Zekelman Industries Incorporated v. Marker ( 2020 )

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Zekelman Industries Incorporated, et al., No. CV-19-02109-PHX-DWL 10 Plaintiffs, ORDER AND DEFAULT JUDGMENT 11 v. 12 Robert Wayne Marker, et al., 13 Defendants. 14 15 Pending before the Court is Plaintiffs’ motion for default judgment and permanent 16 injunction. (Doc. 31.) For the following reasons, the motion will be granted in part and 17 denied in part. 18 I. Background 19 On March 29, 2019, Plaintiffs initiated this action by filing an eight-count 20 complaint, which includes federal claims under the Lanham Act and the Copyright Act and 21 various state-law claims. (Doc. 1.) 22 For purposes of this order, the facts alleged in the complaint are assumed to be true, 23 except as to damages. Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977) (“The 24 general rule of law is that upon default the factual allegations of the complaint, except those 25 relating to the amount of damages, will be taken as true.”). 26 Plaintiff Zekelman Industries Incorporated (“Zekelman”) manufactures steel pipe 27 and Plaintiff Z-Modular, LLC (“Z-Modular”), a subsidiary of Zekelman, “provides a one- 28 stop shop for modular buildings and services” marketed to real estate developers. (Doc. 1 1 ¶ 5.) The modular buildings utilize a self-bracing structural system that is based upon 2 “VectorBloc” construction technology. (Id.) According to Zekelman’s advertising 3 materials, the “VectorBloc” system uses bolts to join hollow structural sections with 4 “VectorBloc corners” or “VectorBloc connectors”—cast steel L-shaped joints—which 5 creates building modules that can be assembled from inside and stacked. (Doc. 3-3 at 3-4; 6 see also Doc. 1 ¶ 58.) 7 Zekelman registered the service mark “Z Modular” with the United States Patent 8 and Trademark Office on February 6, 2018. (Doc. 1 ¶ 15; Doc. 3 at 5.) With Zekelman’s 9 approval, Z-Modular has used the Z Modular mark in commerce in the United States 10 continuously since at least April 2017. (Doc. 1 ¶ 17.) 11 Although “VectorBloc” has not been registered as a trademark or service mark,1 Z- 12 Modular owns common-law rights in the VectorBloc trademark and service mark.2 (Doc. 13 1 ¶ 24.) Plaintiffs have used the VectorBloc mark in commerce continuously since 14 September 2018 or earlier. (Id. ¶ 25.) Plaintiffs display a photograph of the VectorBloc 15 connector and information about it on their webpage. (Id. ¶ 26; Doc. 3-1 at 4.) 16 In June 2018, a marketing agency created two video advertisements for Zekelman’s 17 use, one entitled “Build Stronger Graphics” and the other entitled “Build Faster Graphics” 18 (collectively, the “Copyrighted Works”), and transferred ownership to Zekelman. (Doc. 1 19 ¶ 37.) Both videos were copyrighted. (Id. ¶¶ 38-39.) One “features a modular steel unit 20 outlined in red forming in the air and landing sturdily on the ground,” and the other 21 “features modular steel units being stacked vertically, a façade forming . . . , then the stack 22 being repeated horizontally . . . , eventually forming a complex.” (Id.) Zekelman and its 23 1 “[T]he only difference between a trademark and a service mark is that a trademark 24 identifies goods while a service mark identifies services.” Chance v. Pac-Tel Teletrac Inc., 242 F.3d 1151, 1156 (9th Cir. 2001). “Service marks and trademarks are governed by 25 identical standards.” Id. 26 2 Legal conclusions in the complaint are not taken as true for purposes of a motion for default judgment. Wecosign, Inc. v. IFG Holdings, Inc., 845 F. Supp. 2d 1072, 1078 27 (C.D. Cal. 2012) (“[A] defendant is not held to admit facts that are not well-pleaded or to admit conclusions of law.”) However, the relevant facts alleged in the complaint (Doc. 1 28 ¶¶ 26-28) amply support this conclusion. Chance, 242 F.3d at 1156 (“[C]ommon law rights are acquired . . . by adopting and using the mark . . . .”). 1 affiliates display the Copyrighted Works online. (Id. ¶ 40.) 2 At least as of the date on which the complaint was filed, March 29, 2019, Defendant 3 Robert Wayne Marker (“Marker”) held himself out as engaged in services related to 4 modular buildings. (Id. ¶ 42.) Marker used the names “Evo Micro Condos” and “Evo 5 International” (collectively, “Evo”) and operated the website www.evomicrocondos.com, 6 but apparently no legal entity with those names ever existed. (Id. ¶¶ 42-43, 45.) In 7 February 2019, Marker formed GreenFeet, Inc. (“GreenFeet”), which is the other 8 defendant in this case. (Id. ¶ 46.) 9 Neither Zekelman nor Z-Modular has any connection to or agreement with Marker, 10 GreenFeet, or the apparently non-existent entity Evo. (Id. ¶ 51.) Nevertheless, through 11 February 2019, the www.evomicrocondos.com website featured a photograph of a 12 VectorBloc connector, which was taken from the Z-Modular website,3 along with text 13 identifying the connector as VectorBloc and describing how it works. (Doc. 1 ¶ 59; Doc. 14 3-4 at 3 [“It all starts with the VectorBloc Connection”].) The website also published the 15 Copyrighted Works. (Doc. 1 ¶ 60.) 16 The website also publicized an “Authorized Developer Program” and invited 17 interested persons to click on a “contact us” hyperlink to receive more information. (Id. ¶ 18 49; Doc. 3-7 at 12.) Once contact was made, Marker invited the interested person to 19 become a “dealer” and represented that Marker had a business relationship with Plaintiffs. 20 (Doc. 1 ¶¶ 49, 51.) 21 For example, on January 10, 2019, Marker sent an email (the “Jan. 10 email”) to a 22 prospective dealer entitled “Dealer Oppty Outline – Evo Micro Condos,” inviting the 23 prospective dealer to check out Evo’s website at www.evomicrocondos.com and to check 24 out Evo’s “manufacturing partner’s site at www.z-modular.com.” (Doc. 1 ¶¶ 49, 51; Doc. 25 3-9 at 2.) On January 16, 2019, the prospective dealer’s brother forwarded the Jan. 10 26 email to Plaintiffs. (Doc. 3-9 at 2.) On January 17, 2019, Plaintiffs’ counsel sent Marker 27 28 3 Plaintiffs do not allege that the photograph of the VectorBloc connector was copyrighted. 1 a cease and desist letter. (Doc. 1 ¶ 71; Doc. 3-11 at 2-3.) Marker never responded. (Doc. 2 1 ¶ 72.) 3 In March 2019, Marker began to edit his website at www.evomicrocondos.com, 4 replacing the names “Evo International” and “Evo Micro Condos” with the name 5 “GreenFeet Development.” (Id. ¶ 46.) The website continued to publicize the “Authorized 6 Developer Program.” (Doc. 3-8 at 3.) GreenFeet has since “taken over” (or “jointly 7 participates in”) this endeavor. (Doc. 1 ¶¶ 52, 54.) 8 Furthermore, “at some point,” Marker “and/or” GreenFeet took an image from a 9 frame of the Build Stronger Graphics video (one of the Copyrighted Works), altered it (by 10 removing the color red and flipping the image horizontally), and posted the altered image 11 on the website. (Doc. 1 ¶ 61.) The altered image existed on the www.evomicrocondos.com 12 website as of March 5, 2019, at which point the website listed an address for GreenFeet. 13 (Id. ¶¶ 47, 61; Doc. 3-7 at 4.) 14 When the www.evomicrocondos.com website first became affiliated with 15 GreenFeet, it still included a picture of a VectorBloc connector and information about 16 VectorBloc connectors. (Doc. 3-6 at 8.) However, the website later stopped displaying 17 the VectorBloc connector and instead advertised an “Innerloc Connector.” (Doc. 3-7 at 5.) 18 The image of the Innerloc Connector “is merely an edited image” of the “stolen 19 photograph” of the VectorBloc connector. (Doc. 1 ¶¶ 63-66.) 20 II. Procedural History 21 As noted, on March 29, 2019, Plaintiffs filed this lawsuit. (Doc. 1.) 22 A. Service Of Process 23 Because a federal court lacks jurisdiction over a defendant who has not been 24 properly served, the Court must “assess the adequacy of service of process on the party 25 against whom default is requested” before entering default judgment. Golden Scorpio 26 Corp. v. Steel Horse Saloon I, 2009 WL 976598, *1 (D. Ariz. 2009). 27 On April 3, 2019, a process server served both Defendants by means of personal 28 delivery to Jeanne Marker. (Docs. 21, 22.) This service was effective as to Marker because 1 he was living at the same residence as Jeanne Marker at the time of service. See Fed. R. 2 Civ. P. 4(e)(2)(B); Ariz. R. Civ. P. 4.1(d)(2). This service was also effective as to 3 GreenFeet because Jeanne Marker was its statutory agent. See Fed. R. Civ. P. 4(h)(1)(B); 4 Ariz. R. Civ. P. 4.1(i). 5 B. Preliminary Injunction 6 On April 15, 2019, Plaintiffs filed a motion for preliminary injunction and served it 7 on GreenFeet (Doc. 23), but GreenFeet never responded. On May 14, 2019, the Court 8 summarily granted the preliminary injunction as to GreenFeet.4 (Doc. 26.) The Court also 9 prompted Plaintiffs to seek entry of default. (Id. at 3.) 10 C. Entry Of Default And Motion For Default Judgment 11 On June 19, 2019, Plaintiffs applied for entry of default (Doc. 29), which the Clerk 12 entered the following day (Doc. 30). 13 On August 28, 2019, Plaintiffs moved for default judgment and sought a permanent 14 injunction. (Doc. 31.) 15 On October 1, 2019, Plaintiffs served both Defendants with the application for entry 16 of default, the Clerk’s entry of default, and the motion for default judgment and permanent 17 injunction. (Docs. 32, 33.) The process server personally delivered the documents to 18 Marker. (Id.) Defendants never responded and have not participated in this litigation in 19 any manner. 20 On March 23, 2020, the Court issued a tentative order concerning the motion for 21 default judgment. (Doc. 37.) 22 On March 25, 2020, the Court held oral argument, via telephone, with Plaintiffs’ 23 counsel. (Doc. 38.) 24 /// 25 /// 26 4 The Court noted that the motion for preliminary injunction was not properly served 27 on Marker, because he was no longer living at the service address by the time the motion was filed (he apparently moved out after the complaint was served), but because the 28 injunction bound GreenFeet and its agents, it had “the practical effect of enjoining Marker, too.” (Doc. 26 at 2 n.1.) 1 III. Analysis 2 A. Default Judgment 3 The “decision whether to enter a default judgment is a discretionary one.” Aldabe 4 v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). The following factors, known as the Eitel 5 factors, may be considered when deciding whether default judgment is appropriate: (1) the 6 possibility of prejudice to the plaintiff, (2) the merits of the claims, (3) the sufficiency of 7 the complaint, (4) the amount of money at stake, (5) the possibility of factual disputes, (6) 8 whether the default was due to excusable neglect, and (7) the policy favoring decisions on 9 the merits. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). 10 1. The First, Fifth, Sixth, And Seventh Eitel Factors 11 In cases like this one, in which Defendants have not participated in the litigation at 12 all, the first, fifth, sixth, and seventh factors are easily addressed. 13 The first factor weighs in favor of default judgment. Prejudice to Plaintiffs is 14 obvious—if the motion for default judgment were denied, Plaintiffs would be without other 15 recourse for recovery. PepsiCo, Inc. v. Cal. Sec. Cans, 238 F. Supp. 2d 1172, 1177 (C.D. 16 Cal. 2002). 17 The fifth and sixth factors weigh in favor of default judgment or are neutral. Due 18 to Defendants’ failure to participate, there is no dispute over material facts (except as to 19 damages) and no indication that default is due to excusable neglect. 20 The seventh factor generally weighs against default judgment, given that cases 21 “should be decided on their merits whenever reasonably possible.” Eitel, 782 F.2d at 1472. 22 However, the existence of Rule 55(b) of the Federal Rules of Civil Procedure, which 23 authorizes default judgments, “indicates that this preference, standing alone, is not 24 dispositive.” PepsiCo, 238 F. Supp. 2d at 1177. Put simply, “the default mechanism is 25 necessary to deal with wholly unresponsive parties who could otherwise cause the justice 26 system to grind to a halt. Defendants who appear to be ‘blowing off’ the complaint should 27 expect neither sympathy nor leniency from the court.” 2 Gensler, Federal Rules of Civil 28 Procedure Rules and Commentary, Rule 55, at 119-20 (2020). 1 2. The Fourth Eitel Factor—The Amount Of Money At Stake 2 At first blush, the fourth factor—the amount of money at stake—seems to weigh 3 against granting default judgment. Plaintiffs seek $639,774.25 (Doc. 31 at 8), which is a 4 substantial sum. Moreover, none of the facts alleged in the complaint, taken as true, 5 indicate that Plaintiffs actually lost any business as a result of Defendants’ actions. Indeed, 6 during oral argument, Plaintiffs’ counsel acknowledged that Plaintiffs have no evidence of 7 actual damage.5 8 “When the money at stake in the litigation is substantial or unreasonable, default 9 judgment is discouraged.” Bd. of Trustees v. Core Concrete Const., Inc., 2012 WL 380304, 10 *4 (N.D. Cal. 2012), report and recommendation adopted, 2012 WL 381198 (N.D. Cal. 11 2012). However, Plaintiffs seek damages for only three of their eight counts: two Lanham 12 Act claims (Counts Two and Three) and one Copyright Act claim (Count Eight). (Doc. 31 13 at 8.) Additionally, with respect to Counts Two and Eight, Plaintiffs seek statutory 14 damages, not actual damages. (Id.) 15 Under the Lanham Act, the Court has wide discretion to “enter judgment for such 16 sum as the court shall find to be just, according to the circumstances of the case.” 15 U.S.C. 17 § 1117(a); see also id. § 1117(c)-(d) (allowing wide latitude “as the court considers just”). 18 The Court, in exercising its broad discretion, may award only statutory damages and 19 decline to award actual damages, to keep the sum more modest. Media Lab, Inc. v. Collis, 20 2010 WL 3893582, *6 (N.D. Cal. 2010). Under the Copyright Act, the Court similarly has 21 wide discretion in assessing statutory damages. 17 U.S.C. § 504(c) (allowing “an award 22 of statutory damages for all infringements involved in the action, with respect to any one 23 work, for which any one infringer is liable individually, or for which any two or more 24 infringers are liable jointly and severally, in a sum of not less than $750 or more than 25 $30,000 as the court considers just”) (emphasis added). Where the Court has the discretion 26 5 Plaintiffs’ counsel explained that, due to Defendants’ refusal to participate in these 27 proceedings, Plaintiffs have not been able to use to discovery process to identify evidence of damages. This is further evidence of prejudice to Plaintiffs and weighs in favor of 28 granting default judgment. Nevertheless, the amount sought is high for a case where there may be no actual damage. 1 to reduce the monetary award to a less substantial sum that the Court considers reasonable, 2 the fourth Eitel factor becomes neutral. Twitch Interactive, Inc. v. Johnston, 2018 WL 3 1449525, *8 (N.D. Cal. 2018). 4 3. The Second And Third Eitel Factors—Merits And Sufficiency 5 That leaves the second and third Eitel factors—the merits of the claims and the 6 sufficiency of the complaint. “These two factors are often analyzed together and require 7 courts to consider whether a plaintiff has stated a claim on which it may recover.” Vietnam 8 Reform Party v. Viet Tan - Vietnam Reform Party, 416 F. Supp. 3d 948, 962 (N.D. Cal. 9 2019) (internal quotation marks omitted). “Of all the Eitel factors, courts often consider 10 the second and third factors to be the most important.” Id. 11 Here, these factors constitute the most complicated part of the analysis. Plaintiffs 12 seek entry of default judgment on seven grounds, covering all eight counts of their 13 complaint. (Doc. 31 at 14.) Unfortunately, Plaintiffs devoted less than half of one page of 14 their default-judgment motion to the merits and sufficiency of the complaint, merely 15 asserting in a conclusory fashion that the complaint pleads all the elements of all the causes 16 of action. (Doc. 31 at 12.) This approach is understandable, given that Plaintiffs had 17 already expended significant fees litigating this matter by the time the case reached the 18 default-judgment stage and likely determined that it would be inefficient to continue 19 pouring substantial resources into a case against potentially judgment-proof adversaries. 20 Nevertheless, Plaintiffs’ motion does not (1) identity the elements of each claim or (2) 21 identify the facts alleged in the complaint that establish each element of each claim. 22 Additionally, although Plaintiffs’ earlier motion for a preliminary injunction did address, 23 in some detail, why Defendants’ conduct has resulted in a “likelihood of confusion” for 24 purposes of the Lanham Act claims (Doc. 23 at 11-14), Plaintiffs have asserted a variety 25 of different Lanham Act claims and none turns solely on whether a likelihood of confusion 26 exists. 27 Given this backdrop, the Court will decline to assess the merits and sufficiency of 28 Counts One, Four, Five, Six, and Seven of the complaint—the counts for which Plaintiffs 1 aren’t seeking damages—and will deny, without prejudice, Plaintiffs’ motion for a default 2 judgment as to those counts. See generally T-Cetra, LLC v. Guzman, 2017 WL 7156250, 3 *1 (C.D. Cal. 2017) (“[T]he Court denied without prejudice Plaintiff’s motion for default 4 judgment because Plaintiff failed (1) to set forth the elements of Plaintiff’s claims with 5 citations and legal support, and (2) failed to provide evidentiary support for the damages 6 requested.”); Bank of New York Mellon v. Morandini, 2018 WL 6788858, *1 (S.D. Fla. 7 2018) (emphasizing that “[a] default judgment is a matter of discretion for the court, not a 8 matter of right to the moving party” and noting that the court had denied an earlier motion 9 for default judgment without prejudice to the movant’s ability to file a renewed motion that 10 addressed the sufficiency of the claims in more detail).6 As for Counts Two, Three, and 11 Eight, the Court will forge ahead and analyze the merits and sufficiency of each count. 12 i. Count Two 13 Count Two asserts a claim for counterfeiting of the Z Modular mark, in violation of 14 “Section 32(1) of the Lanham Act, 15 U.S.C. § 1114(1).” (Doc. 1 ¶¶ 83-87.) 15 “To prevail on a claim of trademark infringement under the Lanham Act, 15 U.S.C. 16 § 1114, a party must prove: (1) that it has a protectible ownership interest in the mark; and 17 (2) that the defendant’s use of the mark is likely to cause consumer confusion.” Network 18 Automation, Inc. v. Advanced Sys, Concepts, Inc., 638 F.3d 1137, 1144 (9th Cir. 2011) 19 (citations and internal quotation marks omitted). The second element, however, actually 20 two subcomponents: “use” is distinct from “confusion.” Bosley Med. Institute, Inc. v. 21 Kremer, 403 F.3d 672, 676 (9th Cir. 2005) (“Infringement claims are subject to a 22 commercial use requirement.”). See generally 1-800 Contacts, Inc. v. WhenU.Com, Inc., 23 414 F.3d 400, 412 (2d Cir. 2005) (“Not only are ‘use,’ ‘in commerce,’ and ‘likelihood of 24 confusion’ three distinct elements of a trademark infringement claim, but ‘use’ must be 25 decided as a threshold matter because, while any number of activities may be ‘in 26 6 Given this outcome, Plaintiffs are free to file a renewed motion for default judgment 27 that addresses the sufficiency of Counts One, Four, Five, Six, and Seven in more detail. However, in light of the other relief being granted in this order, and in light of Plaintiffs’ 28 counsel’s comments during the motion hearing, it seems unlikely that future litigation will be necessary. 1 commerce’ or create a likelihood of confusion, no such activity is actionable under the 2 Lanham Act absent the ‘use’ of a trademark.”). 3 Here, Plaintiffs’ motion for preliminary injunction (which is the only filing that 4 addresses the elements of trademark infringement) focuses on whether Defendants’ 5 conduct was likely to cause confusion. (Doc. 23 at 11-13.) The Court agrees with that 6 analysis, but it doesn’t address the antecedent question of whether Defendants engaged in 7 a qualifying “use” of the Z Modular mark. 8 On that issue, it is notable that Defendants are not accused of placing the Z Modular 9 mark7 (or any imitation of it) anywhere on their website, advertising materials, or 10 products. Such conduct would be the quintessential sort of “use” of a trademark that may 11 be challenged in an infringement action. 1-800 Contacts, 414 F.3d at 408 (placing the 12 plaintiff’s “trademarks on any goods or services in order to pass them off as emanating 13 from or authorized by [the plaintiff]” is the sort of “‘use’ . . . ordinarily at issue in an 14 infringement claim”). Rather, the complaint alleges that after prospective dealers would 15 contact Defendants (via the link on Defendants’ website), Defendants would respond by 16 sending an email that, among other things, invited the recipient to “check out . . . our 17 manufacturing partner’s site at www.z-modular.com.” (Doc. 1 ¶¶ 49, 51; Doc. 3-9 at 2.) 18 Thus, the challenged “use” of the Z Modular mark consists of falsely describing Z-Modular 19 as a “manufacturing partner” and then providing a link to Z-Modular’s own website, where 20 Z-Modular has posted its own mark. 21 Plaintiffs assert, without any supporting authority, that “[d]irecting prospective 22 dealers to Z-Modular’s advertisements that extensively use the [Z-Modular mark] by a link 23 in an email, while representing that any product sold is and will be manufactured by Z- 24 Modular, is no different than using [the mark] directly in the email.” (Doc. 1 ¶ 53.) This 25 ipse dixit fails to satisfy Plaintiffs’ burden under the second and third Eitel factors. There 26 is a broad body of caselaw addressing when a reference to a competitor’s website may 27 28 7 Section 1114 applies only when there is “a registered mark,” so Plaintiffs could not bring a cause of action under that section as to VectorBloc. 1 constitute an infringing use under the Lanham Act. Depending on the facts, such conduct 2 may indeed qualify. See, e.g., Brookfield Commc’ns, Inc. v. W. Coast Entm’t Corp., 174 3 F.3d 1036, 1041 (9th Cir.1999) (defendant violated the Lanham Act by using a 4 competitor’s “trademark in the domain name of its web site and in its web site’s metatags”). 5 Nevertheless, not every reference to a competitor’s name or website qualifies. See, e.g., 6 Nelson-Ricks Cheese Co., Inc. v. Lakeview Cheese Co., LLC, 331 F. Supp. 3d 1131, 1139- 7 40 (D. Idaho 2018). 8 Given this backdrop, it was incumbent upon Plaintiffs to provide citations and 9 analysis in their motion for default judgment demonstrating that the conduct at issue 10 constitutes trademark infringement under Section 1114(1) of the Lanham Act. Although 11 the factual allegations in the complaint describe conduct that is certainly tortious and 12 improper, not all such conduct falls within the ambit of Section 1114(1) and this is not a 13 typical infringement case. Thus, given Plaintiffs’ failure to meet their burden under the 14 second and third Eitel factors, their motion for a default judgment as to Count Two will be 15 denied without prejudice. Cf. T-Cetra, LLC, 2017 WL 7156250 at *1; Bank of New York 16 Mellon, 2018 WL 6788858 at *1. Again, it’s possible the challenged conduct does 17 constitute counterfeiting under Section 1114(1)—the narrow ruling reached here is that 18 Plaintiffs needed to provide more fulsome briefing (which they understandably declined to 19 do, in light of the financial realities of this case) if they wished to prevail in the default- 20 judgment context. 21 ii. Count Three 22 In Count Three, Plaintiffs assert a claim for “Unfair Competition By Use Of The 23 VectorBloc Mark,” “in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a).” 24 (Doc. 1 ¶¶ 88-95.) 25 Section 43(a) of the Lanham Act provides: 26 Any person who, on or in connection with any goods or services, . . . uses in commerce any word, term, name, symbol, or device, or any combination 27 thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which— 28 (A) is likely to cause confusion, or to cause mistake, or to deceive as to the 1 affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or 2 commercial activities by another person, or 3 (B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another 4 person’s goods, services, or commercial activities, 5 shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act. 6 7 15 U.S.C. § 1125(a)(1). 8 “Section 1125(a) . . . creates two distinct bases of liability: false association, 9 § 1125(a)(1)(A), and false advertising, § 1125(a)(1)(B).” Lexmark Int’l, Inc. v. Static 10 Control Components, Inc., 572 U.S. 118, 122 (2014). “False association” appears to be 11 synonymous with “false designation of origin” or “passing off.” Int’l Order of Job’s 12 Daughters v. Lindeburg & Co., 633 F.2d 912, 917 (9th Cir. 1980). 13 Section 43(a) of the Lanham Act “prohibits a broader range of practices than does 14 § 32.” Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 858 (1982). Among other 15 things, it “applies to both registered and unregistered” marks. Brookfield Commc’ns, 174 16 F.3d at 1046 n.6. See also Enigma Software Grp. USA, LLC v. Malwarebytes, Inc., 946 17 F.3d 1040, 1053 (9th Cir. 2019) (“[E]ven though the Lanham Act is known as the federal 18 trademark statute, not all claims brought under the statute involve trademarks. . . . [Section] 19 1125(a) is one of the few provisions that goes beyond trademark protection.”) (citation and 20 internal quotation marks omitted). Thus, “false designation of origin” is “a federal remedy 21 against the deceptive use of unregistered trademarks to designate falsely the origin of goods 22 (‘passing off’).” Job’s Daughters, 633 F.2d at 917. 23 As an initial matter, Plaintiffs do not specify whether their claim in Count Three is 24 a claim for false association under Section 1125(a)(1)(A), a claim for false advertising 25 under Section 1125(a)(1)(B), or both. Instead, they describe it as a claim for “unfair 26 competition”—a term that doesn’t appear in the text of Section 1125(a). In any event, 27 because paragraph 90 of the complaint contains a specific reference to “a false designation 28 of origin,” and because (as discussed below) the liability analysis under Section 1 1125(a)(1)(A) is relatively straightforward, the Court will construe Count Three as a false 2 association claim. 3 A Lanham Act claim for false association under Section 1125(a)(1)(A) has the 4 following elements: 5 1) the defendant used a word, term, name, symbol, or device (or any combination thereof) or any false designation of origin, false or 6 misleading description of fact, or false or misleading representation of fact; 7 2) the usage was in commerce, in connection with goods or services; 8 3) the usage is likely to cause confusion, or to cause mistake, or to deceive 9 as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her 10 goods, services, or commercial activities by another person; and 11 4) the plaintiff has been or is likely to be injured as a result of the usage. 12 See 15 U.S.C. § 1125(a)(1)(A). 13 Here, through February 2019, Marker published a photograph of a VectorBloc 14 connector on the www.evomicrocondos.com website, along with text identifying the 15 connector as VectorBloc and describing how it works. (Doc. 1 ¶ 59; Doc. 3-4 at 3.) When 16 the www.evomicrocondos.com website first became affiliated with GreenFeet, it still 17 included a picture of a VectorBloc connector and information about VectorBloc 18 connectors. (Doc. 3-6 at 8.) Thus, Plaintiffs have clearly established the first three 19 elements of a Section 1125(a)(1)(A) false association claim. Defendants used the word 20 “VectorBloc,” and its image, on their website advertising their goods and services. Online 21 advertisements are “in commerce.” TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 22 829 n.3 (9th Cir. 2011). Defendants’ use of the word “VectorBloc” and its image was 23 likely to cause confusion or deceive viewers into believing that Defendants were associated 24 with Plaintiffs, that Defendants’ goods originated with Plaintiffs, and/or that Plaintiffs 25 sponsored or approved of Defendants’ services. 26 The problem with the Section 1125(a)(1)(A) claim is that it is unclear whether 27 Plaintiffs have satisfied the fourth element—actual injury or a likelihood thereof.8 No 28 8 The same would be true if Count Three were construed as a false advertising claim 1 allegations in the complaint establish actual damage—for example, Plaintiffs do not 2 contend they lost any sales. All references to damages are vague. (See, e.g., Doc. 1 ¶¶ 76, 3 93, 95, 105.) And at any rate, the Court cannot accept as true allegations in the complaint 4 as to damages, which require proof. Geddes, 559 F.2d at 560. 5 Plaintiffs’ motion for default judgment provides a bit more detail. It seeks damages 6 as to Count Three in the amount of $108,000. (Doc. 31 at 8.) The explanation for this 7 figure is as follows: “$108,000 . . . is equivalent to Plaintiffs[’] potential profits from selling 8 72 geographical sales districts at $1,500 per district.” (Id.) 9 There are several problems with this approach. First, there is no evidence that 10 Defendants actually signed up any dealers (let alone procured a $1,500 dealer fee from any 11 of those dealers) in each of the 72 geographical areas that Evo claimed were “needed.” The 12 $108,000 figure thus represents the theoretical amount that Defendants hoped to obtain 13 through their scheme, not the amount they actually obtained. Second, even if Defendants 14 did collect some dealer fees, those fees are not synonymous with Plaintiffs’ lost profits or 15 sales. It appears Defendants were attempting to rip off third parties by inducing them to 16 pay a one-time dealer fee in return for the right to serve as Plaintiffs’ exclusive dealer in a 17 particular region of the country. The direct victims in this scheme were the dealers, not 18 Plaintiffs. Although it’s possible the scheme may have also caused Plaintiffs to suffer a 19 less direct injury (such as harm to reputation or goodwill), Plaintiffs have not proffered any 20 evidence of such injuries. 21 In sum, Plaintiffs’ $108,000 damage figure seems to be a theoretical disgorgement 22 calculation. Although the Lanham Act permits a plaintiff that “cannot quantify its losses 23 with sufficient certainty to recover damages” to seek “disgorgement of the defendant’s ill- 24 gotten profits under § 1117(a),” Lexmark, 572 U.S. at 135-36, Plaintiffs have cited no 25 authority suggesting they may recover, under a disgorgement theory, Defendants’ 26 attempted-but-unrealized profits. And although the Lanham Act also permits a plaintiff 27 that cannot quantify its losses to seek “injunctive relief under § 1116(a) (assuming it can 28 under Section 1125(a)(1)(B). 1 prove a likelihood of future injury),” Lexmark, 572 U.S. at 135-36, there is no likelihood 2 of future injury as to Count Three because the website Defendants used 3 (www.evomicrocondos.com) appears to be defunct and, as Plaintiffs’ counsel 4 acknowledged during oral argument, the challenged conduct does not appear to be ongoing. 5 Accordingly, Plaintiffs have failed to meet their burden under the second and third 6 Eitel factors, so their motion for a default judgment as to Count Three will be denied 7 without prejudice. 8 iii. Count Eight 9 In Count Eight, Plaintiffs assert a claim for “Copyright Infringement” pertaining to 10 Defendants’ “acts of stealing and re-publishing the Copyrighted Works without 11 Zekelman’s permission.” (Doc. 1 ¶¶ 133-38.) 12 A plaintiff asserting a claim for copyright infringement must demonstrate “(1) 13 ownership of a valid copyright, and (2) copying of constituent elements of the work that 14 are original.” Feist Pubs., Inc. v. Rural Telephone Service Co., Inc., 499 U.S. 340, 361 15 (1991). “Registration is prima facie evidence of the validity of a copyright.” Three Boys 16 Music Corp. v. Bolton, 212 F.3d 477, 488–89 (9th Cir. 2000). 17 Zekelman owns the Copyrighted Works,9 which have been registered with the 18 United States Copyright Office. (Doc. 1 ¶¶ 37-39.) The videos are original (id.) and they 19 contain graphic renderings of modular steel units (id.), which are original. Feist, 499 U.S. 20 at 345 (“[T]he requisite level of creativity [required to constitute an original work] is 21 extremely low; even a slight amount will suffice.”). 22 Before GreenFeet was incorporated, Marker published the Copyrighted Works in 23 full on the www.evomicrocondos.com website. (Doc. 1 ¶ 60.) Furthermore, “at some 24 point,” Marker “and/or” GreenFeet took an image from a frame of the Build Stronger 25 Graphics video (one of the Copyrighted Works), altered it (by removing the color red and 26 flipping the image horizontally), and posted the altered image on the website. (Id. ¶ 61.) 27 The altered image existed on the www.evomicrocondos.com website as of March 5, 2019, 28 9 Z-Modular does not appear to have standing to bring this claim. 1 at which point the website listed an address for GreenFeet. (Id. ¶¶ 47, 61; Doc. 3-7 at 4.) 2 Publication of the altered image violated Zekelman’s copyright, cf. Friedman v. Guetta, 3 2011 WL 3510890, *4-5 (C.D. Cal. 2011), and of course, publication of the Copyrighted 4 Works in full did as well. 5 Given these allegations (which must be accepted as true), Defendant Marker 6 infringed Zekelman’s valid copyright of the Build Faster Graphics video and both 7 Defendants infringed Zekelman’s valid copyright of the Build Stronger Graphics video. 8 Thus, with respect to Count Eight, Plaintiffs have met their burden under the second 9 and third Eitel factors. 10 v. Conclusion as to the Eitel Factors 11 For the reasons stated above, default judgment is appropriate only as to Zekelman’s 12 claim for copyright infringement in Count Eight. 13 B. Damages 14 For the copyright infringement claim, Zekelman seeks $60,000 in statutory damages 15 ($30,000 for infringement of each of the two Copyrighted Works) instead of actual 16 damages or Defendants’ profits. (Doc. 31 at 8, 13.) See Peer Int’l Corp. v. Pausa Records, 17 Inc., 909 F.2d 1332, 1336 (9th Cir. 1990) (“Under the 1976 Copyright Act, the plaintiff 18 may elect to recover either actual or statutory damages.”). 19 Under the Copyright Act, the Court has wide discretion in assessing statutory 20 damages. Section 504(c) permits “an award of statutory damages for all infringements 21 involved in the action, with respect to any one work, for which any one infringer is liable 22 individually, or for which any two or more infringers are liable jointly and severally, in a 23 sum of not less than $750 or more than $30,000 as the court considers just,” or up to as 24 much as $150,000 where the infringement is “willful.” The Court is “constrained only by 25 the specified maxima and minima,” and should consider “what is just in the particular case, 26 considering the nature of the copyright, the circumstances of the infringement and the like.” 27 Peer Int’l, 909 F.2d at 1336. 28 The Court finds that Defendants’ infringement of the Copyrighted Works was 1 willful—Marker stole video material directly from Zekelman’s website and published that 2 material (in full and altered form) in an improper attempt to procure $108,000 of dealer 3 fees. 4 On the other hand, there is no indication that Defendants’ scheme was in any way 5 successful or that more than a handful of people ever visited Defendants’ website and 6 viewed the infringing publications of the Copyrighted Works. To be clear, the statutory 7 award need not bear any relationship to actual damages. F. W. Woolworth Co. v. 8 Contemporary Arts, 344 U.S. 228, 233 (1952) (“Even for uninjurious and unprofitable 9 invasions of copyright the court may, if it deems it just, impose a liability within statutory 10 limits to sanction and vindicate the statutory policy.”). Nevertheless, courts often award 11 statutory damages on the lower end of the permissible range, even for willful violations 12 with serious ramifications. See, e.g., Twentieth Century Fox Film Corp. v. Streeter, 438 F. 13 Supp. 2d 1065, 1072-73 (D. Ariz. 2006) (awarding $6,000—$3,000 per infringement—as 14 statutory damages for willful infringement in a default judgment where the “means of 15 infringement—an online media distribution system with tens of millions of potential 16 users—has left [plaintiff’s copyrighted works] vulnerable to massive, repeated, and 17 worldwide infringement,” where “it is likely that the actual number of works infringed by 18 [defendant] is greater than the two brought in this action,” and where defendant’s conduct 19 was essentially a few drops in the digital piracy bucket, which as a whole was “estimated 20 to have cost the motion picture industry in excess of $858.5 million”). Furthermore, 21 statutory damages “are not intended to serve as a windfall to plaintiffs” in the default 22 judgment context. UN4 Prods., Inc. v. Primozich, 372 F. Supp. 3d 1129, 1135 (W.D. 23 Wash. 2019) (awarding the minimum statutory penalty of $750). 24 The Court finds that the conduct at issue here was serious enough to merit an award 25 to Zekelman of $5,000 per infringement, for a total of $10,000 in statutory damages. 26 Defendant Marker is solely liable for paying the $5,000 award for infringing the Build 27 Faster Graphics video, and both Defendants are jointly and severally liable for paying the 28 $5,000 award for infringing the Build Stronger Graphics video. Finally, Defendants are 1 specifically warned that, if they were to engage in future acts of infringement, the findings 2 contained in this order would likely result in a much higher statutory damage award in light 3 of their status as recidivists. 4 C. Permanent Injunction 5 “An injunction is a drastic and extraordinary remedy, which should not be granted 6 as a matter of course.” Monsanto Co. v. Geertson Seed Farms, 561 U.S. 139, 165 (2010). 7 “[A] plaintiff seeking a permanent injunction . . . must demonstrate: (1) that it has suffered 8 an irreparable injury; (2) that remedies available at law, such as monetary damages, are 9 inadequate to compensate for that injury; (3) that, considering the balance of hardships 10 between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public 11 interest would not be disserved by a permanent injunction.” eBay Inc. v. MercExchange, 12 L.L.C., 547 U.S. 388, 391 (2006). 13 “The Copyright Act provides that courts ‘may’ grant injunctive relief ‘on such terms 14 as it may deem reasonable to prevent or restrain infringement of a copyright.’” Id. at 392 15 (quoting 17 U.S.C. § 502(a)). But the Supreme Court “has consistently rejected invitations 16 to replace traditional equitable considerations with a rule that an injunction 17 automatically follows a determination that a copyright has been infringed.” Id. at 392-93. 18 1. Irreparable Injury 19 “[T]here is no presumption of irreparable harm with respect to permanent 20 injunctions.”10 Apple Inc. v. Psystar Corp., 673 F. Supp. 2d 943, 948 (N.D. Cal. 21 2009), aff’d, 658 F.3d 1150 (9th Cir. 2011). “[H]arm to . . . reputation and goodwill, 22 supported by compelling evidence, is sufficient to establish irreparable harm.” Id. at 949 23 (emphasis added). “[E]conomic injury alone does not support a finding of irreparable 24 harm, because such injury can be remedied by a damage award.” Rent-A-Ctr., Inc. v. 25 Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir. 1991). 26 27 10 This quotation omits the district court’s reference to a no-longer-valid exception for trademark infringement. Herb Reed, Enterprises, LLC v. Fla. Entm't Mgmt., Inc., 736 F.3d 28 1239, 1250 (9th Cir. 2013) (no presumption of irreparable harm based solely on a strong case of trademark infringement). 1 Plaintiffs have alleged harm to their reputation and goodwill in conclusory fashion 2 but acknowledged during oral argument that they have no evidence of such harm.11 3 Therefore, Plaintiffs have not established irreparable injury. 4 2. Adequacy of Legal Remedies 5 “District courts must ascertain whether remedies available at law, such as monetary 6 damages, are inadequate to compensate for the injury suffered.” Apple, 673 F. Supp. 2d at 7 949. Monetary damages are inadequate where, for example, there is good reason to believe 8 the infringement will continue. Id. at 950 (“[M]onetary damages would not prevent 9 [defendant] from continuing to infringe [plaintiff’s] copyrights . . . in the future . . . ; indeed, 10 [defendant’s] actions throughout this litigation and statements at oral argument reveal a 11 dogged determination to continue . . . .”). 12 Here, as noted, the website Defendants once used (www.evomicrocondos.com) 13 appears to be defunct and Plaintiffs have not established that any of the conduct alleged in 14 the complaint is ongoing. Indeed, this litigation appears to have scared Defendants out of 15 business. Thus, the legal remedy of damages appears adequate to punish Defendants for 16 infringing Zekelman’s Copyrighted Works. Defendants are again warned, however, that 17 if they were to resume their misconduct following the issuance of this order, they would 18 be exposing themselves to significantly increased sanctions. 19 3. Balancing of the Hardships 20 Where there is no indication the challenged conduct will continue, this factor is 21 essentially neutral—Plaintiffs have little to gain from the issuance of a permanent 22 injunction, and Defendants have little to lose from being enjoined from doing something 23 they aren’t doing anymore. 24 4. Effect on the Public Interest 25 “If a less drastic remedy . . . [is] sufficient to redress [an] injury, no recourse to the 26 11 The forwarding of the Jan. 10 email by a potential dealer’s brother may show 27 confusion, but it does not establish irreparable harm. Herb Reed Enterprises, 736 F.3d at 1250 (“Even if we comb the record for support or inferences of irreparable harm, the 28 strongest evidence . . . is an email from a potential customer . . . [the content of which] simply underscores customer confusion, not irreparable harm.”). 1 additional and extraordinary relief of an injunction [is] warranted.” Monsanto, 561 U.S. at 2 165–66. The public has no interest in the issuance of extraordinary relief where it is not 3 warranted. This factor is neutral. 4 5. Conclusion as to the eBay Factors 5 None of the eBay factors favor granting a permanent injunction regarding 6 infringement of Zekelman’s Copyrighted Works. Thus, the Court will vacate the 7 preliminary injunction (Doc. 26) and will deny Plaintiffs’ motion to the extent it seeks a 8 permanent injunction. 9 D. Attorneys’ Fees 10 Under the Copyright Act, a district court has the discretion to award “a reasonable 11 attorney’s fee to the prevailing party.” 17 U.S.C. § 505. See also Fogerty v. Fantasy, Inc., 12 510 U.S. 517, 534 (1994) (“[A]ttorney’s fees are to be awarded to prevailing parties only 13 as a matter of the court’s discretion.”). In exercising this discretion, district courts are 14 given “wide latitude.” Entertainment Research Group, Inc. v. Genesis Creative Group, 15 Inc., 122 F.3d 1211, 1229 (9th Cir. 1997). Courts consider the following non-exhaustive 16 list of factors when determining whether to grant attorneys’ fees: “(1) the degree of success 17 obtained; (2) frivolousness; (3) motivation; (4) the objective unreasonableness of the losing 18 party’s factual and legal arguments; and (5) the need, in particular circumstances, to 19 advance considerations of compensation and deterrence.” Id. 20 Here, Zekelman prevailed on its copyright infringement claim, so that claim 21 obviously wasn’t frivolous. Zekelman also acted with appropriate motives—one of the 22 Copyright Act’s goals “is to discourage infringement,” Fogerty v. Fantasy, Inc., 510 U.S. 23 517, 526 (1994), and this suit does that. Indeed, Defendants effectively forced Zekelman 24 to file this lawsuit by refusing to acknowledge, let alone respond to, the cease-and-desist 25 letter. Finally, Defendants asserted no factual or legal arguments (and therefore the non- 26 existent arguments are neither reasonable nor unreasonable). Thus, the first four factors 27 weigh in favor of granting attorneys’ fees. 28 The final factor is neutral. On the one hand, the award of $10,000 in statutory 1 damages should, standing alone, deter future misconduct by Defendants. On the other 2 hand, Defendants could have avoided litigation by responding to the cease-and-desist letter, 3 and it also appears (based on Plaintiffs’ counsel’s statements during oral argument) that 4 Defendants played games when it came to service. Defendants should not be rewarded for 5 running up Plaintiffs’ fees in a case in which Plaintiffs were the clear victims of intellectual 6 property violations. 7 Balancing these factors, the Court will award some attorneys’ fees to Plaintiffs, but 8 not the entire $67,473.75 they seek. Calculating the reduced sum is more art than science, 9 but it seems appropriate, in the Court’s discretion, to discount Plaintiffs’ request based on 10 the fact that they only secured a default judgment on one of the eight claims in the 11 complaint12 and based on the observation that 178.35 hours of attorney time seems high 12 for a case resulting in a default judgment, even though Defendants helped contribute to 13 those hours through their gamesmanship.13 Accordingly, the Court will award $20,000 in 14 attorneys’ fees. 15 Accordingly, 16 IT IS ORDERED: 17 (1) Plaintiffs’ motion for default judgment (Doc. 31) is granted in part and 18 denied in part; 19 (2) There being no just reason for delay, the Court enters judgment in favor of 20 Plaintiff Zekelman on Count Eight of the complaint; 21 (3) Plaintiff Zekelman is awarded $5,000 in statutory damages against 22 Defendant Marker for infringement of Zekelman’s valid copyright of the Build Faster 23 Graphics video; 24 12 Cf. The Traditional Cat Ass’n, Inc. v. Gilbreath, 340 F.3d 829, 834 (9th Cir. 2003) 25 (“If the district court determines that the copyright and non-copyright claims are not related, the defendants cannot recover fees for the non-copyright claims, but the district 26 court must attempt to arrive at a fair apportionment and then calculate a reasonable fee award.”). 27 13 Cf. Hensley v. Eckerhart, 461 U.S. 424, 433 (1983) (“The most useful starting point 28 for determining the amount of a reasonable fee is the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate.”). 1 (4) ‘Plaintiff Zekelman is awarded $5,000 in statutory damages against || Defendant Marker and Defendant GreenFeet, jointly and severally, for infringement of || Zekelman’s valid copyright of the Build Stronger Graphics video; 4 (5) Plaintiff Zekelman is awarded $20,000 in attorneys’ fees against Defendant 5 || Marker and Defendant GreenFeet, jointly and severally; 6 (6) The preliminary injunction (Doc. 26) is vacated; 7 (7) Plaintiffs’ request for a permanent injunction (Doc. 31) is denied; and 8 (8) Plaintiffs shall have 14 days from the issuance of this order to file a renewed motion for default judgment on Counts One through Seven of the complaint (and Z- || Modular may renew its request for default judgment on Count Eight of the complaint). If 11 || no such motion is filed, the Clerk of Court shall terminate this action and enter judgment || accordingly. 13 Dated this 26th day of March, 2020. 14 15 fom ee 17 United States District Judge 18 19 20 21 22 23 24 25 26 27 28 -22-