Opinion
NO. CV 02-01089 (GAF)(VBKx).
March 7, 2003
ORDER RE: PLAINTIFF'S MOTION FOR SUMMARY ADJUDICATION OF DAMAGES
I. INTRODUCTION
Plaintiff Rolex Watch U.S.A. secured summary judgment on the issue of liability for trademark dilution, infringement and counterfeiting against Zeotec Diamonds and Ali Paravar in November, 2002. Rolex now moves for summary judgment on the issue of its entitlement to $3,000,000 in statutory damages. Because the Court concludes that the issues presented are appropriate for disposition without oral argument (Rule 78, Fed.R.Civ.P.; Local Rule 7-15), the hearing now calendared for March 3, 2003, is VACATED and the matter will be decided on the written submissions of the parties. Because the Court finds that defendants willfully engaged in unlawful trademark counterfeiting, which continued even after the Court summarily adjudicated the liability phase of the case in favor of plaintiffs, the Court awards statutory damages to Plaintiff in the amount of $1,800,000.
II. FINDINGS OF FACT
The Court finds that the following material facts are undisputed or without substantial controversy.
A. DEFENDANTS' PERSISTENT COUNTERFEITING
Rolex filed this suit against Defendants for trademark dilution, infringement and counterfeiting on February 5, 2002. The same day, Rolex notified Mr. Paravar by letter of three previous lawsuits finding that alteration of Rolex watches with non-genuine parts constitutes trademark counterfeiting. (Statement of Undisputed Facts ("SUF") ¶ 113). Hence, from the inception of this suit, Defendants had notice that their behavior was unlawful. Rolex's letter cautioned Mr. Paravar that this was true regardless whether the alterations are made at a customer's request or whether permanent markings are placed on the product to indicate that Rolex did not authorize the alteration. (Id. ¶ 114). Rolex additionally warned:
Mr. Paravar is the President and 100% owner of Zeotec Diamonds, Inc. (SUF ¶ 215). He is, according to his own testimony, "the company." (Id. ¶ 218). He made all policy decisions for the company, including which products to sell. (Id. ¶ 216). He does not dispute that he authorized, directed and participated in the promotion and sale of altered Rolex watches before and after this suit was filed. (Id. ¶¶ 222, 225-227). He also does not dispute that he had some knowledge of Rolex's objections to Zeotec's infringing activities from the February 5, 2002 letter. (Id. ¶ 220). The Court's November 7, 2002 Order noted that Mr. Paravar, as President and owner of Zeotec Diamonds, could be held liable for the tortious acts of his company.
The statutory penalties for counterfeiting are substantial and include injunctive relief, a mandatory award of defendants' profits (trebled) and reasonable attorneys fees. 15 U.S.C. § 1117(b). Statutory damages in the amount of $1,000,000 per mark are also available. 15 U.S.C. § 1117(c)(2).
(Id. ¶ 115). The letter demanded that Zeotec cease and desist its behavior and indicated that documents regarding sales and promotion of Rolex watches must be preserved pending resolution of this suit. (Id. ¶¶ 116, 117).
Defendants ignored Rolex's demand, and the suit progressed. On November 7, 2002 this Court granted Rolex's motion for summary judgment on the issue of liability. The Order announcing this decision thoroughly details Zeotec's extensive illegal activities. (See Nov. 7, 2002 Order at 4-9).
The record now reveals that Zeotec's infringing behavior continued even after the Court entered this decision on November 7, 2002. For example, Zeotec continued as before to feature altered Rolex watches on various pages of its website, intermixing photos of genuine and altered watches. (Id. ¶¶ 130-33). The site continued to display photos of altered Rolex watches intermixed with those of genuine watches. (Id. ¶ 133). Zeotec also persisted in selling watches until at least November 23, 2002, when a Rolex agent purchased two watches from Zeotec at a New Orleans trade show. (Id. ¶¶ 141-44, 152). Zeotec had brought no fewer than ten altered Rolex watches to the show, which ran from November 23 to November 26, 2002. (Id. ¶¶ 142-43). The two watches the Rolex agent purchased, like the watches the Court discussed in its November 7, 2002 Order, contained non-genuine bracelets, dials, and/or bezels and genuine Rolex marks. (Id. ¶¶ 153, 154).
Now that Rolex has thoroughly demonstrated Zeotec's infringing conduct, Zeotec concedes that it has used six counterfeit Rolex marks: Rolex, Crown Design, Oyster Perpetual, DateJust, President and Oyster. (Response to SUF ¶ 111).
B. ROLEX'S OBSTRUCTION OF DISCOVERY ON THE ISSUE OF ACTUAL DAMAGES
Having given up the fight on the issue of infringement, Zeotec poured its energy into obstructing discovery on the damages question.
After the Court entered its judgment on the liability issue, Rolex commenced discovery to determine its damages as a result of Zeotec's infringing conduct, but Defendants proved uncooperative. They flatly refused to produce documents from 2001-2002, arguing for the first time that Zeotec had discontinued business in December 2000 and that its operations were under a new corporation, Zeotecwatch, Inc. (SUF ¶¶ 168-170). Zeotec took the position that Zeotecwatch was not a party to this suit and therefore could not be compelled to respond to discovery. (Id.; Rolex Book 6, Joint Stip. Exh. 26 at 5). Magistrate Judge Kenton considered and rejected this position and granted Rolex's motion to compel on December 6, 2002. (Rolex Book 6, Joint Stip. Exh. 31). However, Zeotec did not comply with the magistrate's order, and did not produce the requested items on two other promised occasions. (Id. ¶¶ 191-93, 195). To date, Zeotec still has not produced most sales records for 2002, purchase invoices for 1998-2002, Zeotec appraisals of Rolex watches or emails that Paravar admitted still exist. (Id. ¶ 196).
Moreover, there are many gaps in the information Rolex has been able to obtain. For example, while Zeotec produced 107 sales documents for 1999, 149 for 2000, and 140 for 2001, it produced only twelve for 1998, and only one for 2002. (Id. ¶¶ 200-04). And, of the 149 documents from 2000, there are only eight for the five-month period from January through May. (Id. ¶ 202). Likewise, of 107 sales documents produced for 1999, only twelve cover the six-month period from January through June. (Id. ¶ 203). Mr. Paravar testified that he did not keep purchase invoices, and no purchase receipts were produced for 1998-2002. (Id. ¶ 207). Defendants did produce certain checks, but these lacked sufficient information to be correlated with particular items. (Id. ¶ 209). Zeotec also did not consistently record inventory comings and goings. Not all sales or purchases were invoiced on the Zeotec computers. (Id. ¶¶ 205-06). Information to determine the cost of goods sold for tax purposes was given to Zeotec's accountant orally. (Id. ¶ 210). And sales receipts and appraisals for altered watches did not always indicate whether watches contained non-genuine parts. (Id. ¶ 211).
C. ESTIMATED ACTUAL DAMAGES
Despite these gaps in information, Rolex has been able to determin that Zeotec's Rolex watch sales from 1998 to 2002 were substantial. Drawing exclusively on the documents that were actually provided, Rolex has documented $2,089,106 in Rolex watch sales. (Sealed Statement of Undisputed Fact Rolex Book 7 ("Sealed Statement"), Excerpt A ¶ 214). And extrapolating from Zeotec's reported sales patterns, Rolex's expert calculates that Zeotec's total "Rolex watch sales likely range[d] from a minimum of $2,089,106 to $4,760,009." (Sealed Statement, Beutel Report Exh. 40 at 43).
Mr. Paravar testified that his margin on these overall sales of Rolex watches is 1-3%, while his margin on the diamonds, bezels, and dials is 10-30%. (SUF ¶ 213; 2/17/02 Paravar Decl.¶ 5). However, his testimony regarding these margins cannot be corroborated through business records of his company.
D. DEFENDANTS "VOLUNTARILY" CEASE AND DESIST
Mr. Paravar declares that as of January 8, 2003 he has discontinued his operations, closed his retail store in Los Angeles, and laid off his employees. (2/17/02 Paravar Decl. ¶ 2). By December 12, 2002 he removed references to and images of Rolex watches from his website, (id. ¶ 4), and by January 13, 2003, he closed the site altogether. (Id. ¶ 3). At this time, Mr. Paravar states that neither he nor his company holds any altered Rolex watches. (Id. ¶ 9).
III. DISCUSSION
Under the Federal Rules of Civil Procedure, summary judgment is proper where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Thus, when addressing a motion for summary judgment, this Court must decide whether there exist "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). Because no material facts are in dispute in this case, the Court must resolve Rolex's damage claims as a matter of law.
B. STATUTORY DAMAGES FOR TRADEMARK COUNTERFEITING
Because Zeotec has not maintained records that permit the computation of damages with any degree of certainty, Rolex has elected to seek recovery of statutory damages, which it may recover in cases of willful counterfeiting.
1. Legal Standard
On the theory that counterfeiters will rarely document their handiwork with any consistency, 15 U.S.C. § 1117(c) permits plaintiffs in cases involving trademark counterfeiting to elect to pursue statutory damages rather than proving actual damages. See J. Thomas McCarthy, 5 MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 30:95 at 30-177 (4th ed. 2002 Supp.). The provision allows for damages of:
(1) not less than $500 or more than $100,000 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 $1,000,000 per counterfeit mark, per type of goods or services sold, offered for sale, or distributed, as the court considers just.15 U.S.C. § 1117(c). The phrase "per counterfeit mark per type of goods or services sold," has been interpreted to mean that the statutory maximum applies per mark infringed, regardless of the number of infringing items sold or offered for sale. E.g., Microsoft Corp. v. Wen, 2001 WL 1456654 at *5 (N.D. Cal. Nov. 13, 2001). Willfulness under this provision has been interpreted to mean a "deliberat[e] and unnecessar[y] duplicating of a plaintiff's mark . . . in a way that was calculated to appropriate or otherwise benefit from the good will the plaintiff had nurtured" or "an aura of indifference to plaintiff's rights." SecuraComm Consulting Inc. v. Securacom Inc., 166 F.3d 182, 187 (3d Cir. 1999) (citations omitted); Rolex Watch U.S.A., Inc. v. Meece, 158 F.3d 816, 823 (5th Cir. 1998) ("[W]illful infringement carries a connotation of deliberate intent to deceive.") (quoting Lindy Pen Co. v. Bic Pen Corp., 982 F.2d 1400, 1405 (9th Cir. 1993)).
Willfulness can be inferred from ongoing abuse after having been presented with a cease and desist demand. Louis Vuitton Malletier and Oakley, Inc. v. Veit, 211 F. Supp.2d 567, 583 (E.D.Pa. 2002) (collecting cases) (finding that continued use of marks after notification of possible penalties constituted willful disregard of the legal system and plaintiff's rights); Discovery Communications, Inc. v. Animal Planet, Inc., 172 F. Supp.2d 1282, 1292 (C.D.Cal. 2001). A determination of willfulness may also rest on defendant's failure to cooperate in discovery or its violation of court orders. See id.; Wen, 2001 WL 1456654 at *3. Where willfulness exists, the relevant jurisprudence confers on the Court "wide discretion to compensate plaintiffs, as well as to deter and punish defendants. . . ." Veit, 211 F. Supp.2d at 583. In doing so, the Court must "consider the defendant's profits, as well as saved expenses, the plaintiffs lost revenues, and the defendant's state of mind." Id. at 584 (collecting cases).
2. Application of Facts to Law
In this matter Rolex seeks $3,000,000, which represents a $500,000 recovery per mark infringed. This request depends on a finding of willfulness, which the Court finds as a matter of law on the basis of the undisputed facts. Before the lawsuit, Zeotec engaged in persistent and deliberate counterfeiting of Rolex's trademarks. The conduct continued during this lawsuit after Rolex had made a cease and desist demand that the counterfeiting be halted. But Zeotec's state of mind is demonstrated most clearly by its continued sale of counterfeit Rolex watches even after this Court formally concluded that Zeotec's conduct had been unlawful. Moreover, even though Zeotec ultimately conceded its improper use of six Rolex-owned trademarks, Zeotec obstructed discovery on the issue of damages. In the Court's view, these facts leave no room for doubt regarding the willfulness of Zeotec's conduct.
Given the Court's conclusion, the Court must decide whether to award the requested $500,000 per counterfeit mark — for a total of $3 million in statutory damages — or some other figure. In that regard, the Court notes that, while Rolex has shown that Zeotec's Rolex sales were probably between $2,089,106 to $4,760,009, even Rolex concedes that not every Rolex watch Zeotec sold was altered. (Reply, at 8.) The evidence before the Court reveals that no more than one third of the unused Rolex watches on Zeotec's webpage had been altered. SUF ¶ 122. On the other hand, because of Zeotec's obstructionist approach to discovery, the total profit on any given watch cannot be determined from any documentation, and the only evidence on the point is the conclusory assertion of Paravar. (SUF ¶ 213; 2/17/02 Paravar Decl. ¶ 5). Thus, the Court concludes that the documentary evidence was not produced because it would not be helpful to Zeotec's position.
In applying the law to these facts, Rolex Watch U.S.A., Inc. v. Voiers, 2000 U.S. Dist. LEXIS 22127, Unpublished Report Rec. at 6-7 (S.D.N.Y. Aug. 10, 2000) is pertinent. There, the court refused to award Rolex $1 million per mark infringed and granted a total of $1 million instead, applying the principle from the comparable copyright area that statutory damages are intended to bear some relation to actual damages.Id. at *8. See also Veit, 211 F. Supp.2d at 584-85 ("In similar cases concerning multiple marks, courts have been inclined to either award the maximum without multiplication or to lower the per mark award. I agree with this logic. While this case certainly calls for a high damage award, given the egregious conduct of the Defendants and the use of the internet, I conclude that a total award of $1,000,000 for the six Louis Vuitton marks and an award of $500,000 for the two Oakley marks ensures the dual objectives of compensating Plaintiffs and deterring Defendants.") (citations omitted). Attempting to equate the two, however, is neither possible nor necessarily desirable since the case law recognizes a punitive element to statutory damages where a defendant has engaged in willful counterfeiting. Veit, 211 F. Supp.2d at 583.
Taking these principles into account, the Court concludes that a reduction in the requested damages is appropriate. The Court will award $300,000 per mark, which is a figure that the Court concludes is low enough to bear some rational relationship to the amount of damages incurred in this case, but substantial enough to deter similarly situated businesses from engaging in similar conduct in the future.
C. INJUNCTIVE RELIEF
Rolex seeks permanent injunctive relief enjoining Zeotec, Paravar and Zeotec's officers and employees from using or reproducing Rolex's various marks, altering Rolex watches, advertising altered Rolex watches, or generally engaging in any course of conduct likely to dilute Rolex's marks. (See Prop. Order for Permanent Injunction). Defendants do not directly object to the request for a permanent injunction, but Paravar generally avers that he has ceased his wrongful behavior. (2/17/02 Paravar Decl. ¶ 2). It should be noted, however, that Paravar does not declare his intention to halt his illegal activities permanently.
The Ninth Circuit has held that a request for a permanent injunction in an infringement case is not mooted when a defendant voluntarily ceases all wrongful operations. Polo Fashions, Inc. v. Dick Bruhn, Inc., 793 F.2d 1132 (9th Cir. 1986). In Polo Fashions the court held that where a defendant had wilfully infringed the plaintiff's trademark rights, the plaintiff need not offer evidence that a defendant plans to infringe again unless "the reform of the defendant [is] irrefutably demonstrated and total." Id. at 1135 (citing 2 J. McCarthy, Trademarks and Unfair Competition § 30:6, at 471 (2d ed. 1984)). The Circuit reasoned, "[i]f the defendants sincerely intend not to infringe, the injunction harms them little; if they do, it gives [a plaintiff] substantial protection. . . ." Id. Given this precedent and Defendants' failure to oppose injunctive relief on any substantive grounds, the Court will enter the proposed judgment, including the requested permanent injunction.
IV. CONCLUSION
For the reasons stated herein, the Court GRANTS the motion for statutory damages in the sum of $1,800,000 and the motion for permanent injunction.
Since this appears to conclude the lawsuit in its entirety, Plaintiff is ORDERED to prepare a final judgment on all claims resolved by the Court, which should include the terms of the proposed permanent injunction.
IT IS SO ORDERED.