Customs Broker's $8 Million Penalty to Coach to Move Forward After Judge Denies Defenses

The Central California U.S. District Court’s $8 million judgment against customs broker Celco Customs Service for trademark infringement will move forward, after Judge Margaret Morrow denied the company’s final defenses in an Aug. 9 order. A jury had decided the penalty after finding Celco infringed trademarks held by Coach when it acted as a customs broker on entries of counterfeit handbags and wallets. But Judge Morrow vacated an April judgment because Celco never got a chance to present its “affirmative defenses.” Now having heard Celco’s arguments, the court said the defenses are invalid because the jury found Celco’s trademark violations to be willful. Celco will now file post-trial motions asking the judge to throw out the jury’s verdict based on improper infringement findings and an excessive penalty amount, its attorney said.

In its March 28 verdict, the jury had ordered Celco and its owner, Shen Huei Feng “Celine” Wang, to pay $4 million each in damages to Coach for a shipment of handbags and wallets bearing Coach’s trademarks that CBP had seized when it came into the Port of Los Angeles (see 13041520). Coach alleged that Celco, the customs broker that entered the shipment, played a part in the counterfeiting scheme. According to Coach, the El Monte, Calif.-based customs brokerage blew through several red flags related to the power of attorney associated with the shipment, including irregularities with the tax identification number for the importing company and the POA’s eight-day duration. Faced with an alleged case of identity theft, Celco never attempted to verify the importer’s identity, Coach said. The leather goods maker argued that the customs brokerage’s errors of omission were so great as to prove its complicity in the counterfeiting scheme. The jury agreed, and the court’s clerk entered judgment.

But on April 22, Judge Morrow vacated the judgment after realizing Celco wasn’t allowed to present the “affirmative defenses” that the court had promised to hear after the trial (see 13042619). Given the chance, Celco argued a “laches” defense that Coach had filed the suit so late that Celco couldn’t effectively defend itself. Celco said that the allegedly counterfeit products had been destroyed during the two years that had elapsed between the seizure of the goods and Coach’s lawsuit, so neither Celco nor the jury could actually see the lost evidence of trademark infringement.

On Aug. 9, Judge Morrow ruled said that defense wasn’t available to Celco, because the jury had found that the customs brokerage and acted in bad faith and its trademark infringement was willful. Ninth circuit precedent prevents defendants from arguing a laches defense in cases of willful trademark infringement, Judge Morrow said. The judge ordered the clerk to enter judgment in favor of Coach and against Celco “in accordance with the jury’s verdict.” CBP had announced a day earlier that it was revoking Celco's customs broker license (see 13080712).

"Coach is extremely pleased with the District Court's ruling, which uphold the jury verdict," said Nancy Axilrod, vice president and deputy general counsel at Coach. "This case is believed to be the first verdict ever to be obtained against a customs brokerage firm, and as such is a significant development in the fight against the illegal activity of trafficking in counterfeit goods," she said. "The Celco case illustrates Coach’s commitment to follow every lead and identify everyone involved in facilitating the counterfeit trade, and should serve as a deterrent to those involved in such activity."

But Celco's attorney John Stephens said the company isn't done fighting yet. He said Celco is about to file post-trial motions asking for the judge to rule in favor of Celco and throw out the jury's verdict, or at least order a new trial. The motions will dispute the jury's finding of infringement given the lack of physical evidence at trial, he said. Celco will also argue that Coach didn't prove its case of contributory infringement, because it didn't argue that Celco was intentionally induced to commit the violations, or that Celco continued to act as broker after having been informed of the infringement. Finally, Celco will dispute the "excessiveness" of the penalty imposed, Stephens said, given that the goods were seized and Coach didn't suffer any actual damages. The motions won't be filed until after the court enters judgment, but that should happen soon, Stephens said. -- Brian Feito

Email ITTNews@warren-news.com for a copy of the order.