Kelly Toys Holdings, LLC v. Airpods Pro Store

• Decision Date: 18 July 2022
• Docket Number: 21-cv-8435 (LJL)
• Parties: KELLY TOYS HOLDINGS, LLC, Plaintiff, v. AIRPODS PRO STORE a/k/a MYGHD, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

KELLY TOYS HOLDINGS, LLC, Plaintiff,
v.
AIRPODS PRO STORE a/k/a MYGHD, et al., Defendants.

No. 21-cv-8435 (LJL)

United States District Court, S.D. New York

July 18, 2022

OPINION AND ORDER

LEWIS J. LIMAN, UNITED STATES DISTRICT JUDGE

Plaintiff Kelly Toys Holdings, LLC (“Plaintiff”) brings this action against eighty individuals and/or businesses who, using accounts with an online marketplace platform (“User Accounts”), operate one or more commercial businesses to manufacture, import, export, advertise, market, distribute, offer for sale and/or otherwise deal in products (“Merchant Storefronts”) to United States consumers, including those located in the state of New York (collectively, “Defendants”) alleging trademark counterfeiting, trademark infringement, false designation of origin, passing off, and unfair competition under the Lanham Act, 15 U.S.C. §§ 1114, 1116(d), 1117(b)-(c), 1125; copyright infringement under the Copyright Act, 17 U.S.C. § 501(a); and unfair competition under New York common law. See generally Dkt. No. 8 (“Complaint” or “Compl.”). Defendants have not appeared in the action. Plaintiff now moves for default judgment and a permanent injunction against Defendants pursuant to Federal Rule of Civil Procedure 55(b)(2). Dkt. No. 26.

For the following reasons, the motion is granted in part and denied in part.

BACKGROUND

By defaulting, Defendants have admitted the well-pleaded factual allegations of the

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Complaint. See City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011). The Complaint alleges as follows.

Plaintiff is a leading manufacturer and distributor of high-quality plush toys and gifts and is known for its best-selling brands such as Pillow Chums, Kellybaby, and Kellypet. Compl. ¶ 7. Among Plaintiff's most popular toy products are Squishmallows (“Squishmallows Products”), “a line of loveable buddies made with a super soft, marshmallow-like texture that come in a variety of sizes from 3.5-inch clip-ons to extra-large 24 inch plush toys.” Id. ¶ 9. The Squishmallows Products typically retail for between $7.99 to $44.99. Id. ¶ 13.

Plaintiff is a limited liability company with its principal place of business in California. Id. ¶ 5. Plaintiff sells its Squishmallows Products through major U.S. retailers and e-commerce sites such as Amazon, Target, and Walmart. Id. ¶ 12. Since their debut in 2017, over 73 million Squishmallows Products have been sold worldwide. Id. ¶ 10. In 2020, the Squishmallows Products received a “Best Toy of the Year” award from Learning Express. Id. ¶ 11.

Plaintiff owns U.S. Trademark Registrations for “SQUISHMALLOW,” “ORIGINAL SQUISHMALLOWS,” and “FLIP A MALLOWS” for goods in Class 28 (collectively, the “Squishmallows Marks”). Id. ¶ 15. It also owns registered copyrights in and related to the Squishmallows Products (“Squishmallows Works”). Id. ¶ 17. The success of the Squishmallows Products is due in part to the marketing and promotional efforts of Plaintiff and its predecessor. Id.¶ 19. Those efforts include advertising and promotion, both domestically and abroad, through social media and Plaintiff's website, https://www.squishmallows.com. Id. Plaintiff's success is also due to its use of high-quality materials and processes in making the Squishmallows Products. Id. ¶ 20. Additionally, Plaintiff owes a substantial amount of the success of the Squishmallows Products to its consumers and the word-of-mouth buzz that its consumers have

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generated. Id. ¶ 21.

Defendants use accounts with an online marketplace platform, DHgate.com (“DHgate”). See id. ¶ 28. DHgate allows manufacturers and other third-party merchants, such as Defendants, to advertise, distribute, offer for sale, sell, and ship retail products originating from China directly to consumers worldwide and specifically to consumers residing in the U.S., including New York. Id. ¶ 24. DHgate has generated billions in sales worldwide. Id. ¶ 25. International buyers, including those in the U.S., make up a significant percentage of the business done on DHgate. Id. For example, DHgate offers 25 million consumer products from 1.2 million suppliers for sale on its platform and attributes over half of its sales to U.S. buyers alone. Id.

The Complaint broadly accuses each Defendant of violations in connection with selling or offering for sale “Counterfeit Products”: trademark counterfeiting, trademark infringement, false designation of origin, passing off, and unfair competition under the Lanham Act, 15 U.S.C. §§ 1114, 1116(d), 1117(b)-(c), 1125; copyright infringement under the Copyright Act, 17 U.S.C. § 501(a); and unfair competition under New York common law.

Counterfeit Products are defined broadly to be products bearing or used in connection with the Squishmallows Marks and/or Squishmallows Works, and/or products in packaging and/or containing labels and/or hang tags bearing the Squishmallows Marks and/or Squishmallows Works, and/or bearing or used in connection with marks and/or artwork that are confusingly or substantially similar to the Squishmallows Mark and/or Squishmallows Works and/or products that are identical or confusingly or substantially similar to Squishmallows Products. Compl. at ii. Defendants' Counterfeit Products are nearly indistinguishable from Plaintiff's Squishmallows Products, only with minor variations that no ordinary consumer would recognize. Id. ¶ 36.

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Plaintiff alleges that through their Merchant Storefronts on DHgate, Defendants offer for sale and/or sell Counterfeit Products and target and ship such products to customers located in the United States, including New York. See id. ¶ 24. Plaintiff further alleges that Defendants accept payments for Counterfeit Products in United States dollars through various payment processing services. Id. ¶ 38. Defendants have never been authorized to sell or copy Squishmallows Products or to use the Squishmallows Works or Squishmallows Marks. Id. ¶ 35.

The Complaint provides helpful illustrations of three particular Counterfeit Products offered for sale by three Defendants. Id. ¶¶ 39-41. The Complaint also attaches as Exhibit D listings for Counterfeit Products for each of the Defendants, demonstrating that they offer for sale Counterfeit Products. Id. ¶ 34, Ex. D. Plaintiff specifically retained Epstein Drangel to investigate and research manufacturers, wholesalers, retailers and/or other merchants offering for sale and/or selling Counterfeit Products on DHgate. Id. ¶ 33. Epstein Drangel identified Defendants in this action and verified that each Defendant offered for sale and provides shipping to a New York address. Id. ¶ 37.

PROCEDURAL HISTORY

Plaintiff initiated this action by complaint on October 13, 2021. Dkt. No. 27 ¶ 9 (“Futterman Aff.”). Subsequently, the Court entered the temporary restraining order (“TRO”) on October 21, 2021. Id. ¶ 11. Pursuant to the TRO, Plaintiff served Defendants on November 10, 2021 with the Summons, Complaint, TRO and all papers filed in support of Plaintiff's application. Id. ¶ 14. On March 7, 2022, the Court held a Preliminary Injunction Show Cause Hearing, at which no Defendants appeared. Id. ¶ 16. On March 15, 2022, the Court entered the Preliminary Injunction Order against all Defendants, mirroring the terms of the TRO and extending through the pendency of the action. Id. ¶ 17.

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On April 29, 2022, Plaintiff filed an application for a Clerk's Certificate of Default against Defendants in the action; and on the same day, the Clerk of the Court entered a Certificate of Default against Defendants. Id. ¶¶ 19-20, Ex. D. On May 2, 2022, Plaintiff moved for default judgment and a permanent injunction against Defendants. Dkt. No. 26.

DISCUSSION

I. Motion for Default Judgment

A. Legal Standard

Federal Rule of Civil Procedure 55 sets forth a two-step procedure to be followed for the entry of judgment against a party who fails to defend: the entry of a default and the entry of a default judgment. See New York v. Green, 420 F.3d 99, 104 (2d Cir. 2005).

The first step, entry of a default, simply “formalizes a judicial recognition that a defendant has, through its failure to defend the action, admitted liability to the plaintiff.” Mickalis Pawn Shop, LLC, 645 F.3d at 128; see also Fed.R.Civ.P. 55(a). The second step, entry of a default judgment, “converts the defendant's admission of liability into a final judgment that terminates the litigation and awards the plaintiff any relief to which the court decides it is entitled, to the extent permitted” by the pleadings. Mickalis Pawn Shop, 645 F.3d at 128; see also Fed.R.Civ.P. 55(b). Whether entry of default judgment at the second step is appropriate depends upon whether the well-pleaded allegations against the defaulting party establish liability as a matter of law. See Mickalis Pawn Shop, 645 F.3d at 137.

While a defendant who defaults admits the well-pleaded factual allegations in a complaint, because a party in default does not admit conclusions of law, “a district court need not agree that the alleged facts constitute a valid cause of action.” Id. (internal quotation marks and citation omitted); see also Spin Master Ltd. v. 158, 463 F.Supp.3d 348, 367 (S.D.N.Y. 2020) (“The essence of Fed.R.Civ.P. 55 is that a plaintiff can obtain from a default judgment relief

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equivalent to but not greater than it would obtain in a contested proceeding assuming it prevailed on all of its factual allegations.”). Therefore, this Court is “required to determine whether the [plaintiff's] allegations establish the [defendant's] liability as a matter of law.” Finkel v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009). A party later challenging the entry of a default judgment must satisfy the “good cause shown” standard in Federal Rule of Civil Procedure 55(c), which “requires a court to weigh (1) the willfulness of default, (2) the existence of any meritorious defenses, and (3) prejudice to the...