50 F. Supp. 3d 441
S.D.N.Y.2014Background
- Transcience and CEO Yolanda Von Braunhut own Sea-Monkeys IP (trademarks, copyrights, trade-secret pouch) and licensed manufacturing/marketing rights to Big Time Toys under a 2007 Agreement modified by a 2009 Agreement.
- The agreements required monthly royalties (10% then 20% after 2009), supplemental lab fees, and contained an arbitration clause; a $10M purchase option would transfer IP and trade secrets upon payment milestones.
- Big Time Toys stopped royalty and lab-fee payments in December 2012; Transcience sent notice of default (Dec. 20, 2012) and declared the agreements terminated (Jan. 18, 2013).
- Plaintiffs allege Big Time Toys continued to market/sell Sea-Monkeys on its website after termination, bringing claims for breach of contract, copyright and trademark infringement, unjust enrichment, implied contract, implied covenant, conversion, and tortious interference.
- Defendant moved to dismiss; plaintiffs moved for a preliminary injunction to stop further use of trademarks/copyrights. The court partially granted and partially denied the motions and denied the injunction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Copyright infringement | Transcience owns registered copyrights and Big Time Toys continued to display/sell copyrighted Sea-Monkeys after termination (Jan–Nov 2013). | Contract/license issues defeat infringement because rights remain under contract. | Denied dismissal: copyright claim sufficiently pleaded (ownership, registration, acts/timeframe). |
| Trademark infringement | Transcience owns registered Sea-Monkeys marks; Big Time Toys continued use after termination causing consumer confusion. | Use permitted by contract or arbitration; dismissal argued on contract grounds. | Denied dismissal: trademark claim plausibly pleaded and termination of license alleged at pleadings stage. |
| Breach of contract | Big Time Toys breached by failing to pay royalties; seek damages/adjudication. | Plaintiffs failed to allege their own adequate performance; arbitration clause exists. | Breach claim dismissed without prejudice for failure to plead plaintiff performance; leave to replead in 30 days. |
| Unjust enrichment & preemption | Plaintiffs allege unjust enrichment from unauthorized sales post-termination. | Claim duplicates contract/IP/right protected by Copyright Act; preemption applies. | Unjust enrichment survives as pleaded in alternative but is preempted to the extent it seeks relief for copyrighted works; otherwise may proceed. |
| Implied covenant / implied contract / conversion / tortious interference | Plaintiffs assert these ancillary claims arising from breach and post-termination conduct. | Claims duplicate contract or lack required elements (no third-party relationships identified; no post-termination mutual assent). | Dismissed: implied covenant (duplicative of contract), implied contract (no mutual assent/express contract governs), conversion (sounds in contract), tortious interference (no identified third-party relationships). |
| Preliminary injunction | Plaintiffs claim irreparable harm from continued unauthorized use and request immediate injunction. | Defendant points to plaintiff’s long delay in seeking injunction and that harm is monetary/remediable. | Denied: plaintiffs delayed suit and cannot show irreparable harm (monetary damages); balance/fair-ground factors not met. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard requires plausible factual allegations beyond conclusions)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (complaint must nudge claims from conceivable to plausible)
- Briarpatch Ltd. v. Phoenix Pictures, Inc., 373 F.3d 296 (2d Cir. 2004) (Copyright Act preempts unjust enrichment claims that vindicate exclusive copyright rights)
- 1-800 Contacts, Inc. v. WhenU.Com, Inc., 414 F.3d 400 (2d Cir. 2005) (elements and likelihood-of-confusion framework for Lanham Act claims)
- Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400 (2d Cir. 2006) (conversion requires wrongful assumption/possession of goods; demand-and-refusal where original possession was lawful)
- Citibank, N.A. v. Citytrust, 756 F.2d 273 (2d Cir. 1985) (delay in seeking preliminary injunction undercuts irreparable-harm presumption in trademark cases)