Kors v. Hernandez Int'l Inc.

Decision Date27 October 2016
Docket NumberCASE NO. 4:15-cv-0844
PartiesMICHAEL KORS, L.L.C, Plaintiff, v. HERNANDEZ INTERNATIONAL INC. d/b/a ALEX TRADING, et al., Defendants.
CourtU.S. District Court — Southern District of Texas
MEMORANDUM AND ORDER
TABLE OF CONTENTS
I. Introduction ........................................................................................................ 3
II. Background ........................................................................................................ 5
A. Factual Background ............................................................................... 5
B. Procedural Hi story ............................................................................... 12
III. Legal Standard ................................................................................................. 13
IV. Analysis ............................................................................................................ 15
A. Hernandez's Motion for Sanctions Based on Spoliation .................... 15
B. Hernandez's Motion for Summary Judgment ..................................... 22
C. Hernandez's Motion for Continuance ................................................. 23
D. Kors' Motion for Summary Judgment ................................................ 26
1. Evidentiary Objections .............................................................. 26 a. Hernandez's Motions to Strike the Affidavits of the ISC Investigators and Kors' Assistant General Counsel ........................................................................... 26
i. Affidavits of the ISC Investigators ...................... 27
ii. Affidavits of Erica Weiner ................................... 32
b. Kors' Motion to Exclude Expert Testimony of Michael Santoni .............................................................. 33
2. Analysis ..................................................................................... 41
a. Trademark Infringement under the Lanham Act ............. 43
i. Ownership and Use in Commerce ........................ 44
ii. Authenticity of Goods and Likelihood of Confusion ............................................................. 44
b. Liability ............................................................................ 48
i. Collateral Estoppel ............................................... 48
ii. Vicarious Liability ................................................ 51
iii. Direct Liability ..................................................... 54
E. Remedies ............................................................................................. 57
V. Conclusion and Order ...................................................................................... 59
MEMORANDUM AND ORDER

Plaintiff Michael Kors, L.L.C. ("Plaintiff" or "Kors") brings this trademark infringement suit against Defendants Hernandez International, Inc., Alex International,1 and Leticia Luquez Cordero (collectively, "Defendants" or "Hernandez"). The parties have filed various motions. As described below, the Court grants Plaintiff Kors' motion for partial summary judgment in limited parton certain elements of the trademark infringement and related claims, but otherwise denies the motion. The Court grants Kors' motion to strike Hernandez's expert, Michael Santoni. The Court also denies Defendants' motions on spoliation, and grants in part and denies in part Defendants' motions to strike certain affidavits filed by Kors.

I. INTRODUCTION

Hernandez International and Alex International2 (together, "Alex Trading") operate under the name "Alex Trading," and conduct business at two locations in Houston, Texas: 11014 Airline Drive and 6855 Harwin Drive.3 Alex Trading sells wholesale and retail various types of merchandise, such as perfumes, handbags, shoes, luggage, jewelry, sunglasses and watches.4

Kors has filed a Motion for Partial Summary Judgment, on the issue of "liability" only, on certain of its federal and state trademark infringement andunfair competition claims against Alex Trading ("Kors SJ Motion") [Doc. # 35].5 Kors also seeks to exclude the testimony of Hernandez's proffered expert, Michael Santoni [Doc. # 36].6

Also pending before the Court is Hernandez's "Motion for Sanctions for Spoliation of Evidence, No-Evidence Motion for Summary Judgment, and in the Alternative, Motion for Continuance" (the "Spoliation Motion") [Doc. # 34], and motions to exclude the testimony of four of Kors' witnesses7 [Docs. # 31, # 32, # 33, # 41-2].8

All motions are now ripe for determination. After carefully considering the parties' briefing, all matters of record, and the applicable legal authorities, the Court denies the Spoliation Motion, denies in part and grants in part Hernandez's Motions to Strike the Testimony of Ralph Richard, Jr., Stephanie Voyles and Joel Voyles, denies Hernandez's Motion to Strike Kors' PartialSummary Judgment Evidence with respect to the affidavit of Erica Weiner, and grants in part but otherwise denies that Motion with regard to the affidavits of Joel Voyles and Stephanie Voyles. The Court further grants Kors' Motion in Limine to Exclude the Expert Testimony of Michael Santoni. Finally, the Court denies in part and grants in limited part Kors' Motion for Partial Summary Judgment.

II. BACKGROUND
A. Factual Background

Kors, founded in 1981 by designer Michael Kors, is a publicly-traded lifestyle and apparel company with a global presence in approximately 100 countries.9 Kors offers two primary collections: a luxury "Michael Kors" line, and the newer, less high-end "MICHAEL Michael Kors" collection, first introduced in 2004.10 Both lines include accessories, footwear, and apparel, though MICHAEL Michael Kors focuses on the first of these items.11 In 2014, Kors amassed over two billion dollars in revenue related to its retail, wholesale and licensing operations in North America.12

Kors owns numerous federally registered trademarks.13 They include MICHAEL KORS, MICHAEL MICHAEL KORS, and MK MICHAEL KORS (collectively, the "Kors Marks").14 Used exclusively by Kors and its licensees,15 the Kors Marks are valid, subsisting, enforceable, and have never been abandoned.16 Nine of the Kors Marks are incontestable.17 Kors has spent tens of millions of dollars advertising its goods and associated trademarks, and sells products bearing the Kors Marks throughout the United States, including in over 300 Michael Kors boutiques, on its website www.michaelkors.com, and through other retailers and department stores.18 Kors advertises to consumers via a range of media, including through emails, print advertising and catalogues.19

Kors, along with other companies, retains Investigation Services Company ("ISC") to investigate violations of Kors' intellectual property.20 As part of this effort, Kors trains ISC investigators to identify counterfeit Michael Kors products,21 and authorizes ISC to identify counterfeit merchandise on Kors' behalfwhile assisting with criminal investigations.22

This dispute arose in connection with one such operation. On November 16, 2013, ISC investigators accompanied Houston Police Department ("HPD") officers and Homeland Security Investigations ("HSI") agents on raids of Alex Trading's two locations.23 Prior to that date, undercover HPD officers purchased allegedly counterfeit items from Alex Trading.24 Based on those purchases, HPD obtained a criminal seizure order and law enforcement seized allegedly counterfeit merchandise.25 ISC's role was to assist HPD in the execution of that seizure order.26

On November 16, 2013, ISC investigators accompanied HPD officers and HIS agents to the Alex Trading locations.27 At each location, HPD officers entered first to secure the area.28 HPD detained a total of eight individuals found at Alex Trading, five of whom HPD charged with criminal violations of trademark counterfeiting.29 Of those five, three were Alex Trading employees: Sandra Yaneth Duran (saleswoman and manager of both Alex Trading locations), Isabel Jimenez-Flores (saleswoman) and Carlos Duran-Hernandez (warehouse caretaker).30 A fourth, Rene Ayaly-Guido, is Sandra Duran's nephew.31 Cordero, the owner, was not present, and was not charged in subsequent criminal proceedings.32

ISC investigators followed HPD into each of the Alex Trading locations after it had been secured.33 Alleged counterfeit merchandise bearing the Kors Marks was on display and offered for sale to the public in both locations.34 The ISC investigators identified approximately 29,000 items as counterfeits, and HPDseized those items.35 The ISC investigators inventoried the seized goods under HPD's supervision, and photographed items that bore Kors Marks.36 According to the ISC inventory, the accuracy of which Hernandez disputes, HPD seized 20,478 alleged Michael Kors counterfeits from Alex Trading.37 They included 17,744 loose metal labels bearing Kors Marks and thousands of other Kors items, including handbags, wallets, hats, belts, T-shirts, coin purses, watches, duffle bags, sunglasses, sweat suits, earrings, belt buckles, scarfs, and wristlets.38 Additionally, HPD and ISC found an embossing machine at the Alex Trading Airline location, as well as a "MICHAEL KORS" stamp that could be used with the machine.39

HPD deemed the seized items evidence in potential criminal cases but lacked sufficient storage capacity. HPD therefore requested that ISC store a portion of the evidence.40 ISC complied, storing the items in a secure U-Haulstorage unit.41 ISC, on or about November 22, 2013, described in a report the raids that had occurred six days earlier (the "ISC November 22, 2013 Report").42

In the year following the raids, three of the arrested employees—Sandra Duran, the acting manager of Alex Trading during 2013; Isabel Jimenez-Flores, a saleswoman; and Carlos Duran-Hernandez, the caretaker of the Airline location warehouse43—pleaded guilty to trademark counterfeiting under Texas law, as did Duran's nephew, Rene Ayala-Guido.44 All confessed to...

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