Intellectual Property

January 25, 2010

J.S. Haute Stuff LLC v. Now & Zen Productions, LLC, Brandon P. Hull, Jeffrey M. Kohen (CV09-3094 R (AGRx)) 10-JV_680
Mediator Hon. Judith C. Chirlin USDC Central
TOPIC: Intellectual Property
SUB TOPIC: Unfair Competition
FURTHER DESCRIPTION: Improper Cease-And-Desist Letter
SETTLEMENT: $1,750,000
ATTORNEY:
Plaintiff – Douglas L. Johnson, Neville L. Johnson (Johnson & Johnson, LLP, Beverly Hills).
Defendant – Leopoldo A. Bautista, Daniel C. DeCarlo, Daniel R. Lewis (Lewis, Brisbois, Bisgaard & Smith, LLP, Los Angeles) for Now & Zen Productions LLC, Jeffrey Kohen; Joshua S. Davis, Gregory H. Halliday (Sedgwick, Detert, Moran & Arnold, LLP, Los Angeles) for Brandon P. Hull.

FACTS: Plaintiff J.S. Haute Stuff, LLC (“Haute Stuff”) sold “Chick Magnet” and “Ladies Man” infant t-shirts to its biggest customer, Nordstrom from 2004 to 2007. Defendant Jeffrey Kohen (“Kohen”), the sole owner of defendant Now & Zen Productions, LLC (“NAZ”), one of the largest “verbiage” t-shirt manufacturers, claimed that such activity infringed NAZ’s copyrights for the words Chick Magnet and Ladies Man.

As such, in September 2007, Kohen instructed his attorney, defendant Brandon Hull (“Hull”), to write to Nordstrom to demand that Nordstrom stop selling Haute Stuff’s shirts within 48 hours of the letter and pay restitution to Kohen’s company of $1.00 per Chick Magnet and Ladies Man shirt sold.

Hull sent a cease-and-desist letter to Nordstrom (without carbon copy to Haute Stuff) on Oct. 5, 2007. Nordstrom acquiesced, immediately pulling the “infringing” goods off its shelves and “depublishing” them from its website. On Oct. 19, 2007, after the cease-and-desist letter, Kohen e-mailed an employee at NAZ stating: “I am afraid Chick Magnet has well and true become public domain. It is an indefensible property where it comes to infringement.”

Despite Kohen’s statement, Hull continued to assert to Nordstrom that NAZ did own copyrights in the words. In December 2007, Hull e-mailed in-house counsel at Nordstrom, Barbara Barbilleaux, confirming that his client did not have any registered copyrights for the Chick Magnet and Ladies Man designs but nonetheless claiming that his client had common law copyright protection for the designed based on his client’s purported independent creation and use in commerce of the designs. Haute Stuff sued NAZ, in connection with defendants’ cease-and-desist letter and conduct, for allegedly destroying the business relationship between Haute Stuff and Haute Stuff’s largest customer. Kohen and NAZ sought indemnity from Hull for allegedly failing to properly advise them.

PLAINTIFF’S CONTENTIONS: The plaintiff contended that Hull’s assertion that had no legal basis because, as it is widely known, common law copyright no longer exists in American law. Moreover, Haute Stuff’s intellectual property lawyer, who dealt with Hull and Nordstrom at the time, testified that Hull admitted to him that Hull knew that NAZ’s assertions to Nordstrom were legally baseless, but that Kohen was a very aggressive client and used such cease-and-desist letters to his competitor’s customers as a calculated means to squelch competition. Indeed, over the five years preceding NAZ’s cease-and-desist letter to Nordstrom, the defendants had engaged in a systematic pattern of fraud to eliminate its competition in the apparel business, especially with respect to competitors who sold t-shirts with commonly used words and/or short phrases on them.

Gabriel further testified that Hull told him that his client had been very successful in court on its “legal theory” that common words like Chick Magnet and Ladies Man could be copyrighted. However, when Gabriel asked Hull to send him each complaint that had been filed by NAZ and the case name and number for each such case, Hull failed to provide him with any such information. This is because NAZ had never actually sued anyone for copyright infringement. Hull eventually stopped returning Gabriel’s phone calls and refused to respond to his multiple inquiries.

Thus, defendants poisoned and destroyed Haute Stuff’s business relationship with Nordstrom. At least two Nordstrom employees, including its own in-house counsel, told Haute Stuff’s attorney that Nordstrom would not continue its business relationship with Haute Stuff because of defendants’ letter. Nordstrom stopped ordering from Haute Stuff for seven months, and meticulously phased out Haute Stuff as a Nordstrom vendor.

DEFENDANT’S CONTENTIONS: Kohen and NAZ contended that plaintiffs failed to demonstrate bad faith. Defendants contended that Kohen and NAZ relied upon the advice of counsel that the position advanced was legally viable. Defendants contended that, as a matter of copyright law, registrations are not necessary to establish copyright rights. Kohen contended that he was not aware that the claims advanced were not legally cognizable under copyright law. Defendants further contended that Haute Stuff’s declining sales with Nordstrom were caused by Haute Stuff’s poor performance as a vendor and not as a result of defendants’ cease and desist letter.

DAMAGES: Haute Stuff’s claims included interference with contractual relations, interference with prospective advantage, violation of the Lanham Act and trade libel. As compensatory damages for the California tort claims, Haute Stuff sought lost profits at present value in the amount of $1,768,476.

For the Lanham Act claims, Haute Stuff’s damages expert valued the lost goodwill at $1,412,602 and calculated lost profits of $1,768,476. At trial, Haute Stuff would have elected to recover its lost profits, which would have approached $1.8 million based on additional interest on the date of a judgment. The Lanham Act also authorizes trebling of Haute Stuff’s compensatory damages in cases where willful conduct is shown, and does not preclude an award of punitive damages on state law tort claims. In “exceptional cases,” the prevailing party on a Lanham Act claim may recover its attorney’s fees where there is “bad faith or other malicious conduct.”

The attorney’s fees could have reached $400,000 had there been a trial.
Kohen and NAZ contended that the damage calculations were flawed and unsupportable.

SETTLEMENT DISCUSSIONS: At the beginning of the case, defendants offered high five figures and plaintiff countered at $2.3 million.

RESULT: The case settled for $1.75 million.

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