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Standard Process, Inc. v. AVC Infinite, LLC

United States District Court, W.D. Wisconsin

January 9, 2020

STANDARD PROCESS INC., Plaintiff,
v.
AVC INFINITE, LLC, A VITAMIN A DAY LLC, ANDREW CHEKAYEV, IRINA PEYSAKHOVICH and JOHN DOES I-100, individually or as corporate/business entities, Defendants.

          OPINION AND ORDER

          WILLIAM M. CONLEY DISTRICT JUDGE

         Having conducted a hearing on plaintiff's motion for default judgment and permanent injunction (dkt. #12), at which plaintiff appeared by Attorneys Ann Maher and Tyler Pensyl, and defendants failed to appear, the court enters the following opinion and order.

         FINDINGS OF FACT[1]

         A. Standard Process and Its Trademarks

         1. Standard Process develops, manufactures, markets, and sells ingestible nutritional supplements, including products under the Standard Process®, Standard Process Veterinary Formulas™, and MediHerb brands (the “Standard Process Products”). (Compl. (dkt. #1) ¶ 12.)

         2. Standard Process sells its products exclusively through a network of authorized resellers (“Authorized Resellers”). (Id.)

         3. Standard Process has registered several trademarks with the United States Patent and Trademark Office (“USPTO”), including, but not limited to: STANDARD PROCESS® (U.S. Trademark Registration No. 2, 329, 616), SP® (U.S. Trademark Registration Nos. 2, 469, 448, 2, 888, 707, and 3, 618, 534), SP STANDARD PROCESS® (U.S. Trademark Registration No. 3, 726, 215), CATALYN® (U.S. Trademark Registration No. 1, 476, 530), ZYPAN® (U.S. Trademark Registration No. 1, 982, 691), LIGAPLEX® (U.S. Trademark Registration No. 1, 984, 258), CATAPLEX® (U.S. Trademark Registration No. 1, 984, 251), CONGAPLEX® (U.S. Trademark Registration No. 1, 995, 346), MULTIZYME® (U.S. Trademark Registration No. 2, 548, 738), ALLERPLEX® (U.S. Trademark Registration No. 2, 321, 705), GASTREX® (U.S. Trademark Registration No. 2, 332, 945), SP CLEANSE® (U.S. Trademark Registration No. 2, 622, 227), GASTRO-FIBER® (U.S. Trademark Registration No. 2, 730, 337), and SP GREEN FOOD® (U.S. Trademark Registration No. 3, 665, 686) (collectively, the “Standard Process Trademarks”). (Id. ¶ 14.)

         4. The registrations for the Standard Process Trademarks appear to be valid, subsisting, and in full force and effect. (Id. ¶ 15.)

         B. Online Marketplaces

         5. In recent years, there has been an increase in the amount of retail sales completed through online marketplaces, such as www.amazon.com (“Amazon”). (Id. ¶¶ 25-26.) These online marketplaces allow third party sellers to offer a manufacturer's products for sale essentially anonymously. (Id. ¶¶ 25-26.) As a result, unauthorized third party sellers may offer for sale diverted products through the online marketplaces, including damaged, defective, tampered-with, and/or fake products. (Id. ¶¶ 27-48.) Because these third party sellers operate anonymously, a manufacturer may lack the ability to exercise quality controls over the products or ensure the products are safe, which presents a potentially serious risk to consumers. (See id. ¶¶ 29, 31, 75, 114.)

         6. Anonymous sales by unauthorized sellers through the online marketplaces may also threaten a manufacturer's ability to maintain its goodwill, reputation, and brand integrity. (Id. ¶ 32.) A consumer who receives a defective or poor quality product from an unauthorized seller through an online marketplace may become frustrated with the brand. (Id. ¶¶ 33-34.) The consumer can also leave a negative review about the brand on the marketplace site, potentially impacting the purchasing decisions of other consumers. (Id. ¶¶ 35-38.)

         7. Standard Process has been the victim of multiple negative online marketplace reviews, including on Amazon, from consumers who purchased products bearing the Standard Process Trademarks from unauthorized sellers, including consumer complaints that they received expired, damaged, defective, and/or tampered with products. (Id. ¶¶ 39-50.)

         C. Standard Process Has Implemented Quality Controls to Protect Consumers and Its Brands

         8. To protect consumers and its brands' value and associated goodwill, Standard Process has implemented quality controls that are designed to minimize the likelihood that poor quality products reach consumers. (Id. ¶¶ 51-71.) These quality controls include inspection, storage, handling, customer service, and other requirements, assisting with any recalls or other consumer safety information efforts, the prohibition of online sale except with prior written consent, and the prohibition on repackaging, tampering with, or de-facing the products and labeling. (Id.)

         9. To further combat the unauthorized sale of poor quality products on online marketplaces, Standard Process has imposed additional requirements on its Authorized Resellers that are approved to sell online and on the online marketplaces. (Id. ¶¶ 73-89.)

         10. To allow Standard Process to know where its products are being sold so that it can exercise control over its products and address any quality issues that may arise, Authorized Resellers are prohibited from selling on unauthorized websites and online marketplaces and from selling to other resellers. (Id. ¶ 73.) Authorized Resellers that are approved to sell on online marketplaces may sell only under storefront names that have been specifically approved by Standard Process and are prohibited from selling products anonymously. (Id. ¶¶ 73-78.)

         11. Standard Process vets its Authorized Resellers before approving them to sell online and on online marketplaces to make sure that each Authorized Reseller operates an appropriate and acceptable business that Standard Process wishes to have representing its brands. (See id. ¶¶ 73-89.)

         12. Authorized Resellers selling online and on the online marketplaces must comply with several additional quality control requirements, including: opting out of certain repackaging and commingling programs that may result in consumers receiving used, damaged, expired, or counterfeit products; having a registered business that meets credit, sales history, and facility criteria; having an acceptable online review history without a significant presence of negative product or seller reviews; data security, privacy, and accessibility requirements; a prohibition on reselling opened or repackaged products as in “new” condition; requiring that sales may be only from its own stock; having tools in place to solicit customer feedback and respond to any negative reviews; working with Standard Process to address any such reviews; and maintaining an acceptable online presence and seller rating. (Id.)

         13. Standard Process monitors its Authorized Resellers to ensure their compliance with Standard Process's quality controls, including conducting reviews of the Authorized Resellers' websites, storefronts, and reviews and conducting test purchases and inspections. (Id. ¶¶ 90-92.)

         14. The quality controls allow Standard Process to control the quality of products sold under its trademarks, and may be material and relevant to a consumer's purchasing decision. (Id. ¶¶ 88, 89.)

         D. Defendants' Unlawful Sales of Standard Process Products

         15. Defendants AVC Infinite, LLC (“AVC”), A Vitamin A Day, LLC (“A Vitamin A Day”), Andrew Chekayev, and Irina Peysakhovich (together, “Defendants”) operate storefronts on Amazon under the “Vitaminpro” and “I & G Brothers” (also known as “Stroke of Luck”, “Best of NH”, “Limitless Vitamins”, “Atetrans”, and “Valar V”) storefronts (the “Storefronts”). Through the Storefronts, Defendants have advertised and sold products bearing the Standard Process Trademarks. (Id. ¶¶ 8, 10, 95, 103, 135, 206- 07, 211-17, 251-52, 256-62.) Defendants are not Authorized Resellers of Standard Process Products. (Id. ¶ 96.)

         16. The products Defendants sell bearing the Standard Process Trademarks are not genuine Standard Process Products because they do not abide by, but interfere with, Standard Process's quality controls. (Id. ¶¶ 130-32.) Specifically, Defendants:

a. do not inspect the products they sell for damage, defects, broken seals, evidence of tampering, and other non-conformance from inventory, and sell products bearing the Standard Process Trademarks that are damaged, have broken seals, and that have been tampered with, as well as ship damaged products to customers, id. ¶ 116;
b. do not regularly inspect their inventory for expired or soon-to-be-expired products and remove those products from inventory; rather, Defendants sell products bearing the Standard Process Trademarks that ...

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