Bern Unlimited, Inc. v. Burton Corp.Bern Unlimited, Inc. v. Burton Corp.
MEMORANDUM AND ORDER ON PLAINTIFF’S MOTION TO STRIKE DEFENDANTS’ COUNTERCLAIMS, OR IN THE ALTERNATIVE, TO SEVER
This is a dispute between several companies that sell sports helmets involving alleged trade-dress infringement and unfair
Bern has amended its complaint three times, most recently on March 7, 2014. In their answers to the third amended complaint, defendants Burton Corporation, Easton-Bell Sports, Inc., Smith Sport Optics, Inc., Vans, Inc., Amer Sports Winter & Outdoor Co., and K-2 Corporation brought, for the first time, counterclaims against plaintiff. Plaintiff has moved to strike the counterclaims, contending that leave of Court was required to assert the counterclaims and such leave should be denied on the grounds of undue delay and futility.
For the following reasons, the motion to strike will be granted in part and denied in part. The motion to sever will be denied without prejudice as to its renewal.
I. Background
A. Factual Background
The facts are summarized below as set forth in the third amended complaint and answers.
1. Allegations bg Bern
Bern Unlimited, Inc., is a manufacturer of helmets for biking, skating, snow, and water sports. (Third Am. Compl. ¶ 11). In January 2006, Bern introduced the “Baker” fine of snow helmets. (Id.). The “Baker” helmet was a commercial success for Bern, and led the company to introduce additional helmet lines featuring the same elements, including the “Watts,” “Lenox,” and “Muse” lines. (Id. ¶ 14).
The complaint refers to two distinctly identifiable design elements to these helmets: first, the “rounded profile of the helmet, which is designed to follow the shape of the wearer’s head”; and second, “the distinctive visor.” (Id. ¶ 11). Taken together, Bern refers to these elements as the “Bern Trade Dress.” (Id.).
The Burton Corporation, Easton-Bell Sports, Inc., Smith Sport Optics, Inc., Amer Sports Winter & Outdoor Co., Vans, Inc., and K-2 Corporation are also involved in the business of designing and selling sports helmets. (Id. ¶¶ 15-18, 20). Bern has accused those companies of selling helmets with designs that are confusingly similar to Bern’s design. (Id. ¶ 21).
2. Allegations bg Counterclaimants
In December 2005, Bern began selling the “Baker” line of helmets. (Vans Coun-tercl., Docket No. 166 at 11 ¶ 8).
On January 19, 2007, Jonathan Baker filed an application for a patent on the “Baker” helmet from the United States Patent and Trademark Office. (Id., Ex. A). The patent, United States Design Patent No. D572,865 S (the “'865 patent”), was issued on July 8, 2008. (Id. at 11 ¶ 9). During the application process, the PTO was not informed that Bern had begun selling the “Baker” helmet in 2005. (Id. at 11 ¶ 12).
In its marketing materials, Bern has promoted the fact that its helmets are covered by the '865 patent. According to the counterclaims, it did so in order to
On December 20, 2011, Bern filed this lawsuit, alleging claims of infringement of the '865 patent against Burton. On April 27, 2012, Bern dropped the claims of patent infringement and replaced them with claims of trade dress infringement.
On April 8, 2014, Jonathan Baker assigned the '865 patent to Bern. (Assignment, Docket No 196, Ex. 1). The assignment was retroactive to January 19, 2007. (Id.).
On April 11, Bern filed a statutory disclaimer of the '865 patent with the PTO under
B. Procedural Background
As noted, Bern initially brought suit for design-patent infringement against Burton on December 20, 2011. The original complaint alleged that Burton had infringed on the '865 patent. On April 27, 2012, Bern filed an amended complaint, adding five defendants and changing its claims from patent infringement to trademark infringement. Defendants did not assert any counterclaims in response.
On September 28, 2012, defendants moved for summary judgment on the ground that Bern could not prevail because it could not prove the non-functionality of its asserted trade dress. On May 15, 2013, the Court denied that motion.
On July 11, 2013, after obtaining leave of court, Bern filed a second amended complaint, adding two defendants. The second amended complaint alleged trade-dress infringement under
On March 7, 2014, again after obtaining leave of court, Bern filed a third amended complaint, adding additional allegedly infringing helmets introduced by defendants after the inception of the case. On April 28, one defendant was voluntarily dismissed from the case. The remaining named defendants are Burton, Easton-Bell, K-2, Smith, Vans, and Amer Sports.
On March 24, 2014, defendants filed answers to the third amended complaint. For the first time, defendants asserted counterclaims with their answers. With one partial exception, the counterclaims brought claims for (1) a declaratory judgment that the '865 patent is invalid, (2) a declaratory judgment that Bern cannot enforce the '865 patent because of its inequitable conduct, (3) false advertising in violation of the Lanham Act,
On April 14, 2014, Bern filed a motion to strike the counterclaims or, in the alternative, to sever. It contends that (1) defendants were required to seek leave from the Court to amend their answers to add new counterclaims; (2) the declaratory judgment claims are moot because it disclaimed the '865-patent; and (3) the false advertising, unfair competition, and Chapter 93A counterclaims fail to state a claim upon which relief can be granted.
II. Analysis
A. Procedural Analysis
The first question presented is procedural. When a plaintiff, with leave of court, amends its complaint, may the defendant freely assert new counterclaims in its answer, or must it seek leave of court to do so? The answer to that question is not provided, at least not directly, in the Federal Rules of Civil Procedure.
Under Rule 7, only certain kinds of “pleadings” are allowed, including “(1) a complaint; (2) an answer to a complaint; [and] (3) an answer to a counterclaim designated as a counterclaim.”
Amendments to the pleadings are addressed in Rule 15. Under Rule 15(a), a party may amend a “pleading” without leave of court in certain relatively narrow circumstances.
Courts have taken two general approaches to the issue. Under the so-called “moderate” approach, “an amended response may be filed without leave only when the amended complaint changes the theory or scope of the case, and then, the breadth of the changes in the amended response must reflect the breadth of the changes in the amended complaint.” Virginia Innovation Sciences, Inc. v. Samsung Electronics Co., Ltd.,
Some additional clarity was provided in 2009, when the Federal Rules of Civil Procedure were amended to delete Rule 13(f). That rule formerly provided that “[w]hen a pleader fails to set up a counterclaim through oversight, inadvertence, or excusable neglect, or when justice requires, the pleader may by leave of court set up the counterclaim by amendment.”
Rule 13(f) is deleted as largely redundant and potentially misleading. An amendment to add a counterclaim will be governed byRule 15 .Rule 15(a)(1) permits some amendments to be made as a matter of course or with the opposing party’s written consent. When the court’s leave is required, the reasons described inRule 13(f) for permitting amendment of a pleading to add an omitted counterclaim sound different from the general amendment standard inRule 15(a)(2) , but seem to be administered — as they should be — according to the same standard directing that leave should be freely given when justice so requires. The independent existence ofRule 13(f) has, however, created some uncertainty as to the availability of relation back of the amendment underRule 15(c) . Deletion ofRule 13(f) ensures that relation back is governed by the tests that apply to all other pleading amendments.
Neither the “permissive” nor the “mandatory” approach is entirely satisfactory. The “permissive” approach runs contrary to the advisory committee note and seems, at a minimum, to violate the spirit and purpose of
Under the “moderate” approach, the Court must deal with the potentially difficult question of whether a counterclaim “responds” to an amended complaint or not. See, e.g., Akzenta Paneele + Profile GmbH v. Unilin Flooring N.C. LLC,
It appears that the better approach is to simply apply the
B. Substantive Analysis
1. Declaratory-Judgment Counterclaims
Defendants’ first two counterclaims request declaratory judgments that the '865 patent be declared invalid and that plaintiff should be barred from enforcing the '865 patent due to its inequitable conduct. The Declaratory Judgment Act,
Plaintiff contends that there is no “actual controversy” because it has disclaimed the '865 patent. Under
On April 11, 2014, plaintiff filed a disclaimer of the '865 patent. The PTO accepted the disclaimer, publishing it on May 13, 2014. At oral argument, defendants conceded that the declaratory judgment claims as to the validity and enforceability of the '865 patent are mooted by the dis
2. False Advertising Counterclaims
a. Futility
All defendants have brought false-advertising counterclaims under the Lanham Act,
To state .a claim for false advertising under the Lanham Act, a complaint must allege as follows:
(1) the defendant made a false or misleading description of fact or representation of fact in a commercial advertisement about his own or another’s product; (2) the misrepresentation is material, in that it is likely to influence the purchasing decision; (3) the misrepresentation actually deceives or has the tendency to deceive a substantial segment of its audience; (4) the defendant placed the false or misleading statement in interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the misrepresentation, either by direct diversion of sales or by a lessening of goodwill associated with its products.
Cashmere & Camel Hair Mfrs. Inst. v. Saks Fifth Ave.,
i. False or Misleading Description of Fact
Defendants allege that plaintiff made two categories of false statements in its advertising. First, defendants, except for Burton, allege that plaintiff made false statements when advertising that its helmets were the “first visor helmet offering a protective visor cover in the front.” (E.g., Vans Countercl. at 19 ¶ 57). Plaintiff contends that these statements were non-actionable puf-fery. “Where a claim is merely ‘exaggerated advertising, blustering, and boasting upon which no reasonable -buyer would rely,’ it may be un-actionable puffery.” F.T.C. v. Direct Marketing Concepts, Inc.,
Second, defendants allege that plaintiff falsely stated in its advertising that its helmets were covered by the '865 patent. They contend that by advertising that its helmets were patented and implying that its competitor’s helmets were imitations, plaintiff violated the Lanham Act. Plaintiff contends that its statements regarding the '865 patent were not false or misleading because the patent was in fact issued and patents are presumed to be valid. It further contends that defendants must allege that it accused them of infringing on the patent to state a claim under the Lanham Act.
Patents do carry a statutory presumption of validity. See
To prevail on an unfair-competition claim under ... the Lanham Act stemming from a patentee’s marketplace activity in support of his patent, the claimant must first establish that the -activity was undertaken in bad faith.... Although bad faith in this context has both objective and subjective elements, the former is a threshold requirement: a bad faith standard cannot be satisfied in the absence of a showing that the claims asserted were objectively baseless, meaning no reasonable litigant could realistically expect to prevail in a dispute over infringement of the patent.
Judkins v. HT Window Fashion Corp.,
The counterclaims allege that plaintiff first advertised and sold the “Baker” helmet in December 2009, and that Jonathan Baker applied for the '865 patent on Janu
The counterclaims further allege that plaintiff knew that the '865 patent was invalid when it made statements in its advertising that the patent covered the “Baker” helmet. Again assuming the allegations in the counterclaims are true, plaintiff made those statements in bad faith because it could not have reasonably believed that the 865 patent was valid. See Golan v. Pingel Enter., Inc.,
Plaintiff also contends that statements made in the marketplace are only actionable when they directly refer to a competitor or a competitor’s products. It contends that the counterclaims are deficient because they do not allege that plaintiffs advertising explicitly stated that any of defendants’ products infringed the '865 patent. However, the counterclaims allege that plaintiff characterized competing helmets as imitations, and did so in the same marketing materials that included references to the '865 patent. For example, one advertisement includes, on the same page, both a reproduction of the first page of the '865 patent and the statement, “Every single brand in the market now has a brim, but your customer wants the original!” (Easton-Bell Countercl., Ex. 7).
The counterclaims further allege that these statements, in combination with each other, would reasonably cause consumers to believe that competing helmets infringed the patent. Those claims are thin, at best. Nonetheless, the allegations are sufficient, when combined with plaintiffs claims that its helmets were the “first” with the disputed design, to state a claim under the Lanham Act, at least for the purposes surviving a motion to dismiss. See Sandoz Pharm. Corp. v. Richardson-Vicks, Inc.,
Plaintiff also contends that the counterclaims fail to allege injury. It contends that under Lexmark Int'l, Inc. v. Static Control Components, Inc., — U.S. -,
In Lexmark, the. Supreme Court held “that to come within the zone of interests in a suit for false advertising under
The counterclaims here satisfy the Lex-mark requirements. The counterclaims allege that plaintiffs false advertising deceived customers, which ■ resulted in increased sales for plaintiff and decreased sales for defendants. Assuming those allegations are true, defendants suffered harm directly caused by plaintiffs false advertising. The counterclaims therefore allege sufficient facts to state a claim for false advertising under the Lanham Act.
b. Undue Delay and Unfair Prejudice
Plaintiff contends that the counterclaims should be struck because the failure to add them earlier constitutes undue delay and would result in unfair prejudice. First, it contends that a September 25, 2013 letter from defendant Smith to plaintiff shows that Smith knew of its false advertising counterclaim months before it amended its answer to include that counterclaim. Defendants contend that they did not know until’they received a document disclosure from plaintiff in February 2014 that plaintiff had known the '865 patent was invalid from its inception. They contend that without that key document, they did not have a basis for alleging bad faith, which is a required element of a false advertising claim based on statements regarding patents.
As the court stated in Refuse Fuels, Inc. v. National Union Fire Ins. Co. of Pittsburgh, Pa.,
When an argument is made that a claim should have been brought at an earlier point in time, it must be borne in mind that any such claims cannot be brought unless the standards ofRule 11, Fed. R.Civ.P. , are met. There is no question that any assertion of an affirmative defense or a counterclaim ... would be subject to the provisions of that rule. In these circumstances, it seems unreasonable to second-guess the judgment of defendants’ counsel that they did not have a sufficient basis to assert the ...counterclaims until after some discovery which occurred after the time within which the counterclaims could have been asserted in response to earlier pleadings.
Second, plaintiff contends that the amount of additional discovery in this case would delay the case and unduly prejudice it. It has provided several categories of discovery that it believes is necessary for the counterclaims, including (1) consumer-survey data on whether the statements are false or misleading; (2) whether the allegedly false statements are material; (3) whether any of the allegedly false statements caused customers to buy plaintiffs products instead of those of defendants; and (4) what damages defendants suffered from the allegedly false statements. Defendants contend that evidence of materiality and damages is not necessary in cases where the alleged false advertising is literally false.
When requesting injunctive relief for false advertising, “[i]f the advertisement is literally false, the court may grant relief without considering evidence of consumer reaction.” Clorox,
Even if proving literal falsity did relieve defendants from having to prove their damages, they would still need to prove that the false statements were material. “[E]ven when a statement is literally false or has been made with the intent to deceive, materiality must be demonstrated in order to show that the misrepresentation had some influence on customers.” Id. at 312 n. 10. Evidence must be presented to show materiality, and plaintiff is entitled to discovery so that it can dispute that evidence. Cf. id. at 312-13 (describing evidence involving literally false statements that showed materiality).
Plaintiff will therefore suffer some prejudice if the counterclaims are allowed because some discovery would have to be taken, delaying the resolution of the case. That prejudice, however, must be balanced against the purposes of
III. Motion to Sever
Finally, plaintiff has moved to sever the counterclaims under
Defendants contend that there is no reason to sever the counterclaims in this case because no further discovery is necessary. Plaintiff contends that it will be prejudiced if the counterclaims are not severed because they require further discovery and will delay trial on its own claims.
There appears to be some discovery that is reasonably necessary to litigate the counterclaims. The counterclaims also involve completely different legal issues than plaintiffs trade-dress claims, and may be appealable to the Federal Circuit instead of the First Circuit. See Joe Matal, A Guide to the Legislative History of the America Invents Act: Part II of II, 21 Fed. Cir. B.J. 539, 539 (2012) (citing H.R.Rep. No. 112-98, at 81 (2011), 2011 U.S.C.C.A.N. 67) (“Section 19 of the AIA, at subsections (a) through (c), ... extend the Federal Circuit’s appellate jurisdiction to compulsory patent ... counterclaims.”).
Those questions, however, are somewhat abstract at this point. The parties have not specifically outlined what discovery is necessary or how quickly the discovery can be completed. It may also be more appropriate to try the counterclaims separately under Rule 42(b) rather than sever them completely under
IV. Conclusion
For the foregoing reasons, plaintiffs motion to strike is GRANTED as to the declaratory judgment act counterclaims; GRANTED as to the Lanham Act, common-law unfair competition, and Chapter 93A counterclaims that are based on puf-fery; and otherwise DENIED. Plaintiffs motion to sever defendants’ counterclaims is DENIED without prejudice as to its renewal.
So Ordered.
Notes
. Plaintiff also brought claims against Dye Precision, Inc., who was voluntarily dismissed from the case on April 28, 2014.
. Because each defendant has made substantially similar allegations in their respective, separately filed counterclaims, the Court cites to Vans's filing.
. K-2 did not" assert either of the declaratory-judgment claims or a common-law unfair-competition claim.
. A party may amend a pleading once as a matter of course within "21 days after serving it,” or "if the pleading is one to which a responsive pleading is required, 21 days after service of a responsive pleading or 21 days after service of a motion under
. Under the “moderate” approach, under
. A third approach, the so-called "narrow” approach, is no longer valid after the abrogation of
. Other courts applying the "moderate" approach have allowed counterclaimants to assert any counterclaims if the plaintiff amends the complaint to change the scope or theory of the case. See, e.g., Hydro Engineering, Inc. v. Petter Investments, Inc.,
. There is no obvious reason why leave of court would be necessary under any circumstances to file a simple answer (that is, one that does not include counterclaims) in response to an amended complaint, or to reassert a counterclaim identical to one that was asserted in response to the original complaint. See
.
. Federal Circuit case law controls declaratory-judgment claims brought to challenge the validity and enforceability of a patent. See Jacobsen v. Katzer,
. Defendants cannot bring Lanham Act claims against plaintiff for bringing lawsuits against them for violating the '865 patent. See Zenith,
. Section 102 was amended in 2011, and now states that a person is not entitled to a patent if "the claimed invention was ... in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.”
. It appears that plaintiff did not own the '865 patent at the time it advertised its helmets, making any claim that they owned the patent that covered the helmets false. (See Assignment (retroactively assigning plaintiff the '865 patent on April 8, 2014)). The counterclaims, however, do not allege that plaintiff made false statements in claiming to own the '865 patent. (See, e.g., Easton-Bell Countercl., Docket No. 165, at 12 ¶ 8 (“Bern is the
. Plaintiff also contends that the common-law unfair-competition and Chapter 93A claims should be dismissed. Plaintiffs contentions regarding those claims are essentially identical to those regarding the false-advertising claims, and suffer from the same infirmities.