JUUL Labs, Inc. v. Chou

• Decision Date: 30 August 2021
• Docket Number: CV 21-3056 DSF (PDx)
• Parties: JUUL LABS, INC., Plaintiff, v. Andy CHOU, et al., Defendants.
• Court: U.S. District Court — Central District of California

557 F.Supp.3d 1041

JUUL LABS, INC., Plaintiff,

v.Andy CHOU, et al., Defendants.

CV 21-3056 DSF (PDx)

United States District Court, C.D. California.

Signed August 30, 2021

Gabriella A. Wilkins, Stephen C. Steinberg, Bartko Zankel Bunzel and Miller APC, San Francisco, CA, for Plaintiff.

Katja M. Grosch, Theodore Scott Lee, William R. Walz, Alexander Chen, InHouse Co. Law Firm Legal Department, Alejandro S. Angulo, Bradley A. Chapin, Kathryn Diane Zajec Domin, Rutan and Tucker LLP, Irvine, CA, Lei Mei, Pro Hac Vice, Guang-Yu Zhu, Pro Hac Vice, Laurence Michael Sandell, Philip Andrew Riley, Pro Hac Vice, Mei and Mark LLP, Washington, DC, Man Li, Mei and Mark LLP, Beverly Hills, CA, for Defendants Andy Chou, Yiwu Cute Jewelry Co., Ltd., Yiwu Xite Jewelry Co., Ltd., CJ Trade Corp., Yiwu Promotional Trade Co., Ltd.

Alexander Chen, Theodore Scott Lee, William R. Walz, InHouse Co. Law Firm Legal Department, Alejandro S. Angulo, Bradley A. Chapin, Kathryn Diane Zajec Domin, Rutan and Tucker LLP, Irvine, CA, Lei Mei, Pro Hac Vice, Guang-Yu Zhu, Pro Hac Vice, Laurence Michael Sandell, Philip Andrew Riley, Pro Hac Vice, Mei and Mark LLP, Washington, DC, Man Li, Mei and Mark LLP, Beverly Hills, CA, for Defendant CJ Fulfillment Corp.

Order GRANTING in Part and DENYING in Part Plaintiff JUUL Labs, Inc.’s Motion for Summary Judgment (Dkt. 77)

Dale S. Fischer, United States District Judge

This case alleges counterfeiting of Plaintiff JUUL Labs, Inc.’s (JLI) electronic cigarettes and related products by Defendants Andy Chou (aka Lizhi Zhou); CJ Fulfillment Corp.; CJ Trade Corp.; Yiwu Cute Jewelry Co., Ltd.; Yiwu Xite Jewelry Co., Ltd.; and Yiwu Promotional Trade Co., Ltd. (aka Yiwu Promotion Trade Co., Ltd.). JLI moves for summary judgment. Dkt. 77 (Mot.). Defendants oppose. Dkt. 90 (Opp'n). The Court deems this matter appropriate for decision without oral argument. See Fed. R. Civ. P. 78 ; Local Rule 7-15. For the reasons stated below, the motion is GRANTED in part and DENIED in part.

I. UNDISPUTED FACTS

A. Background on JLI

JLI designs, manufactures, and distributes JUUL-branded electronic nicotine delivery systems and related products. PUF ¶ 1.¹ JLI introduced its JUUL-branded cigarette (JUUL Device) into the U.S. market in 2015. Id. ¶ 2. The JUUL Device is a rechargeable inhalation apparatus designed to be exclusively used with JUULpods. Id. ¶ 3. JUULpods are individual disposable cartridges that are filled with JLI's proprietary nicotine e-liquid formulations and contain a heating chamber. Id. ¶ 4. JUULpods are designed to be inserted directly into the JUUL Device. Id. ¶ 5. The USB Charging Dock is an individual charging dock designed specifically for the JUUL Device and related accessories. Id. ¶ 6.

JLI conducts quality control tests on JUUL products in their totality and on component parts. Id. ¶ 8. JLI maintains quality control standards for all of its products and conducts regular visits to and audits of its suppliers’ factories. Id. ¶ 9. In the United States, JLI sells its products both through its online retail store and its pre-approved authorized network of distribution partners, and ensures that its distribution partners meet its quality standards. Id. ¶ 15.

JLI owns the following trademarks registered with the United States Patent and Trademark Office for use in connection with JUUL products (JUUL Marks):

•(U.S. Trademark Reg. No. 6,064,902);

•(U.S. Trademark Reg. Nos. 4,898,257);

•(U.S. Trademark Reg. No. 5,770,541);

• "JUUL LABS" (U.S. Trademark Reg. No. 5,776,153);

• "JUULPODS" (U.S. Trademark Reg. Nos. 5,918,490);

• (U.S. Trademark Reg. Nos. 6,211,614).

Id. ¶ 10.

JLI has used one or more of the JUUL Marks continuously in commerce, including in connection with its sale of JUUL Devices, JUULpods, and USB Charging Docks. Id. ¶ 11. JLI prominently displays one or more of the JUUL Marks in all of its advertising and promotional materials and on all product packaging. Id. ¶ 12.

B. Background on Defendants

Chou is the founder, owner, CEO, and principal of Yiwu Cute Jewelry Co., Yiwu Xite Jewelry Co., CJ Fulfillment Corp., CJ Trade Corp., and Yiwu Promotional Trade Co., which all make up the company CJDropshipping (CJ). Id. ¶ 17. Chou maintains control over all corporate accounts. Id. ¶ 18. In 2010, Chou was convicted of conspiracy for producing and selling hundreds of thousands of counterfeit goods and was sentenced to four years in custody in China. Id. ¶ 88.

Yiwu Cute Jewelry Co. is a China-based company that functions as the operating entity for all of CJ, employs the vast majority of CJ's employees, and is responsible for the operation of CJ's website, cjdropshipping.com. Id. ¶ 19; dkt. 77-6 (Chou Decl.) ¶ 4. CJ Trade Corp. is incorporated under the laws of Arizona and operates one of the U.S.-based fulfillment centers for Defendants in Cranbury, New Jersey. PUF ¶ 20. CJ Fulfillment Corp. is incorporated under the laws of California and operates one of the U.S.-based fulfillment centers for Defendants in Chino, California. Id. ¶ 21. Defendants operate and cooperate with warehouses in China, the U.S., Germany, Thailand, Indonesia, Britain, Australia, and France. Id. ¶ 22.

Defendants advertise products, offer products for sale and sell products on their website, source products, store products in their warehouses, process orders from their website, and arrange for shipping of products to customers. Id. ¶ 23. Defendants’ website lists about 500,000 products for sale. DUF ¶ 92. When a customer purchases a product on CJ, Defendants provide the inventory for the product and fulfill the order. PUF ¶ 24. Defendants’ purchase team personnel choose which of their suppliers to source products from. Id. ¶ 25. Defendants’ internal teams review all sourcing requests before approving them. Id. ¶ 26. Defendants offer to help each drop-shipper from sourcing and order through shipping and delivery. Id. ¶ 27; Chou Decl. ¶ 12. Defendants maintain control over all product information on and communications taking place over the CJ website. PUF ¶¶ 28, 30. When a purchase is made on CJ, payment is made directly to Defendants through various payment options. Id. ¶ 31.

C. The Infringing Goods and JLI's Investigation

In 2019 and 2020, JLI found Defendants advertising and offering for sale "JUUL Starter Kits" on cjdropshipping.com. Id. ¶ 32. The Starter Kits included the following purported JUUL products: (a) a JUUL Device; (b) a USB Charging Dock; and (c) four JUULpods in Cool Mint, Virginia Tobacco, Crème Brulee, and Mango flavors. Id. JLI has not sold JUUL Starter Kits that included JUULpods in Cool Mint, Virginia Tobacco, Crème Brulee, and Mango flavors in retail locations in the U.S. since November 2018. Id. ¶ 33.

JLI hired an investigator to buy the suspect JUUL products from CJ. Id. ¶ 37. In October 2019, JLI's investigator accessed cjdropshipping.com and searched for "JUUL" products, which resulted in listings for JUUL Starter Kits and JUUL USB Charging Docks. Id. ¶ 38. In October 2019, Defendants’ website advertised and offered for sale more than 10,000 units of the purported JUUL Starter Kits and more than 1,800 units of the purported JUUL USB Charging Docks. Id. ¶ 39. On October 7, 2019, JLI's investigator purchased three silver and two pink JUUL Starter Kits and five USB Charging Docks from CJ, which were delivered to the investigator in the U.S. on November 7, 2019 (order # ZF1910083563215030). Id. ¶ 40. JLI's investigator sent photographs of the products from order # ZF1910083563215030 to JLI's evidence specialist and then stored the products in an evidence locker. Id. ¶ 41.

On January 6, 2020, JLI's investigator shipped the products from order # ZF1910083563215030 to JLI's evidence specialist. Id. ¶ 42. JLI's evidence specialist inspected and analyzed all of the products from order # ZF1910083563215030 and found they were counterfeit based on the differences between the products and genuine JUUL products, including:

• None of the suspect JUUL Devices had a serial number engraved on the back; • The packaging of all of the JUUL Devices had an incorrect universal product code;

• The cardboard box packaging of the suspect JUULpods showed a lot code that corresponded to a package of JUULpods made by an authorized manufacturer and sold through an authorized retailer in 2018;

• The font and spacing on the cardboard box packaging for all of the products differed from authentic JUUL products; and

• The foil packaging of the suspect JUULpods had a shiny metallic appearance, while authentic JUULpods have a matte appearance.

Id. ¶ 45. The exterior and interior packaging of each suspect JUUL product purchased in order # ZF1910083563215030, as well as the JUUL Devices themselves, bore one or more of the JUUL Marks. Id. ¶ 44.

In March 2020, Defendants’ website advertised and offered for sale more than 10,000 units of the purported JUUL Starter Kits and more than 1,000 units of the purported JUUL USB Charging Docks. Id. ¶ 46. On March 16, 2020, JLI's investigator ordered 100 JUUL Starter Kits from CJ to be shipped to Defendants’ warehouse in New Jersey (order # SY2003143563222037). Id. ¶ 47. JLI arranged for another investigator, along with personnel from the U.S. Department of Homeland Security (DHS), to pick up the Starter Kits from Defendants’ warehouse in New Jersey, which they did on August 20, 2020. Id. ¶ 48. DHS kept most of these products, except JLI's investigator kept two samples, and then sent high resolution photographs of one of the samples to JLI's evidence specialist for analysis. Id. ¶ 49.

JLI's evidence specialist inspected and analyzed the photographs of the suspect JUUL Device and found the serial number on the sample was the same serial number that has appeared on more than 100 other counterfeit JUUL Devices previously discovered by JLI. Id. ¶ 51. JLI's evidence specialist inspected and analyzed the photographs of the suspect JUUL Device and found the products from order # SY2003143563222037 were counterfeit based on the differences between such...