JUUL Labs Inc. v. Gates Mini Mkt. Corp.

JUUL LABS INC., Plaintiff, v. GATES MINI MARKET CORP, Defendant.

No. 21-CV-3240 (ENV) (RER)

United States District Court, E.D. New York

February 9, 2022

The Honorable Eric N. Vitaliano Senior United States District Judge

REPORT & RECOMMENDATION

RAMON E. REYES, JR. UNITED STATES MAGISTRATE JUDGE

JUUL Labs, Inc. (“Plaintiff” or “JLI”) commenced this action on June 8, 2021 against Gates Mini Market Corp. (“Defendant” or “Gates”), alleging that Gates sold counterfeit versions of JLI's products, violating sections 32(1) and 43(a) of the Lanham Act (15 U.S.C. §§ 1114(1) and 1125(a)), and related state law. (ECF No. 1 (“Compl.”) ¶ 1). Currently before the Court is Plaintiff's motion for default judgment (ECF No. 11 (“Pl.'s Mot.”)), which Your Honor has referred to me for a report and recommendation. (ECF order dated 09/02/2021).

After carefully reviewing the record and for the reasons set forth herein, I respectfully recommend that the motion be GRANTED in part. Respectfully, the Court should (1) grant default judgment on JLI's Lanham Act claims of counterfeit and gray market goods, and false designation of origin (15 U.S.C. §§ 1114, 1125(a)), as well as its common law trademark infringement; (2) dismiss JLI's claims of unfair competition under 15 U.S.C. § 1125(a) and the common law, and deceptive acts and practices under section 349 of New York General Business Law; (3) award JLI $50, 000 in damages and post-judgment interest on those damages at the statutory rate; and (4) issue a permanent injunction barring Gates from selling counterfeit or grey market JLI products in the future.

BACKGROUND

I. Factual Allegations

JLI designs, manufactures, and distributes electronic nicotine-delivery systems^[1] and related products branded as JUUL and JUULpods. (Compl. ¶¶ 1, 11). JLI owns several federally registered trademarks related to the JUUL brand including the name “JUUL”; a stylized version of “JUUL” using rounded letters; and the name “JUULpods” (collectively, the “JUUL marks”). (Id. ¶ 11; ECF No. 1-1 (“Registration Certificates”)). These marks have been in use since 2015. (Id.). JLI has put substantial resources into developing recognition of the JUUL brand, and JUUL-branded products are well known to consumers and have gained media attention and commercial success. (Compl. ¶¶ 17-18). JUUL-branded products are marketed and sold around the world. (Id. ¶ 18). In the United States, JLI sells JUUL products through an authorized distribution network. (Id.). The JUUL marks are displayed prominently on JUUL products and their packaging. (Id. ¶ 14). The JUUL marks have never been abandoned by JLI, and JLI preserves and maintains its rights to them. (Id. ¶¶ 15-16).

Gates is a retail store located at 1534 Myrtle Avenue in Brooklyn, New York. (Id. ¶ 7). JLI alleges that on an unknown date, Gates began offering for sale and selling products bearing the JUUL marks that looked like JUUL products but that were not made by JLI or a JLI-authorized manufacturer, and were thus counterfeit goods. (Id. ¶ 19). JLI did not authorize these sales and has not authorized any third party to make or sell JUUL products. (Id. ¶ 20). “The Counterfeit Goods sold by Defendant are therefore not manufactured in accordance with JLI's own stringent quality controls but are instead manufactured outside of JLI's knowledge and control, using unknown substances and materials, in unknown locations and with unknown manufacturing requirements/controls.” (Id.). The counterfeit goods bore imitations of the JUUL marks that JLI describes as “confusingly similar, ” which made the counterfeit goods likely to be confused for genuine JUUL products. (Id. ¶ 21). In addition, Gates allegedly “offered to sell and sold non-genuine JUUL Products which, as stated on the packaging of the products themselves, are only authorized for sale in particular countries outside the United States and materially differ from genuine JUUL Products, ” otherwise known as gray market goods. (Id. ¶ 25). These gray market JUUL products are labeled and packaged in accordance with the regulations of foreign markets, and therefore are not in compliance with U.S. Food and Drug Administration (FDA) regulations. (Id.).

On September 24, 2019, a JLI representative went to Gates and purchased a counterfeit JUUL-branded product. (Id. ¶ 22; ECF No. 1-2). JLI later inspected the product and confirmed that it was not a genuine JUUL product and was counterfeit. (Compl. ¶ 22).

On February 7, 2020, JLI mailed a cease-and-desist letter to Gates saying that JLI had confirmed the market sold counterfeit JUUL products; explaining that JLI owned the JUUL marks, that it was illegal for Gates to sell counterfeit JUUL products and JLI could sue the market; demanding that Gates stop the “sale, manufacture, marketing, and importation of Counterfeit Goods and all other unauthorized use of JLI's intellectual property”; and noting that any further unauthorized use of the JUUL marks or sales of counterfeit goods would be considered a willful infringement of the law. (Id. ¶ 23). In the letter, JLI's counsel requested that Gates contact JLI to try to resolve any legal issues related to the sale of counterfeit JUUL products before litigation, but Gates did not reach out to JLI's counsel. (Id. ¶ 24).

Subsequently, on March 13, 2020, a JLI representative went to Gates and purchased a gray market JUUL product, which JLI confirmed was diverted from another market and was not authorized for sale in the U.S. (Id. ¶ 26; ECF No. 1-4).

JLI asserts that Gates “is not authorized and never has been authorized by JLI to produce, manufacture, distribute, market, offer for sale, and/or sell merchandise bearing the JUUL Marks, or any variations thereof.” (Compl. ¶ 27). However, Gates uses the JUUL name and the JUUL marks to advertise and sell goods that are either counterfeit or gray market JUUL products. (Id. ¶ 28). JLI contends that Gates Mini Market's conduct is likely to confuse, deceive, and mislead customers into believing they are purchasing genuine JUUL-branded products, when really they are purchasing counterfeit or gray market goods, and that Gates customers are likely to mistakenly attribute any defect or problem with these products to JLI, hurting the JUUL brand's reputation and goodwill. (Id. ¶¶ 29-30). JLI contends that these illegal sales by Gates cause economic loss to JLI and thwart JLI's efforts to promote its products using the JUUL marks. (Id. ¶ 32).

II. Procedural History

JLI commenced this action on June 8, 2021. (Compl.). Gates was properly served via personal service on its manager (ECF No. 8), but failed to answer or otherwise respond to this action. Subsequently, JLI requested a certificate of default against Gates on July 15, 2021 (ECF No. 9) and the Clerk of Court entered default against Gates on July 19, 2021. (ECF No. 10). JLI now seeks default judgment on its claims of: (i) Trademark Infringement - Counterfeit Goods (15 U.S.C § 1114); (ii) False Designation of Origin - Counterfeit Goods (15 U.S.C. § 1125(a)); (iii) Unfair Competition - Counterfeit Goods (15 U.S.C. § 1125(a)); (iv) Trademark Infringement -Gray Market Goods (15 U.S.C. § 1114); (v) Trademark Infringement Under Common Law; (vi) Common Law Unfair Competition; and (vii) Deceptive Acts and Practices Under § 349 of New York General Business Law. (Pl.'s Mot. at 7, 12). JLI seeks $750, 000 in statutory damages under the Lanham Act, reflecting an award of $250, 000 for each of the three trademarks that were violated; post-judgment interest; and a permanent injunction barring any future infringement on JLI's trademarks by Defendant. (Id. at 13, 17-18).

DISCUSSION

I. Default Judgment

Federal Rule of Civil Procedure 55, which governs here, establishes a two-step process for entering judgment against a party who fails to defend. City of N.Y. v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 128 (2d Cir. 2011) (citing New York v. Green, 420 F.3d 99, 104 (2d Cir. 2005)). In the first step, “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.” Fed.R.Civ.P. 55(a). In the second step, after default has been entered, “the party must apply to the court for a default judgment.” Fed.R.Civ.P. 55(b).

For purposes of default judgment, the court must accept a plaintiffs' well-pleaded factual allegations as true, as the defendant's default “is deemed to constitute a concession of all well pleaded allegations of liability[.]” Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992). The court must then determine whether the well-pleaded factual allegations “establish the defaulting party's liability as a matter of law.” Broad. Music, Inc. v. The Living Room Steak House, Inc., No. 14-CV-6298 (FB)(RER), 2016 WL 756567, at *2 (E.D.N.Y. Feb. 26, 2016), adopted by, 2016 WL 1056609 (E.D.N.Y. Mar. 17, 2016). However, the court need not accept all well-pleaded allegations as to damages; instead, a plaintiff must show that the compensation sought “naturally flow[s] from the injuries pleaded” and reflects the damages demanded in their pleadings. Greyhound Exhibit Grp, 973 F.2d at 158-159; Fed.R.Civ.P. 54(c).

II. Liability

JLI seeks default judgment on seven claims, including four trademark claims, two unfair competition claims, and one claim of deceptive acts and practices under the New York General Business Law. (Pl.'s Mot. at 13, 17-18).

A. JLI has Established Defendant's Liability Under the Lanham Act

To prove trademark infringement or false designation of origin under the Lanham Act, a plaintiff must show that (1) “it has a valid mark that is entitled to protection” and that (2) the...