Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-06572/USCOURTS-cand-3_06-cv-06572-6/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1114 Trademark Infringement

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United States District Court

For the Northern District of California

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1 In addition to the Defaulting Defendants, WSI named nine other individuals and corporations in this case. These

nine defendants settled with WSI and were voluntarily dismissed. See Doc. ## 21, 23, 27, 28, 37, and 43.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

WILLIAMS-SONOMA, INC.,

Plaintiff(s),

 vs.

FRIENDFINDER, INC., et al.,

Defendant(s). /

No. C 06-6572 JSW (MEJ)

REPORT & RECOMMENDATION

RE: PLAINTIFF'S MOTION FOR

DEFAULT JUDGMENT

I. INTRODUCTION

Before the Court is Plaintiff Williams-Sonoma, Inc.'s Motion for Default Judgment, filed

September 20, 2007. (Doc. #55.) For the following reasons, the Court RECOMMENDS that the

District Court GRANT default judgment, with the exception of the withdrawn claim for contributory

trademark infringement, against Defendants Online Marketing Service, Ltd., Unimaster, Ltd.,

Andrej Korchev, YetisCash, Inc., Vladimir Techl, Alex Lexico, Sweethelda Ballesteros, Stein Tvedt,

and Eddie Morgan (collectively "Defaulting Defendants" or “Defendants”).1

II. BACKGROUND

A. Factual Background

WSI is a home furnishings retailer under the Pottery Barn brand. It sells through retail

stores, including POTTERY BARN ® and pottery barn kids® stores, and through catalogs and

internet sites, under the POTTERY BARN ®, pottery barn kids®, and PBteens® trademarks. (Doc.

#18, First Am. Compl. ("FAC") ¶2.) WSI owns federal trademark registrations pertaining to each of

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these trademarks and brands. (Doc. #7, Decl. of Sandra Stangl, Tab B of Appendix (“Stangl Decl.”)

¶4 & Ex. D.) 

Each of the Defaulting Defendants has owned and operated websites that offer sexually

explicit, pornographic images and videos for sale, and /or advertise, link to, or affiliate with other

sites that offer for sale images and videos. (FAC ¶3.) Defendant Online Marketing Services, Ltd. is

a United Kingdom corporation that owns, operates, and hosts graphic, sex-oriented web sites,

including <www.onlinemarketingservices.biz> and a variety of web sites with the extension

<filthserver.com>. (FAC ¶3(a).)

Defendants Unimaster, Ltd., and Andrej Korchev, located in the Ukraine, own, operate, and

manage pornographic web sites, including a variety of sites with the extension <just-a-porn.com>. 

(FAC ¶3(b)-(c).)

Defendants YetisCash, Vladimir Techl and Alex Lexico, of the Czech Republic, own,

operate, and manage a variety of pornographic web sites, including a variety of web sites with the

extension <www.sexcountry.net>. (FAC ¶¶3(d)-(f).)

Defendant Sweethelda Ballesteros of the Philippines formerly owned and operated the

website <www.slutty-teens.net> and then transferred ownership to Defendant Stein Tvedt of

Norway, who currently owns and operates the website. (FAC ¶3(r); Doc. #56, Decl. of Timothy R.

Cahn, ¶6.).

Defendant Eddie Morgan of Canada owned and operated the <www.babypotterybarn.com>

web site, which advertised and provided active links to porn sites. (FAC ¶3(s); Cahn Decl., ¶7.).

Each of the Defaulting Defendants has used the POTTERY BARN trademarks without

consent from WSI. (FAC ¶¶10-15, 21-22.) Each Defendant also sponsored or affiliated with other

sites that used the POTTERY BARN marks without consent from WSI. (FAC ¶¶32-36.)

Defendants’ unauthorized use of the marks has taken such forms as displaying the POTTERY

BARN marks on their sites, in banner ads or porn images or in other content, announcing, for

example, the “POTTERYBARNTEENS official website!” (FAC ¶11(a)); embedding terms, such as

“potterybarnteen” in source code or metadata that is used to generate search priority with hyperlinks

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that proclaim, for example, “Potterybarnteens - - Every day 1000 new free potterybarnteen pics.” 

(FAC ¶11(b)); using the term, e.g. “Potterybarnteens,” as a domain extension, as in the address

<www.just-a-porn.com/potterybarnteens.html> (FAC ¶11(c)); repeatedly using terms, such as

“potterybarnteen,” as an element of a graphic, sexually explicit narrative that is interspersed with

links to other sites such as “. . . who then removed her top revealing her braless breasts to her

potterybarnteen.” (FAC ¶11(d)); and using WSI’s trademark in domain names, such as

<www.potterybarnteens.org> and <www.babypotterybarn.com>. (FAC ¶11(f).)

Through Defaulting Defendants’ misuse of WSI’s marks, Defendants’ websites have been

prominently identified in response to consumer searches for “pottery barn teens” and similar

searches on popular search engines. (FAC ¶10.) Defendants’ misappropriation of WSI’s marks has

distracted and diverted customers searching for “Pottery Barn” or “Pottery Barn Teen” goods or

related services to Defendants' websites. (FAC ¶¶10, 14-15.) Defendants have directly derived

revenue by virtue of diverted customers who clicked-through to the advertised sites, thereby having

profited on the goodwill of the POTTERY BARN marks. (FAC ¶15.) .

As a retailer of children's home furnishings, WSI alleges that it is harmed by any association

with sexually explicit services because any website that uses WSI's marks as a portal to pornography

will undermine the wholesome image of high quality and safe furniture for children. (FAC ¶¶14, 22,

28.) By associating WSI’s marks with adult images and services, Defaulting Defendants cause

detriment to WSI’s reputation. (FAC ¶22.) WSI alleges, that the misappropriation was willful and

deliberately intended to attract consumers and exploit WSI. (FAC ¶¶15, 21, 33, 38, and 39.)

B. Procedural Background

On October 20, 2006, WSI filed its original Complaint. (Doc. #1.) On January 1, 2007, WSI

filed a First Amended Complaint ("FAC") for Federal Trademark Infringement, Trademark Dilution,

Unfair Competition and Accounting/Constructive Trust, Contributory Trademark Infringement, and

California Unfair Competition. (Doc. #18.) Defaulting Defendants did not answer or otherwise

respond.

On July 11, 2007, the Clerk of Court entered default against all Defaulting Defendants. 

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(Doc. #50.)

On September 20, 2007, WSI filed the present motion for default judgment against

Defaulting Defendants, as well as the Declaration of Timothy R. Cahn in support thereof. (Doc.

##55-56.) The Honorable Jeffrey S. White referred WSI's motion to a magistrate judge for a report

and recommendation. (Doc. #58).

On November 8, 2007, the Court held a hearing on the matter. None of the Defaulting

Defendants appeared at the hearing or otherwise responded to WSI's motion.

III. DISCUSSION

A. Jurisdiction

When considering whether to enter a default judgment, a court has “an affirmative duty to

look into its jurisdiction over both the subject matter and the parties.” In re Tuli, 172 F.3d 707, 712

(9th Cir. 1999) (“To avoid entering a default judgment that can later be successfully attacked as

void, a court should determine whether it has the power, i.e., the jurisdiction, to enter the judgment

in the first place.”) 

1. Subject Matter Jurisdiction

As a general matter, federal courts have subject matter jurisdiction over civil actions arising

under the Constitution, laws, or treaties of the United States. United States v. Alisal Water Corp.,

431 F.3d 643, 650 (9th Cir. 2005). Here, the District Court has subject-matter jurisdiction pursuant

to 28 U.S.C. § 1331, 1338(a) and (b), 15 U.S.C. § 1121, and 28 U.S.C. § 1367. 

2. Jurisdiction Over the Parties

As to jurisdiction over the parties, a court may exercise either general or specific jurisdiction

over a nonresident defendant. Helicopteros Nacionales de Colombia S.A. v. Hall, 466 U.S. 408, 414

nn. 8-9 (1984). General jurisdiction applies where a defendant's activities in the state are

“substantial” or “continuous and systematic,” even if the cause of action is unrelated to those

activities. Data Disc., Inc. v. Systems Tech. Assoc., 557 F.2d 1280 at 1287 (9th Cir. 1977) (internal

quotations omitted). Where general jurisdiction is inappropriate, a court may still exercise specific

jurisdiction if the defendant has sufficient contacts with the forum state in relation to the cause of

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action. Id.

WSI does not claim that there is general jurisdiction over any of the Defaulting Defendants

here; they argue only for specific jurisdiction. Courts use a three-part test to evaluate the nature and

quality of defendants' contacts for purposes of specific jurisdiction: "(A) some action must be taken

whereby defendant purposefully avails himself or herself of the privilege of conducting activities in

the forum, thereby invoking the benefits and protections of the forum's laws; (B) the claim must

arise out of or result from defendant's forum-related activities; and (C) exercise of jurisdiction must

be reasonable." Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir. 1990). 

a. Purposeful Availment

Under the first prong, Defaulting Defendants must have "performed some type of affirmative

conduct which allows or promotes the transaction of business within the forum state." Id. at 1362. 

With respect to conduct over the internet, the Ninth Circuit applies the "sliding scale" test of web

interactivity. Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414, 419 (9th Cir. 1997). Under this

approach, "the likelihood that personal jurisdiction can be constitutionally exercised is directly

proportionate to the nature and quality of commercial activity that an entity conducts over the

Internet." Id. At one end of the scale are web sites that actively conduct business over the internet;

at the other end of the scale are “passive” web sites that provide only information. Tech Heads, Inc.

v. Desktop Service Ctr., Inc., 105 F. Supp. 2d 1142, 1149 (D. Or. 2000). In the middle of the sliding

scale are interactive web sites which allow a user to exchange information, but do not consummate

business transactions. Id. In Cybersell, the court held that simply registering another's trademark as

an Internet domain name and posting a passive web site on the Internet is insufficient to subject a

non-resident defendant to jurisdiction. Cybersell, 130 F.3d at 418-19. The defendant's website

included only a Florida phone number and an invitation to communicate by email, and the defendant

had no additional contacts with forum residents. The Ninth Circuit explained that to exercise

jurisdiction in that case, “something more” must exist demonstrating that the defendant directed his

activity at the forum state. Id. at 418.

Here, Defaulting Defendants are foreign corporations or individuals, but all have contacts

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2 During the pendency of this lawsuit, Defendant Morgan transferred the <babypotterybarn.com> site to a new

owner, who recently agreed to turn it over to WSI.

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with California through their online businesses. They own and operate web sites (or formerly did)2 -

filthserver.com, just-a-porn.com, slutty-teens.net, sexcountry.net, and babypotterybarn.com -

through which customers download files, register with them, purchase and pay for pornographic

images and movies through Defendants' sites and links, and access links to other sites where

additional images and movies can be purchased. (Cahn Decl. ¶¶3-6.) With one exception, the

Defaulting Defendants engaged in business with California consumers who accessed adult images

and videos, and paid Defendants for them through linked credit card processing sites. (Cahn Decl. 

¶¶3-7.) Only the website <babypotterybarn.com>, formerly owned by Defendant Morgan, did not

directly offer for sale images and videos. However, it was interactive as it advertised and provided

active hyperlinks through which California consumers could search for and access adult images

offered by other sites. (Cahn Decl. ¶7, Ex. C.) The Court finds that this level of interactivity

establishes Defendants' purposeful availment. 

In addition, the Defendants who owned the filthserver.com, sexcountry.net, just-a-porn.com,

and babypotterybarn.com web sites contracted or affiliated with California residents in furtherance

of their online businesses, including the San Francisco company Adult Friend Finder, and used the

POTTERY BARN marks to direct business to this local company. (Cahn Decl. ¶¶3-5, 7.) This

locally-owned web site offers sexually-explicit adult personal advertisements and describes itself as

"the World's largest sex personals and swingers' site." (FAC ¶¶3(j)-(l).) The FriendFinder site pays

its affiliates, including Defendants, for directing web traffic to its sites. Id. These contacts further

support a finding of purposeful availment.

b. Defendants' Forum-Related Activities

As to the second prong, WSI's claims arise out of and result from Defaulting Defendants'

online commercial activities that establish purposeful availment. 

c. Reasonableness

Finally, the exercise of jurisdiction must be reasonable. However, there is a presumption of

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3 On April 17, 2007, Judge White granted WSI permission to serve Defaulting Defendants by email, finding that

WSI had effectively communicated with Defendants via email accounts, and that such communication would ensure that

Defendants had adequate notice of the action and an opportunity to be heard. (Doc. #36.)

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reasonableness when purposeful availment is present, and the defendant bears the burden of

overcoming this presumption by presenting a compelling case that jurisdiction would be

unreasonable. Haisten v. Grass Valley Med. Reimbursement Fund, Ltd., 784 F.2d 1392, 1397 (9th

Cir. 1986). No such showing has been made in this case.

3. Service of Process

In deciding whether to grant or deny a default judgment, a court must also assess the

adequacy of the service of process on the party against whom default is requested. Board of

Trustees of the N. Cal. Sheet Metal Workers v. Peters, 2000 U.S. Dist. LEXIS 19065, at *2 (N.D.

Cal. 2001). Here, WSI properly served all defendants in accordance with the District Courts'

authorization, using various means available including electronic mail.3

 Further, proper service of

the Summons and Complaint is uncontested. Thus, the service of process was adequate. 

B. Legal Standard

Federal Rule of Civil Procedure (“FRCP”) 55(b)(2) permits a court, following a default by a

defendant, to enter a final default judgment in a case. The court has discretion in determining

whether to grant or deny a motion for entry of default judgment. Draper v. Coombes, 792 F.2d 915,

924 (9th Cir. 1986) (citing Aldabe v. Aldabe, 616 F.2d 1089, 1092-93 (9th Cir. 1980) (“The district

court’s decision whether to enter a default judgment is a discretionary one.”)).

The Ninth Circuit has enumerated several factors which the court may consider in exercising

its discretion as to whether an entry of default judgment is proper: (1) the possibility of prejudice to

the plaintiff; (2) the merits of the plaintiff’s substantive claim and the sufficiency of the complaint;

(3) the sum of money at stake; (4) the possibility of dispute concerning material facts; (5) whether

default was due to excusable neglect; and (6) the strong policy underlying the Federal Rules of Civil

Procedure favoring decisions on the merits. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir.

1986).

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In applying this discretionary standard, the factual allegations contained in the plaintiff's

complaint will be taken as true, except for those relating to the amount of damages. Televideo

Systems, Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir.1987); see also Kingvision Pay-Per-View,

Ltd. v. Rivers, 2000 WL 356378, *1 (N.D. Cal. 2000) (“Generally, upon an entry of default, the

factual allegations of the plaintiff’s complaint will be taken as true.”). 

C. Application to the Case at Bar

1. Prejudice to WSI

Under the first Eitel factor, the Court must first examine whether WSI will suffer prejudice if

default judgment is not granted. Eitel, 782 F.2d at 1471-72. Here, without a judgment in its favor,

WSI would be left without a remedy or a means to prevent Defendants' continued infringement. 

Thus, failure to grant WSI’s motion for default judgement would result in substantial prejudice.

2. Sufficiency of the Complaint and Likelihood of Success on the Merits

The second Eitel factor addresses the sufficiency of WSI's complaint and the probability of

its success on the merits of its underlying claims. Walters v. Statewide Concrete Barrier, Inc., 2006

WL 2527776, at *4 (N.D. Cal. 2006) (“A party seeking default judgment must state a valid claim

upon which it may recover.”). Here, WSI's FAC alleges valid claims, as well as the facts necessary

to establish their claims. WSI alleges five causes of action in its FAC: (1) trademark infringement;

(2) false designation of origin; (3) trademark dilution; (4) contributory trademark infringement; and

(5) California unfair competition. 

a. Trademark Infringement and False Designation of Origin under the Lanham

Act, and California Unfair Competition

WSI’s first two claims are for trademark infringement and false designation of origin under

the Lanham Act. 15 U.S.C. §§1114, 1125. In the present case, as in many trademark infringement

cases, the essential elements of these two federal claims are identical. Brookfield Communications,

Inc. v. West Coast Entm't Corp., 174 F.3d 1036, 1047 n. 8 (9th Cir.1999) (noting that infringement

and false designation of origin claims are often identical, except that false designation of origin

claims protect both registered and unregistered trademarks and can protect a wider range of

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practices, such as false advertising). Further, the federal claims, if met with adequate evidence, are

also sufficient to establish Defendants' liability under the state law claim for unfair competition. 

Cleary v. News Corp., 30 F.3d 1255, 1262-63 (9th Cir.1994) (“This Circuit has consistently held that

state common law claims of unfair competition and actions pursuant to California Business and

Professions Code § 17200 are ‘substantially congruent’ to claims made under the Lanham Act.”);

Philip Morris v. Shalabi, 352 F. Supp. 2d 1067, 1072 (C.D. Cal. 2004) (noting the identity between

the essential elements and standard applied to three distinct claims of federal trademark

infringement, federal false designation of origin, and state unfair competition).

Therefore, as to these three claims, the Court need only focus on the legal merits of the claim

for federal trademark infringement. Analyzing the merits of the infringement claim is sufficient

because the standard of infringement, i.e., the likelihood of confusion, is essentially implicated in the

remaining federal and state causes of action. M2 Software, Inc. v. Madacy Entertainment Corp., 421

F.3d 1073, 1080 (9th Cir.2005) (“The test of trademark infringement under state, federal, and

common law is whether there will be a likelihood of confusion.”); see also Academy of Motion

Pictures v. Creative House Promotions, Inc., 944 F.2d. 1446, 1457 (9th Cir. 1991) (holding that

under both federal trademark infringement and state unfair competition statutes, the “ultimate test”

is whether a likelihood of confusion exists) (internal quotations omitted).

To prove a claim of trademark infringement under 15 U.S.C. §1114, a plaintiff must show

that: (1) it owns the trademark at issue; (2) the defendant has used in commerce, without

authorization, a copy, reproduction, counterfeit or colorable imitation of the plaintiff's mark in

connection with the sale, distribution, or advertising of goods and services; and (3) the defendant's

use of the mark is likely to cause confusion or to cause mistake or to deceive. 15 U.S.C. §1114(1). 

Here, WSI alleges all the facts necessary to establish trademark infringement by Defaulting

Defendants. WSI owns the POTTERY BARN registered trademarks. (FAC ¶¶7-9, 18-19, 27.) 

Each of the Defaulting Defendants has used WSI's marks or imitations, or variations of them without

authorization. (FAC ¶¶10-11, 14-15.) Further, Defendants' use of WSI's marks creates consumer

confusion, including confusion as to WSI's "affiliation, connection, association, origin, sponsorship,

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or approval" of Defendants' goods or services. (FAC ¶¶20, 24.) Thus, taking the factual allegations

alleged in WSI's complaint as true, the Court finds that WSI has established claims for trademark

infringement, false designation of origin, and California unfair competition.

b. Trademark Dilution

WSI also alleges trademark dilution under the Lanham Act. 15 U.S.C. §1125(c). Section

1125(c) provides a remedy for dilution by blurring and by tarnishment. Dilution by blurring is

defined as “association arising from the similarity between a mark or trade name and a famous mark

that impairs the distinctiveness of the famous mark.” Id. at §1125(c)(2)(B). Dilution by tarnishment

is “association arising from the similarity between a mark or trade name and a famous mark that

harms the reputation of the famous mark.” Id. at §1125(c)(2)(C). The statute requires that an owner

prove the non-owner's use “is likely to cause dilution by blurring or dilution by tarnishment,

regardless of the presence or absence of actual or likely confusion.” Id. at §1125(c)(1).

Section 1125(c), as amended in 2006, no longer requires the owner to demonstrate actual

harm, a standard established by the Supreme Court in Moseley v. Secret Catalogue, Inc., 537 U.S.

418, 433-34 (2003). The revision changes the law to the pre-Moseley standard. Under that test,

injunctive relief is available if a plaintiff can establish that (1) its mark is famous; (2) the defendant

is making commercial use of the mark in commerce; (3) the defendant's use began after the

plaintiff's mark became famous; and (4) the defendant's use presents a likelihood of dilution of the

distinctive value of the mark. Panavision Int'l, L.P. v. Toeppen, 141 F.3d 1316, 1324 (9th Cir.1998).

Here, taking the allegations in its amended complaint as true, WSI has shown that its

trademarks are famous within the meaning of 15 U.S.C. §1125(c). (FAC ¶¶2, 7, 27.) Second, WSI

has also shown that Defaulting Defendants are making commercial use of its marks. (FAC ¶¶10-15,

21-22.) Third, WSI's "Pottery Barn" family of trademarks has been famous since before Defendants'

use began. (FAC ¶27.) Finally, WSI has shown that Defendants' use of the POTTERY BARN

marks are likely to dilute them by associating those marks for children and teenager furnishings with

pornographic websites. Thus, the Court finds that WSI has established its claim for trademark

dilution.

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c. Contributory Trademark Infringement

WSI also brings a claim of contributory trademark infringement under 15 U.S.C. §§ 1114

and 1125. However, when questioned about the contributory infringement claim at the November 8

hearing, WSI's counsel agreed to withdraw it, given the inability to complete the detailed factual

analysis necessary in the context of WSI's default judgment motion. Accordingly, WSI's motion

should be denied as moot as to the contributory trademark infringement claim.

3. The Sum of Money at Stake in the Action

The third Eitel factor assesses the reasonableness of the potential award if a default judgment

is entered against the Defaulting Defendants. In making this assessment, the Court must take into

account the amount of money at stake in relation to the seriousness of the defendant's conduct. Eitel,

782 F.2d at 1471. If the sum of money at issue is reasonably proportionate to the harm caused by

the defendant's actions, properly documented, and contractually justified, then default judgment is

warranted. Board of Trustees of Cal. Metal Trades v. Pitchometer Propeller, 1997 WL 797922, at

*2 (N.D. Cal. 1997). 

Here, WSI seeks to recover Defaulting Defendants' relative profits, as well as its attorney's

fees. The Court finds that both are permitted in this case. 

a. Actual Damages

“Section 35 of the Lanham Act, 15 U.S.C. § 1117(a), governs the award of monetary

remedies in trademark infringement cases and provides for an award of defendant's profits, any

damages sustained by the plaintiff, and the costs of the action.” Lindy Pen Co., Inc. v. Bic Pen

Corp., 982 F.2d 1400, 1405 (9th Cir.1993). Thus, an award of Defaulting Defendants' profits is

available to WSI. However, to recover damages, “plaintiff must prove both the fact and amount of

damage.” Id. at 1407; see also Intel Corp. v. Terabyte Int'l, Inc., 6 F.3d 614, 620 (9th Cir.1993). As

discussed more fully below, WSI seeks, and the undersigned recommends, an equitable accounting

of Defendants' profits so that it may determine the amount of damages. Thus, while the Court is

unable to determine the reasonableness of any specific damages amount at this time, the undersigned

recommends that the District Court grant default judgment and permit WSI the opportunity to brief

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the specific amount of damages after a full accounting. 

b. Attorney's Fees and Costs

Under 15 U.S.C. §§ 1117(a) and 1125(c)(5), the District Court in exceptional trademark

infringement and dilution cases may award reasonable attorney fees and costs to the prevailing

party. A trademark case is exceptional where the defendant acted maliciously, fraudulently,

deliberately, or willfully. Earthquake Sound Corp. v. Bumper Indus., 352 F.3d 1210, 1216 (9th Cir.

2003). On a motion for default judgment, allegations of willfulness are deemed true and, further, a

trademark defendant's failure to appear alone warrants a finding that the case is "exceptional" for the

purpose of determining entitlement to attorneys' fees. See, e.g., Philip Morris USA, Inc. v.

Castworld Prods., 219 F.R.D. 494, 502 (C.D. Cal. 2003); Taylor Made Golf Co. v. Carsten Sports,

175 F.R.D. 658, 663 (S.D. Cal. 1997); Johnson v. Connolly, 2007 U.S. Dist. LEXIS 31721 at *8

(N.D. Cal. Apr. 18, 2007). Accordingly, the Court finds the present case is exceptional based both

on the allegations of Defaulting Defendants' willful use of imitations or variations of WSI's marks,

and their apparent disregard of the proceedings in this Court. Thus, an award of attorney’s fees and

costs is justified. The undersigned recommends that the District Court permit WSI to submit

documentation so that it may substantiate the reasonableness of its attorney's fees and costs.

4. Possibility of Dispute Concerning Material Facts

The fourth Eitel factor considers the possibility of dispute as to any material facts of the case. 

As Defaulting Defendants have not filed any response(s) to WSI's complaint, a dispute concerning

material facts is unlikely. Further, as discussed above, WSI has sufficiently alleged facts necessary

to maintain its claims for relief under the Lanham Act and California law. Since Defendants’ have

made no attempt to challenge the accuracy of the Complaint, no dispute of material fact exists that

would preclude the District Court from granting WSI's motion for default judgment.

5. Possibility of Excusable Negligence

The fifth Eitel factor contemplates the possibility that Defaulting Defendants' failure to

respond or otherwise appear was the result of excusable neglect. Under this analysis, the Court

considers whether Defendants were put on adequate notice to apprise them of the pendency of the

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action brought against them. Castworld Products, 219 F.R.D. at 500. In addition, the Court also

considers whether the circumstances surrounding Defendants' failure to answer the complaint are

sufficient to excuse or justify its default. Shanghai Automation Instrument Co. v. Kuei, 194 F. Supp.

2d 995, 1005 (N.D. Cal. 2001) (default cannot be attributed to excusable neglect where defendants

were properly served with the complaint, the notice of entry of default, and the papers in support

thereof). 

In the instant case, each of the Defaulting Defendants was validly served with WSI's initial

complaint and FAC in accordance with Judge White's order authorizing electronic service of

process. (Doc. #36.) In his order, Judge White found that "WSI . . . established that the email

accounts [it] has for defendants have been effective means of communicating with the defendants,

which would serve the purposes of ensuring the defendants receive adequate notice of this action

and an opportunity to be heard. (Doc. #36 at 3.) Consequently, the Court finds that there is little

possibility of excusable neglect, and this factor weighs in favor of granting default judgment. 

6. Policy for Deciding on the Merits

Under the final Eitel factor, the Court must consider the strong policy of the federal courts in

favoring decisions on the merits. However, this policy is not dispositive; rather, the Court still has

great latitude in exercising its discretion with regards to the relative weight of the remaining Eitel

factors. PepsiCo, Inc. v. California Security Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002). 

Furthermore, the “defendant's failure to answer the plaintiff’s complaint makes a decision on the

merits of a case impractical, if not impossible.” Id. As a consequence, the policy of favoring

decisions on the merits does not necessarily preclude a court from granting a default judgment when

the defendant fails to respond. Walters, 2006 WL 2527776, at *6. Here, Defendants have refused to

participate in the proceedings brought against them, despite adequate notice and opportunity to do

so. Thus, default judgement is appropriate despite the strong policy of the federal courts in favoring

decisions on the merits. 

D. Remedies

In its motion, WSI seeks four types of relief: (1) a permanent injunction prohibiting

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Defaulting Defendants from using its marks; (2) recovery of its reasonable attorney's fees and costs;

(3) an accounting and disgorgement of Defendants' relative profits; and (4) an order temporarily

prohibiting transfer of Defendants' domain names, pending final relief. The Court shall consider

each in turn.

1. Permanent Injunction

Under the Lanham Act, the District Court may grant an injunction "according to principles of

equity" to remedy violations of a trademark owner's rights under §§ 1114 and 1125, and to prevent

the recurrence of such violations. 15 U.S.C. §1116(a). Indeed, "[i]njunctive relief is the remedy of

choice for trademark and unfair competition cases, since there is no adequate remedy at law for the

injury caused by a defendant's continuing infringement." Century 21 Real Estate Corp. v. Sandlin,

846 F.2d 1175, 1180 (9th Cir. 1988). Furthermore, injunctive relief is available in the default

judgment setting. Castworld Products, 219 F.R.D. at 502.

Here, WSI's amended complaint specifically alleges that Defendants' actions cause it

irreparable harm and, unless enjoined from using WSI marks or variations of those marks, will

continue to do so. (FAC ¶22.) Considering that Defaulting Defendants are aware of the serious

claims brought against them and have chosen not to respond, the Court finds that the proposed

injunctive relief is appropriate and failure to grant the injunction would expose WSI to the risk of

continuing irreparable harm.

2. Attorney's Fees and Costs

As discussed above, this case merits an award of attorney's fees and costs, and the

undersigned recommends that the District Court permit WSI to submit documentation so that it may

substantiate the reasonableness of WSI's attorney's fees and costs. 

3. Accounting and Disgorgement of Relative Profits

WSI also seeks an equitable accounting of Defaulting Defendants' profits related to their

infringement. Pursuant to 15 U.S.C. § 1117(a), in trademark infringement cases, the District Court

has the power to "assess . . . profits and damages or cause the same to be assessed under its

direction." "An accounting of profits under § 1117(a) is not synonymous with an award of monetary

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damages"; rather, “'[a]n accounting for profits . . . is an equitable remedy subject to the principles of

equity.'” Reebok Int'l, Ltd. v. Marnatech Enters., 970 F.2d 552, 559 (9th Cir. 1992) (quoting Fuller

Brush Products Co. v. Fuller Brush Company, 299 F.2d 772, 777 (7th Cir. 1962), cert. denied, 370

U.S. 923 (1962)). Thus, "the Lanham Act authorizes the district court to grant [WSI] an accounting

of [Defaulting Defendants'] profits as a form of final equitable relief." Id.

Here, WSI's amended complaint expressly includes a claim for accounting of Defendants'

profits, and the Court finds such relief is appropriate. Defendants' internet businesses rely on the

volume of traffic to their websites. As they used WSI's marks to presumably increase user traffic to

those sites and create economic value, the District Court should permit an accounting to determine

whether Defendants generated revenues through advertising, customer payments, subscription fees,

and other forms of compensation. (FAC ¶39.) Such an order is especially appropriate here because

Defendants' infringements were intentional and, by failing to appear in this case, they deprived WSI

of the opportunity to conduct damages discovery.

4. Order Temporarily Prohibiting Transfer of Domain Names 

WSI also seeks on order provisionally prohibiting the sale or transfer of Defendants' domain

names, pending the accounting and final relief. Pursuant to their inherent equitable authority, courts

may prohibit the transfer of a trademark defendant’s relevant assets, such as domain names, to

ensure that assets are available to satisfy the judgment. Reebok, 970 F.2d at 559. “Because the

Lanham Act authorizes the district court to grant . . . an accounting of . . . profits as a form of final

equitable relief, the district court has the inherent power to freeze . . . assets in order to ensure the

availability of the final relief.” Id. The Court finds such an order appropriate in this case in aid of

the accounting. Because Defendants used the domain names to accomplish their infringement, it is

unclear whether any other assets are available to satisfy a judgment. As Defendants could easily sell

or transfer these online properties to avoid a judgment, the District Court should provisionally

prohibit their sale or transfer pending final relief. 

IV. CONCLUSION

Based on this analysis, the Court RECOMMENDS that the District Court GRANT WSI’s

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Motion for Default Judgment, with the exception of its withdrawn claim for contributory trademark

infringement. The Court further RECOMMENDS entry of the following order:

IT IS ORDERED THAT judgment shall be entered for Plaintiff Williams-Sonoma, Inc., and

against Defaulting Defendants Online Marketing Services, Ltd., Unimaster, Ltd., Andrej Korchev,

YetisCash, Ales Lexico, Vladimir Techl, Sweethelda Ballesteros, Stein Tvedt, and Eddie Morgan.

Defaulting Defendants, their agents, employees, successors, and all persons acting in concert

with them who receive notice of this Order, are permanently enjoined from infringing or diluting in

an manner WSI's POTTERY BARN family of marks. They are permanently enjoined from any

commercial use of the marks POTTERY BARN®, pottery barn kids®, PBteen®, P.B.Kids®, or any

colorable imitation or variations of these marks.

Defaulting Defendants shall provide an accounting of their profits related to their

infringement of the POTTERY BARN trademarks, for the purpose of awarding WSI monetary

damages based on Defendants' profits. To facilitate accounting of profits, each Defaulting

Defendant shall produce documents substantiating their revenues and relevant costs from their

operation of the following domain names: <www.filthserver.com>,

<www.onlinemarketingservices.biz>, <www.slutty-teens.net>, <www.just-a-porn.com>, and

<www.sexcountry.net>. Further, each Defaulting Defendant shall produce records of payments by

Adult Friend Finder, or other web site businesses, for web traffic directed from the aforementioned

web sites that unlawfully used WSI's marks. Defaulting Defendants shall produce records covering

the entire period of their use of the POTTERY BARN trademarks, including the months of

September 2006 through June 30, 2007. Defaulting Defendants shall produce such financial

statements or records within 60 days of the entry of this Order by the District Court.

Defaulting Defendants, their agents, employees, successors, and all persons acting in concert

with them who receive notice of this Order, are enjoined temporarily from selling, assigning,

encumbering, or transferring in any manner the domain names that Defaulting Defendants used to

infringe and/or dilute WSI's trademarks as alleged in the First Amended Complaint, including the

following domain names: <www.filthserver.com>, <www.onlinemarketingservices.biz>,

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<www.slutty-teens.net>, <www.just-a-porn.com>, and <www.sexcountry.net>. Notice of this Order

shall be delivered to the relevant domain name registries, registrars, and other authorities with

control over the disposition of these domain names. This temporary injunction shall expire as to

each domain name upon the respective Defaulting Defendants' full compliance with this Court's

Order, accounting of profits, and satisfaction of the final relief ordered by the Court or joint

stipulation by the parties of settlement of dispute and dismissal.

WSI shall recover as damages from the Defaulting Defendants, jointly and severally, its

reasonable attorney's fees and costs. 

Pursuant to FRCP 72, any party may serve and file objections to this Report and

Recommendation within 10 days after being served.

IT IS SO RECOMMENDED.

Dated: December 6, 2007 

MARIA-ELENA JAMES

United States Magistrate Judge

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