Aquavit Pharmaceuticals, Inc. v. U-Bio Med, Inc.

Background

Aquavit Pharmaceuticals, Inc. and the defendants claimed competing ownership of trademarks associated with the Aquagold microinjection device. Aquavit had registered the marks in the United States and South Korea. U-Bio Med, Inc. and Nyun Shi Eum had registered identical or virtually identical marks in the European Union and certain other jurisdictions. Global Medi Products had not appeared or responded to the complaint.

The court had entered a modified preliminary injunction limiting the defendants’ use of Aquagold marks. The order allowed U-Bio Med and Nyun Shi Eum to use marks they legally owned in countries where they held the relevant rights, but only if they used required disclaimers, avoided references linking their products to Aquavit’s United States and Korean trademarks, and did not compare or disparage Aquavit’s devices. The order also prohibited uses likely to affect commerce in the United States.

Aquavit moved to hold the defendants in civil contempt, meaning to impose a court remedy for violating the injunction. The court referred the motion to Magistrate Judge Robert Lehrburger, who held a hearing and recommended finding that the defendants had not substantially complied and should pay attorney’s fees and costs. The defendants objected to nearly all of the recommendation’s findings.

Civil Contempt

The court applied a three-part test: the injunction had to be clear and unambiguous; the evidence of noncompliance had to be clear and convincing; and the defendants had to have failed to make a reasonably diligent effort to comply. The defendants conceded that the injunction was clear. The court concluded that the other requirements were met for numerous violations, except for the allegation that the defendants had restricted United States visitors’ access to their websites during certain hours.

The court identified several violations supported by clear and convincing evidence. The defendants conceded that a video featuring Kim Kardashian using a microinjection device had been captioned with an Aquagold mark without the required disclaimer. They also conceded that a so-called Piracy Alert violated the injunction, that they had advertised Aquagold for sale in Hong Kong even though they did not own the relevant trademarks there, and that certain Instagram posts were noncompliant. The defendants also acknowledged that noncompliant material, including an image showing Aquagold packaging with an American flag, remained in the News and Video section of their website.

The court rejected the defendants’ argument that an Instagram post calling Aquavit a “liar” did not violate the injunction because it criticized Aquavit rather than Aquavit’s product. The court concluded that, in context, the post disputed the authenticity of Aquavit’s products and therefore impliedly disparaged them. The court also held that the defendants’ Instagram profile violated the disclaimer requirement because Aquagold marks and references were prominently visible while the disclaimer was not visible unless a user clicked on an individual image.

The court found that the defendants had not been reasonably diligent. It emphasized the repeated presence of noncompliant material across the defendants’ website and social-media accounts, the defendants’ failure to review and remove material from the prominent News and Video section, the “liar” post, the mistaken claim of trademark rights in Hong Kong, the deficient Instagram profile, and the Kardashian video. The court stated that the defendants had corrected some violations but had offered unreasonable interpretations of the injunction for others.

The court did not find clear and convincing evidence that the defendants had intentionally prevented United States users from accessing their websites during daylight hours. Aquavit’s evidence did not identify the dates, time zone, devices, frequency, or consistency of the alleged access problem. The court said the evidence left open the possibility of technical difficulties or device incompatibility.

Sanctions and Disposition

Civil-contempt sanctions can be used to encourage future compliance and to compensate the injured party. The court agreed that additional coercive sanctions were not necessary at that time because the defendants had taken some steps toward compliance. It also found that a full fee award was inappropriate because some alleged violations did not violate the injunction.

The court declined to order an immediate proceeding to determine damages beyond fees and costs, finding that such damages would be difficult to prove and likely smaller than the cost of litigating them. It allowed Aquavit to request permission to submit proof of other damages if appropriate and stated that a damages proceeding might become warranted if noncompliance recurred.

Judge Valerie Caproni adopted the report and recommendation in part and granted Aquavit’s motion for civil contempt in part. The court ordered a compensatory sanction equal to 75% of Aquavit’s fees and costs incurred in connection with the contempt motion. Aquavit was required to submit its fee request with supporting records, after which the parties were to meet and confer and the defendants could respond if they could not agree on the amount.