IP Law Daily Amazon seller must pay sanctions for frivolous appeal over Prevagen dietary supplements
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Tuesday, June 9, 2020

Amazon seller must pay sanctions for frivolous appeal over Prevagen dietary supplements

By Deirdre Kennedy, J.D.

Seller’s appeal of district court’s judgment against it was frivolous because its arguments had virtually no likelihood of success, and the appeal seemingly was pursued for purposes of delay.

In a trademark infringement suit between the maker of the dietary supplement Prevagen against an Internet seller for the unauthorized and unlawful sale of Prevagen products, the defending seller was subject to sanctions for pursuing a frivolous appeal of the district court’s entry of default judgement, award of damages and grant of injunctive relief, the U.S. Court of Appeals in Chicago has decided. Not only did appellee’s arguments have virtually no likelihood of success because the seller had waived them, but its actions in bringing the appeal were found to be a tactic to draw out the proceedings as long as possible while knowing that it had no viable substantive defense (Quincy Bioscience, LLC v. Ellishbooks, June 5, 2020, per curiam).

In 2017, Quincy Bioscience, LLC, filed suit against Amazon seller Ellishbooks, asserting claims for trademark infringement, false advertising, dilution, and unfair competition under the Lanham Act, for the unauthorized and unlawful sale of Quincy’s products bearing the Prevagen trademark. The complaint alleged that Ellishbooks "knew or had reason to know that at least some of the Prevagen products it sold were at one time stolen from retail outlets across the country." Ellishbooks did not file a responsive pleading to the complaint. After entry of a default judgment, the district court awarded damages of approximately $500,000 and permanent injunctive relief to Quincy. Ellishbooks appealed.

Ellishbooks appealed to the Seventh Circuit, which rejected its challenges as waived and meritless. The appellate court held that the district court made sufficient findings of fact to support its order enjoining Ellishbooks from selling stolen Prevagen products. The district court granted Quincy’s motion for default based on well-pleaded allegations of the complaint, and there was no evidence to the contrary during the prove-up hearing that Ellishbooks sold Prevagen products that they knew or had reason to know were stolen.

Ellishbooks’ argument that the district court erred in holding that it knew or had reason to know some of the Prevagen products it sold were stolen was waived. The appellate court noted that the fact was alleged in Quincy’s complaint and established by Ellishbooks’ default. Further, Ellishbooks failed to raise the argument in response to Quincy’s motion for injunctive relief. Having failed to present the argument to the district court, Ellishbooks waived it for purposes of appeal.

Award of sanctions. In its motion for sanctions, Quincy submitted that the award is warranted because Ellishbooks’s appellate arguments were destined to fail. Rule 38 permits the court to award "just damages and single or double costs to the appellee" when an appellant files a frivolous appeal. An appeal is frivolous if the appellant’s claims are cursory, totally undeveloped, or reassert a previously rejected version of the facts. However, even when an appeal is frivolous, whether to impose sanctions under Rule 38 is a discretionary determination.

Ellishbooks filed a response to Quincy’s motion suggesting that attorney fees were not authorized by Rule 38. The court noted that this position is incorrect. Ellishbooks also submitted that it had not acted in bad faith at any point during this litigation.

The court held that an award of sanctions was warranted in this case, finding that Ellishbooks’s appellate arguments had virtually no likelihood of success. The court also noted that Ellishbooks’s conduct during the course of the appeal was also relevant. Early in the case, Ellishbooks had been ordered to file a complete jurisdictional statement, but counsel failed to respond, requiring the court to issue a show cause order. This issue was ultimately resolved, but then counsel filed a confusing motion to dismiss, suggesting that the parties’ dispute was "moot." The court directed counsel to file a supplement to the motion clarifying whether Ellishbooks was moving for voluntary dismissal of the appeal under Federal Rule of Appellate Procedure 42(b), but counsel again did not respond. Ellishbooks also failed to submit a timely brief, requiring the court to issue another show cause order. Ellishbooks ultimately submitted a brief that was accepted for filing, but it consisted of meritless contentions. Ellishbooks did not submit a reply brief addressing Quincy’s arguments, and counsel later sought to delay oral argument—a request that the court denied.

A review of the dockets of both the district and appellate courts suggested that Ellishbooks had attempted to draw out the proceedings as long as possible while knowing that it had no viable substantive defense, according to the Seventh Circuit. "Sanctions are warranted under Rule 38 when a litigant or attorney presents appellate arguments with no reasonable expectation of success for the purposes of delay, harassment, or sheer obstinacy," the court said. For these reasons, Quincy’s motion for sanctions was granted.

This case is No. 19-1799.

Attorneys: Sanjay S. Karnik (Amin Talati Wasserman LLP) for Quincy Bioscience, LLC. Robert M. Dewitty (Dewitty and Associates, Chtd.) for Ellishbooks Corp.

Companies: Quincy Bioscience, LLC; Ellishbooks Corp.

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