Strippit, Inc. v. Coffee

Filing 15

ORDER granting 8 Motion for Default Judgment and awarding damages. Signed by Hon. Richard J. Arcara on 10/27/2009. (JMB)

Download PDF
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). 6 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 1 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 8 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. SO ORDERED. s/ Richard J. Arcara HONORABLE RICHARD J. ARCARA CHIEF JUDGE UNITED STATES DISTRICT COURT DATED: October 27, 2009 11

Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.


Why Is My Information Online?