Allergy Research Grp. v. Thrill Deals LLC

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ALLERGY RESEARCH GROUP, LLC, Plaintiff, v. THRILL DEALS LLC, Defendant.

No. 2:21-cv-00380-JNP-JCB

United States District Court, D. Utah

September 13, 2022

MEMORANDUM DECISION AND ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR DEFAULT JUDGMENT

Jill N. Parrish United States District Court Judge.

Plaintiff Allergy Research Group, LLC (ARG) sued Thrill Deals LLC alleging, among other things, that Thrill Deals had violated its trademark rights associated with its products. Thrill Deals did not answer the complaint, and the clerk of court entered a default certificate. Before the court is ARG's motion for a default judgment. ECF No. 18. ARG does not request an award of damages. Instead, it asks for a broad permanent injunction prohibiting Thrill Deals from selling products bearing ARG's trademarks. The court GRANTS IN PART and DENIES IN PART the motion. Based on the allegations of the complaint, the court determines that ARG is entitled to an injunction, but one that is narrower than the injunction requested.

FACTUAL BACKGROUND

“[T]he entry of a default judgment means that the ‘defendant admits to [the] complaint's well-pleaded facts and forfeits his or her ability to contest those facts.'” Equal Emp. Opportunity Comm'n v Roark-Whitten Hosp. 2, LP, 28 F.4th 136, 157 (10th Cir. 2022) (Second alteration in original) (citation omitted)). Accordingly, the court recites the relevant facts properly pled in ARG's operative complaint.

ARG manufactures and sells dietary supplements. It sells some of its products through distributors, who are authorized to sell ARG's products either directly to consumers or to resellers authorized by ARG. ARG distributors must sign a contract requiring them to sell ARG products to consumers through approved channels or to resellers who meet certain requirements.

ARG outsources some of its quality control measures to its distributors and resellers by requiring them to inspect all shipments and report any problems. Authorized distributors and resellers must also inspect products prior to sale. ARG requires its distributors and resellers to be familiar with product information, such as expiration dates, and to respond to customer questions both before and after the sale of the product. Authorized distributors and resellers are subject to audits to ensure that ARG's rules are followed.

ARG provides a satisfaction guarantee to all consumers who purchase its products either directly from ARG or from an authorized distributor or reseller. Under this guarantee, a consumer may receive a replacement product or a refund within 60 days of purchase. ARG's satisfaction guarantee does not apply to products purchased from an unauthorized seller.

Thrill Deals is a company that sells products online through Amazon. Thrill Deals is not an authorized distributor or reseller of ARG's products. It nonetheless sold ARG's products on Amazon. ARG alleges that one of its distributors breached its contract by selling its products to Thrill Deals despite the fact that it is not an authorized reseller.

ARG sued Thrill Deals, asserting a number of claims. The only cause of action relevant to the present motion, however, is its claim that Thrill Deals is liable for trademark infringement. ARG contends that Thrill Deals sold non-genuine products bearing its trademark for two reasons. First, ARG asserts that the products are not genuine because it limited its satisfaction guarantee to sales made through authorized distributors and resellers. Thus, consumers who purchased ARG products from Thrill Deals are not covered by the guarantee. Second, ARG alleges that the products are not genuine because Thrill Deals is not subject to the quality control measures that authorized distributors and resellers must satisfy.

Thrill Deals failed to respond to the complaint, and the clerk of court entered a default certificate against it. ARG filed a motion for a default judgment. The only relief it seeks is a permanent injunction requiring Thrill Deals to stop selling any products bearing ARG's trademark and to destroy or return any ARG products that it has in its possession. Additionally, ARG requests that the permanent injunction include provisions prohibiting Thrill Deals from using its trademarks to advertise on the internet, prohibiting Thrill Deals from destroying, altering, or concealing documents related to the sale of ARG's products, and requiring Thrill Deals to facilitate the removal of ARG's trademarks from internet search engines.

LEGAL STANDARD

“Once default is entered, ‘it remains for the court to consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law.' ‘There must be a sufficient basis in the pleadings for the judgment entered.'” Bixler v. Foster, 596 F.3d 751 762 (10th Cir. 2010) (citations omitted). “[E]ntry of a default judgment is committed to the sound discretion of the district court . . . .” Tripodi v. Welch, 810 F.3d 761, 764 (10th Cir. 2016); accord 10A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2685 (4th ed. 2022) (“[T]he district judge is required to exercise sound judicial discretion in determining whether [a default] judgment should be entered.”).

ANALYSIS

ARG asserted a number of claims against Thrill Deals in its complaint. But it bases its claim for permanent injunctive relief on its trademark infringement cause of action. In support of its request for injunctive relief, ARG cites 15 U.S.C. § 1116(a), which provides that district courts “shall have power to grant injunctions, according to the principles of equity and upon such terms as the court may deem reasonable, to prevent the violation of any right of the registrant of a mark registered in the Patent and Trademark Office.” Because § 1116(a) permits, but does not require, injunctive relief, courts must look to traditional equitable principals to determine whether to grant a permanent injunction. See eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391-92 (2006) (analyzing a statutory authorization for injunctive relief under the Patent Act). Under these well-established principals, “[a] plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.” Id. at 391. “An injunction is a matter of equitable discretion; it does not follow from success on the merits as a matter of course.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 32 (2008); accord eBay, 547 U.S. at 391 (“The decision to grant or deny permanent injunctive relief is an act of equitable discretion by the district court . . . .”).

In order to determine both the right to injunctive relief and the appropriate scope of any permanent injunction here, the court must analyze ARG's trademark infringement claim and the facts established by Thrill Deal's default. The well-pled facts of the operative complaint establish that Thrill Deals did not use ARG's trademark to sell knockoff goods. Instead, Thrill Deals obtained nutritional supplements manufactured by ARG and sold those supplements outside of ARG's authorized distribution channels. Generally, a trademark claim against a reseller of goods is barred by the first sale doctrine. Under this doctrine, “the right of a producer to control distribution of its trademarked product does not extend beyond the first sale of the product[,][r]esale by the first purchaser of the original article under the producer's trademark is neither trademark infringement nor unfair competition.” Australian Gold, Inc. v. Hatfield, 436 F.3d 1228, 1240-41 (10th Cir. 2006) (alterations in original) (citation omitted). “It is the essence of the ‘first sale' doctrine that a purchaser who does no more than stock, display, and resell a producer's product under the producer's trademark violates no right conferred upon the producer by the Lanham Act.” Id. at 1241 (citation omitted). This is because, generally, the resale of a product does not create an “actionable misrepresentation under the statute.” Id. (citation omitted).

ARG argues that the first sale doctrine does not bar its trademark infringement claim because the goods sold by Thrill Deals deceived consumers because the products were materially different from products sold by authorized resellers. First, it asserts that the products sold by Thrill Deals differed materially from products sold through official channels because ARG excludes products sold by unauthorized resellers from its satisfaction guarantee. Second, ARG contends that the products sold by Thrill Deals are materially different because Thrill Deals is not bound by quality assurance protocols that official distributors and resellers must observe. The court addresses each of these two arguments in turn.

I.THE SATISFACTION GUARANTEE

ARG cites Beltronics USA, Inc. v. Midwest Inventory Distribution, LLC, 562 F.3d 1067 (10th Cir. 2009), in support of its contention that it is entitled to a permanent injunction because it chose not to extend its satisfaction guarantee to products sold by unauthorized resellers, such as Thrill Deals. In that case, the trademark owner sold electronics equipment to authorized distributors. Id. at 1069. In violation of their agreements with the trademark owner, these distributors removed the official serial numbers from the equipment placed phony serial numbers on the items, and sold the equipment to the defendant, who then resold the equipment to consumers over the internet....