Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-00133/USCOURTS-caed-2_06-cv-00133-20/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:44 Trademark Infringement

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

PHILIP MORRIS USA, INC., NO. CIV.S-06-0133 WBS DAD

Plaintiff,

v. FINDINGS AND RECOMMENDATIONS

M&S MARKET, INC., et al.,

Defendants.

_______________________________/

This matter came before the court on October 20, 2006, for

hearing on plaintiff’s motion for entry of default judgment against

defendants Roy Keltner, individually and doing business as London

General Store -- Dinuba; M&S Market, Inc., a California Corporation;

and Bengals, Inc., a California Corporation doing business as Old

Towne Food Market. Anna S. McLean and Nathaniel Moore appeared on

behalf of plaintiff. There was no appearance on behalf of

defendants. Having considered all written materials submitted with

respect to the motion, and after hearing oral argument, for the

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reasons set forth below the undersigned recommends that plaintiff’s

motion be granted.

PROCEDURAL BACKGROUND

Plaintiff Phillip Morris USA, Inc. initiated this action

for damages and injunctive relief by filing its complaint on January

19, 2006. The complaint alleges trademark infringement in violation

of the Lanham Act and unfair competition in violation of California

state law. Despite being served with process, the defendants against

whom default judgment is now sought failed to appear. The Clerk of

the Court has entered default against each of those defendants

pursuant to plaintiff’s request. On September 19, 2006, plaintiff

filed the instant motion, noticing it to be heard before the

undersigned, as provided by Local Rule 72-302(c)(19). Despite being

served with all moving papers, defendants have not responded to the

motion.

LEGAL STANDARD

Federal Rule of Civil Procedure 55(b)(2) governs

applications to the court for entry of default judgment. Upon entry

of default, the complaint’s factual allegations regarding liability

are taken as true, while allegations regarding the amount of damages

must be proven. Dundee Cement Co. v. Howard Pipe & Concrete

Products, 722 F.2d 1319, 1323 (7th Cir. 1983)(citing Geddes v. United

Fin. Group, 559 F.2d 557 (9th Cir. 1977)); see also TeleVideo Sys.,

Inc. v. Heidenthal, 826 F.2d 915, 917 (9th Cir. 1987). It is

improper for the court to consider liability issues without first

providing notice to plaintiff that the merits will be addressed. 

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Black v. Lane, 22 F.3d 1395, 1398 (7th Cir. 1994). Where damages are

liquidated (i.e., capable of ascertainment from definite figures

contained in the documentary evidence or in detailed affidavits),

judgment by default may be entered without a damages hearing. See

Dundee, 722 F.2d at 1323. Unliquidated and punitive damages,

however, require “proving up” at an evidentiary hearing or through

other means. Dundee, 722 F.2d at 1323-24; see also James v. Frame, 

6 F.3d 307, 310 (5th Cir. 1993).

Granting or denying default judgment is within the court’s

sound discretion, see Draper v. Coombs, 792 F.2d 915, 924-25 (9th

Cir. 1986) (citations omitted), and the court is free to consider a

variety of factors in exercising that discretion, see Eitel v.

McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). The court may

consider such factors as:

(1) the possibility of prejudice to the

plaintiff, (2) the merits of plaintiff’s

substantive claim, (3) the sufficiency of the

complaint, (4) the sum of money at stake in the

action, (5) the possibility of a dispute

concerning material facts, (6) whether the

default was due to excusable neglect, and (7) the

strong policy underlying the Federal Rules of

Civil Procedure favoring decisions on the merits.

Eitel, 782 F.2d at 1471-72 (citing 6 Moore’s Federal Practice, ¶ 55-

05[2], at 55-24 to 55-26). 

ANALYSIS

The complaint in this action alleges two claims for

trademark infringement under the Lanham Act and a claim for unfair

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 Specifically, the complaint states claims for trademark 1

infringement under 15 U.S.C. § 1114(1); false designation of origin

under 15 U.S.C. § 1125(a); and unfair competition in violation of

California common law.

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competition under California law. In sum, the detailed allegations 1

of the complaint allege that defendants have sold, offered for sale

or otherwise contributed to the sale of counterfeit Marlboro and

Marlboro Lights cigarettes. Plaintiff is in the business of

manufacturing and selling tobacco products, including the famous

Marlboro brand of cigarettes. Plaintiff’s complaint names numerous

defendants, but plaintiff presently seeks default judgment against

defendants Roy Keltner; M&S Market, Inc.; and Bengals, Inc. 

Consistent with the prayer in that complaint, and as permitted by the

Lanham Act, plaintiff’s motion seeks an award of $10,000 against each

retailer implicated by the instant motion as well as permanent

injunctive relief. Plaintiff also seeks recovery of reasonable

attorney fees and costs.

Weighing the factors outlined in Eitel v. McCool, 782 F.2d

at 1471-72, the undersigned has determined that default judgment

against defendants is appropriate. Defendants have made no showing

that their failure to respond to the complaint was due to excusable

neglect. The complaint is sufficient, and the amount of money at

stake is relatively small, particularly because plaintiff seeks only

statutory damages, not the recovery of lost profits or actual

damages. There is no reason to doubt the merits of plaintiff’s

substantive claim, nor is there any apparent possibility of a dispute

concerning the material facts underlying the action. As these

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factors weigh in plaintiff’s favor, the undersigned, while 

recognizing the public policy favoring decisions on the merits, will

recommend that default judgment be granted.

After determining that entry of default judgment is

warranted, this court must next determine the terms of the judgment. 

As indicated above, plaintiff seeks an award of $10,000 against

defendants. Such an award is permitted by the Lanham Act, which

provides for the election of statutory damages in a counterfeiting

case in an amount “not less than $500 or more than $100,000 per

counterfeit mark per type of goods or services sold, offered for

sale, or distributed, as the court considers just[.]” 15 U.S.C.

1117(c)(1). The plain language of 15 U.S.C. 1117(c) “affords

plaintiffs the right to pursue statutory damages without proving

actual damages; however, the statute does not provide guidelines for

courts to use in determining an appropriate award.” Louis Vuitton

Malletier and Oakley, Inc. v. Veit, 211 F. Supp. 2d 567, 583 (E.D.

Pa. 2002). See also Tiffany (NJ) Inc. v. Luban, 282 F. Supp. 2d 123,

124-25 (S.D. N.Y. 2003)(“The statute ‘does not provide guidelines for

courts to use in determining an appropriate award’ and is only

limited by what ‘the court considers just.’”)(citations omitted). 

Some courts have found guidance in this regard in the case law of an

analogous provision of the Copyright Act, 17 U.S.C. § 504(c). See

Tiffany, 282 F. Supp. 2d at 125; Louis Vuitton, 211 F. Supp. 2d at

583; Sara Lee Corp. v. Bags of N.Y., Inc., 36 F. Supp. 2d 161, 166

(S.D. N.Y. 1999). Under the Copyright Act, courts consider factors

such as:

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(1) “the expenses saved and the profits reaped;”

(2) “the revenues lost by the plaintiff;” (3)

“the value of the copyright;” (4) “the deterrent

effect on others besides the defendant;” (5)

“whether the defendant's conduct was innocent or

willful;” (6) “whether a defendant has cooperated

in providing particular records from which to

assess the value of the infringing material

produced;” and (7) “the potential for

discouraging the defendant.”

Tiffany, 282 F. Supp. 2d at 125 (citing Fitzgerald Pub. Co., Inc. v.

Baylor Pub. Co., 807 F. 2d 1110, 1117 (2d Cir. 1986)). See also

Microsoft Corp. v. PC Exp., 183 F. Supp. 2d 448, 454 (D. P.R.

2001)(listing same factors).

Looking to the relevant factors, no evidence submitted in

connection with the instant motion addresses the expenses saved and

profits reaped by defendants or the revenues lost by plaintiff. 

However, the undersigned recognizes that plaintiff is still

discovering the extent of the counterfeiting and that such

calculations would in any event be difficult in light of the nature

of this action. As one court has recognized, “[t]he statutory

damages provision was added in 1995 because ‘counterfeiters' records

are frequently nonexistent, inadequate, or deceptively kept ...,

making proving actual damages in these cases extremely difficult if

not impossible.’” Tiffany, 282 F. Supp. 2d at 124 (citations

omitted). 

With respect to the other factors, the undersigned finds

that an award of $10,000 will likely serve to deter each defendant as

well as others. While the court has discretion to award up to

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 As plaintiff explains, and as alleged in the complaint, each 2

of the two types of Marlboro cigarettes at issue in this case – Reds

and Lights – contains two Philip Morris USA registered trademarks,

one being the “MARLBORO mark” (i.e., the Marlboro name) and the other

being the “MARLBORO Roof Design Label mark” (i.e., the Marlboro

label). (Compl. ¶ 4.) Thus, for each pack of cigarettes bought from

defendants, the court could award $200,000 (i.e., $100,000 for each

of the two marks on each pack). 

 An award of $10,000 is also reasonable in light of the amount 3

of damages awarded in other similar counterfeit cases. See Louis

Vuitton, 211 F. Supp. 2d at 583-84 (collecting cases). 

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$100,000 per counterfeit mark per type of goods or services sold,2

the record suggests that the defendants against whom default judgment

is now sought, as well as the other defendants in related actions on

file in this district, are independent small business owners and/or

operators. An award of $10,000 is at least commensurate with the

value of plaintiff’s famous marks and also in line with defendants

“blatant attempt to profit from Philip Morris USA’s substantial

investment in its Marlboro marks.” (Compl. ¶ 5.) As outlined in

plaintiff’s motion, defendants have failed to cooperate with

plaintiff in its efforts to litigate this matter, including attempts

at settlement. For these reasons, the undersigned finds the

requested award of $10,000 is just.3

Plaintiff also is entitled to the requested permanent

injunctive relief. Title 15 U.S.C. § 1116(a) provides, in relevant

part, that “[t]he several courts vested with jurisdiction of civil

actions arising under this chapter shall have power to grant

injunctions, according to the principles of equity and upon such

terms as the court may deem reasonable ....” In recommending entry

of default judgment in similar actions initiated by this plaintiff,

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the undersigned previously has endorsed similar, although not

identical, requests for injunctive relief. The district judge

assigned to this case has approved similar requests, particularly in

the various Consent Judgments and Permanent Injunctions approved by

the court in this case. Accordingly, the undersigned will recommend

that defendants be:

(1) prohibited from purchasing, selling, offering

for sale, or otherwise using in commerce any

counterfeit Marlboro or Marlboro Lights brand

cigarettes;

(2) prohibited from assisting, aiding or abetting

any other person or entity in purchasing,

selling, offering for sale, or otherwise using in

commerce any counterfeit Marlboro or Marlboro

Lights brand cigarettes; and

(3) directed to cooperate in good faith with

Philip Morris USA in future investigations of

counterfeit cigarette sales at their retail

establishments, including but not limited to (a)

permitting representatives of an investigative

firm under contract with Philip Morris USA to

conduct inspections, without notice, of

defendants’ inventories to determine whether any

cigarettes bearing the Marlboro and/or Marlboro

Lights trademarks are counterfeit (such

inspections may proceed at any defendants’ retail

outlet between the hours of 9:00 a.m. and 5:00

p.m. on any day such retail outlet is open for

business) and to retain possession of any such

Marlboro and/or Marlboro Lights brand cigarettes

determined to be counterfeit; (b) responding to

reasonable requests for information about

defendants’ suppliers of Marlboro and/or Marlboro

Lights cigarettes; and (c) cooperating with

Philip Morris USA’s representatives in their

investigations of any suppliers of Marlboro

and/or Marlboro Lights cigarettes.

See Levi Strauss & Co. v. Shilon, 121 F.3d 1309, 1314 (9th Cir.

1997)(affirming permanent injunction against using “any counterfeit,

copy, or colorable imitations of the trademarks of Plaintiff Levi

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Strauss & Co. that is likely to cause confusion”); PepsiCo, Inc. v.

California Security Cans, 238 F. Supp. 2d 1172, 1177-78 (C.D. Cal.

2002) (granting motion for default judgment and request for a

permanent injunction enjoining defendant from using trademarks on

counterfeit products).

Plaintiff seeks to recover reasonable attorney fees and

costs incurred as a result of litigating this action against

defendants. See 15 U.S.C. § 1117(a). Counsel for plaintiff has

submitted declarations detailing the $3,191.25 sought for attorney

fees. The undersigned finds the rates customary and hours expended

reasonable for litigating an action of this nature. See Intel Corp.

v. Terabyte Int'l, Inc., 6 F.3d 614, 623 (9th Cir. 1993). 

An award of attorney fees is warranted in this case. The

Lanham Act authorizes the court to award attorney fees to the

prevailing party in “exceptional cases.” 15 U.S.C. § 1117(a). 

“While the term ‘exceptional’ is not defined in the statute,

generally a trademark case is exceptional for purposes of an award of

attorneys' fees when the infringement is malicious, fraudulent,

deliberate or willful.” Lindy Pen Co., Inc. v. Bic Pen Corp., 982

F.2d 1400, 1409 (9th Cir. 1993). In the default judgment context,

courts have found a case “exceptional” where, as here, the defendant

disregards judicial proceedings and does not appear. See Discovery

Communications, Inc. v. Animal Planet, Inc., 172 F. Supp. 2d 1282,

1292 (C.D. Cal. 2001); Taylor Made Golf Co., Inc. v. Carsten Sports,

Ltd., 175 F.R.D. 658, 663 (S.D. Cal. 1997). Accordingly, the

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undersigned will recommended that plaintiff be awarded the requested

attorney fees of $3,191.25 as to each defendant.

Finally, plaintiff is entitled to the costs as to each

defendant. 15 U.S.C. § 1117(a)(3) (“When a violation of any right of

the registrant of a mark ... shall have been established in any civil

action arising under this chapter, the plaintiff shall be entitled

... to recover ... the costs of the action.”). Plaintiff has

demonstrated reasonable service fees as to the defendants as follows:

Roy Keltner, $300; M&S Market, Inc., $300; and Bengals, Inc., $310. 

Accordingly, the undersigned will recommended that plaintiff be

awarded the costs of this action.

CONCLUSION

Accordingly, the court HEREBY RECOMMENDS that:

1. Plaintiff’s motion for entry of default judgment be

granted; and

2. The district judge assigned to this case sign the

[Proposed] Order for Default Judgments filed on October 19, 2006

(Doc. no. 78).

These findings and recommendations are submitted to the

United States District Judge assigned to the case pursuant to the

provisions of 28 U.S.C. § 636(b)(l). Within ten days after being

served with these findings and recommendations, any party may file

written objections with the court and serve a copy on all parties. 

Such a document should be captioned “Objections to Findings and

Recommendations.” Any reply to the objections shall be served and

filed within five days after service of the objections. The parties

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are advised that failure to file objections within the specified time

may waive the right to appeal the District Court's order. Martinez

v. Ylst, 951 F.2d 1153 (9th Cir. 1991).

DATED: November 15, 2006.

DAD:th

Ddad1/orders.civil/philipmorris0133.default

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