The opinion of the court was delivered by: Gold, S., United States Magistrate Judge
Plaintiff, Koon Chun Hing Kee Soy & Sauce Factory, Ltd. ("Koon Chun"), brings this action against defendants for trademark infringement based upon defendants' sales of counterfeit versions of plaintiff's hoisin sauce. On January 8, 2007, the Honorable Joseph F. Bianco granted in part and denied in part the parties' cross-motions for summary judgment. Docket Entry 162 (hereinafter "M&O"). Judge Bianco found defendants liable for trademark and trade dress infringement, 15 U.S.C. §§ 1114(1) and 1125(a), and unfair competition, 15 U.S.C. § 1125(a), but denied plaintiff's motion for summary judgment on the question of whether defendants' violation of the Lanham Act, 15 U.S.C. §§ 1051 et seq., was willful. Judge Bianco also denied defendants' motion to preclude plaintiff from seeking to recover its lost profits. Thereafter the parties consented to have the case assigned to me for all purposes pursuant to 28 U.S.C. § 636(c)(1). As defendants' liability has been established, the only issue remaining is a determination of an appropriate award of damages and injunctive relief pursuant to Sections 1116 and 1117 of Title 15.*fn1
Koon Chun is a Hong Kong company that manufactures and distributes sauces, seasonings and vinegars. Koon Chun owns a U.S.-registered trademark "Koon Chun Sauce Factory," which it uses on all of its products, including its hoisin sauce. Tr. 42-43.*fn2 Raymond Wing Chong Chan, Koon Chun's regional manager for the Americas, testified at trial that all of Koon Chun's products are manufactured in Hong Kong. Tr. 38. Koon Chun sauces have been marketed in the United States since the 1920s. Id. According to Chan, Koon Chun is a premium brand, and its hoisin sauce is the most expensive and the top-selling hoisin sauce on the market. Tr. 48.
In March, 2002, defendants, a New York-based distributor of Asian food products and two companies through which he conducted business,*fn3 purchased 350 cases of genuine Koon Chun hoisin sauce through one of their suppliers. Tr. 414-15. Each case contained six 5-lb. cans of hoisin sauce. This was the only purchase of authentic Koon Chun hoisin sauce by defendants. Defendants contend that they did not make any profit selling these cases because they paid such a high price for them. Tr. 425-26. Beginning in August, 2002, however, defendants began purchasing additional cases of Koon Chun hoisin sauce through their Chinese suppliers. Defendant Zhan testified that he believed these were cases of authentic Koon Chun hoisin sauce even though the price-per-case was substantially less than he had previously paid. Zhan explained that his suppliers told him they were able to sell at a reduced price because the Koon Chun hoisin sauce was made in mainland China as opposed to Hong Kong. Tr. 437-38, 445. Over the course of the next two years, defendants purchased thousands of cases of counterfeit Koon Chun hoisin sauce, although the exact number is in dispute.
In September, 2003, plaintiff discovered that counterfeit products bearing the Koon Chun trademark were being sold in the United States and hired a private investigator to determine the source of the counterfeiting. On April 3, 2004, plaintiff's investigator purchased two cans of counterfeit Koon Chun hoisin sauce from defendants. Tr. 54-55, 108. On June 14, 2004, pursuant to an Order of Seizure, Koon Chun seized 103 cases of counterfeit Koon Chun hoisin sauce from defendants. Tr. 56-58, 70. Plaintiff then learned of an additional shipment of counterfeit hoisin sauce due to arrive and, upon inspection in July, 2004, seized 680 cases from defendants' warehouse. Tr. 75-76.
A plaintiff in a trademark or trade dress infringement case may elect to recover either actual or statutory damages. 15 U.S.C. § 1117. A plaintiff who elects to recover actual damages, as Koon Chun has here, is entitled to recover "(1) defendant's profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action," subject to the principles of equity. Id. § 1117(a).If plaintiff further establishes that defendants intentionally used plaintiff's trademark to sell counterfeit Koon Chun hoisin sauce, the court "shall, unless the court finds extenuating circumstances, enter judgment for three times [defendants'] profits or [plaintiff's] damages, whichever is greater, together with a reasonable attorney's fees." Id. § 1117(b) (emphasis added).
Koon Chun seeks an award of defendants' profits, plaintiff's lost profits, plaintiff's costs for anti-counterfeiting measures and corrective advertising, and attorney's fees. In addition, Koon Chun asks for treble damages pursuant to § 1117(b) for defendants' willful violation of its trademark. From November 27, 2007 through December 4, 2007, I conducted a bench trial on the issue of the profits earned by defendants and the damages sustained by Koon Chun due to defendants' infringement. The parties subsequently submitted post-trial memoranda. I discuss each aspect of plaintiff's requested damages award below. Having considered the evidence presented and the arguments of counsel, I make the following findings and conclusions.
In establishing defendants' profits, plaintiff need only prove defendants' sales; defendants must then establish any costs and deductions. 15 U.S.C. § 1117(a). Moreover, if "the amount of the recovery based on profits is either inadequate or excessive, the court may in its discretion enter judgment for such sum as the court shall find to be just . . . ." Id.
Defendants concede that they sold a minimum of 4,590 cases of counterfeit hoisin sauce. Def. Mem. 1.*fn4 Defendants acknowledge only those sales of counterfeit sauce reflected in their QuickBooks computer records. Plaintiff, however, based upon its review of additional documentation, contends that defendants sold at least 7,875 cases of counterfeit hoisin sauce.
At trial, plaintiff presented the expert testimony and report of Thomas Neches, a certified public accountant. Tr. 509 et seq.; Neches Report.*fn5 To calculate the number of cases of counterfeit sauce sold by defendants, Neches culled information from a variety of sources, and relied primarily on: 1) documents seized from defendants' offices on June 14, 2004, 2) invoices printed by defendants on May 26, 2005, 3) other documents obtained on May 26, 2005, 4) defendants' interrogatory answers, and 5) defendants' QuickBooks computer records.*fn6 Neches Report 26; Tr. 519-24. Neches testified that he found many inconsistencies in the information he gleaned from these various sources, which made it difficult to determine the actual number of cases of counterfeit hoisin sauce imported and sold. Tr. 519-24. In particular, he opined that defendants' computer records were not complete and accurate. Id. at 519-24, 605-06;Neches Report 27-29; see also Tr. 542-43 (Neches' testimony concerning the unreliability of defendants' income statements in QuickBooks). For example, Neches conducted an inventory analysis based on defendants' QuickBooks records, only to find that those records reflected periods when defendants had negative inventory, i.e., they were selling sauce, even though they did not have any of it in stock at the time. Tr. 519-24, 605-06;Neches Report 28 and Ex. M.
After completing his review, Neches concluded that defendants had likely received a total of 9,008 cases of hoisin sauce. Neches Report Ex. R. Neches, however, subtracted 1,133 cases before calculating damages, leaving a total of 7,875 counterfeit cases plaintiff alleges defendants sold. The subtracted cases include defendants' purchase of 350 cases of genuine Koon Chun hoisin sauce, 103 cases of counterfeit hoisin sauce seized on June 14, 2004, and 680 cases of counterfeit sauce seized in July, 2004. Id. at 30.
I found Neches' testimony to be credible and his methodology reasonable. Moreover, Neches' testimony persuades me that defendants' computer records are not completely accurate and reliable. Thus, I reject defendants' argument that no sales should be included unless confirmed by their QuickBooks records, and, with the exceptions discussed below, accept Neches' calculation of the number of cases sold.
Defendants contest the following shipments, totaling 4,418 cases, that plaintiff's expert included in his calculation of defendants' profits: 1,200 cases ordered on or about February 11, 2003; 15 cases ordered or packed on or about June 3, 2003; 1,500 cases packed on or about August 16, 2003; 700 cases packed on or about April 3, 2004; 1,000 cases packed on or about May 16, 2004; and 3 unexplained, miscellaneous cases.*fn7 See Yi Report 4.*fn8 At trial, defendants attempted to demonstrate that Neches had no basis for concluding that these were "likely cases" and including them in his total.*fn9 Defendants ground their argument on their contention that Neches included some, but not all, similarly documented cases in his analysis, and his inclusion of some cases as likely therefore seems arbitrary. Tr. 623-31. Defendants' argument, however, is misplaced. For example, at trial, defendants asked Neches why he did not include the cases identified in Defendants' Exhibit A140, Bates Stamp SM355, in his calculation, and Neches was unable to explain. See Tr. 623, 626-27. Defendants then pointed out other examples of "likely cases" that Neches included and argued that Neches could not satisfactorily explain why they were included but the cases identified in Defendants' Exhibit A140 were not. See Tr. 624-31. In fact, however, Neches' report explains that the cases identified in Defendants' Exhibit A140 were not included because they were crossed out and replaced by other products on some copies of the identical packing lists. See Neches Report Ex. R (excluding cases identified in SM355 because they were crossed out on other copies of the same packing list identified as SM364 and SM368). If probative of anything, this example demonstrates the care Neches took to compare multiple copies of the same document, and to include cases only when those multiple copies consistently reflected that they were shipped or packed for shipment. Moreover, defendants' argument, even if it were based on an accurate reading of the documents, would establish only that Neches had overlooked evidence of likely cases and that the total he calculated understated the number of cases defendants sold. Accordingly, I find that plaintiff has established that the majority of the 4,418 disputed cases, with the exception of 520 cases discussed below, were "likely cases," and should be included in the calculation of defendants' unjust profits.
Plaintiff has failed to establish that a total of 520 cases were likely shipped to defendants on February 11, 2003 and in June, 2004. First, on or about February 11, 2003, plaintiff contends that 1,200 cases were shipped to defendants based on an order form defendants sent to their supplier. See Bates Stamp SM685, SM687, SM689, SM690, Pl. Ex. 265.*fn10 Although the order separately requested 600, 400, 600, 300, and 200 cases (for a total of 2,100 cases) of hoisin sauce, plaintiff included only 1,200 cases as "likely," recognizing that one of the orders for 600 cases and the order for 300 cases were crossed out. In addition, however, the order for 200 cases of hoisin sauce also appears to be crossed out.*fn11 Accordingly, I decline to include these 200 cases in the number of "likely cases."
The second shipment in issue is the last order for hoisin sauce dated May 16, 2004. Plaintiff, relying on an order form, argues that defendants ordered and received 1,000 cases. See Bates Stamp SM518. Defendants, pointing to a bill of lading that appears to reflect the shipment of the ordered merchandise, contend that they received only 680 of the 1,000 cases they ordered. See Bates Stamp SM519, Pl. Exs. 267, 267B. The bill of lading supports defendants' position. Moreover, plaintiff took custody of 680 cases on July 2, 2004, shortly after the shipment in issue arrived in the United States. Plaintiff argues that defendants must have sold 320 cases before it could seize the shipment, but this suggestion is questionable in light of the bill of lading. Accordingly, I decline to include the 320 cases in the number of "likely cases."
Subtracting these 520 cases from Neches' calculation of a total of 7,875 "likely cases," I find that plaintiff has established that defendants sold 7,355 cases of counterfeit Koon Chun hoisin sauce. Now I must determine defendants' profits from these sales. Neches calculated that defendants' average sales price for a case of counterfeit Koon Chun hoisin sauce was $20.55. Neches Report 30-31 and Ex. L. After subtracting the average purchase cost, freight costs, and customs duties, Neches opined that defendants' average profit per case was $3.76. Id. at 31; Tr. 541. Defendants contend that additional costs should be subtracted before calculating the profits, including rent, telephone, utilities and "other overhead costs." Yi Report 5. These are all fixed overhead costs, however, that do not reduce defendants' profits in this case because they would have been incurred even if defendants never bought or sold any counterfeit hoisin sauce. See The Apollo Theater Found., Inc. v. Western Int'l ...