SPIN MASTER, LTD. v. ACIPER

Background

The plaintiffs are corporations that are part of a toy and entertainment company. They manufacture remotely controlled toy cars marketed under the “Air Hogs” brand, including the “Zero Gravity Laser Racer,” and own federally registered “WALL CLIMBER” and “ZERO GRAVITY” trademarks. They alleged that defendants sold counterfeit versions of their products through Amazon.com and infringed those trademarks.

The opinion focuses on defendant Jscout. Earlier in the case, the court issued a temporary restraining order that restricted sales and marketing, restrained merchant storefronts, and froze assets held by payment processors. The temporary restraining order was later partly modified as to Jscout. Jscout also removed the phrase “Wall Climber” from its product manual for future sales. The parties later agreed to dissolve the temporary restraining order as to Jscout, but disputed whether approximately $150,000 in Jscout’s assets should remain restrained.

Requests Before the Court

Spin Master sought a preliminary injunction continuing the asset freeze. A preliminary injunction is an order issued before final judgment to prevent harm while a case continues. Spin Master argued that Jscout might dissipate its assets because of an initial inaccurate sales figure, its use of PingPong Global Solutions to process payments, and its location in China.

In the alternative, Spin Master asked the court to require Jscout to post a $150,000 bond under Local Civil Rule 54.2. Spin Master described the bond as sufficient to satisfy a judgment against Jscout. Jscout opposed both requests.

Asset-Freeze Ruling

The court explained that it had authority to freeze assets when the plaintiff seeks final equitable relief, such as an accounting of profits, and the freeze is connected to that relief. The court also stated that such a freeze must be limited to the amount needed to preserve the equitable claim and cannot be used simply to preserve funds for a possible statutory-damages award.

The court applied the preliminary-injunction standard, which requires a showing of irreparable harm—harm that is actual and imminent and cannot be adequately remedied with money—along with either a likelihood of success on the merits or sufficiently serious questions for litigation and a balance of hardships favoring the plaintiff.

The court found that Spin Master did not meet its burden to show irreparable harm. It treated Spin Master’s arguments about possible asset dissipation as an attempt to show that harm. The court found that Jscout’s explanation for the initial sales misreporting was specific and prompt and that the record did not show other conduct indicating bad faith. It also found that general statements about foreign corporations, counterfeiters, and cross-border payment services did not establish that Jscout specifically was likely to dissipate its assets.

The court noted that Jscout had appeared through counsel, removed the challenged language from its manual for future sales, maintained discoverable bank accounts according to its representations, conducted substantial business, and used United States-based payment processors. The court concluded that these facts suggested Spin Master could enforce a judgment if it ultimately obtained one.

Because Spin Master failed to show irreparable harm, the court did not decide whether Spin Master had shown a likelihood of success on its trademark claims. The request for a preliminary injunction continuing the freeze on Jscout’s assets was denied.

Bond Ruling

The court held that Local Civil Rule 54.2 permits security for costs, but the rule does not authorize a bond guaranteeing the ultimate relief sought by a plaintiff. Spin Master cited authority concerning attorney’s fees, but its stated request was for a bond sufficient to satisfy a judgment.

The court further ruled that, even if Spin Master sought security for attorney’s fees, the request was inadequately supported. Spin Master did not show that the alleged infringement was willful or that the case was likely to qualify as an exceptional Lanham Act case permitting attorney’s fees. It also provided no information about the attorney’s fees already incurred or expected.

The court therefore denied Spin Master’s request to require Jscout to post a bond sufficient to satisfy a judgment. The court directed the parties to meet and confer so that Jscout’s assets held in escrow or frozen by a financial institution would be released or returned promptly, and directed the Clerk of Court to terminate the open motions.