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Biopure Healing Products, LLC. v. Wellnx Life Sciences, Inc.

United States District Court, W.D. Washington, Seattle

September 20, 2017

BIOPURE HEALING PRODUCTS, LLC, Plaintiff,
v.
WELLNX LIFE SCIENCES, INC. and PLATINUM U.S. DISTRIBUTION, INC. d/b/a WELLNX LIFE SCIENCES, USA, Defendants.

          ORDER DIRECTING PLAINTIFF TO POST A $75, 000 SECURITY BOND WITH THE COURT

          JAMES P. DONOHUE CHIEF UNITED STATES MAGISTRATE JUDGE.

         I. INTRODUCTION

         This matter comes before the Court upon the parties' numerous submissions regarding an appropriate injunction bond amount under Fed.R.Civ.P. 65(c). Dkts. 60-66, 69-70.[1] On August 24, 2017, the Honorable Robert S. Lasnik granted plaintiff's motion for preliminary injunction, which becomes effective on September 23, 2017. Dkt. 58. To date, the parties have been unable to reach an agreement as to the appropriate bond amount in this case. Having reviewed the parties' briefs and supporting materials, the governing law, and the balance of the record, the Court exercises its discretion under Rule 65(c) to set a bond in the amount of $75, 000.

         II. DISCUSSION

         A. Legal Standard

         Federal Rule of Civil Procedure 65(c) provides that this “court may issue a preliminary injunction . . . only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined for restrained.” Fed.R.Civ.P. 65(c). The Ninth Circuit has recognized that Rule 65(c) “invests the district court with discretion as to the amount of security required, if any.” Johnson v. Couturier, 572 F.3d 1067, 1086 (9th Cir. 2009) (internal quotations omitted). The district court may therefore “dispense with the filing of a bond when it concludes that there is no realistic likelihood of harm to the defendant from enjoining his or her conduct.” Id.

         The burden of providing that a bond is needed is on the party requesting the bond. See Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 321 F.3d 878, 883 (9th Cir. 2003). The moving party's size and financial resources may also be considered in setting a reduced bond amount. See GoTo.com, Inc. v. Walt Disney Co., 202 F.3d 1199, 1211 (9th Cir. 2000) (district court did not abuse discretion by requiring a $25, 000 bond and defendants request to significantly raise that amount “would risk denying [the plaintiff] access to judicial review since the preliminary injunction would not take effect until [the plaintiff] posted the bond.”); Color Me House, Inc. v. Discovery Commc'ns, Inc., Case No. C12-5935-RJB, 2013 WL 1283806, *10 (March 27, 2013) (holding that a $1, 000 minimal bond is all that is required because plaintiff “has shown a strong likelihood of success on the merits, it is a small business, and it does not have the resources to purchase a large bond.”).

         B. Parties' Contentions

         Defendants ask the Court to require BioPure to post a bond in the amount of $474, 400. Dkt. 60. Defendants argue that the evidence they have provided from third-party data (along with defendants' own price lists) demonstrate that $474, 400 is the “actual, out-of-pocket costs” that defendants will incur in order to comply with the preliminary injunction issued by the Court. Dkt. 65 at 2. WellNX estimates its costs of complying with the preliminary injunction as follows: (1) costs of existing bottles, labels, and packages bearing the name “BioPure” that must be destroyed ($86, 000); (2) costs of new bottles, labels and packages that do not bear the name “BioPure” ($86, 000); (3) labor costs to un-package and repackage the inventory ($182, 000); (4) third-party vendor overage charges ($70, 400); and (5) costs of excess labels, bottles, and packaging (i.e. inventory) bearing the name “BioPure” that were to be used to package and label products, but now must be destroyed ($50, 000). Dkt. 60 at 3.

         Specifically, WellNX asserts that it needs to repackage approximately 200, 000 units of products bearing the “BioPure” name on the bottle, label, or packaging, which will require buying new bottles, new labels, and new boxes for a total of $86, 000. Dkt. 61 (First Johnson Decl.) at ¶¶ 3-4.[2] WellNX asserts that because it will not only need to purchase new packaging but destroy the old packaging, which it had already purchased at $0.43 per unit, the loss of that old packaging is an additional $86, 000. Id. See also Dkt. 61, Ex A (WellNX's price sheet, reflecting the bottle, label, and box costs). Thus, defendants assert that the “hard costs” of repacking, before labor, equal $172, 000. WellNX will utilize its third party fulfillment center Dynamics, Inc. for the labor of the repacking effort, at a cost of $0.91 per unit, for a total of $182, 000 in labor costs. Dkt. 61 (First Johnson Decl.) at ¶ 5. See also Dkt. 61, Ex. B (Dynamics' estimate of labor costs, totaling $0.91 per unit). In addition, WellNX asserts that “third party vendors typically estimate a potential overage charge equaling 20% of the total cost, ” which defendants assert is $70, 400. Finally, WellNX has approximately $50, 000 of packaging inventory on hand that now must be destroyed. In total, WellNX estimates its out-of-pocket expenses associated with complying with the injunction to be $474, 400 ($86, 000 $86, 000 $182, 000 $70, 400 $50, 000), and seeks a bond in that amount. Dkt. 61 (First Johnson Decl.) at ¶ 8.

         By contrast, BioPure contends that a $45, 000 bond sufficiently protects defendants' interests, and more appropriately takes into account the small size and limited financial resources of BioPure. Dkt. 62 at 12. Specifically, BioPure explains that despite the Court's Order that the parties meet and confer to discuss an appropriate bond amount, prior to filing their separate submission with the Court, defendants never provided plaintiff with any documentation supporting their requested figures, which initially totaled $850, 000 during the parties' meet and confer telephone conference on August 29, 2017. Dkt. 64 (Levy Decl.) at ¶¶ 5-7. Although defendants significantly reduced their requested bond by the time of the parties' second meet and confer telephone conference on September 7, 2017, defendants never provided BioPure with documentation to support either of their proposed bond amounts. Dkt. 62 at 5. See also Dkt. 64 (Levy Decl.) at ¶¶ 16-20. Thus, BioPure contends that defendants' conduct during their two meet and confer telephone conferences prevented the parties from making any real progress towards reaching an agreement on the bond amount.

         With respect to WellNX's $474, 400 bond request, BioPure argues that WellNX has greatly inflated its estimated costs to prevent BioPure from receiving the benefit of the injunctive relief the Court has ordered. For example, BioPure contends that defendants' unit costs for packaging have been improperly doubled to account for new, non-infringing packaging, as well as the costs of destroying existing packaging. BioPure points out that WellNX would have to pay for one set of packaging regardless of the injunction, and the cost of complying with the injunction should therefore only include the additional repackaging costs. Id. at 7. Similarly, BioPure contends that “the alleged $50, 000 cost for excess labels in Wellnx's inventory is not damage caused by the injunction because the injunction does not require destruction of the labels. They can be stored and used later if the preliminary injunction were reversed on appeal.” Dkt. 69 at 2. In addition, BioPure asserts that WellNX's vague and speculative $70, 400 charge for “potential” penalties charged by retailers for late shipments should be disregarded, as WellNX has been on notice since the July 6, 2017 date of the Report and Recommendation that it would need to alter its packaging to meet its shipment commitments and provides no evidence supporting this “potential overage charge.” Dkt. 69 at 5; Dkt. 63 (Annicchiarico Decl.) at ¶¶ 20-22.

         Finally, BioPure points out that WellNX's estimate for both the hard costs and labor required to repack its 200, 000 units of inventory was based only on defendants' Slimquick Pure pills, which require a carton, bottle, and a label (and are therefore the most expensive to repack) when there are actually three different types of enjoined products with different packaging needs. Dkt. 69 at 6.[3] BioPure's CEO Mr. Annicchiarico, relying on his own experience and the material costs provided by WellNX, estimates that it would cost only $45, 000 ($33, 000 for materials and $12, 000 for labor) for several temporary employees to repackage the enjoined products by simply placing new labels over the old labels. Dkt. 63 (Annicchiarico Decl.) at ¶¶ 18-20. Alternatively, if new bottles and caps must be used, BioPure contends that “it would surely be less expensive to limit the manual labor to the emptying of the packages, ” and “once the product was removed, Wellnx could use its existing automated processes to package and label the product.” Dkt. 69 at 7. Again, Mr. Annicchiarico estimates that the cost of such labor would equal no more than $12, 000. Dkt. 70 (Second Annicchiarico Decl.) at ¶ 70.

         Defendants respond that Mr. Annicchiarico is merely speculating, as he has no experience in the repacking of consumer products to be distributed in mass retail outlets and he does not cite to any third-party data to support his conclusions. Dkt. 65 at 3-4. Defendants assert that Mr. Annicchiarico's suggestions for repacking the products less expensively (such as simply placing a new sticker over the old sticker that contained the word “BioPure”) are not workable for a variety of reasons and would negatively impact defendants' brand and its relationship with its retail partners and consumers. Id. For example, Dana Johnson, President of WellNX Life Sciences, Inc., asserts that in the past “WellNX has done a repack by simply placing a new sticker over the old sticker. When we did that, we experienced significant consumer backlash, with consumers complaining, among other things, that the product appeared to be ‘tampered with' and that the product was different than that reflected in the new label.” Dkt. 66 (Second Johnson Decl.) at ¶ 5. Ms. Johnson asserts that the “the result was a significant decline in sales, as well as harm to the perception of our product with the consumers and our mass retail partners. As a result, other repacks that we have done since that time have all followed the same procedure as we are going here - new bottles, new labels and new boxes, all re-packed by a third party professional ...


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