Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-04146/USCOURTS-cand-3_04-cv-04146-25/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1051 Trademark Infringement

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As set forth in the Court’s order of March 12, 2007, the parties submit, and the

Court agrees, that California law governs the issue of whether Zhao is entitled to such

deduction. See, e.g., Getty Petroleum Corp. v. Island Transportation Corp., 862 F. 2d 10,

United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

KOON CHUN HING KEE SOY & SAUCE

FACTORY, LTD.,

Plaintiff,

 v.

EASTIMPEX, et al.,

Defendants /

No. C 04-4146 MMC

ORDER DETERMINING AMOUNT OF

OFFSET; DIRECTING PLAINTIFF TO

ELECT WHETHER TO RECEIVE

AWARD BASED ON PROFITS AND

TREBLE DAMAGES OR STATUTORY

DAMAGES

By a memorandum of decision filed February 2, 2007, the Court found plaintiff Koon

Chun Hing Kee Soy & Sauce Factory (“Koon Chun”) was entitled to an award of treble

damages in the amount of $775,764.90 as against defendants L.A. Victory, Inc. and Joe P.

Zhao (collectively, “Zhao”), less any offset to which Zhao is entitled in light of settlement

payments received by Koon Chun from other defendants. In said decision, the Court

further stated that after the amount of any available offset had been determined, the Court

would set a deadline for Koon Chun to elect to receive an award based on profits and treble

damages or an award based on statutory damages. By order filed March 12, 2007, the

Court found Zhao was entitled to an offset under § 877 of the California Code of Civil

Procedure,1

 and directed Koon Chun to file a declaration along with copies of the

Case 3:04-cv-04146-MMC Document 214 Filed 05/01/07 Page 1 of 6
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15 (2nd Cir. 1988) (holding, in trademark infringement actions, state law determines

whether non-settling defendant entitled to reduction of monetary judgment based on

amounts paid to plaintiff by settling defendants).

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settlement agreements.

Now before the Court is the Declaration of Marc M. Gorelnik Re: Consideration From

Settling Defendants, filed April 6, 2007. Having reviewed said declaration and exhibits

attached thereto, the Court rules as follows.

In its complaint, Koon Chun alleges claims for damages, for which all defendants are

jointly and severally liable to Koon Chun, as well as claims for the ill-gotten profits realized

by each defendant, for which each defendant is severally liable to Koon Chun. See Frank

Music Corp. v. Metro-Goldwyn-Mayer, Inc., 772 F. 2d 505, 519 (9th Cir. 1985) (holding

each defendant in infringement action is “severally liable for his own illegal profit,” but “all

infringers are jointly and severally liable for plaintiffs’ actual damages”). Each of the

settlements involved payment of an undifferentiated lump sum, and no party has requested

that the Court make a finding of good faith as to any of the settlements. Consequently, the

Court must, as to each settlement, determine an appropriate allocation between the two

types of claims alleged by plaintiff.

With respect to settling defendants Eastimpex and EBJ Wholesale Corporation

(collectively, “Eastimpex”), Koon Chun concedes Eastimpex received no profits from

Eastimpex’s sales of the counterfeit goods at issue herein, and, consequently, that Koon

Chun had no claim against Eastimpex for disgorgement of profits. Accordingly, and as

Koon Chun suggests, the Court will allocate 100% of the settlement funds received from

Eastimpex to the claims for which the settling defendants and Zhao are alleged to be jointly

and severally liable.

With respect to settling defendants Well Luck Co., Inc., and Super Luck Co., Inc.

(collectively, “Well Luck”) and Giant Union Company, Inc. (“Giant Union”), Koon Chun

offers evidence to support a finding that said defendants realized profits from sales of the

subject counterfeit goods and thus that Koon Chun had a viable claim against each such

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settling defendant for disgorgement of profits. To determine a proper allocation between

the settlement amounts attributable to the claims for damages and to the claims for illgotten profits, Koon Chun argues the Court should first determine the amount of profits

realized by each defendant, then subtract that amount from the total settlement amount

paid by such defendant, and, finally, allocate any remaining amount to the claims for which

the settling defendants and Zhao are alleged to be jointly and severally liable. Under this

approach, the Court would be allocating the largest amount possible to claims for which the

settling defendants are alleged to be severally liable and thus the smallest amount possible

to claims for which the settling defendants are alleged to be jointly and several liable. For

the reasons set forth below, the Court declines to adopt Koon Chun’s proposed plan of

allocation.

At the outset, as one court has observed, ex post facto allocations by plaintiffs are

often “prejudicial to a nonsettling defendant.” See Greathouse v. Amcord, Inc., 35 Cal.

App. 4th 831, 838, 841 (1995). Indeed, Koon Chun’s proposed method would result in a

wholly artificial allocation. Necessarily implicit in Koon Chun’s proposed plan of allocation

is that Well Luck and Giant Union, while settling the claims for damages at what appears to

be a substantial discount, settled the claims for ill-gotten profits at essentially no discount, a

highly unlikely event. To avoid such arbitrary apportionment, the Court finds a proper

allocation should, to the extent possible, “mirror” the allocation made at trial by the trier of

fact. See, e.g., Jones v. John Crane, Inc., 132 Cal. App. 4th 990, 1006 (2005) (holding, in

context of personal injury action, trial court properly allocated 23% of settlement payments

to plaintiff’s claims for economic damages in light of jury’s finding that 23% of plaintiff’s total

damages constituted economic losses).

Here, after a bench trial, the Court found Koon Chun’s actual damages resulting

from the subject infringing sales to be $258,588.30, and found the illegal profits Zhao

realized from those sales to be $78,856.49. Thus, 76.63% of Koon Chun’s total award at

trial, before trebling, is attributable to claims for which the settling defendants are alleged to

be, with Zhao, jointly and severally liable to Koon Chun. As to the settlement payments

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As discussed above, Koon Chun’s damages constitute 76.63% of plaintiff’s total

award against Zhao, before trebling, in contrast to the 98.28% figure calculated for Well

Luck. The primary reason for this differential is that Zhao did not pay a market price for the

counterfeit goods, whereas Well Luck apparently did.

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By order filed April 10, 2007, the Court granted Koon Chun’s motion to file

unredacted versions of the settlement agreements under seal; the redacted declaration

filed in the public record does not include the amount of consideration Koon Chun received

from each of the settling defendants. Accordingly, the Court, in an addendum to the instant

order, filed concurrently herewith and under seal, has set forth the details as to its

calculations.

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made by Well Luck and Giant Union, however, an exact “mirror” of such apportionment

would not be appropriate because, unlike a personal injury action in which the plaintiff’s

claims for damages are based solely on the plaintiff’s own losses, a trademark infringement

plaintiff is entitled to recover not only its own losses, i.e., damages based on an injury to

which all defendants contributed, but also each individual defendant’s ill-gotten profits, the

latter of which may vary significantly from defendant to defendant. Indeed, as noted above,

Koon Chun had no claim against Eastimpex for ill-gotten profits, whereas Koon Chun

established at trial that it was entitled to profits realized by Zhao in the amount of

$78,856.49. Consequently, the Court finds the appropriate method of allocation as to each

settling defendant is to (1) determine the amount of illegal profits realized by such

defendant, (2) add that figure to the total of Koon Chun’s damages as established at trial,

specifically, $258,588.30, (3) divide $258,588.30 by that total, and (4) multiply that

defendant’s settlement payment by the percentage so calculated. The resulting amount

represents the portion of said defendant’s settlement payment allocated to Koon Chun’s

claims for damages and, consequently, the amount of offset available to Zhao.

Applying such method to the settlement payment Koon Chun received from Well

Luck, the Court finds Well Luck’s profits were, for the reasons stated by Koon Chun, $4523,

(see Gorelnik Decl., filed April 6, 2007, ¶ 7), that the total of Koon Chun’s damages and

Well Luck’s profits is $263,111.30, and that Koon Chun’s damages constitute 98.28% of

said total.2

 Accordingly, Zhao is entitled to an offset of 98.28% of the amount Koon Chun

received from Well Luck.3

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By order filed April 10, 2007, the Court granted plaintiff’s motion to file unredacted

versions of the settlement agreements under seal; the redacted declaration filed in the

public record does not include the amount of ill-gotten profits Koon Chun asserts Giant

Union realized. Accordingly, the Court, in an addendum to the instant order filed

concurrently herewith and under seal, has set forth the details as to its calculations.

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With respect to Giant Union, the Court does not adopt the amount Koon Chun

argues represents the amount of profits realized by said defendant. In particular, the Court

finds Koon Chun’s figure overstates such profits by $31,700. Although, as Koon Chun

points out, Giant Union left unpaid a balance of $31,700 owed to Zhao, the Court, in its

memorandum of decision filed February 2, 2007, found Zhao received from Giant Union the

non-cash equivalent of such sum. (See Memorandum of Decision, filed February 2, 2007,

at 8; see also Defs.’ Closing Argument and Brief, filed June 29, 2006, ¶ 106; Pl.’s Closing

Argument, filed June 30, 2006, at 31:12-13.) Consequently, the Court finds the profit

realized by Giant Union is the amount set forth by Koon Chun, (see Gorelnik Decl., filed

April 6, 2007, ¶ 8), less $31,700.4

In light of the above, and as set forth in the Addendum filed concurrently herewith

under seal, the Court finds the total offset available to Zhao is $22,682.30. Said amount

represents 100% of the settlement payment made by Eastimpex, 98.28% of the settlement

payment made by Well Luck, and the appropriate percentage of the settlement payment

made by Giant Union.

As noted, the Court, in the above-referenced memorandum of decision, found Koon

Chun is entitled to an award of $775,764.90 in treble damages against Zhao, less any

offset to which Zhao is entitled. Because the appropriate offset is, as discussed above,

$22,682.30, Koon Chun is entitled to an award of $753,082.60 in treble damages against

Zhao.

CONCLUSION

For the reasons stated:

1. Koon Chun is entitled to an award of $753,082.60 in treble damages against

Zhao.

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2. No later than May 11, 2007, Koon Chun shall file a statement indicating whether

it elects to receive, as against Zhao and against defendant America Food Int’l Corp., an

award based on profits and treble damages or an award based on statutory damages.

3. After receipt of Koon Chun’s statement of election, the Court will direct the Clerk

to enter final judgment.

IT IS SO ORDERED.

Dated: May 1, 2007 

MAXINE M. CHESNEY

United States District Judge

Case 3:04-cv-04146-MMC Document 214 Filed 05/01/07 Page 6 of 6