem reasonable." 15 U.S.C. § 1116(a); see John Wiley & Sons, Inc.,

7

v. Book Dog Books, LLC, 13-CV-816 (WHP), 2018 WL 3956508, at *4 (S.D.N.Y. July 24, 2018). A

plaintiff is entitled to a permanent injunction if it can demonstrate "(1) actual success on the
merits, and (2) irreparable harm." Gucci Am., Inc. v. Duty Free Apparel, Inc., 286 F. Supp. 2d 284,
290 (S.D.N.Y. 2003). When the defendant is in default, actual success on the merits is
established. Gucci Am., Inc. v. Tyrrell-Miller, 678 F. Supp. 2d 117, 120 (S.D.N.Y. 2008).
Additionally, "[i]n a trademark case, irreparable rnJury is established where there is any
likelihood that an appreciable number of ordinarily prudent purchasers are likely to be misled,
or indeed simply confused, as to the source of the goods in question." CommScope, Inc. v.
Commscope (U.S.A.} Int'/ Group Co., 809 F. Supp. 2d 33, 41 (N.D.N.Y. 2011) (quoting Lobo
Enters., Inc. v. Tunnel, Inc., 822 F.2d 331, 333 (2d Cir. 1987)).The statute also enables a court to

award costs and, in "exceptional cases," reasonable attorneys' fees, to the prevailing party. 15
U.S.C. § 1117(a); see Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247, 265-66 (2d Cir. 2014)
("exceptional" circumstances in Lanham Act cases include willful infringement). In the Second
Circuit, attorneys' fee awards under§ 1117(a) are available to plaintiffs who opt to receive
statutory damages under§ 1117(c). Louis Vuitton Mal/etier S.A. v. LY USA, Inc., 676 F.3d 83, 111
(2d Cir. 2012).
2. Analysis
Sream seeks statutory damages "in a minimum amount of $10,000 per fake water pipe"
found in each Defendant's store, or $40,000 for Pinaz, and $50,000 for Delaney's Orchard. (Pl.'s
Proposed Findings of Fact and Conclusions of Law at 36, filed July 2, 2018, ECF 36.) Pinaz's and
Delancey's Orchard's violations of the trademark law were established by their failure to
"controvert the evidence of counterfeiting alleged in the complaint" or otherwise appear in this
8

action. North Face Apparel Corp. v. Moler, 12-CV-6688 (JGK) (GWG), 2015 WL 4385626, at *6
(S.D.N.Y. July 16, 2015). Moreover, "[b]y virtue of their default [defendants] are deemed to be
willful infringers." Id. (quoting Lane Crawford LLC v. Ke/ex Trading (CA} Inc., 12 Civ. 9190 (GDB)
(AJP), 2013 WL 6481354, at *3 (S.D.N.Y. Dec. 3, 2013)). Thus, in accordance with 15 U.S.C. §
1117(c)(2), Sream is entitled to statutory damages in an amount that the Court considers "just,"
not to exceed $2,000,000 per counterfeit mark, per type of goods or services sold, offered for
sale, or distributed.
Several factors set forth above weigh in favor of granting Sream a lower statutory
damages award than the amount sought. In an inquest on damages in a similar Lanham Act
case brought by Sream, Magistrate Judge Debra A. Freeman recommended that Sream be
awarded statutory damages in the amount of $50,000 per defendant, or $3,333.33 to $4,166.66
per mark. Sream, Inc.

v.

Khan Gift Shop, Inc., 15-CV-2091 (KMW) (DF), 2016 WL 1130610, at *10

(S.D.N.Y. Feb. 23, 2016), adopted by Sream, Inc. v. Khan Gift Shop, Inc. 15-CV-2091 (KMW) (DF),
2016 WL 1169517 (S.D.N.Y. Mar. 22, 2016). Here, as in the prior case, the allegations in Sream's
Complaint do not suggest that either Pinaz or Delancey's Orchard reaped substantial profits
from their sale of counterfeit RooR pipes. The pipes purchased by Orfanos cost $15.00 at Pinaz,
{Comp!. Ex. B.), and $32.65 at Delancey's Orchard. {Comp!. Ex. D.). Assuming sale of all four of
the counterfeit pipes on display in Pinaz's store at $15.00, Pinaz would have earned, at most,
$60.00. And assuming sale of all five of the counterfeit pipes on display in Delancey's Orchard's
store at $32.65, Delancey's Orchard would have earned, at most, $163.25. See Khan Gift Shop,
Inc., 2016 WL 1130610, at *9 {finding that defendants would have made less than $490 in profit

9

..
on the RooR-marked pipes observed in their stores). Moreover, Sream has failed to provide
specific evidence of the revenues that it lost as a result of this counterfeiting.
Nevertheless, Pinaz's and Delancey's Orchard's willful conduct, their failure to
participate in the case, including discovery, and the potential deterrence effect of a higher
statutory damages award, "weighs in favor of granting Plaintiff an award that would be higher
than Plaintiff's actual damages." Id. The Court finds that an award of $20,000 against Pinaz and
$25,000 against Delancey would serve as a specific and general deterrent to others, while
ensuring the Sream does not reap a "windfall" against a small-scale infringer. Id. This amount
"far exceeds the profits that Defendants apparently reaped, but ... acknowledges Defendants'
willful conduct and the importance of deterring potential future infringers." Id. at *10; see Al/Star Marketing Grp, LLC v. Media Brands Co., Ltd., 775 F. Supp. 2d 613, 624-25 (S.D.N.Y. 2011)

(awarding statutory damages of $25,000-$50,000 per mark in the absence of any information
about defendants' earnings or plaintiff's losses). Further, this award of $5,000 per observed
counterfeit pipe will provide sufficient deterrence "by denying defendants the fruits of their
wrongful conduct while at the same time compensating plaintiffs for whatever damage their
marks may have suffered by virtue of the distribution of counterfeit items through the premises
in question." Polo Ralph Lauren, L.P. v. 3M Trading Co., 97-CV-4824 (JSM) (MH), 1999 WL
33740332, at *7 {S.D.N.Y. Apr. 19, 1999) {awarding statutory damages of $25,000 per mark).
3. Injunctive Relief
In its Proposing Findings of Fact and Conclusions of Law, Sream asks the Court to grant
"in accordance with F.R.C.P Rule 65 stopping [Pinaz and Delancey's Orchard] from selling fake
RooR products in the future." (Pl.'s Proposed Findings of Fact and Conclusions of Law at 36.)
10

'

.

Sream has demonstrated that it is entitled to such relief under 15 U.S.C. § 1116(a). It has
achieved success on the merits by virtue of Pinaz's and Delancey's Orchard's defaults as to
liability, and the pleadings demonstrate that an ordinarily prudent customer would be confused
by the source of the counterfeit goods. CommScope, Inc., 809 F. Supp. 2d at 41. Accordingly, I
recommend that the Court enter a permanent injunction enjoining Pinaz and Delancey's
Orchard from further sale or distribution of counterfeit RooR-marked products.

4. Attorneys' Fees and Costs
Sream has demonstrated that it could be entitled to an award of attorneys' fees and
costs under the statute. 15 U.S.C. 1117(a) (attorneys' fees available in "exceptional cases");
Merck Eprova AG, 760 F.3d at 265-66 ("exceptional" circumstances in Lanham Act cases include

willful infringement). Sream has submitted no evidence, however, in support of such an award,
or even requested a specific amount of fees or costs, and so the Court is unable to recommend
an award. I therefore recommend that Sream's request for attorneys' fees and costs be denied
without prejudice because its submissions do not provide appropriate support for such an
award.
V.

Conclusion

For the reasons stated above, I recommend that the Court award Sream damages of
$20,000 against Pinaz and $25,000 against Delancey's Orchard, and that the Court enter a
permanent injunction enjoining Pinaz and Delancey's Orchard from further sale or distribution
of counterfeit RooR-marked products. I further recommend that Sream's request for attorneys'
fees and costs be denied without prejudice.

11

..
VI.

Objections

In accordance with 28 U.S.C. § 636{b)(1) and FED. R. C1v. P. 72(b), the parties shall have
fourteen (14) days (including weekends and holidays) from receipt of this Report to file written
objections. See also FED. R. Clv. P. 6 (allowing three (3) additional days for service by mail). A
party may respond to any objections within fourteen (14) days after being served. Such
objections, and any responses to objections, shall be filed with the Clerk of Court, United States
Courthouse, 500 Pearl Street, Room 200, New York, New York 10007. Any requests for an
extension of time for filing objections must be directed to Chief Judge McMahon.

FAILURE TO FILE OBJECTIONS WITHIN FOURTEEN (14) DAYS WILL RESULT IN A WAIVER
OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. (See Thomas v. Arn, 474 U.S. 140,
155 (1985); JUE AFL-C/0 Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993}; Frank v.
Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Canadair Ltd., 838 F.2d 55, 58 (2d Cir.

1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983)).
Respectfully submitted,
s/ Ona T. Wang
Ona T. Wang
United States Magistrate Judge

Dated: September 14, 2018
New York, New York

12