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

Background

Aquavit and the defendants claimed rights to use the AQUAGOLD trademark and other marks in connection with a micro-injection device. In June 2019, the court entered a modified preliminary injunction, an order intended to preserve the parties’ positions while the case proceeded. The injunction barred the defendants from using AQUAGOLD and other marks in the United States, South Korea, and other countries except where the defendants had registered marks. It also required disclaimers in certain countries and prohibited associating the defendants’ products with Aquavit’s marks or product and disparaging Aquavit’s devices.

In April 2020, the court found the defendants in contempt for violating the injunction and awarded Aquavit compensatory sanctions equal to 75% of its attorneys’ fees and costs related to the contempt motion. After reports of continuing violations, the court ordered additional compensatory sanctions based on profits from sales that violated the injunction and referred the sanctions issues to Magistrate Judge Lehrburger for a report and recommendation. Aquavit objected to one finding in that recommendation; the defendants did not object.

Adoption and Modification of the Recommendation

The court adopted the report and recommendation in part and modified it in part. For the unobjected-to findings, the court found no clear error. For Aquavit’s objection concerning a screenshot from a video featuring Kim Kardashian, the court conducted its own fresh review.

Compensatory Sanctions

The court adopted the recommendation to defer calculating the profits to be disgorged until all discovery was complete. It found that the available sales data and Aquavit’s inferences did not reliably establish the defendants’ profits, and that additional information was needed to allocate sales by country and exclude sales that did not involve contempt.

The court also adopted the recommendation that the sanctions already imposed adequately addressed the defendants’ deletion of the @aquagoldubio Instagram account. Although the deletion violated the injunction, the court found that it was not done in bad faith and did not prejudice Aquavit. The court ordered the defendants to pay Aquavit $265,248.00 in attorneys’ fees and $2,614.89 in costs as compensatory sanctions for past violations, including the Instagram-account deletion. The defendants were required to file proof of payment by September 10, 2021. The court stated that the combined fees and costs totaled $267,862.89, while leaving the amount of any profits-based sanction for later determination.

Discovery Sanctions

The court adopted the recommendation denying Aquavit’s request for sanctions based on violations of discovery orders and deadlines. The denial was without prejudice to Aquavit making a later application on a more complete record. The court agreed that Aquavit should have raised the defendants’ failure to meet a production deadline earlier and that the record was insufficient to decide issues involving the use of a “Highly Confidential” designation, interrogatory responses, and the completeness of document production.

Coercive Sanctions

Coercive sanctions are penalties designed to encourage future compliance with a court order. The court found that four continuing violations of the injunction warranted such sanctions: (1) using a screenshot from the Kim Kardashian video; (2) displaying Aquavit’s South Korean AQUAGOLD mark on package instructions shown on an Instagram page; (3) failing to include required disclaimers on a YouTube channel and its videos; and (4) failing to remove a defamatory news video from the defendants’ website. The court found that the defendants had remedied the alleged lack of disclaimers on their tappy.co.kr website, so coercive sanctions were not imposed for that issue.

Regarding the Kardashian screenshot, the court disagreed with the magistrate judge’s conclusion that the single frame was unlikely to cause confusion. The court found that the image could confuse consumers because it associated an American celebrity receiving treatment in the United States with Aquavit’s product. It also held that using a screenshot was still a “usage” of the video prohibited by the injunction, even though the screenshot was less extensive than the full video.

The defendants were given until 5:00 p.m. Eastern time on September 3, 2021, to correct the four violations. If any violation continued after that deadline, the defendants had to pay the court clerk $3,000 for each day of continued violation. The daily sanction would increase by $500 every seven days. The parties also had to file a joint letter with Magistrate Judge Lehrburger by September 6, 2021, stating their positions on whether the defendants had stopped all violations. The order directed the clerk to close the motions at docket entries 213 and 216.