Plaintiff owned the federally registered mark AHAVA and was the sole authorized U.S. distributor of AHAVA health and beauty products manufactured by Dead Sea Laboratories, Ltd. (“DSL”), an Israeli company. Defendant purchased legitimate AHAVA products in Israel and offered them for sale to U.S. consumers on its website located at “judaicawebstore.com.” The court granted plaintiff’s motion for a preliminary injunction preventing defendant from selling these gray-market products in the U.S., holding that defendant’s products would likely be confused with plaintiff’s products. The court noted that the Second Circuit has applied two different tests for determining whether gray-market goods are genuine, i.e., they are not likely to cause confusion: (1) gray-market goods are not considered genuine if they do not meet the trademark owner’s U.S. quality-control standards, and (2) gray-market goods are not genuine if they were not intended to be sold in the U.S., and they are materially different from the trademark owner’s goods authorized for sale in the U.S. The court also noted that some courts in the Second Circuit have focused on a likelihood of confusion on sponsorship, i.e., “confusion as to the identity of the company that stands behind or insures the quality of the trademarked goods.” The court then concluded that plaintiff demonstrated a likelihood of success on the merits regarding a likelihood of confusion, finding that the AHAVA mark was a symbol of plaintiff’s goodwill and reputation and that defendant’s sale of the same product could confuse the public by causing it to believe that plaintiff’s goodwill was behind the gray-market products, even if DSL was accurately identified as the manufacturer of them. The court rejected all of defendant’s defenses, including that (a) First Amendment considerations did not apply here, (b) fair use applied only to the use of trademarked words or images and not to defendant’s sale of trademarked goods, and (c) plaintiff’s trademark rights were not exhausted once the products were sold in Israel because plaintiff developed a separate goodwill in the mark in the U.S. independent from the foreign mark. Based on its significant investment of time and money to establish AHAVA as a high-end brand in the U.S., plaintiff also established that it would suffer irreparable harm in the absence of an injunction. The court noted: "If [defendant] is allowed to sell the Products through the Website at discounted prices without the quality control standards utilized by [plaintiff], both the undercutting of [plaintiff's] prices and the failure to enforce quality controls could damage [plaintiff's] reputation for selling high quality goods with consumers and retailers and threaten [plaintiff] with a loss of both sales and prestige." In addition to enjoining defendant from importing, marketing, or selling gray-market products bearing the AHAVA mark, the court enjoined defendant from using the AHAVA mark as a metatag.
Several months later, the court entered default judgment against defendant and permanently enjoined defendant from selling the disputed products through its website to U.S. consumers. Shortly thereafter, defendant submitted a letter to the court stating that it would continue to sell plaintiff’s products in violation of the injunction. Following a hearing that defendant did not attend, the court found defendant in contempt and issued an order stating that if defendant did not comply with the injunction within ten days, it had to pay to plaintiff a fine of $1,000 a day until it complied. In addition, the court ordered defendant to remit to plaintiff all gross profits earned from the sale of the disputed products to customers in the U.S. Finally, the court ordered defendant to pay plaintiff $8,324.85 for its attorney’s fees incurred with its motion for contempt.
Plaintiff later moved for damages, attorney’s fees, and costs stemming from the default judgment entered against defendant. The court granted plaintiff’s motion for attorney’s fees and costs, but denied plaintiff’s request for damages at this time. In awarding attorney’s fees and costs, the court noted defendant’s willful infringement and found that plaintiff’s requests were reasonable. In particular, the court noted that the fees and costs would have been lower had defendant cooperated and responded to previous court orders. The court awarded $52,594 in attorney’s fees and $4,894.34 in costs. Although the court indicated that plaintiff was entitled to defendant’s profits due to defendant’s willful infringement, plaintiff failed to provide sufficient evidence demonstrating defendant’s sales in the United States. However, the court permitted plaintiff to file a supplemental application for damages.