South Shore Health Care, Inc. et al. v. South Shore Health System, Inc. et al. (19-cv-10388).

Sound United and Polk Audio design, manufacture and sell home theater and audiovisual products under a variety of brand names, including Denon, Polk, and Definitive Technology.  The sell these products through a network of vetted authorized dealers under contracts that prohibit the resale of the products to non-authorized resellers.  Sound United accused SalusAdio.com of selling Sound United products despite not being an authorized reseller (which voids the Sound United warranty).  Sound United asserted that the serial numbers of the products had been removed and replaced with fake serial numbers by SalusAudio.com.  Sound United filed suit in December 2021, claiming trademark infringement and counterfeiting under the Lanham Act, unfair competition and false designation of origin under the Lanham Act, and unfair and deceptive practices under Mass. G.L. c. 93A. 

Sound United was granted leave to serve the complaint by email in late December, making the response to the complaint due by January 25, 2022.  When no response was forthcoming, Sound United moved for default, which was entered on March 18, 2022.  In April, Sound United moved for default judgment. 

Judge Kelley, one of the District of Massachusetts’ newest judges, noted that a party that defaults is deemed to have admitted all of the factual allegations in the complaint, but that the court must still examine whether such pleadings sufficiently state a cause of action.  She found that the complaint adequately pled facts that would support each of the claims.  The complaint alleged ownership of federal trademark registrations that are valid and enforceable, that Sound United had spent millions of dollars in advertising and promoting these marks, and that the marks were used in interstate commerce, which entitled the marks to trademark protection.  She further noted that the use of another’s mark as a means of establishing a link in consumer’s minds with the mark-holder’s enterprise is per se likely to cause confusion.  Because the accused goods were altered by the removal and replacement of the serial numbers, and because the warranty that would normally accompany the sale of the products was voided by the unauthorized nature of SalusAudio.com’s sales, the accused products were “materially different” than legit Sound Untied products, they fall outside of the First Sale Doctrine and qualify as counterfeits and trademark infringements.  Judge Kelley found that these allegations were sufficient to plead a claim for false designation of origin and unfair competition under the Lanham Act and c. 93A. 

Having established liability, Judge Kelley turned to damages.  Statutory damages are available under the Lanham Act of between $1,000 and $200,000 at the court’s discretion per counterfeit mark per type of goods sold, with the upper limit raised  to $2,000,000 where use of the mark was willful.  Statutory damages are particularly apt where the defendant defaults and provides no information on sales and profits.  In exercising discretion on the level of statutory damages, courts consider compensation for the plaintiff as well as deterrence and punishment for the defendant.  Here, Judge Kelley declined to award the full $2,000,000 sought by Sound United.  She noted that  Sound United lost some imeasurable sales and damage to its goodwill, and that the removal and replacement of the serial numbers demonstrated willfulness, but determined that an award of $1,000,000 would serve the purposes of punishment, deterrence and compensation.  She further granted an injunction prohibiting SalusAudio.com from using the marks and taking steps to acquire and sell Sound United products.