Sound Around Inc. v. Shenzhen Keenray Innovations Ltd.

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SOUND AROUND INC., d/b/a PYLE USA, Plaintiff, v. SHENZHEN KEENRAY INNOVATIONS LIMITED, DANXIA WU, WENG FENG PENG a/k/a FENSON PENG, and AMAZON.COM, INC., Defendants.

No. 22-CV-06943 (HG)

United States District Court, E.D. New York

December 18, 2022

MEMORANDUM & ORDER

HECTOR GONZALEZ, UNITED STATES DISTRICT JUDGE

Plaintiff Sound Around Inc. seeks entry of a preliminary injunction against Defendants Shenzhen Keenray Innovations Limited (“Keenray”), Danxia Wu, and Weng Feng Peng (a/k/a Fenson Peng) (collectively, “Defendants”) pursuant to Federal Rule of Civil Procedure 65. For the reasons stated herein, the Court grants in part and denies in part Plaintiff's motion for entry of a preliminary injunction against Defendants.

BACKGROUND

Pursuant to Federal Rule of Civil Procedure 52(a)(2), the Court makes the following findings of fact to support its partial grant of a preliminary injunction against Defendants. Plaintiff is a New York corporation that imports and sells electronic products, and markets and sells its products both on its own website and the websites operated by third-party marketplaces-specifically, Amazon, Inc. (“Amazon”), Walmart Inc. (“Walmart”) and eBay Inc. (“eBay”). Declaration of Jerry Brach, ECF No. 10 ¶¶ 2-3, 5. Plaintiff does not manufacture products but instead purchases, brands and sells the purchased products. Id. ¶ 4. One product that Plaintiff sells through its brand Serenelife is a towel warmer (“Subject Towel Warmer”). Id. ¶ 6. On or before early 2021, Plaintiff purchased the Subject Towel Warmer from a China-based company called Dongguan Goldenhot Plastic & Hardware Products Co., Ltd. (“Goldenhot”) and began selling it on Amazon Walmart, and eBay. Id. ¶ 5; Declaration of Fengli Lv (“Helen”) Declaration, ECF No. 11 ¶¶ 1, 3, 7.

Goldenhot applied for both a design and utility model U.S. patent on a towel warmer product in 2018. ECF No. 11 ¶ 4. In 2019 Goldenhot redesigned the product and created the Subject Towel Warmer. Id. ¶ 6. On August 3, 2020 Goldenhot sold the Subject Towel Warmer to Defendant Keenray. Id. ¶ 8. On November 10, 2020, a principal of Keenray, Defendant Danxia Wu, filed a U.S. patent (the “810 Patent”) for the Subject Towel Warmer and assigned patent rights to Keenray without Goldenhot's knowledge. Id. ¶ 10. In a declaration filed in connection with Keenray's application for the 810 Patent, Defendant Wu declared that she is the single inventor of the Subject Towel Warmer. ECF No. 10-5 at 4.

In September 2022, Defendant Keenray contacted Amazon and demanded that Amazon delist the Subject Towel Warmer alleging that it owns the patent to the towel warmer design and that Plaintiff, and other sellers, were infringing on the 810 Patent by selling the Subject Towel Warmer. ECF No. 10 ¶ 8. On October 17, 2022, Amazon delisted the Subject Towel Warmer and sent Plaintiff a notice informing it that additional complaints could lead to a total ban from selling products with Amazon. Id. ¶ 10 (“If we receive more complaints about your listings, we may take further action up to[,] and including[,] not allowing you to sell to Amazon.” (emphasis omitted)).

In November 2022, Plaintiff emailed a Goldenhot employee, Helen, who affirmed that Goldenhot was the inventor of the Subject Towel Warmer and provided Plaintiff with the purchase and sales contract concerning the Subject Towel Warmer between Goldenhot and Keenray. ECF No. 11-2 (Email Exchange between Goldenhot and Plaintiff, dated November 4, 2022). Both Goldenhot and Plaintiff also communicated directly with employees at Keenray by email, including Defendant Peng, who stated that Keenray was unwilling to retract the infringement complaint it made with Amazon unless Plaintiff increased the price of the Subject Towel Warmer. ECF No. 11 ¶ 14; ECF No. 10 ¶ 24 (“Hello Ziggy, Your sell price $80 is way too low, how do you make money by this business? We think it is not [sic] unfair for the market. Otherwise, you need to pay for the authorization, or buy products from us if possible.”). Moreover, Plaintiff's counsel made attempts to reach Defendants' U.S.-based patent counsel to no avail. ECF No. 10 ¶ 28.

Plaintiff's President, Jerry Brach, alleges that Defendants' refusal to retract their patent infringement complaint with Amazon and the delisting of the Subject Towel Warmer have deprived Plaintiff of sales and damaged its relationship with Amazon. Id. ¶ 39.

PROCEDURAL HISTORY

On November 14, 2022, Plaintiff filed the instant action against Defendants and Amazon.^[1] ECF No. 1. Plaintiff seeks a declaratory judgment that it is not infringing on the 810 Patent and asserts the following claims: (i) unfair competition in violation of the Lanham Act pursuant to 15 U.S.C. § 1125(a)(1)(B) and New York common law, and (ii) tortious interference with existing and potential business relationships under New York common law. Id. ¶¶ 57-84. Plaintiff shortly thereafter filed a motion for a temporary restraining order (“TRO”) and preliminary injunction against Defendants. ECF No. 12. On November 16, 2022, the Court denied Plaintiff's motion for a TRO and issued an order to show cause setting a hearing for Plaintiff's motion for a preliminary injunction. ECF No. 16. Plaintiff seeks a preliminary injunction enjoining Defendants to: (i) rescind their allegations of infringement against Plaintiff, and to take the necessary steps to ensure that Amazon restores the Subject Towel Warmer to its website as soon as possible, and (ii) refrain from filing or otherwise communicating any allegations of infringement by Plaintiff to any third party for the duration of the instant action relative to the Subject Towel Warmer. ECF No. 12 at 2-3. On December 9, 2022, the Court held a preliminary injunction hearing. Plaintiff was present, Defendants did not appear. See Minute Entry for Proceedings, dated December 9, 2022.

At the hearing, Plaintiff informed the Court that Amazon restored the Subject Towel Warmer listing. Id. In light of that development, Plaintiff's request that Defendants take steps to ensure that Amazon restores the Subject Towel Warmer to its website is moot. The Court will therefore only consider Plaintiff's second request: whether to enjoin Defendants to refrain from filing or otherwise communicating any allegations of infringement by Plaintiff to any third party for the duration of the instant action relative to the Subject Towel Warmer. ECF No. 12 at 2-3.

LEGAL STANDARD

A party seeking a preliminary injunction must establish, by clear and convincing evidence: “(1) a likelihood of success on the merits[;] (2) that the plaintiff is likely to suffer irreparable injury in the absence of an injunction[;] (3) that the balance of hardships tips in the plaintiff's favor[;] and (4) that the public interest would not be disserved by the issuance of the injunction.” Capstone Logistics Holdings, Inc. v. Navarrete, 736 Fed.Appx. 25, 25-26 (2d Cir. 2018) (internal quotation marks omitted). “A preliminary injunction is an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion.” Id. at 26 (quoting Sussman v. Crawford, 488 F.3d 136, 139 (2d Cir. 2007)) (internal quotation marks omitted) (emphasis in original). “The purpose of such interim equitable relief is not to conclusively determine the rights of the parties but to balance the equities as the litigation moves forward.” Trump v. Int'l Refugee Assistance Project, 137 S.Ct. 2080, 2087 (2017) (citations omitted); see also Am. Civ. Liberties Union v. Clapper, 804 F.3d 617, 622 (2d Cir. 2015) (“A preliminary injunction is an equitable remedy and an act of discretion by the court.”).

DISCUSSION

I. Irreparable Harm

“The showing of irreparable harm is [p]erhaps the single most important prerequisite for the issuance of a preliminary injunction, and the moving party must show that injury is likely before the other requirements for an injunction will be considered.” Home It, Inc. v. Wen, No. 19-cv-7070, 2020 WL 353098, at *3 (E.D.N.Y. Jan. 21, 2020) (alteration in original) (internal quotation marks omitted). To show irreparable harm the moving party must establish that “there is a continuing harm which cannot be adequately redressed by final relief on the merits and for which money damages cannot provide adequate compensation.” Id. (internal quotation marks omitted).

Plaintiff argues that it will suffer irreparable harm because Plaintiff's accusations of patent infringement could harm its standing with Amazon, which is the “lifeline of its business” as well as its relationships with other third-party platforms such as eBay and Walmart. ECF No. 9 at 3, 7. Defendants succeeded in removing the Subject Towel Warmer product from Plaintiff's Amazon storefront on the basis of supposedly fraudulent allegations and as a result Amazon issued a warning to Plaintiff about potentially banning Plaintiff from selling on its platform. Id. at 6. Defendants could make similar accusations again, and not only with Amazon but also with eBay and Walmart, the consequences of which could be severe for Plaintiff's business and reputation. “The loss of reputation and goodwill constitutes irreparable harm.” Really Good Stuff, LLC v. BAP Invs., L.C., 813 Fed.Appx. 39, 44 (2d Cir. 2020); see also Bionpharma Inc. v. CoreRx, Inc., 582 F.Supp.3d 167, 175 (S.D.N.Y. 2022) (“[D]epriving a party of the opportunity to sell an entire line of merchandise[] may cause that party to incur injury to its goodwill and reputation as a dependable distributor. This reputational damage is difficult to repair because even in the event that [plaintiff] finds an alternative supplier, customers may . . . refuse to return to [plaintiff], because of [its] lack of...