Strippit, Inc. v. Coffee
ORDER granting 8 Motion for Default Judgment and awarding damages. Signed by Hon. Richard J. Arcara on 10/27/2009. (JMB)
UNITED STATES DISTRICT COURT W E S T E R N DISTRICT OF NEW YORK
S T R IP P IT , INC., P la in tiff, D E C IS IO N AND ORDER 0 9 -C V -5 0 9 A v.
KEITH COFFEE, D e fe n d a n t.
IN T R O D U C T IO N P la in tiff Strippit, Inc. filed a complaint this case accusing defendant Keith C o ffe e of trademark infringement by running a website that used plaintiff's name w ith o u t authorization. W h e n defendant failed to answer the complaint, plaintiff re q u e s te d an entry of default and filed a motion for default judgment. Through its m o tio n papers and through an evidentiary hearing that this Court held on October 1 4 , 2009, plaintiff submitted evidence of lost profit from replacement parts sales th a t it attributes to defendant's acts of trademark infringement. Given the a lle g a tio n s that defendant is deemed to have admitted by default, and given the e vid e n c e that plaintiff submitted with its motion papers and at the evidentiary h e a rin g , the Court will grant the pending motion and award damages as d e s c rib e d below.
BACKGROUND T h is case concerns allegations of trademark infringement in violation of b o th federal and state law. Plaintiff is a manufacturer of machines and re p la c e m e n t parts for the sheet metalworking industry. Defendant worked p re vio u s ly for plaintiff, once as an employee and after that as an independent c o n tra c to r. On May 28, 2009, plaintiff filed the complaint in this case. According to the complaint, plaintiff owns both registered trademark and common-law tra d e m a rk rights in the name "Strippit." Plaintiff also owns the rights to the W o rld W id e W e b domain name "www.strippit.com" and uses that domain for its website, w h ic h features its trademark. At all times relevant to this case, according to p la in tiff, defendant had actual and constructive notice of plaintiff's trademark rig h ts under 15 U.S.C. § 1072. See id. ("Registration of a mark on the principal re g is te r provided by this chapter or under the Act of March 3, 1881, or the Act of F e b ru a ry 20, 1905, shall be constructive notice of the registrant's claim of o w n e rs h ip thereof."). A t a time prior to September 18, 2006, defendant allegedly adopted and im p le m e n te d a plan to engage in a business that he called "Strippit Parts U n lim ite d ," which would sell products related to the sheet metalworking industry b y way of the W e b . To this end, according to plaintiff, defendant registered the d o m a in "www.strippitparts.com" on or about September 18, 2006 and s u b s e q u e n tly created a website that used plaintiff's trademark without 2
authorization. Plaintiff alleged in its complaint that defendant willfully and in te n tio n a lly infringed on plaintiff's trademark rights to create customer confusion a n d to create the false impression that he was selling sheet metalworking p ro d u c ts that were either manufactured or endorsed by plaintiff. Defendant a lle g e d ly continued operating the website in question despite cease and desist le tte rs sent by plaintiff on February 6, 2009, April 3, 2009, and April 9, 2009. The c o m p la in t concluded with 10 different claims: a claim for trademark infringement u n d e r 15 U.S.C. § 1114(a); a claim for false designation of origin under 15 U.S.C. § 1125(a); a claim for trademark dilution under 15 U.S.C. § 1125(c); a claim for d e c e p tive trade practices under New York General Business Law § 349; a claim fo r unfair competition under New York common law; a claim for unjust enrichment u n d e r New York common law; a claim for trademark infringement under New Y o rk common law; a claim for trademark dilution under New York common law; a c la im for palming off under New York common law; and a claim for an accounting u n d e r New York common law. According to the affidavit of service filed on July 1, 2 0 0 9 , defendant was personally served with the summons and complaint in this c a s e on June 23, 2009. D e fe n d a n t did not answer the complaint within the time provided by Rule 1 2 of the Federal Rules of Civil Procedure ("FRCP"). Accordingly, plaintiff filed a re q u e s t for an entry of default on July 17, 2009 pursuant to FRCP 55. The Clerk o f the Court filed an entry of default on July 21, 2009. On August 10, 2009, 3
plaintiff filed a motion for a permanent injunction based on defendant's default. After oral argument on August 18, 2009, the Court issued an order on August 24, 2 0 0 9 that granted plaintiff's motion and permanently enjoined defendant from c o n tin u in g in activities that would violate plaintiff's trademark rights. O n August 31, 2009, plaintiff filed a motion, pursuant to FRCP 55, for a d e fa u lt judgment with respect to money damages. At oral argument on S e p te m b e r 16, 2009, the Court ordered an evidentiary hearing at which plaintiff w o u ld have the opportunity to provide testimony and exhibits confirming the d a m a g e s amount calculated in its motion papers. As mentioned above, the e vid e n tia ry hearing occurred on October 14, 2009. At the evidentiary hearing, Bruce Turner testified in plaintiff's behalf. For th e last 11 years, Mr. Turner has been plaintiff's Vice President of Finance and its C h ie f Financial Officer. Mr. Turner testified that plaintiff seeks money damages fo r lost profits related only to its replacement parts business. Plaintiff does not s e e k damages related to its original machinery business. Mr. Turner confirmed th a t defendant worked for plaintiff as an employee from 198489, and then w o rk e d as a field service representative in the 1990s on an independent c o n tra c to r basis. Plaintiff and defendant have had no relationship in this decade. M r. Turner then proceeded to offer testimony about the 14 exhibits that p la in tiff entered into evidence at the hearing. These exhibits established p la in tiff's sales figures, cost of sales, and profit margin for 2006, the year that 4
plaintiff proposed as a baseline that could measure the impact of defendant's c o n d u c t. The exhibits then proceeded to establish that expected sales and profit fe ll in 2007 and 2008 compared to 2006 levels. For the 2009 year, plaintiff d is c o u n te d its estimate of lost profit to account for economic conditions that p re va ile d during that time. In short, the exhibits presented at the evidentiary h e a rin g documented the profit from replacement parts sales that plaintiff re a s o n a b ly expected between October 2006, the first full month after defendant re g is te re d the domain for his website, and August 2009, when this Court issued th e permanent injunction. The exhibits concluded with a calculation that plaintiff's re a s o n a b ly expected lost profits resulting from defendant's trademark in frin g e m e n t totaled $1,186,382.29. This calculation corroborated both Mr. T u rn e r's testimony and the arguments and calculations set forth in plaintiff's m o tio n papers. D IS C U S S IO N L ia b ility "F e d e ra l Rule of Civil Procedure 55 is the basic procedure to be followed w h e n there is a default in the course of litigation. And it tracks the ancient c o m m o n law axiom that a default is an admission of all well-pleaded allegations a g a in s t the defaulting party." Vermont Teddy Bear Co., Inc. v. 1-800 Beargram C o ., 373 F.3d 241, 246 (2d Cir. 2004) (citation omitted). Here, plaintiff's c o m p la in t alleged multiple violations of the Lanham Act and of state law 5
pertaining to trademark infringement. Plaintiff's complaint alleged further that d e fe n d a n t had actual and constructive notice of plaintiff's trademark rights and p ro c e e d e d anyway in a willful and intentional manner. All of these allegations n o w are deemed admitted. The admission regarding willfulness and intent is p a rtic u la rly significant for the impact that it has on the calculation of damages, as d is c u s s e d below. D am ages "W h ile a party's default is deemed to constitute a concession of all well p le a d e d allegations of liability, it is not considered an admission of damages." Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1 9 9 2 ) (citations omitted). Here, the Court needed to review plaintiff's motion p a p e rs and to order an evidentiary hearing because defendant's default, by itself, c o u ld neither quantify nor sustain an award of damages. The plain text of the Lanham Act contains a provision that governs the C o u rt's assessment of damages. "W h e n a violation of any right of the registrant o f a mark registered in the Patent and Trademark Office, a violation under section 1 1 2 5 (a ) or (d) of this title, or a willful violation under section 1125(c) of this title, s h a ll have been established in any civil action arising under this chapter, the p la in tiff shall be entitled . . . . to recover (1) defendant's profits, (2) any damages s u s ta in e d by the plaintiff, and (3) the costs of the action." 15 U.S.C. § 1117(a).
Because defendant's default prevents use of the first and third modes of re c o ve ry, the Court will focus on the second mode of recovery in Section 1117(a). To establish actual damages sustained, plaintiff has submitted information th a t documents a decline in profit after defendant registered the domain for his w e b s ite in September 2006. Under the circumstances of a default judgment, o ve ra ll lost profits during the period of infringement may function as a reasonable e s tim a te of lost profits attributable directly to the infringing conduct. As another D is tric t Court in this circuit explained at length in a trademark infringement case la s t year, L o s t profits are calculated by estimating the revenue lost due to the in frin g in g conduct and subtracting what it would have cost to g e n e ra te that revenue. See Koon Chun Hing Kee Soy & Sauce F a c to ry , Ltd. v. Excelsior Trading Corp., 07-CV-3224, 2007 W L 2 4 0 6 8 8 7 , at *14 (E.D.N.Y. Aug. 16, 2007); GTFM, Inc. v. Solid C lo th in g , Inc., 215 F. Supp. 2d 273, 305 (S.D.N.Y. 2002). Because it is difficult to determine lost sales caused by infringing conduct, G e o rg e Basch [Co., Inc. v. Blue Coral, Inc.], 968 F.2d [1532,] 1539 [2 d Cir. 1992], the Court may "engage in some degree of speculation in computing the amount of damages, particularly when the inability to compute them is attributable to the defendant's wrongdoing." See P P X Enters., Inc. v. Audiofidelity Enters., 818 F.2d 266, 271 (2d Cir. 1 9 8 7 )1 ; see also Story Parchment Co. v. Paterson Parchment Paper C o ., 282 U.S. 555, 563, 51 S. Ct. 248, 75 L. Ed. 544 (1931); B ru n s w ic k Corp. v. Spinit Reel Co., 832 F.2d 513, 526 (10th Cir. 1 9 8 7 ) ("A defendant whose wrongful conduct has caused the d iffic u lty in assessing damages cannot complain that the damages a re somewhat speculative"). Any doubts regarding the amount of d a m a g e s must be resolved against the infringer. See Lam, Inc. v. J o h n s -M a n v ille Corp., 718 F.2d 1056, 1065 (Fed. Cir. 1983). A b ro g a te d in part on other grounds by NBT Bancorp Inc. v. Fleet/Norstar F in . Group, Inc., 664 N.E.2d 492 (N.Y. Ct. App. 1996). 7
In order to determine lost profits based on declining revenue, a p re -in frin g e m e n t "base line" must be established to predict what revenue plaintiff would have generated absent the infringement. See F le x itize d , Inc. v. Nat'l Flexitized Corp., 335 F.2d 774, 779 (2d Cir. 1 9 6 4 ) (approving use of evidence of sales before and after breach of e xc lu s ive distributorship contract to calculate lost profits); Lindy Pen C o . v. Bic Pen Corp., 14 U.S.P.Q.2d 1528, 1532 (C.D. Cal. 1989) (d e n yin g damages for failure of proof on an appropriate base period o f sales to compare with the infringement period), aff'd, 982 F.2d 1 4 0 0 (9th Cir. 1993); 5 J. Thomas McCarthy, McCarthy on T ra d e m a rk s and Unfair Competition § 30.79 (4th ed. 2002). In a d d itio n to proving the actual profits lost, plaintiff must also prove th a t defendant actually caused the loss of those profits. See M o n s a n to Chem. Co. v. Perfect Fit Prods. Mfg. Co., 349 F.2d 389, 3 9 2 (2d Cir. 1965). In proving causation, a plaintiff "does not have to n e g a te every conceivable intervening factor which might have c a u s e d a decline in sales." 5 McCarthy, McCarthy on Trademarks a n d Unfair Competition § 30:79. Rather, "[p]roof of a general decline in sales or a disruption of anticipated business growth following the d e fe n d a n t's misconduct can be sufficient in some cases to justify an in fe re n c e of causation." See Restatement (Third) of Unfair C o m p e titio n § 36 cmt. h (1995). Likewise "[p]roof of a decline in s a le s combined with evidence tending to discount the importance of o th e r market factors, such as evidence of positive business c o n d itio n s and the success of similar businesses not subject to the d e fe n d a n t's tortious conduct, can be sufficient to establish a causal c o n n e c tio n between the plaintiff's decline in sales and the m is c o n d u c t of the defendant." Id. V ic to ria Cruises, Inc. v. Changjiang Cruise Overseas Travel Co., 630 F. Supp. 2d 2 5 5 , 262 (E.D.N.Y. 2008). Here, plaintiff has submitted evidence of steady sales during normal e c o n o m ic times that declined after defendant registered the domain for his w e b s ite . That decline continued into 2009 even after correcting for this year's e c o n o m ic conditions. Assuming that no other factors contributed to the amount
of the decline requires some speculation. That speculation is permissible, th o u g h , because defendant has made an investigation of plaintiff's damages im p o s s ib le . Having reviewed all of the information available regarding damages, th e Court concludes that plaintiff has submitted accurate calculations based on a re a s o n a b le estimate of the damages that it sustained from defendant's trademark in frin g e m e n t. The Court thus agrees with plaintiff that it has sustained damages fro m defendant's trademark infringement in the amount of $1,186,382.29. T re b le damages are appropriate as well. "In assessing damages under s u b s e c tio n (a) for any violation of section 1114(1)(a) of this title . . . in a case in vo lvin g use of a counterfeit mark or designation . . . the court shall, unless the c o u rt finds extenuating circumstances, enter judgment for three times such profits o r damages, whichever amount is greater, together with a reasonable attorney's fe e , if the violation consists of . . . intentionally using a mark or designation, k n o w in g such mark or designation is a counterfeit mark (as defined in section 1 1 1 6 (d ) of this title), in connection with the sale, offering for sale, or distribution of g o o d s or services . . . ." 15 U.S.C. § 1117(b)(1). Here, defendant chose to d e fa u lt in this case despite being personally served with a copy of the summons a n d complaint. As mentioned previously, that default constitutes an admission of th e allegation in the complaint that defendant acted at all relevant times willfully a n d intentionally, with knowledge of plaintiff's trademark rights. Defendant's w illfu ln e s s and intent, even though established by default, suffices to warrant 9
treble damages. Cf. Kenneth Jay Lane, Inc. v. Heavenly Apparel, Inc., No. 03 CV 2 1 3 2 , 2006 W L 728407, at *6 (S.D.N.Y. Mar. 21, 2006) ("In the case at bar, [d e fe n d a n t's ] willfulness, in violating the trademark law, is established by virtue of its default in this action.") (citing Tiffany (NJ) Inc. v. Luban, 282 F. Supp. 2d 123, 1 2 4 (S.D.N.Y. 2003)). Accordingly, the Court will triple the amount of plaintiff's lo s t profits and award plaintiff damages in the amount of $3,559,146.87. F in a lly , the Court will address plaintiff's contention in its motion papers that it is "entitled to an award of the attorneys' fees and costs reasonably incurred in th e prosecution of this action." (Dkt. No. 8-3 at 6 ¶ 14.) As noted above, 15 U .S .C . § 1117(b) requires the Court to award "reasonable" attorney fees if a tra d e m a rk violation occurs intentionally. Section 1117(a) permits attorney fees in a n y "exceptional cases" of trademark infringement. Through his default and th ro u g h the conduct that he has admitted through his default, defendant has s h o w n the willfulness and intent necessary to sustain an award of attorney fees. Cf. Kenneth Jay Lane, 2006 W L 728407, at *7 ("An exceptional case is one in w h ic h there is evidence of fraud, bad faith or willful infringement. As noted a b o ve , the defendant's infringement has been deemed willful by virtue of its d e fa u lt in this action.") (citing Twin Peaks Prods., Inc. v. Publ'ns Int'l, Ltd., 996 F .2 d 1366, 1383 (2d Cir. 1993); Sara Lee Corp. v. Bags of New York, Inc., 36 F. S u p p . 2d 161, 170 (S.D.N.Y. 1999)). The Court thus will grant plaintiff's request fo r costs and for attorney fees conditionally. Plaintiff must file a proposed 10
itemization of costs and time spent, and a proposed hourly rate, or the entitlement to costs and attorney fees will be deemed waived. C O N C L U S IO N F o r all of the foregoing reasons, the Court grants plaintiff's motion for d e fa u lt judgment and awards damages in the amount of $3,559,146.87. The Court further grants plaintiff's request for costs and for attorney fees c o n d itio n a lly. The entitlement to costs and attorney fees will be deemed waived if p la in tiff does not file supporting documentation within 15 days of the entry of this O rd e r.
s/ Richard J. Arcara
HONORABLE RICHARD J. ARCARA CHIEF JUDGE UNITED STATES DISTRICT COURT DATED: October 27, 2009
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