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Message Received: Service of Complaint by Email Found Sufficient

The US Court of Appeals for the Fifth Circuit affirmed the district court’s entry of default judgment against the defendant because email service of the complaint was proper under the Federal Rules of Civil Procedure and the Texas Rules of Civil Procedure. Viahart, L.L.C. v. He GangPeng, Che Haixing, Aszune, Case No. 21-40166 (5th Cir. Feb. 14, 2022) (Wiener, Graves, Ho, JJ.)

Viahart manufactures, distributes and retails toys and educational products under registered trademarks. Viahart sued approximately 50 defendants for selling counterfeit products bearing its trademark on several online marketplaces. At the time Viahart filed its complaint, it moved to serve all defendants by email. The district court denied the motion but permitted Viahart to conduct discovery to determine the identities and addresses of the defendants through the online marketplaces. After attempting to obtain contact information for the defendants, Viahart again moved to serve the defendants by email. In the motion, Viahart documented its efforts to serve defendants physically and provided proof of attempted service for various defendants. The district court granted the motion, and Viahart served the defendants via email.

Viahart subsequently moved for entry of default judgment against defendants that failed to appear or otherwise respond to the complaint. The district court granted the default judgment motion and determined that each defaulting defendant was liable for $500,000 each plus attorneys’ fees and costs. The judgment permanently enjoined defendants from using Viahart’s trademarks, competing with Viahart unfairly, and withdrawing any funds from the online marketplaces or payment processors. Three of the defendants—GangPeng, Haixing and Aszune—appealed the judgment, arguing that service was improper, that they were improperly joined with the 50 other defendants and that “there was no trademark infringement.”

The Fifth Circuit found no error in the district court’s entry of default judgment. The Court noted that it reviews the entry of default for an abuse of discretion and the underlying factual determinations for clear error. The Court determine that Viahart properly complied with the Texas Rules of Civil Procedure in its attempts to serve GangPeng, including documenting its attempts to personally serve GangPeng and attaching the required affidavits that allowed the district court to authorize substitute service. As for Haixing and Aszune, the Court found that under the Federal Rules of Civil Procedure, email service was appropriate because it was court ordered, was reasonably calculated to notify the defendants and was not prohibited by an international agreement.

The Fifth Circuit rejected the defendants’ misjoinder argument, finding that there was no basis for misjoinder under Federal Rules of Civil Procedure 20 and 21. The Court found that the complaint sufficiently alleged that the defendants were all working together and that their conduct arose out of the same transaction, and therefore joinder was appropriate. Finally, the Court rejected the defendants’ argument that there was “no trademark infringement” because factual questions and unpled affirmative defenses cannot be raised on appeal of a default judgment when they were not presented to the district court. Accordingly, the Court affirmed the district court’s default [...]

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Trademark Cancellation Is Appropriate Sanction for Misconduct

In upholding a grocery store chain’s standing to petition for cancellation of a US trademark registration, the US Court of Appeals for the Federal Circuit affirmed the Trademark Trial and Appeal Board’s (TTAB’s) express authority to impose cancellation of a trademark by default judgment as a sanction in a TTAB proceeding. Corcamore, LLC v. SFM, LLC, Case No. 19-1526 (Fed. Cir. Oct. 27, 2020) (Reyna, J.).

SFM owns US federal trademark registrations for the mark SPROUTS for use in connection with its retail grocery store services. SFM filed a petition to cancel Corcamore’s US trademark registration for the mark SPROUT for use in connection with vending machine services, alleging a likelihood of consumer confusion with SFM’s prior trademark rights. The TTAB denied Corcamore’s motion to dismiss the cancellation petition for lack of standing. Relying on Empresa Cubana del Tabaco v. General Cigar Co., the TTAB confirmed SFM’s standing based on its “real interest” in the cancellation petition and a “reasonable belief of damage” caused by the continued registration of Corcamore’s SPROUT trademark.

Following the TTAB’s denial of its motion to dismiss, Corcamore undertook a series willful, bad-faith procedural maneuvers that resulted in two separate sanctions. When Corcamore’s further procedural misconduct violated both sanctions orders, the TTAB entered default judgment cancelling Corcamore’s SPROUT trademark registration. Corcamore appealed.

On appeal, Corcamore alleged that the TTAB (1) erred in applying Empresa Cubana rather than the Supreme Court of the United States’ Lexmark v. Static Control framework in affirming SFM’s standing, and (2) abused its discretion in granting default judgment as a sanction. On the issue of standing, the Federal Circuit rejected the TTAB’s “unduly narrow” conclusion that the Supreme Court’s Lexmark framework was inapplicable, since Lexmark related to a claim of false advertising under § 1125(a) of the Lanham Act, while Empresa Cubana addressed the right to bring a cancellation proceeding under § 1064. The Federal Circuit concluded that Lexmark applied to § 1064 and § 1125(a) because both are statutory causes of action. Nevertheless, the Court found no meaningful substantive difference between the analytical frameworks for standing expressed in Lexmark and Empresa Cubana, and found that the Lexmark “zone-of-interests” proximate cause analysis and the “real interest” and “reasonable belief of damage” requirements under Empresa Cubana similarly provided a right to bring a cause of action. As such, the Court ultimately agreed with the TTAB’s conclusion that SFM’s pleaded allegations of a likelihood of consumer confusion based on a similarity of the parties’ SPROUTS and SPROUT trademarks, and their respective goods and services, were sufficient to demonstrate a reasonable belief of damage under Empresa Cubana and thus supported the right to challenge Corcamore’s registered trademark via cancellation.

With regard to the TTAB’s grant of default judgment, Corcamore did not challenge the TTAB’s express authority to grant default judgment as a sanction under 37 CFR § 2.120(h) and Fed. R. Civ. P. 37(b)(2). Instead, Corcamore argued that the TTAB had no factual or legal basis to enter default judgment in the first [...]

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Seventh Circuit Slaps Online Marketer with Default Judgment, Permanent Injunction

A unanimous panel of the US Court of Appeals for the Seventh Circuit upheld a default judgment and permanent injunction against an online marketer for trademark infringement, false advertising, dilution, unfair competition under the Lanham Act, and claims under Illinois statutory and common law. Quincy Bioscience, LLC v. Ellishbooks, et al., Case No. 19-1799 (7th Cir. Apr. 24, 2020) (Wood, J.).

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