Amazon Seller Hit with Sanctions in Lanham Act Appeal
A unanimous panel of the US Court of Appeals for the Seventh Circuit awarded sanctions under Federal Rule of Appeals 38 against Amazon seller Ellishbooks for its frivolous appeal from a default judgment. Quincy Bioscience, LLC v. Ellishbooks, et al., Case No. 19-1799 (7th Cir. June 5, 2020) (Wood, J.).
Quincy Bioscience develops, markets and sells the dietary supplement Prevagen® for the support of cognitive function. Ellishbooks sold various products on Amazon, including dietary supplements identified as Prevagen®. However, Ellishbooks was not authorized to sell Prevagen® products. Quincy brought an action against Ellishbooks alleging violations of the Lanham Act and violations of Illinois statutory and common law, and seeking preliminary and permanent injunctive relief to prevent Ellishbooks from using the Prevagen® mark and falsely representing that it was associated with Quincy. Ellishbooks did not respond to the complaint, and the court entered default judgment against the seller.
Quincy then moved for entry of the default judgment. Ellishbooks opposed the motion on two grounds: (1) it had not been properly served and (2) the products it sold on Amazon were not listed or identified as Prevagen®. The district court rejected these arguments. Finding that Ellishbooks had “deliberately obfuscated their place of business and sought to evade service,” the court held Quincy had “effected legally adequate service.” In addition, the district court held that Ellishbooks had “identified no circumstances capable of establishing good cause for its default.” At the prove-up hearing, the court entered judgment in favor of Quincy for $481,000 plus attorney’s fees and costs. Ellishbooks appealed.
The Seventh Circuit affirmed, holding that Ellishbooks’ arguments “have been waived and, in any event, are meritless.” IP Update, Vol. 23, No. 5. Quincy then filed a motion for sanctions under Rule 38 arguing that Ellishbooks’ appeal was frivolous. Ellishbooks opposed the motion and argued it had not acted in bad faith during the litigation. Specifically, Ellishbooks claimed that its lead counsel had never previously prosecuted or defended an appeal in the US Court of Appeals.
The Seventh Circuit rejected Ellishbooks’ argument and held that sanctions were warranted, as “Ellishbooks’ appellate arguments had virtually no likelihood of success.” The Court emphasized that, under Rule 38, an appeal is frivolous if the arguments are guaranteed to lose, cursory, totally undeveloped or reassert a previously rejected version of the facts. Ellishbooks’ appellate arguments were guaranteed to lose because “well-settled principles” governing default judgments and waiver were controlling. In addition, the Court considered Ellishbooks’ conduct during the course of the appeal. Specifically, it noted that Ellishbooks failed to: (1) complete a jurisdictional statement, and the Court had to issue a show cause order; (2) timely submit a motion for voluntary dismissal of the appeal; (3) timely submit a reply brief in response to Quincy’s arguments and also sought to delay oral argument. The Court concluded that these actions suggested that “Ellishbooks has attempted to draw out the proceedings as long as possible while knowing that it had no viable substantive defense.” As a result, the Court granted Quincy’s motion for sanctions.