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Seiko Epson Corp. v. Inksystem LLC

United States District Court, D. Nevada

October 10, 2017

SEIKO EPSON CORP. et al., Plaintiffs,
v.
INKSYSTEM LLC et al., Defendants.

          ORDER

          ROBERT C. JONES UNITED STATES DISTRICT JUDGE.

         This case arises out of alleged counterfeiting and other unauthorized use of trademarks in relation to computer printer ink cartridges.

         I. FACTS AND PROCEDURAL HISTORY

         Plaintiff Seiko Epson Corp. ("Seiko") is a Japanese corporation that owns eight registered trademarks at issue in the present case, U.S. Trademark Nos. 1, 134, 004 ("EPSON"); 2, 144, 386 ("EPSON"); 2, 949, 374 ("EPSON"); 3, 092, 025 ("EPSON"); 3, 520, 274 ("EPSON"); 3, 448, 351 ("EPSON EXCEED YOUR VISION"); 3, 875, 333 ("Better Products for a Better Future"); and 2, 644, 235 ("DURABRITE") (collectively, "the Marks"). Plaintiff Epson America, Inc. is a California corporation and Seiko's sole licensee for ink cartridges using the Marks. Defendants are Nevada and California residents and business entities.

         Plaintiffs allege that Defendants import, modify, repackage, advertise, distribute, and/or sell at least three types of infringing cartridge: (1) counterfeit ink cartridges manufactured abroad bearing one or more of the Marks; (2) genuine Epson cartridges sold abroad with printers that are not intended for resale; and (3) genuine Epson cartridges sold abroad that are expired or nearly expired. As to the latter two categories of cartridge, Defendants remove them from their original packaging, reprogram or otherwise modify them to work in American printers (they otherwise would not), and repackage them with counterfeit Epson labels. In the process, Defendants degrade the quality and lifespan of the ink, remove instructions for use with the cartridges and other important consumer information such as the expiration date, and add their own false advanced expiration dates. Defendants' activities infringe the Marks, deceive consumers, and damage Plaintiffs' goodwill.

         Plaintiffs sued Defendants in this Court for trademark counterfeiting and infringement under 15 U.S.C. § 1114 et seq. and unfair competition and false advertising under § 1125 et seq. The Court granted a temporary restraining order ("TRO") and after a hearing granted a preliminary injunction ("the Sales Injunction"), enjoining certain offending activity and ordering the seizure and impoundment of the accused goods. Discovery has been problematic. Plaintiffs asked the Magistrate Judge to issue a report and recommendation for terminating sanctions against certain Defendants for their continued intransigence. InkSystem, LLC and Lucky Print, LLC (collectively, "Debtors") filed for Chapter 11 bankruptcy protection. Plaintiffs asked, for another TRO seizing Defendants' assets (minus the assets of Debtors). The Court granted the motion and later granted a preliminary injunction ("the Asset Freeze") when Defendants failed to appear at the hearing. In the meantime, the Magistrate Judge recommended that the sanction of default be entered against Defendants Art LLC, AF LLC, Inkredible LLC, Andriy Kravchuk, Artem Koshkalda, Igor Bielov, and Vitalii Maliuk. The Court adopted that recommendation. The Clerk had previously entered the defaults of Defendants Veles LLC, Alado LLC, Karine LLC, Karine Vardanian, Vladimir Slobodianiuk, Kristina Antonova, and Roman Taryanik for failure to answer or defend. The Clerk has entered notice of its intent to dismiss without prejudice as against Defendants KBF LLC and Vitalii Galukh under Rule 4(m) unless Plaintiffs file proof of service or show good cause by September 29, 2017, and Plaintiffs have asked the Clerk to enter default against Debtors now that the automatic stay has been lifted.

         In summary, the defaults of all Defendants have been entered except those two Defendants subject to dismissal for failure to serve them and those two Defendants previously protected by the automatic stay. Several motions relating to the Asset Freeze are pending before the Court.

         II. DISCUSSION

         First, Bielov, Koshkalda, Kravchuk, and Maliuk have asked the Court to vacate the Asset Freeze (ECF No. 159) or to release the funds for use in hiring attorneys and continuing their businesses.[1] Movants' only potentially legitimate grievance is that they've been having trouble convincing tellers at their banks to disburse to them the $3000 per month per Defendant permitted for the individual Defendants' living expenses. But Movants argue that the hardship is on the employees of the LLC Defendants, because the LLCs can't pay them. In other words, Movants don't seem to claim that any individual Defendant has been unable to withdraw $3000 per month from his or her personal bank account, but only that the LLC Defendants' accounts have been so restricted.

         Moreover, Plaintiffs respond that several accounts already known to them had been closed before the TRO was served on the relevant banks, leading them to think the accounts were cleared out and that more assets are being hidden. For example, Koshkalda has closed the sale of one or more properties despite the Asset Freeze (and has continued to list others for sale), Movants in fact appear to admit one or more sales despite the TRO in the present motion (and others), explaining that they refused to stop sales despite the Asset Freeze in order to protect third-party buyers (or to protect themselves from lawsuits by third-party buyers) and noting, e.g., "The reason some properties were sold was because that was the legitimate real estate investment process. Once the properties reached a certain profit margin they were to be sold." In other words, Movants make no apologies for their violations of the Asset Freeze but simply explain their reasons, Nor do Movants explain their failure to appear for the Asset Freeze hearing. In their responses, Plaintiffs have amply documented Defendants' consistent intransigence in discovery and contempt of the court's orders by Defendants, as well as the flight risk they pose should the assets be unfrozen. The Court will not lift or modify the Asset Freeze at this time.

         Second, Plaintiffs have asked the Court to order Defendants Koshkolda and Westbrook to show cause why they should not be held in contempt due to their sale of one or more properties in violation of the Asset Freeze. The Court will order these Defendants to appear and show cause, It will not order the remedies Plaintiffs have suggested in their motion unless and until the Court finds Defendants in contempt.

         Third, Koshkalda has asked the Court to return certain ink cartridges that were seized that he alleges were not within the scope of the Sales Injunction, i.e., cartridges sold "as is" without any modifications or unauthorized labeling. Plaintiffs respond that the seizure was within the scope of the Sales Injunction and was in fact later confirmed by the Court as proper, The Court will hear this motion at the show-cause hearing.

         CONCLUSION

         IT IS HEREBY ORDERED that the Motions to Vacate Preliminary Injunction (ECF Nos. 154, 173), the Motion to Stay Proceedings for Defendants to Obtain Counsel (ECF No. 158), and the Motions ...


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