United States District Court, S.D. California
ORDER ON MOTION FOR CLARIFICATION OF ORDER RE
DISCOVERY AND CONTINUING MANDATORY SETTLEMENT CONFERENCE [ECF
150, 157]
Bernard G. Skomal United States Magistrate Judge
This
present discovery dispute regards whether Defendant
Moderustic, Inc. (“Defendant”) is entitled to
damages discovery on its remaining counter claims for false
advertising. (See ECF 145 at 25-26.[1]) For expediency
the court will not repeat all the arguments in the
parties' joint statement.
In a
nutshell, the Court in its Order regarding discovery related
to damages, (ECF 88 at 4), found that damages discovery was
relevant in a patent litigation such as the present.
(Id.) And, the Court was inclined to allow limited
discovery into this area. (Id.)
However,
since neither party had addressed the relevancy and
proportionality, the Court ordered the parties to meet and
confer to attempt to resolve the issues. (Id.) The
parties were unable to resolve the dispute, so the Court
ordered further briefing on the issue. (ECF 96.)
In its
motion to compel damages discovery, the Defendant contended
that the requested discovery was relevant to the
patent-holder's patent infringement claims. (ECF 101 at
2.) The Defendant did not address the relevancy or
proportionality of damages discovery as regards its false
advertising counter claims. This Court stayed this dispute
pending the District Judge's order on the parties'
outstanding motions for summary judgment. (ECF 110.)
Now
that the Order on those motions has been issued, the
Defendant contends that it is entitled to damages discovery
on the remaining Lanham Act and UCL counter claims, which
allege false advertising by the Plaintiff.[2] The Defendant, in
its initial brief regarding damages discovery, (ECF 86),
identified the financial information it was requesting as
follows: “Moderustic has previously indicated it would
accept for RFP #s 8, 15, 27, 28, and 40 the following
information for the years of 2015, 2016, 2017: Balance
sheets; Income and Expense printouts or QuickBooks
spreadsheets with the detail by category; Lines of credit;
Credit ratings of AF; Loans to AF; Profit and Loss statements
supplied to any bank….” (Id. at 5;
see e.g. ECF 124 at 23.) The Court has reviewed
these RFPs and finds that although directed towards patent
damages, these RFPs do not foreclose damages discovery on the
Lanham Act and California Unfair Competition Law
(“UCL”) counter claims. Therefore, the Court
finds that the Defendant, although limiting its relevancy and
proportionality arguments to patent damages discovery, (ECF
101), has not explicitly waived the discovery dispute as to
the false advertising counter claims.
Notwithstanding,
these RFPs that concern financial information are over broad
as regards the remaining false advertising counter claims.
Significantly, this Court has already narrowed all damages
discovery to include only, “…As to the topic of
damages, the Court finds that any RFP requests that fall
outside of this topic, namely of invoices, profit and loss
statements and the like, are outside of this discovery
dispute and will not be addressed herein…” (ECF
88.) The District Judge has previously upheld this
Court's order. (ECF 143 at 2.) Therefore, the Court will
address only this financial discovery as it regards the false
advertising counter claims.[3]
Judge
Sammartino denied Plaintiff's motion for summary
judgement on the counter claims brought by Defendant under
the Lanham Act and UCL. She found that those counter claims
were brought on grounds that Plaintiff's statements on
its website that several of its products were tumbled were
false and constituted false advertising. (ECF 145 at 25.) In
denying the motion, the Court reasoned that Plaintiff did not
dispute that these claims on its website were literally
false. (Id.)
The
Ninth Circuit's Manual of Model Civil Jury Instruction
§ 15.27 addresses what a plaintiff must prove to receive
actual damages pursuant to Title 15 U.S.C. §
1117(a).[4]The considerations include injury to
reputation; injury to plaintiff's goodwill; lost profits
plaintiff would've earned but for
defendant's infringement (emphasis added); the expense
for preventing customers from being deceived; and the cost of
future corrective advertising.
In its
section of the joint statement, Defendant has failed to
identify what financial information in RFP #s 8, 15, 27, 28,
and 40, (ECF 157 at 6 and ECF 86 at 5), is relevant and/or
proportional to the actual damages considerations outlined in
Instruction 15.27.
Defendant
contends the financial information is relevant to its counter
claims but fails to tie relevancy to any of the factors set
forth in Instruction 15.27. (ECF 157 at 9 lines 1-2.) It
makes a conclusory statement that its gross sales plummeted
when Plaintiff came on the scene with its advertising. But
goes on to allege that this is due to Plaintiff underpricing
its products. (Id. at 9-10.) “One Moderustic
client canceled a $26, 000 order to go to AF for what he
believed was the ‘same' product, only cheaper. So,
the evidence demonstrates that consumers confuse the products
as being the same, and falsely believe that untumbled broken
tempered glass is safe.” (Id. at 10.)
Although
the Defendant does not explicitly identify any of the
considerations in Instruction 15.27, the Court infers from
Defendant's joint statement proffer (above) that
Plaintiff's false advertising of products using the word
‘tumbled” among other factors such as alleged
undercutting of its prices is impacting negatively
Defendant's profits. Lost profits is a relevant
consideration in determining actual damages. See
e.g. Instruction 15.27 (3). However, Defendant never
indicates specifically what financial information requested
in RFP #s 8, 15, 27, 28, and 40 is relevant to proving its
lost profits. And significantly, Defendant is only entitled
to lost profits financial information from the Plaintiff that
were caused by the Plaintiff's use of the word
“tumbled” in its advertising. The Court stresses
that the alleged falsity of Plaintiff's advertising is
the use of the word “tumbled.” Therefore, only
financial information for products advertised on
Plaintiff's website using this word or variation thereof
would be relevant to Defendant's Lanham Act actual
damages. And, the Court notes that the parties disagree as to
which products were advertised using the word
“tumbled” and over what time frame. (See
infra note 5.) Since the Defendant has failed to
establish what specific financial information requested in
the above identified RFPs is relevant and proportional to the
factors listed in Instruction 15.27, and more specifically,
to its contention of lost sales, the Court does not order
Plaintiff to produce discovery on actual damages as defined
in Instruction 15.27.
Notwithstanding,
a plaintiff may be entitled to any profits earned by the
defendant that are attributable to the infringement (false
advertising). The Ninth Circuit's Manual of Model Civil
Jury Instruction § 15.29 addresses disgorgement of
profits. According to this instruction, profits are
determined by deducting all expenses from gross revenue.
Gross revenue is all of defendant's receipts from using
the trademark (false advertising) in the sale of a product.
Plaintiff has the burden of proving gross revenue. Defendant
has the burden of proving expenses. (Id.)
Based
on this instruction, the Court finds that the Defendant is
entitled to the gross sales of products that were advertised
by the Plaintiff using the word “tumbled” or
variation of that word to sell its product(s). (See
ECF 22, ¶ 28 (Tumbled Statements) and ECF 145 at 25.)
Defendant in its RFP 40 does request Plaintiff's sales
receipts. The parties disagree as to which products were sold
using the word “tumbled” in the advertising on
Plaintiff's website and over what time frame that false
advertising took place.[5] The Court per this order is requiring
the Plaintiff provide ...