GS Holistic, LLC v. SF Hookah Palace Inc.

Background

GS Holistic, LLC sued SF Hookah Palace Inc. and Izzat Asfour for alleged trademark counterfeiting and infringement, and false designation of origin and unfair competition. GS Holistic alleged that the defendants sold a glass infuser bearing an infringing mark. Both defendants were served but did not respond. The clerk entered default against both defendants, and GS Holistic moved for default judgment.

Because GS Holistic consented to a magistrate judge but the defendants did not appear or consent, the court directed the clerk to reassign the case to a district judge. The magistrate judge issued a report and recommendation on the motion rather than a final ruling by the district court.

Service, jurisdiction, and liability

The court concluded that service on both defendants was proper under the applicable federal and California service rules. It also stated that the threshold jurisdiction requirements were met.

Applying the factors used to evaluate default judgment, the court treated the complaint's factual allegations as true except those concerning the amount of damages. It found that the complaint adequately alleged trademark infringement for one of GS Holistic's three marks. The allegations involved one product, one sale, and one infringing mark. The court also found the false-designation claim adequate because that claim and the trademark-infringement claim generally rise or fall together.

The court concluded that most of the factors favored entering default judgment. It found that GS Holistic would be prejudiced without relief, that there was no apparent excusable neglect or material factual dispute, and that the defendants' refusal to participate made a decision on the merits unlikely.

Recommended relief

GS Holistic requested $150,000 in statutory damages, consisting of $50,000 for each of three marks, plus $1,249.49 in costs, a permanent injunction, and destruction of infringing products.

The court found that the requested damages were disproportionate to the evidence. GS Holistic established one sale at a price of $652.49, and the court found that the company's general sales and market-wide counterfeiting estimates did not establish greater actual damages attributable to these defendants. The court recommended $5,000 in statutory damages—more than seven times the price of the sale—as an amount that would deter infringement without creating a windfall.

The court recommended $532 in costs, consisting of the $402 filing fee and $130 process-server fee. It rejected the requested investigation fees because the statute's reference to costs of the action covered costs incurred after the lawsuit began, and GS Holistic had not provided authority for shifting the presuit investigation expenses.

The court recommended denying the request for a permanent injunction. It found that the motion did not specifically address the requirements for injunctive relief, instead referring generally to the complaint. The proposed injunction also sought relief broader than the complaint and covered all three marks even though the record supported infringement of only one.

Recommendation and next steps

The report recommends that judgment be entered for GS Holistic against the defendants, with $5,000 in statutory damages and $532 in costs. It recommends granting the motion for default judgment in part and denying the request for a permanent injunction. Any party could object to the report and recommendation within 14 days after service; the text states that failing to object may waive district-court review.