ORDER MODIFYING INJUNCTION; DENYING MOTION TO STAY; SETTING BOND; GRANTING MOTIONS TO SEAL

Re: ECF Nos. 99, 100, 104, 106

JON S. TIGAR, District Judge.

In this action for violations of the Lanham Act and related claims, Defendants move under Federal Rule of Civil Procedure 62(c) for a stay of the preliminary injunction that the Court issued on May 21, 2013. For the reasons set forth below, the motion to stay the injunction is DENIED. Additionally, Plaintiffs' request to modify the injunction to permit Defendants to use their logos and trade dress in ways that fall within the scope of the nominative fair use doctrine, as described below, is GRANTED. The modified injunction will become effective when Plaintiffs post a bond in the amount of $3,681,776.

I. BACKGROUND

Plaintiffs Johnson & Johnson and LifeScan, a subsidiary of Johnson & Johnson, bring this action for violations of the Lanham Act and California's Business and Professions Code against Defendants Shasta Technologies, Decision Diagnostics, PharmaTech Solutions, and Conductive Technologies. The gravamen of the complaint is that Defendants' unauthorized use of Plaintiffs' logos and trade dress on the packaging and advertisements for Defendants' GenStrip creates the impression that LifeScan endorses or sponsors that product.

On May 21, 2013, the Court granted Plaintiffs' motion for a preliminary injunction barring Defendants from (1) using any image of Plaintiffs' OneTouch meters on the packaging, labels, or advertisements for the GenStrip, whether online or not; (2) using Plaintiffs' OneTouch logos or stylized font on the packaging, labels, or advertisements for the GenStrip, whether online or not; and (3) shipping to consumers the 60,000 GenStrip units that they have sold without first removing the packaging containing Plaintiffs' logos and trade dress ("the injunction"). ECF No. 94 at 21-22.

Defendants filed a notice of appeal on May 23, 2013. ECF No. 98. They now move to stay the injunction pending the appeal. ECF No. 106.

II. LEGAL STANDARD

A district court may stay an injunction while an appeal from the order granting the issuance of the injunction is pending. Fed. R. Civ. P. 62(c). The factors regulating the issuance of a stay under Rule 62(c) are: "(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies." Hilton v. Braunskill, 481 U.S. 770, 776 (1987). "The first two factors of [this] standard are the most critical." Nken v. Holder, 556 U.S. 418, 434 (2009).

"A stay is not a matter of right, even if irreparable injury might otherwise result. It is instead an exercise of judicial discretion, and [t]he propriety of its issue is dependent upon the circumstances of the particular case." Id. at 420. "The party requesting a stay bears the burden of showing that the circumstances justify an exercise of that discretion." Id. at 433-34.

III. DISCUSSION

A. A Stay is Not Warranted

The Court concludes that a stay is not warranted. The four factors that the Court must consider in determining whether a stay of the injunction is appropriate track the four factors that the Court considered in granting the injunction. See Nken v. Holder, 556 U.S. 418, 434 (2009) (noting that "[t]here is substantial overlap" between the factors relevant to the issuance of a stay pending appeal and "the factors governing preliminary injunctions"). The Court therefore denies Defendants' motion for a stay pending appeal for the same reasons articulated in the order granting the injunction and for the additional reason that Defendants will be adequately protected from any injury resulting from the injunction by the bond that Plaintiffs are required to post, as discussed below.

B. The Preliminary Injunction Is Modified

While an appeal from an order issuing an injunction is pending, a district court "may suspend, modify, restore, or grant an injunction on terms for bond or other terms that secure the opposing party's rights." Fed. R. Civ. P. 62(c).

Defendants contend that the injunction is not narrowly tailored because it bars them from using Plaintiffs' OneTouch logos and trade dress on the instruction manual for the GenStrip and from otherwise instructing consumers on how to use the GenStrip. Mot. at 9-10, ECF No. 106. In response to these contentions, Plaintiffs request that the Court modify the injunction to explicitly permit the use of their logos or trade dress so long as any such use complies with the nominative fair use test.

In light of these arguments, the Court modifies the injunction as follows:

C. Plaintiffs Must Post a Bond of $3,681,776

Federal Rule of Civil Procedure 65(c) requires a party in whose favor a preliminary injunction is granted to post a bond to provide "for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained." Fed. R. Civ. P. 65(c). "Despite the seemingly mandatory language, 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) (citation and internal quotation marks omitted).

Here, Plaintiffs argue that a bond of $650,000 would be sufficient to cover Defendants' expenses in changing the packaging of the GenStrip and that, because Defendants are not barred from selling the GenStrip, any bond amount need not include potential lost sales and lost profits.1 ECF No. 100.

On the other hand, Defendants argue that a bond in the amount of $3,681,776 is justified because that amount would cover the expenses associated with changing the packaging and advertisements at issue in addition to covering potential lost profits of 20% from June 2013 to May 2014.2 ECF No. 103.

The Court concludes that a bond should compensate Defendants both for the costs of changing the packaging and advertisements at issue and for any profits lost as a result of the injunction. See, e.g., Honor Plastic Indus. Co. Ltd. v. Lollicup USA, Inc., 462 F.Supp.2d 1122, 1132 (E.D. Cal. 2006) (setting bond based on potential lost profits where defendant was enjoined from using the plaintiff's mark but was free to sell products that did not contain the plaintiff's mark). Because Defendants' requested bond amount appears to be reasonable in light of their projected sales and profit calculations from June 2013 to May 2014, their request to set the bond in the amount of $3,681,776 is GRANTED. See Berman Decl. ¶¶ 6-9 & Ex. 2, 3; Schaeffer Decl. ¶¶ 7-8.3

IV. CONCLUSION

Defendants' motion to stay the injunction is DENIED. Plaintiffs' request to modify the injunction is GRANTED. Plaintiffs shall post a bond in the amount of $3,681,776 within three days of the date this order is filed. The modified injunction will become effective upon the posting of the bond.

IT IS SO ORDERED.