Thanks for visiting! Welcome to a new way to research case law. You are viewing a free summary from Descrybe.ai. For citation and good law / bad law checking, legal issue analysis, and other advanced tools, explore our Legal Research Toolkit — not free, but close.
Innovation Ventures, LLC v. Ultimate One Distributing Corp.
Citations: 176 F. Supp. 3d 137; 2016 WL 1273232Docket: 12-CV-5354 (KAM) (RLM); 13-CV-6397 (KAM) (RLM)
Court: District Court, E.D. New York; March 31, 2016; Federal District Court
Plaintiffs Innovation Ventures, LLC; Living Essentials, LLC; and International IP Holdings, LLC have filed a lawsuit alleging that over 70 defendants engaged in a scheme to manufacture, distribute, and sell counterfeit 5-hour ENERGY drinks, violating plaintiffs’ trademarks and copyrights. The claims are based on the Lanham Act, Copyright Act, and New York law. Most defendants have settled, and the plaintiffs are currently seeking summary judgment against nine remaining defendant groups, including companies and their owners. The plaintiffs' claims include trademark infringement, false advertising, and copyright infringement, with enhanced damages and permanent injunctive relief sought against certain defendants for willful infringement. All defendants except the Romero Defendants have opposed the summary judgment motion, while defendant David Flood has filed a cross-motion for summary judgment. The court has granted the plaintiffs' motion in part and denied it in part, while also denying Flood's cross-motion.
On October 25, 2012, Living Essentials initiated the case Innovation Ventures, et al. v. Ultimate One Distributing Corp. et al. ("Ultimate Action") in this court, alleging that over twenty defendants sold counterfeit 5-hour ENERGY products, violating the Lanham Act, the Copyright Act, New York state law, and common law. The following day, plaintiffs filed a similar case, Innovation Ventures, et al. v. Pittsburg Wholesale Grocers Inc. et al. ("Pittsburg Action"), in the Northern District of California against sixteen California-based defendants. As the investigation progressed, the Ultimate Action expanded to include sixty-nine defendants, identifying Dan-Dee Company, Inc. as a key distribution hub for the counterfeit products. Subsequently, several defendants in the Ultimate Action added Dan-Dee and its principals as third-party defendants, while the Dan-Dee Defendants countered by impleading Ultimate Action defendants in the Pittsburg Action.
In April 2013, Capital Sales Company, a defendant in the Ultimate Action and a customer of Dan-Dee, filed a lawsuit against the Dan-Dee Defendants in the Eastern District of Michigan, which was later transferred to this court and consolidated with the Ultimate Action. On November 12, 2013, plaintiffs sought to transfer the Pittsburg Action venue to this district, arguing that all remaining parties were also involved in the Ultimate Action. The motion received no opposition, and a stipulation was signed by all parties for the transfer. The Northern District of California officially transferred the Pittsburg Action on November 15, 2013. On March 3, 2014, the court granted a joint request to consolidate both the Ultimate Action and the Pittsburg Action.
Factual background is drawn from the parties' Local Civil Rule 56.1 statements, with no specific disputes noted unless supported by admissible evidence. The court assesses the admissibility of the presented evidence and evaluates facts favorably for the nonmoving parties, referencing Spiegel v. Schulmann. It is established that only admissible evidence can be considered when granting summary judgment, as outlined in Scotto v. Brady. The district court has broad discretion regarding evidence admission during summary judgment motions, maintaining consistent principles of admissibility, as noted in Presbyterian Church of Sudan v. Talisman Energy, Inc.
Living Essentials, along with its affiliated companies Innovation Ventures, LLC and International IP Holdings, LLC, owns, manufactures, and distributes the 5-hour ENERGY liquid dietary supplement in 1.93-ounce bottles across various flavors and strengths. International IP Holdings holds the trademarks and copyright for 5-hour ENERGY, while Innovation Ventures is the exclusive worldwide licensee of these intellectual properties. Living Essentials is responsible for the product's distribution and owns five trademarks and one copyright related to the product packaging.
The trademarks, referred to as the "5-hour ENERGY Marks," include registrations for various representations of the brand, with notable registrations including the "5-HOUR ENERGY" mark and the "Running Man" mark, all of which are registered with the U.S. Patent and Trademark Office. The copyright (Registration No. TX 6-833-514) pertains to the caution label found on the product, which provides safety information regarding caffeine and Niacin. The validity and ownership of these trademarks and copyright are undisputed by the defendants.
Since 2011, all genuine 5-hour ENERGY products have been manufactured by Living Essentials under strict quality control at its facilities in Wabash, Indiana. The product is distributed in various configurations, generally in display boxes containing twelve bottles, and sold directly or through independent brokers across the U.S. Living Essentials commands over a 90% market share in the energy shot sector, averaging sales of more than nine million bottles weekly.
By late 2009, Tradeway International, Inc. (Baja) and its principals, Joe and Adrianna Shayota (collectively, the "Baja Defendants"), became authorized distributors of authentic 5-hour ENERGY in Mexico, with exclusive Spanish-language labels intended solely for that market. In January 2010, they began purchasing large quantities of these Spanish-labeled products at discounted rates from Living Essentials. However, when attempts to sell these products in the U.S. market through Dan-Dee failed, Baja entered into a scheme with Walid Jamil of Midwest Wholesale Distributors. This involved swapping Spanish-language labels for counterfeit English-language ones.
In August 2011, Midwest ordered counterfeit display boxes from MCR Printing and 500,000 counterfeit plastic sleeves from label broker Leslie Roman. These counterfeit labels were intended to cover the authentic Mexican bottles. Baja then shipped the authentic Mexican-label products to Midwest's California warehouse, where workers, under the direction of Justin Shayota, removed the Mexican labels and altered the lot codes and expiration dates. They subsequently applied the counterfeit English-language labels and repackaged the products into counterfeit display and master boxes. By December 2011, Baja had sold nearly 355,000 repackaged bottles to Dan-Dee and other wholesalers.
Between December 2011 and October 2012, Walid Jamil and Justin Shayota from Midwest ordered over 7 million counterfeit labels for 5-hour ENERGY bottles and sought a manufacturer for the bottles and caps. Leslie Roman contacted Juan Romero Gutierrez, who operated Advanced Nutraceutical Manufacturing, LLC and Nutrition Private Label, Inc., to assist in this endeavor. Roman provided Romero with samples of authentic bottles and images of the trademarked "Running Man" logo to facilitate sourcing from manufacturers in Mexico. They hired two Mexican companies to produce blank bottles and caps with the logo, which Romero ordered in the millions.
The counterfeit bottles were wider than the originals, necessitating new counterfeit labels. Romero filled these bottles with counterfeit liquid, mixing ingredients like malic acid in large barrels. The counterfeit bottles, which lacked lot numbers or expiration dates, were delivered to Midwest’s warehouse by Romero’s employees, with Justin Shayota or his laborers signing for the deliveries. The counterfeit liquid was referred to in purchase orders as "michelada juice blend" and "spices." By October 2012, the operation produced 75,000 counterfeit bottles daily, resulting in 4,303,724 bottles delivered to Midwest in five months. Midwest acknowledged receiving and distributing the filled counterfeit bottles to Baja and Dan-Dee, selling at least 4,029,264 of them.
Dan-Dee identified itself as the largest first-tier distributor of counterfeit 5-hour ENERGY, selling millions to second-tier distributors across several states including California, Florida, Illinois, Michigan, Pennsylvania, and Texas. Over forty wholesale or retail entities in the U.S. were involved in buying or selling these counterfeit products, with notable downstream sellers including the Baseline, FDI, Elegant, Purity, Valero, and Core-Mark Defendants.
In August 2012, Paramount Sales, a broker in San Jose, California, identified irregularities in the sales of 5-hour ENERGY, particularly noting that its major buyer, Piteo Foods, had not placed orders for certain product varieties in months. Concerned, Paramount salespeople visited Piteo, recorded lot numbers from its inventory, and provided this information to Living Essentials. After obtaining a sample of 5-hour ENERGY from Piteo for inspection, Living Essentials discovered that the products contained in Piteo's inventory were counterfeit. Differences between the counterfeit and authentic products included variations in bottle height, cap design, logo appearance, liquid color, and taste/smell.
Subsequent investigations revealed that the counterfeit bottles had limited flavor, lot number, and expiration date combinations. Living Essentials, with the help of Kroll Associates, began inspecting retailers nationwide to quarantine counterfeit products. In late October 2012, plaintiffs initiated legal action, obtaining seizure and restraining orders from the courts. Over the following month, Living Essentials seized hundreds of thousands of counterfeit bottles across multiple locations, with Kroll documenting the seizures using chain-of-custody forms that detailed the product specifics and quantities. Ultimately, 2,670,997 counterfeit bottles were counted and secured in storage facilities in California and New Jersey. The legal framework for the case includes an analysis of plaintiffs’ claims, remedies, and the individual liability of defendant David Flood, whose cross-motion for summary judgment will be assessed in this context.
Summary judgment is warranted when there is no genuine dispute regarding any material fact, and the overall record suggests that no rational factfinder could favor the non-moving party. A district court must resolve ambiguities and credit factual inferences in favor of the opposing party to determine if a genuine issue exists for trial. A material fact is one that could influence the suit's outcome based on applicable law. An issue is genuine if reasonable evidence could allow a jury to rule for the non-moving party. To counter a summary judgment motion, the non-moving party must present specific facts demonstrating a genuine material fact issue, as outlined in Rule 56(e). General statements or challenges to the credibility of supporting affidavits are insufficient. This standard applies equally to cross motions for summary judgment, requiring independent examination of each motion and drawing reasonable inferences against the movant.
Plaintiffs allege violations of the Lanham Act by defendants through trademark infringement (15 U.S.C. § 1114(1)(a), (b)) and false designation of origin (15 U.S.C. § 1125(a)(1)(A)). To succeed in a trademark infringement claim, plaintiffs must demonstrate: (1) ownership of a valid, protectable trademark, (2) unauthorized use of that trademark in commerce by the defendants, and (3) a likelihood of consumer confusion. The Lanham Act imposes strict liability, meaning intent or knowledge is not required for establishing liability.
Plaintiffs have established valid ownership of the "5-Hour ENERGY Marks," which are registered and protected. Defendants do not contest the validity of these marks. The likelihood of confusion is assessed using the eight-factor Polaroid test; however, in counterfeiting cases, courts recognize that counterfeit marks inherently create confusion. Defendants agree that the counterfeit trademarks led to confusion.
The remaining issue for determining liability is whether defendants used the marks "in commerce." The Lanham Act defines use in commerce as placing the mark on goods or their containers and selling or transporting those goods. Evidence indicates that defendants were involved in the sale and transportation of counterfeit 5-Hour ENERGY products, supporting liability for trademark infringement. Further analysis of liability will occur on a defendant-by-defendant basis.
False designation of origin claims fall under Section 43 of the Lanham Act (15 U.S.C. 1125(a)(1)), which prohibits the use of any word, term, name, symbol, or device that causes confusion regarding the affiliation or origin of goods or services. Both Sections 1114 and 1125 of the Lanham Act share the same legal standard for establishing liability, meaning that if conduct violates one section, it will likely violate the other without the need for a separate analysis.
Plaintiffs are pursuing summary judgment against seven individuals who are owners or principals of certain corporate defendants. In the Second Circuit, corporate officers can be held personally liable for trademark infringement and unfair competition if they are considered a "moving, active, conscious force" behind the infringement, regardless of their awareness of the infringement. This is typically established when an officer is the sole shareholder, employee, or directly involved in the infringing activities.
Plaintiffs claim that the "Caution" label text on authentic 5-Hour ENERGY bottles is protected under the Copyright Act, seeking summary judgment for alleged infringement by defendants who reproduced this text on counterfeit bottles. To prove copyright infringement, ownership of a valid copyright must be established alongside evidence that the defendant copied original elements of the work. Living Essentials possesses a copyright registration for the "Caution" text, which serves as prima facie evidence of ownership. The defendants do not contest that their counterfeit bottles contained an identical reproduction of this text.
The second element of infringement involves demonstrating that the copied work displays sufficient originality and that the defendant had access to the work, with substantial similarity present. The Supreme Court, in Feist, stated that a minimal degree of creativity suffices for copyright protection. The Elegant Defendants challenge the validity of the copyright, invoking the merger doctrine, which asserts that if an idea and its expression are inseparable, copyright protection cannot be granted to prevent monopolizing the idea itself. They argue that limited expressions of cautionary messages about caffeine would grant plaintiffs ownership over the concept of a caution label for caffeinated beverages.
In evaluating the merger defense, a court identifies the idea behind the expression and assesses the range of possible expressions. The idea in the "Caution" label pertains to warnings about caffeine content and potential side effects, which can be articulated in various ways. The specific wording chosen by Living Essentials reflects deliberate content and language decisions aimed at conveying this warning effectively.
Plaintiffs compared the caffeine content in 5-hour ENERGY to that of coffee, emphasizing that they could have presented the data differently, which counters Elegant's argument that a caution label for caffeinated beverages could be copyrighted. The court's decision in Innovation Ventures, LLC v. N2G Distrib. supports this view, rejecting the merger defense and allowing the copyright infringement claim to proceed.
Regarding state law unfair competition claims under New York law, plaintiffs seek summary judgment against multiple defendants, asserting that the essence of such claims involves misappropriation of another's efforts in a manner that causes consumer confusion about the goods' origin. To prevail, plaintiffs must establish a Lanham Act claim and demonstrate bad faith or intent. The Elegant Defendants argue that summary judgment should be denied due to a lack of evidence for bad faith, asserting that plaintiffs have not shown willful infringement of the 5-Hour ENERGY Marks. In contrast, plaintiffs contend that a presumption of bad faith arises from Elegant’s use of counterfeit marks, citing Lorillard Tobacco to support their position. However, Second Circuit precedent indicates that bad faith presumption requires awareness of counterfeit use, suggesting that mere use of counterfeits does not automatically establish liability without evidence of knowledge.
Unfair competition claims under New York common law require a showing of bad faith, distinguishing them from strict liability claims under the Lanham Act. In the case at hand, plaintiffs did not demonstrate that Elegant or other defendants (Baseline, FDI, Purity, Valero) willfully or knowingly infringed the 5-hour ENERGY Marks, leading to the denial of summary judgment for the plaintiffs' unfair competition claim against these parties. Claims against defendants alleged to have willfully infringed (Romero, Midwest, Core-Mark) will be examined individually.
Living Essentials seeks damages under the Lanham Act for alleged infringement, with options to recover actual damages (including defendant's profits, plaintiff's damages, and litigation costs) or to elect statutory damages before final judgment. Plaintiffs chose statutory damages against the defendants they claim acted willfully (Romero, Midwest, Core-Mark) and actual damages against the others (Baseline, Purity, FDI, Elegant, Valero). Some defendants argue that the plaintiffs cannot combine claims for statutory and actual damages against different defendants in the same action, citing case law where plaintiffs pursued one type of damage against all defendants. However, it is clarified that while a plaintiff cannot recover both types of damages for the same violation against a single defendant, there is no legal requirement that damages must be uniform across multiple defendants, and the Lanham Act does not impose such a restriction.
A plaintiff may pursue both actual damages against certain defendants and statutory damages against others in the same legal action, as established in previous case law. Notable cases include Ortiz-Gonzalez v. Fonovisa, affirming the dual damage awards, and Axiom Worldwide, Inc. v. HTRD Grp. H.K. Ltd., which awarded both types of damages in a Lanham Act case. The rationale for allowing this dual recovery lies in the distinct purposes served by statutory damages—primarily punitive and deterrent—and actual damages, which focus on compensation rather than penalties. The court recognizes that there is no prohibition against electing different types of damages against various defendants.
The plaintiffs in this case seek two categories of actual damages from defendants, including lost profits due to counterfeit sales of 5-hour ENERGY and costs incurred to remove counterfeit products from the market. Lost profits are calculated by estimating the revenue lost from the infringing conduct and deducting associated costs, with some level of speculation permissible in calculations when direct evidence is lacking. The plaintiffs’ claims are supported by the expert testimony of Dr. Gregory Bell, who established a methodology for calculating lost profits based on net sales revenue per bottle of 5-hour ENERGY minus production and distribution costs, aligning with accepted legal standards for such damages.
Lost profits are determined by estimating lost revenue due to infringing activities and subtracting the costs incurred to generate that revenue. Dr. Bell calculated the profit per bottle of authentic 5-hour ENERGY for 2012 by using the lowest selling prices for various flavors (Berry: $1.28, Orange: $1.28, Extra Strength Berry: $1.43) and subtracting Living Essentials' incremental production and distribution costs (Berry: $0.19, Orange: $0.20, Extra Strength Berry: $0.21), along with a 5% broker commission. This led to an incremental profit per authentic bottle of $1.03 for Berry, $1.02 for Orange, and $1.15 for Extra Strength Berry.
Defendants challenge Dr. Bell's calculations, arguing that he failed to consider advertising expenses as incremental costs necessary for generating sales. They reference expert Henry Fuentes, who claimed that Living Essentials' advertising costs are variable and would have increased with higher sales volume. Fuentes asserted that Living Essentials needed to spend more on advertising to sell the 1.9 million bottles lost to counterfeiting, which would lower the incremental profit per bottle.
Plaintiffs counter that Dr. Bell correctly excluded advertising costs, asserting that these costs are not avoidable expenses linked to lost sales, as demand for 5-hour ENERGY was already strong. Furthermore, the defendants' claims lack evidentiary support and are deemed immaterial, particularly since Fuentes admitted he could not determine if Living Essentials saved any advertising costs due to counterfeiting. The argument that Living Essentials would have spent more on advertising without the defendants' actions is unsupported, especially given the company's dominant market share of over 90% in 2012.
Defendants' argument to consider advertising as an incremental cost in calculating lost profits was rejected, with the court noting that plaintiffs' product had already achieved 90% market saturation, making additional advertising unlikely to have significant impact. In 2012, plaintiffs established their profit per authentic bottle of 5-hour ENERGY as $1.03 for Berry, $1.02 for Orange, and $1.15 for Extra Strength Berry. To determine Living Essentials’ lost profits, the number of sales lost due to infringement must be calculated, with the plaintiff bearing the burden to demonstrate lost sales "but for" the infringement. However, absolute proof is not required; a showing of reasonable probability suffices.
The court emphasized that the methodology for calculating damages is at the district court's discretion. Given Living Essentials’ dominant market share in 2012 and the lack of contrary evidence from defendants, it was inferred that consumers who bought counterfeit products intended to purchase the authentic version. Evidence indicated that counterfeit and authentic products were co-mingled by retailers and wholesalers, and no evidence suggested that counterfeit products were priced lower or that consumers differentiated between the two based on price. Thus, it was concluded that sales of counterfeit products represented lost sales of authentic ones.
Plaintiffs’ actual damages for lost profits may be calculated by multiplying the per-bottle profit by the number of counterfeit bottles sold to consumers. The second part of this calculation requires evidence of counterfeit products purchased by end-users.
Insufficient evidence exists to award damages for lost profits due to factual disputes over the quantity of counterfeit bottles sold by Baseline, Elegant, FDI, Purity, and Valero to end consumers. Although it is established that individual counterfeit bottles were sold by multiple defendants, concerns arise regarding potential "double recovery" for plaintiffs if they are allowed to claim lost profits from each defendant within a distribution chain. To prevent this, plaintiffs may only recover “incremental lost profit” once per counterfeit bottle sold to an end user. If plaintiffs successfully recover lost-profit damages from one defendant for a specific bottle, it reduces the liability of any other defendant in that distribution chain.
Additionally, plaintiffs seek reimbursement for fees paid to Kroll for investigating and seizing counterfeit 5-hour ENERGY, labeled as “loss-control costs.” They argue these fees qualify as actual damages under 15 U.S.C. § 1117(a), while several defendants contend that these costs are not actual damages and should be treated as part of attorneys' fees. Plaintiffs reference false advertising cases where fees for “corrective advertising” were awarded but do not provide precedent for recovering investigator fees as actual damages. However, courts in the Second Circuit have allowed recovery of private investigator fees as part of attorneys' fees in trademark cases, provided the investigator operated under an attorney's direction.
Private investigator fees are not recoverable if attorneys' fees are also not recoverable, as established in case law. In the present case, Kroll investigators were employed by plaintiffs’ counsel, who invoked the attorney work product doctrine to prevent testimony from Kroll’s investigator, indicating that expenses for Kroll cannot be claimed as "actual damages." Therefore, the court determines that Kroll’s investigative fees are not recoverable as damages but may be included as attorneys’ fees.
Regarding statutory damages for trademark infringement, plaintiffs may seek damages between $1,000 and $200,000 for non-willful infringement, and up to $2,000,000 for willful infringement per counterfeit mark. Plaintiffs are pursuing enhanced statutory damages against certain defendants for alleged willful infringement of five trademarks, potentially totaling $10 million if willfulness is proven. To establish willfulness, plaintiffs must demonstrate either actual knowledge of the infringement or reckless disregard for the possibility of it. Knowledge can be inferred from the defendant's behavior. Willful blindness applies when a defendant is aware of potential infringement but avoids confirming it. The court acknowledges the challenges of proving state of mind but states that willful blindness can be established through summary judgment without requiring direct evidence of actual knowledge.
Evidence that no reasonable juror could find otherwise may lead the court to award enhanced statutory damages for willful infringement at the summary judgment stage, as established in *Microsoft Corp. v. Black Cat Computer Wholesale, Inc.* Courts in the Second Circuit, due to the absence of guidelines in the Lanham Act for statutory damages, have adopted the willfulness standard from copyright claims under the Copyright Act. Key factors considered include:
1. Expenses saved and profits made by the infringer.
2. Revenues lost by the plaintiff.
3. Value of the copyright.
4. Deterrent effect on others.
5. Nature of the defendant’s conduct (innocent or willful).
6. Cooperation from the defendant in providing records.
7. Potential to discourage the defendant.
Courts possess broad discretion in determining statutory damages, which may involve actual damages and infringer profits or statutory damages. For non-willful infringement, statutory damages range from $750 to $30,000, while willful infringement may warrant up to $150,000 per infringement.
Additionally, plaintiffs seek punitive damages under state law for unfair competition claims, which are permissible when a defendant’s conduct is grossly culpable. Punitive damages may be awarded alongside statutory damages but are not imposed if enhanced statutory damages already serve a punitive function, as these awards are designed to be both compensatory and punitive. Awarding punitive damages in conjunction with enhanced statutory damages would be redundant, given their overlapping deterrent and punitive intentions.
In Louis Vuitton Malletier v. Carducci Leather Fashions, Inc., the court declined to award punitive damages alongside statutory damages, reasoning that the substantial statutory damages already served a punitive purpose. The plaintiffs failed to demonstrate that the maximum statutory awards were inadequate to punish and deter the defendants' willful infringement. Regarding attorneys' fees, the plaintiffs sought fees from all defendants under the Lanham Act, which permits such awards in exceptional cases. The court noted that an award of attorneys' fees is possible regardless of whether a plaintiff chooses actual or statutory damages. The determination of whether a case is "exceptional" rests within the district court's discretion and involves considerations like the case's closeness, counsel tactics, parties' conduct, and other relevant factors. Courts have typically found cases exceptional when there is willful infringement or bad faith by the defendant. Historical cases have established that willful infringement supports attorneys' fees awards, and fees have also been granted in instances of defendant default. The Supreme Court's recent interpretation of "exceptional" in the Patent Act context emphasizes the substantive strength of a party's position and the reasonableness of litigation conduct, instructing that district courts evaluate cases based on the totality of circumstances.
Factors for awarding attorneys' fees include frivolousness, motivation, objective unreasonableness, and the need for compensation and deterrence, as established in Octane Fitness and Fogerty v. Fantasy, Inc. Courts assess whether a case is "exceptional" based on these factors or findings of willfulness or bad faith. In this case, the court deems the defendants' infringement willful and will grant the plaintiffs reasonable attorneys' fees, including investigative costs, and will conduct an inquest to determine the appropriate amount owed by the defendants.
Under the Lanham Act, plaintiffs may recover “the costs of the action” as defined by 28 U.S.C. 1920, which should be taxed against the defendants. However, any party seeking such recovery must file a notice of taxation within 30 days of the final judgment, and the Clerk of Court will resolve disputes regarding costs.
The plaintiffs also seek to convert preliminary injunctions into permanent ones, requiring proof of actual success on the merits and irreparable harm. In trademark cases, a likelihood of confusion is sufficient to establish both. The defendants do not oppose this conversion.
Regarding the Romero Defendants—Advanced Nutraceutical Manufacturing LLC, Nutrition Private Label, Inc., and Juan Romero Gutierrez—they did not respond to the plaintiffs’ motion for summary judgment after answering the complaint. Consequently, the facts presented by the plaintiffs are deemed undisputed, establishing liability against them.
Failure of the opposing party to dispute a fact in the moving party's Rule 56.1 statement results in that fact being deemed admitted. The Romero Defendants were integral to a counterfeiting operation involving the "Running Man" trademark. Romero traveled to Mexico to procure blank bottles and caps from different suppliers, ordering millions of items shipped to his warehouse in Chula Vista, California. He mixed counterfeit liquid using authentic 5-hour ENERGY samples and ingredient lists, purchasing ingredients in bulk and keeping them hidden from employees. The counterfeit liquid was transferred into the bottles with a filling machine, without washing the bottles or registering the warehouse with the FDA or California Department of Health. A total of 4,303,724 counterfeit bottles were delivered to Midwest’s warehouse for labeling.
Following the lawsuit's filing, investigators found thousands of counterfeit bottles and caps at Romero's warehouse, along with packing slips for additional suppliers. The evidence indicates willful infringement of the "Running Man" trademark, with Romero being the primary actor behind the infringement. While he only directly infringed one of the five 5-hour ENERGY Marks, plaintiffs argue he should be contributorily liable for all five. Under the Supreme Court's standard from Inwood Laboratories v. Ives Laboratories, a manufacturer can be held responsible for infringing activities if they intentionally induce infringement or continue to supply products despite knowledge of infringement. The Second Circuit has affirmed this applies to manufacturers and distributors. Romero's actions in copying authentic products and supplying counterfeit goods establish both manufacturing and distributing counterfeit products.
Romero supplied counterfeit 5-hour ENERGY to the Midwest Defendants, who then labeled and distributed these products to Baja and Dan-Dee. The Romero Defendants are found to be contributorily liable for infringing five trademarks related to 5-hour ENERGY, having filled and delivered over four million counterfeit bottles. The scale of their infringement necessitates a maximum statutory damages award under the Lanham Act, as established by precedents that consider the volume of counterfeit goods in damage calculations. The trademarks in question are highly valuable, with 5-hour ENERGY commanding over 90% of the energy shot market, underscoring the need for deterrence against future counterfeiting. The Romero Defendants also exhibited reckless disregard for public health by bottling counterfeit products in unsanitary conditions, justifying the maximum damages despite no known adverse effects from the counterfeit product. Consequently, a statutory damages award of $10 million is granted to the plaintiffs, along with reasonable attorneys' fees.
A preliminary injunction against the Romero Defendants is to be made permanent. The Midwest Defendants, comprising Midwest Wholesale Distributors, Inc., and individuals Justin Shayota, Walid Jamil, and Raid Jamil, are identified as key players in a counterfeiting operation responsible for manufacturing counterfeit products. Plaintiffs present clear evidence of willful infringement by the Midwest Defendants and seek maximum statutory damages under the Lanham Act.
Midwest Wholesale Distributors, led by Justin Shayota, who is both president and sole owner, acknowledged their role in receiving and relabeling counterfeit 5-Hour ENERGY bottles. From December 2011 to October 2012, they ordered over 7 million counterfeit bottle sleeves and sold over 4 million counterfeit bottles featuring the 5-Hour ENERGY Marks. Summary judgment is granted to the plaintiffs on claims of trademark infringement, copyright infringement, and false designation of origin, as the same facts establish violations under both sections 32 and 43(a) of the Lanham Act.
Justin Shayota is found individually liable for these infringements due to his active involvement and control over the operation, as evidenced by his oversight of the relabeling process and his direct participation in the fraudulent activities. His signing of packing slips that misidentified the products further highlights his willful infringement, despite his claims of surprise regarding the lack of authorization for packaging and labeling the products. The evidence suggests a jury could reasonably conclude that both Midwest Wholesale and Justin Shayota engaged in willful infringement.
In Philip Morris USA Inc. v. U.S. Sun Star Trading, Inc., the court found evidence of willful infringement by defendants Justin Shayota and Midwest Wholesale based on their use of false information to import cigarettes, misrepresenting them as frozen food products. Justin’s defense, claiming he only took orders from Walid Jamil, was dismissed as he failed to verify whether the relabeling of products was authorized. The court cited a precedent affirming willfulness where a defendant did not take steps to verify the authenticity of infringing goods.
Walid Jamil, a principal of Midwest and Justin's uncle, was actively involved in the counterfeiting scheme, including meeting weekly with Joseph Shayota to discuss production and profits, and placing orders for counterfeit products. As a key player, he was deemed a "moving, active, conscious force" in the infringement and could be held jointly liable for trademark infringement and copyright violations. Although Walid argued he believed the relabeling was authorized by Living Essentials, the court had previously rejected this claim, stating that any alleged authorization from Living Essentials did not extend to the activities Midwest engaged in, which included unauthorized labeling and printing expiration dates.
The document addresses the involvement of Walid Jamil in the creation and distribution of counterfeit 5-hour ENERGY products. Walid claimed to believe he was working with an authorized broker, Leslie Roman, but regardless, he lacked authorization to counterfeit and label products. His testimony in a separate civil case reveals his knowledge and active participation in the counterfeiting scheme, including discussions about sourcing production after relabeling Mexican products. Despite acknowledging the illegality of their actions to his associate, Walid continued to assist in relabeling counterfeit bottles, demonstrating willful infringement.
Additionally, even if he did not have direct knowledge, Walid's failure to verify the legitimacy of the broker indicates willful blindness to the scheme. He admitted to not confirming Leslie Roman’s authorization and was uninvolved in any discussions with 5-hour ENERGY representatives regarding permissions, suggesting negligence in due diligence.
The document also discusses Raid Jamil, Walid's brother, who is alleged to have been involved in procuring counterfeit labels and managing financial aspects of Midwest Wholesale. Plaintiffs argue for his individual liability based on his substantial role, while the Midwest Defendants contend he had minimal involvement and lacked knowledge of the counterfeit nature of the products. The evidence presented favors the plaintiffs' position.
Raid facilitated wire transfers for a counterfeiting operation involving Midwest and other defendants, coordinating significant payments for counterfeit raw materials. He, along with Walid, ordered counterfeit labels from One-Stop Label and display boxes from MCR Printing, and signed Midwest’s initial purchase orders for these counterfeit goods. His actions demonstrated that he was a “moving, active, conscious force” in the counterfeiting scheme, despite others, like Justin Shayota and Walid Jamil, having more prominent roles. Evidence indicates that Raid acted with reckless disregard for the authenticity of the counterfeit goods, highlighting a lack of effort to verify the legitimacy of the products he ordered, particularly the counterfeit 5-hour ENERGY labels from an unrelated entity. The absence of affirmative steps taken by Raid to ensure product authenticity was noted, with his involvement being critical to the counterfeiting operation. The court concluded that Raid willfully infringed and may be held jointly and severally liable with the other defendants. The Midwest Defendants were found to have knowingly dealt with over four million counterfeit bottles of 5-hour ENERGY, and their actions demonstrated reckless disregard for public health by mislabeling these counterfeit products, justifying maximum statutory damages for the infringement of five trademarks.
A maximum statutory award is warranted due to the Midwest Defendants' bad faith efforts to conceal their counterfeiting activities after being notified of the lawsuit. The court finds that the Defendants shipped counterfeit bottles to a storage facility in Detroit upon learning of the legal action and continued to produce counterfeit products. As a result, the plaintiffs are awarded $10 million in statutory damages for trademark infringement and are entitled to reasonable attorney fees, including investigative costs. The Midwest Defendants are held jointly and severally liable, and a preliminary injunction is made permanent.
While a court may choose not to grant additional statutory damages for copyright infringement, the Second Circuit allows for recovery under both trademark and copyright laws when the injuries are distinct. In this case, the damages from trademark and copyright violations are considered separate, as the counterfeit bottles displayed both a copyrighted “Caution” label and the plaintiffs' 5-hour ENERGY Marks. The court acknowledges that the primary damages stem from trademark infringement, but the Midwest Defendants also infringed on the plaintiffs' copyright by using the “Caution” label. Therefore, statutory damages under both the Lanham Act and the Copyright Act are appropriate, leading to an additional award of $75,000 in statutory damages for copyright infringement against the Midwest Defendants.
Core-Mark International, Inc., a major wholesale distributor based in California, is identified as one of Living Essentials' largest customers of authentic 5-hour ENERGY, purchasing over $20 million annually. In 2012, Core-Mark sourced approximately 93% of its 5-hour ENERGY inventory from Living Essentials, while also acquiring products from defendants Baseline and Purity.
Core-Mark acknowledges the purchase of 1,181,952 bottles of counterfeit 5-hour ENERGY, of which 706,488 were recovered before sale and 475,464 bottles remain unaccounted for, rendering Core-Mark liable for those not recovered. The court grants summary judgment in favor of plaintiffs for claims of trademark infringement, false designation of origin, and copyright infringement, citing Core-Mark's willful infringement of the 5-hour ENERGY Marks. Despite Core-Mark being described as “two steps removed from the kingpins” in the distribution chain, plaintiffs argue its actions were willful due to reckless disregard for the authenticity of the products purchased on the gray market from Purity and Baseline. Core-Mark contends it sought assurances of product authenticity from these vendors, supported by testimonies from employees about their inquiries regarding product freshness. Additionally, plaintiffs allege that Core-Mark violated a temporary restraining order issued by the court, which prohibited the sale of counterfeit products after being informed of potential counterfeiting. This order required Core-Mark to relinquish any counterfeit bottles in its possession.
On October 29, 2012, counsel for Living Essentials visited Core-Mark’s headquarters following an email notification regarding concerns over counterfeit 5-hour ENERGY products. Michael Dunn, president of AMI, promptly instructed Core-Mark personnel via email to check inventory for counterfeit items, indicating that Living Essentials was worried Core-Mark might be selling counterfeit products. He emphasized the importance of removing any identified counterfeits and reporting the findings. Subsequently, Dunn sent additional emails clarifying that business should continue as usual until further notice, despite the identification of certain items as counterfeit. A Core-Mark manager sought confirmation about whether to continue selling identified counterfeit items, to which Dunn affirmed they should proceed, believing the products were likely genuine.
Shortly after, Core-Mark’s Vice President of Marketing instructed Dunn to segregate inventory lacking a specific identifying feature. The following day, Core-Mark was directed to halt shipments of all 5-hour ENERGY products. Plaintiffs argue that Core-Mark knowingly sold counterfeit products based on Dunn’s earlier emails, while Core-Mark contends that Dunn’s communications reflected confusion and a mistaken belief that the products were authentic. Core-Mark also noted that following the notification, their personnel began inspecting bottles for authenticity and segregated questionable inventory. The evidence indicates disputed material facts that prevent a summary judgment regarding Core-Mark’s alleged willfulness in selling counterfeit products, despite their buyers not independently verifying the authenticity of their purchases.
Purity and Baseline's low wholesale prices raised concerns of counterfeiting; however, Core-Mark personnel maintained trust in these suppliers due to prior dealings. In a related case, the court found that genuine issues of fact precluded a finding of willfulness when a trusted supplier was involved. Michael Dunn's email instructing Core-Mark to continue selling 5-hour ENERGY was not enough to prove willful action, as Dunn later claimed he mistakenly believed the product was authentic. The court noted that credibility issues surrounding Dunn's testimony would need to be assessed by a jury. Furthermore, there is a dispute regarding whether Core-Mark sold or transported counterfeit products after receiving a temporary restraining order, indicating that factual resolution is necessary to ascertain Core-Mark's intent. Consequently, summary judgment for enhanced statutory damages against Core-Mark was denied.
Baseline Distribution, Inc., a wholesale distributor based in Illinois, purchased 879,120 counterfeit 5-hour ENERGY bottles from Dan-Dee and sold them to Core-Mark. Summary judgment was granted against Baseline for trademark infringement, false designation of origin, and copyright infringement. David Flood, Baseline's President, sought summary judgment to avoid personal liability, arguing he was not a conscious force behind the infringement. Evidence showed Flood approved wire transfers for counterfeit purchases, but whether he was a moving force in the infringement remains disputed. Flood’s claims of not having final approval and the involvement of other employees in the approval process complicate the determination of his liability.
David Flood's potential responsibility for wire transfers in 2012 does not establish his individual liability, and there is no evidence that he executed wire transfers to Dan-Dee. This lack of evidence creates genuine factual disputes regarding whether Flood “authorized and approved” Baseline’s infringing activities, leading to the denial of his summary judgment motion as well as the plaintiffs' motion for his personal liability.
Purity Wholesale Grocers has acknowledged liability only regarding damages and does not contest that it purchased 272,592 counterfeit bottles of 5-hour ENERGY, later selling most to Core-Mark. Thus, summary judgment is granted against Purity for trademark infringement, false designation of origin, and copyright infringement.
Food Distributors International, Inc. (FDI), founded by Scott Tilbrook, acts as a secondary retailer without physical custody of the products sold. FDI purchased over 900,000 counterfeit bottles of 5-hour ENERGY from Baja and Dan-Dee and resold them to Quality King Distributors. Summary judgment is granted against FDI for trademark infringement, false designation of origin, and copyright infringement. As Tilbrook is the sole owner of FDI, he is considered the “moving, active, conscious” force behind its infringements and is jointly and severally liable for damages.
Elegant Trading, Inc., owned by Ahmed Bhimani, also purchased counterfeit bottles of 5-hour ENERGY from Dan-Dee, with 489,888 bottles acquired between June and August 2012 and resold to retailers in New York and Texas. Summary judgment is granted against Elegant for trademark infringement, false designation of origin, and copyright infringement. Bhimani, responsible for all operations at Elegant, is deemed the “moving, active, conscious” force behind the company's infringement and is jointly and severally liable for damages.
The Elegant Defendants assert an affirmative defense of failure to mitigate damages, claiming that plaintiffs were aware of the counterfeiting but chose not to inform Elegant to facilitate a prolonged campaign against retailers and warehouses.
The court addresses the Elegant Defendants' failure to mitigate defense, which is typically applied in breach of contract and tort cases, noting a lack of precedent in Lanham Act cases within the circuit. The court emphasizes that even if a failure to mitigate defense is applicable, the defendants must demonstrate that the plaintiffs unreasonably failed to mitigate damages and that reasonable efforts would have lessened those damages. The Elegant Defendants did not successfully prove that the plaintiffs' mitigation efforts were unreasonable. After discovering counterfeit 5-hour ENERGY products in late 2012, the plaintiffs engaged in a nationwide investigation with Kroll investigators, visiting over 700 locations in 22 states and the District of Columbia. The plaintiffs kept this investigation confidential to prevent infringers from evading detection. Given that the Elegant Defendants preferred immediate notification of the counterfeiting, the court finds the plaintiffs' mitigation strategy reasonable and grants summary judgment in favor of the plaintiffs regarding the failure to mitigate defense.
Regarding Valero Retail Holdings, Inc., identified as a major retailer of transportation fuels and convenience merchandise, the court acknowledges that Valero purchased 5-hour ENERGY from Core-Mark and collected nearly 15,000 counterfeit bottles after being alerted to the counterfeiting issue. Valero admits to selling counterfeit products and informed Living Essentials about counterfeit products found in multiple states. Consequently, the court grants summary judgment to the plaintiffs for trademark infringement, false designation of origin, and copyright infringement against Valero. The court concludes by granting the plaintiffs' motion for summary judgment in part and denying David Flood’s cross-motion, instructing the plaintiffs to submit proposed permanent injunctions. Additionally, it is noted that Living Essentials and Dan-Dee have settled their claims against the Dan-Dee Defendants, and Valero has since spun off from Valero Energy Corporation.
Plaintiffs supporting their summary judgment motion submitted multiple documents, including their Rule 56.1 Statement of Undisputed Facts and several declarations from individuals dated between October 2014 and May 2015. The court reviewed these documents alongside opposing submissions. David Flood, in support of his cross-motion for summary judgment, provided his own Rule 56.1 Statement and declarations from himself and Richard S. Schurin, also dated October 30, 2014, along with his responses to plaintiffs' additional material facts.
The Dan-Dee Defendants have impleaded various third-party defendants, including the Midwest, Romero, MCR, Roman, and Baja Defendants. Multiple defendants filed responses to the plaintiffs' Rule 56.1 Statement, and additional Rule 56.1 statements were submitted by the Dan-Dee and Elegant Defendants. Plaintiffs have settled their claims against the Baja Defendants and Leslie Roman's affiliated companies.
In addressing the plaintiffs' statement regarding packing slips signed by Justin Shayota, the Midwest Defendants contested the evidence provided, but plaintiffs maintained that their evidence, which includes packing slips signed by Shayota for counterfeit products, remains uncontradicted. A typographical error was noted regarding the citation of supporting deposition evidence, clarifying that it should reference Kevin Riffle's deposition instead of Sean Riffle's.
Plaintiffs seek summary judgment for their false advertising claim under § 1125(a)(1)(B), acknowledging that it serves as an alternative basis for liability without providing greater remedies than other Lanham Act sections. Since they have established liability for false designation of origin under § 1125(a)(1)(A), the court deems it unnecessary to address the false advertising claim, which would yield cumulative remedies. The eight Polaroid factors for considering trademark infringement include the strength of the mark, similarity between marks, market proximity, likelihood of market entry by the plaintiff, evidence of actual confusion, defendant’s bad faith, quality of the defendant's product, and consumer sophistication. Midwest Defendants previously claimed that Living Essentials fraudulently represented their authority to modify product labels for resale in the U.S. However, the court dismissed this counterclaim, finding that Midwest did not reasonably rely on Living Essentials' alleged directives. In opposition to the summary judgment, Midwest continues to assert a belief in their authority to repackage 5-hour ENERGY from Mexico but does not claim permission for repackaging counterfeit products. Plaintiffs characterize Elegant’s opposition to their unfair competition claim as irrelevant since they are not seeking damages against certain defendants, noting that their state-law claim is merely cumulative of their federal trademark infringement claim and serves to pursue additional punitive damages against willful infringers. Actual damages for trademark infringement may be trebled if the violation involves knowingly distributing counterfeit goods. The Lanham Act allows plaintiffs to elect statutory damages before the trial court renders a final judgment. Three flavors of 5-hour ENERGY were counterfeited, and Dr. Bell's cost calculations for manufacturing and transportation are uncontested by defendants. There is also a dispute regarding whether Living Essentials intercepted counterfeit bottles or if Core-Mark quarantined them, but this dispute does not affect Core-Mark’s liability for infringement.