Blake v. Professional Coin Grading ServiceBlake v. Professional Coin Grading Service
MEMORANDUM
I. INTRODUCTION
This is a case of an attorney who claims that he has discovered a method to grade the “eye appeal” of coins. Duane C. Blake (“Blake”) is a coin collector and inventor of this method, which he called the “axial ultimate refractory angle of the coin” (“AURA System” or “AURA”). Blake sought to promote the AURA System with Professional Coin Grading Service (“Professional Grading”), Collectors Universe, Inc. (“Universe”), and its competitor Numismatic Guaranty Corporation of America (“Numismatic”) (collectively, the “Defendants”). During initial talks with the Defendants, Blake communicated some marketing proposals that adopt the plus (+) symbol in the promotion of the AURA System. The Defendants were not interested in working with Blake and instead launched an idea similar to the AURA System. This case revolves around the protectability and confidentiality of Blake’s ideas and the duties owed to Blake by the Defendants, if any.
On August 31, 2011, Blake filed a nine-count complaint (“Complaint”) against Professional Grading, Universe,
On October 14, 2011, Professional Grading and Universe moved to dismiss Blake’s Complaint in its entirety. Defs.’ Collectors Universe, Inc. & Professional Coin Grading Service’s Mot. Dismiss All Counts Pl.’s Compl., ECF No. 12; Defs. Collectors Universe, Inc. & Professional Coin Grading Service’s Mem. Law Supp. Mot. Dismiss Pl.’s Compl. (“Universe & Professional Grading’s Mem.”), ECF No. 13. On October 28, 2011, Blake filed a memorandum opposing the motion to dismiss, Mem. Supp. PL’s Opp’n Defs. Collectors Universe, Inc. & Professional Coin Grading Service’s Mot. Dismiss, ECF No. 21, but subsequently refiled it on November 4, 2011, to comply with the twenty-page limit, Mem. Supp. PL’s Opp’n Defs. Collectors Universe, Inc. & Professional Coin Grading Service’s Mot. Dismiss (Re-Submitted Pursuant Court Order Comply 20 Page Limit), ECF No. 24 (“Blake’s Opp’n Universe & Professional Grading’s Mot.”).
On November 1, 2011, Numismatic filed a motion to dismiss Blake’s Complaint in its entirety. Def. Numismatic Guaranty Corp. Am.’s Mot. Dismiss All Counts PL’s Compl., ECF No. 22; Def. Numismatic Guaranty Corp. Am.’s Mem. Law Supp. Mot. Dismiss Compl. Pursuant Fed. R.Civ.P. 12(b)(6) (“Numismatic’s Mem.”), ECF No. 23. On November 16, 2011, Blake filed a memorandum opposing the motion to dismiss. Mem. Opp’n Numismatic Guaranty Corp. Am.’s Mot. Dismiss (“Blake’s Opp’n Numismatic’s Mot.”), ECF No. 26. On November 28, 2011, Numismatic submitted a reply brief. Def. Numismatic Guaranty Corp. Am.’s Reply Mem. Law Further Supp. Mot. Dismiss Compl. Pursuant Fed.R.Civ.P. 12(b)(6), ECF No. 30. On December 8, 2011, Blake filed his surreply. Combined Sur-Reply Defs.’ Replies Mot. Dismiss, ECF No. 33.
During the motion hearing held on December 13, 2011, the Defendants declined the Court’s invitation to convert the motion to dismiss into a motion for summary judgment. Mot. Hr’g Tr. 4:11-21, 8:13-25, 9:25-10:19, Dec. 13, 2011, ECF No. 36. At the motion hearing, Blake’s counsel confirmed that the supplementary materials attached as exhibits to the Complaint and referred to therein could properly be considered by the Court at this stage. Id. at 17:3-10. The Court took the matter under advisement. Id. at 24:9.
On December 16, 2011, Blake filed a motion for leave to file an amended complaint, attaching the proposed amended complaint and newly discovered documents. Mot. Leave File First Am. Compl.
B. Facts as Alleged
Rare coins have avid collectors,
Blake is a coin collector and dealer, doing business in Massachusetts as the Aura Coin Company.
Blake postulates a new twist to refine the distinctions among coins of the same grade. The AURA System proposes grading the “eye appeal” of coins with labels that grade the overall appearance of a coin within the same numeric grade. See Application 4:25-36. To achieve eye appeal, the AURA System evaluates the “axial ultimate refractory angle of the coin” (hence the name AURA). Id. at 5:20-38. Blake posits certain symbols
The manner of labeling is flexible, and also contemplates placing ... other colors or material (e.g., a label or sticker), characters (e.g., alphanumeric, roman, Arabic, Chinese, etc.), symbols (e.g., QWERTY symbols [i.e. typewriter or computed keyboard symbols] text, pictures, art) and colors at any place on/inside of a coin holder (so long as view of the coin itself is not obscured). This includes labeling that is embedded in or part of the coin holder itself (e.g., a colored or etched coin holder or alphanumeric or symbolistic grade). As a definitive example in this case, the AURA designator of above average 51, average 53 and below average 55 can be alternatively labeled with any QWERTY symbol. For example, a “ + ” [Plus] sign can be printed on the label to indicate an above-average quality coin....
Id. at 14:19-27. Blake proposed labeling the coin’s eye appeal and taking a digital photograph during the grading process to have a record of the coin, which would allow a collector to track any alterations or modifications to the coin’s condition.
Before Blake developed the AURA System, Numismatic already used a star (★) symbol next to the numerical grade on the plastic holder to designate a coin that had exceedingly beautiful eye appeal within its assigned grade. Application 2:28-30. Professional Grading also considers the eye appeal of a coin as one factor in its “PQ” (Premium Quality) label. See Blake’s Opp’n Numismatic’s Mot., Ex. B, at 4, ECF No. 26-2.
The main problem that Blake seeks to resolve with AURA is that, while “each [coin grading] service may utilize the same technical numerical grading system, ... no coordination exists for the consistant [sic] recognition of eye appeal within the industry.” Application 3:35-37.
Blake brought suit against Universe, Professional Grading, and Numismatic. Compl. ¶¶ 7-9. Universe is a Delaware corporation and has its principal place of business in California. Id. ¶ 9. Professional Grading is an unincorporated division of Universe in the business of providing third-party grading services to coin collectors and dealers. Id. ¶ 7.
Blake claims that Professional Grading and Numismatic rebranded AURA and launched the plus (+) designation
On April 29, 2009, before filing the patent application, Blake communicated via email with David W. Lange (“Lange”), Research Director at Numismatic, to propose market testing the AURA System. Blake’s Opp’n Numismatic’s Mot., Ex. B, at 7, ECF No. 26-2. In that same e-mail, Blake indicated that he had contributed to the Lincoln Cent Matte Proofs book authored by Kevin Flynn (“Flynn”), wherein Blake published part of his AURA grading system. Id. at 6-7. Lange responded to the e-mail, stating he already had a copy of the book, and referred the AURA offer to Numismatic’s Marketing Director, Scott Schechter (“Schechter”). Id. at 6.
Blake sent a confidentiality agreement (“Agreement”) to Schechter on July 26, 2009, but Schechter misplaced the Agreement. Compl. ¶¶ 44-46. On August 18, 2009, at the beginning of a telephone conference between Blake and Schechter, Blake e-mailed another copy of the Agreement to Schechter, who promised to sign and return it. Id. ¶ 46. Schechter expressly agreed to treat all disclosures made by Blake as confidential. Id. Blake subsequently disclosed the AURA System and his marketing strategy to Schechter. Id. ¶¶ 47-50. During the call, Blake described to Schechter his previous unsuccessful proposal to Professional Grading. Id. ¶ 48. After that conversation, Schechter did not communicate with Blake or re
Blake referenced in his Complaint certain of the Defendants’ marketing materials. These appear to show that on March 25, 2010, Professional Grading and Numismatic together launched the plus (+) designation by adding to the numeric Sheldon System grade a plus ( + ) symbol to indicate a coin of a higher quality within its specific grade. Id. ¶ 60. Professional Grading stated that one of the goals of labeling coins with the plus (+) symbol is to demonstrate “[increased recognition of high-end coins within each grade.” Blake’s Opp’n Universe & Professional Grading’s Mot., Ex. A, PCGS Secure Plus, ECF No. 21-1. Numismatic also stated that “coins receiving a + must have above-average eye appeal.” Blake’s Opp’n Numismatic’s Mot., Ex. F, ECF No. 26-6. Professional Grading and Numismatic have branded their grading system as SecurePlus and “ + ” respectively. Compl. ¶ 61. Blake claims that the plus (+) grading announced by Professional Grading and Numismatic is nearly identical to the AURA System and that representatives at Numismatic must have disclosed it to Professional Grading. Id. ¶¶ 64-66.
Blake alleges that he was injured as a result of the Defendants’ conduct and that the image and marketability of the AURA System were damaged because he has been unlawfully deprived of the opportunity to license the AURA System and lost expenses associated with his patent and trademark applications. Id. ¶¶ 67-74.
C. Federal Jurisdiction
This Court’s jurisdiction arises under the Lanham Act, 15 U.S.C. § 1125(a), conferred by 28 U.S.C. §§ 1331, 1338. Supplemental jurisdiction arises under 28 U.S.C. § 1367(a) as to the state law claims.
Moreover, there is complete diversity for the remaining claims under 28 U.S.C. § 1332(a). Blake is a Massachusetts resident. Professional Grading is a subsidiary of Universe, a Delaware corporation, and has its principal place of business in California. Numismatic is located in Florida and New Jersey, with its principal place of business in Florida. The amount in controversy exceeds $75,000, exclusive of interest and costs.
II. ANALYSIS
A. Legal Standard
To survive a motion to dismiss for failure to state a claim upon which relief may be granted, the plaintiff must present facts that make his claim plausible on its face. Bell Atl. Corp. v. Twombly,
In the present motion to dismiss, Blake urges the Court to consider the documents attached as exhibits to the Complaint and referenced therein. See Mot. Hr’g Tr. 17:3-10; Blake’s Opp’n Universe & Professional Grading’s Mot. 1-2; Blake’s Opp’n Numismatic’s Mot. 1-2. Under the Federal Rules of Civil Procedure, if “matters outside the pleadings are presented to and not excluded by the
In the interest of fairness, this Court invited the parties to convert the present motion to dismiss into one for summary judgment, Mot. Hr’g Tr. 4:11-21, an offer that was declined by the parties, id. at 8:13-25, 9:25-10:19. Therefore, this Court will treat the present motion as a motion to dismiss under the Rule 12(b)(6) standard.
Under Rule 12(b)(6), a court may consider: (i) the complaint, the documents annexed to it, and other materials fairly incorporated; (ii) documents referred to in the complaint but not annexed to it; and (in) matters that are susceptible to judicial notice. Rodi v. S. New Eng. Sch. of Law,
In light of these principles, this Court may consider the facts alleged in Blake’s Complaint, the patent application annexed to it, Compl. ¶ 6, and the documents referred to in the Complaint but not annexed to it, namely, the Federal Trade Commission Consent Decree, id. ¶ 73, the Confidentiality Agreement, id. ¶ 44, the communications that Blake exchanged with Professional Grading and Numismatic, id. ¶¶ 38-39, 42-45, 445, Professional Grading and Numismatic’s announcement of SecurePlus, and “ + ” labels, id. ¶¶ 58-61, and marketing materials, id. ¶¶ 3, 7-9, 140.
B. Blake’s Proposed Amended Complaint Is Futile
Under Federal Rule of Civil Procedure 15(b), the Court should grant leave to amend “when justice so requires.” Fed. R.Civ.P. 15(b). Denial of the motion for leave to amend is justified whenever there is bad faith, delay, or undue prejudice. Colmenares Vivas v. Sun Alliance Ins. Co.,
Blake’s proposed amended complaint is intended to expand upon and afford greater detail to the numerous evidentiary documents and factual allegations already pleaded in the original Complaint. Blake’s Mot. Leave to Amend 3 (stating that the original Complaint and incorporated documents “gave Defendants full and clear notice as to the claims against them” but that Blake “believes that a clarification of the Complaint could only facilitate the simplification and progress of these proceedings”). The Defendants contend that the proposed amended complaint is futile because it does not add new causes of action and simply incorporates the various arguments contained or referenced in Blake’s opposition and sur-reply. Numismatic’s Opp’n to Amend 1.
A careful review of the record confirms that all the proposed factual allega
C. Blake’s Alleged Confidential Information
The crux of the motion to dismiss is the confidentiality of the information Blake communicated to the Defendants. Specifically, the analysis turns on whether use of the plus ( + ) symbol to indicate higher quality within the same coin grade falls within the bounds of general knowledge, whether Blake publicly disseminated information about the AURA System, and whether the Defendants disclosed confidential information about Blake’s marketing plan to promote the AURA System.
The Defendants allege that Blake fails to plead any facts that would allow this Court to distinguish the aspects of the AURA System in the public domain from those allegedly disclosed confidentially. Universe & Professional Grading’s Reply 6; see also Universe & Professional Grading’s Mem. 8; Numismatic’s Mem. 14.
Under Iqbal, Blake has to do more than simply invoke the label “confidential information.” See
The test is objective in the sense that the information must be of the kind that a reasonable person would recognize as exclusive or private and likely to be known or appreciated only by its possession, even if it does not amount to a “secret” in the popular sense of the word.
Information that is, on the other hand, readily known or knowable to the interest of the public cannot ... be made confidential simply by slapping it with a restrictive label.
The test is subjective in the sense that the party imparting the information must manifest an expectation that it will be kept private by the person to whom it is conveyed.
One obvious measure of whether a party truly regards information as confidential is the extent to which it takes diligent precautions to safeguard the information from inadvertent dissemination or improper use by others.
Foster-Miller, Inc. v. Babcock & Wilcox Canada,
1. Use of the Plus (+) Symbol to Indicate a Coin’s Grade Was General Knowledge
Confidential information “must be of the kind that a reasonable person would recognize as exclusive or private and likely to be known or appreciated only by its possession.” Foster-Miller,
Here, the AURA System proposed many symbols as possible labels for the “eye appeal” grade based on the “axial ultimate refractory angle of the coin.” Application 14:19-27 (noting that “[t]he manner of labeling [the eye appeal] is flexible,” that it can use colors, characters, and symbols, and that, for instance, it “can be alternatively labeled with any QWERTY symbol. For example, a ' + ’ [Plus] sign can be printed on the label to indicate an above-average quality coin.”). This is exactly what Numismatic did, and still does, to evaluate the “eye appeal” of coins, even before Blake developed the AURA System. Id. at 2:28-30 (explaining that Numismatic uses the star (★) symbol next to the numerical grade to credit a coin’s eye appeal).
The only difference between the method developed by Blake and those of the Defendants is that the AURA System consists of evaluating the “axial ultimate refractory angle of the coin.” See id. at 5:20-38. Blake does not allege any facts indicating that the Defendants evaluate the “axial ultimate refractory angle of the coin.” Rather, Blake’s claims relate to the Defendants’ use of the plus (+) symbol “to indicate a coin of a higher quality within its specific grade.” Compl. ¶ 60. Moreover, the Defendants point out that within the numismatic grading systems, the plus (+) symbol has been generally used in the industry since the 1970s for the purpose of distinguishing higher quality coins within the same grade. Universe & Professional Grading’s Mem. 11 n. 7.
Therefore, Blake’s Complaint does not allege facts sufficient to make it plausible that he owned proprietary rights in the plus ( + ) designation.
2. Blake Publicly Disseminated the Information About the AURA System
“[I]deas in the public domain remain there for the free use of the public.”
Here, to the extent that Blake filed a patent application for the AURA System, he cannot claim that it was confidential information as of the date of the patent publication on June 2, 2011. See Brooks Automation, Inc. v. Blueshift Techs., Inc., No. 05-3973-BLS2,
The AURA System was readily known or knowable to the Defendants because Blake voluntarily disseminated the information. Additionally, Blake voluntarily disclosed “publicly-known aspects” of the AURA System to Professional Grading without any obligation of confidentiality. Compl. ¶39. Moreover, those aspects of the AURA System were publicly known before the patent application due to Blake’s voluntary disclosures. Blake’s Opp’n Numismatic’s Mot., Ex. B, at 5-6 (indicating that Blake had contributed to the Lincoln Cent Matte Proofs book authored by Flynn by publishing a chapter explaining the AURA System). On April 29, 2009, Blake offered his publication to Lange, Research Director at Numismatic, who responded by saying that he already had a copy of the book. Id. at 7. The community of coin collectors were discussing the eye appeal factor on internet forums, and Blake readily pointed out these discussions in an e-mail to Lange and Schechter before any confidential relationship existed. Id. at 4-5.
To the extent that Blake voluntarily disclosed the alleged “confidential information” of the AURA System to the Defendants and the public, Blake did not have a property interest in this information because it was either already in the public domain, see Bonito Boats,
Therefore, Blake’s claim that he owns “confidential information” or a trade secret over the AURA System is no more than a label and a conclusion not supported by the facts alleged in the Complaint.
3. Blake Sufficiently Alleges that the Defendants Disclosed Confidential Marketing Information
Confidential information “must be of the kind that a reasonable person would recognize as exclusive or private and likely to be known or appreciated only by its posses-. sion, even if it does not amount to a ‘se
Here, the use of the plus (+) symbol in the coin grading industry was not confidential information or a secret. See supra section II.C. Blake, however, also proposed a marketing plan to both Professional Grading and Numismatic to promote the plus (+) symbol as a grade for determining a coin’s “eye appeal.” Compl. ¶¶ 38, 40. Although Blake proposed only publicly known aspects of the AURA System to Professional Grading, id. ¶ 39, Blake alleges that he shared confidential aspects of his marketing test ideas to Numismatic, see id. ¶¶46, 50. There was some expectation that Numismatic would keep this information private, and Schechter expressly agreed to do so. Id. ¶ 46.
Blake’s marketing test ideas included a proposal to work jointly with other firms in the coin grading industry because the particularly fragmented nature of the industry makes it nearly impossible for any single enterprise to unilaterally standardize a labeling methodology for the eye appeal concept. Application 3:35-37. Blake proposed the plus ( + ) symbol as a marketing tool to promote his eye appeal grade during conversations with Numismatic. See Compl. ¶ 62. This same symbol is the one that the Defendants allegedly introduced together, despite being competitors. Id. ¶ 60. The fact that Numismatic’s use of the plus (+) symbol overlaps with its star (★) symbol to credit the eye appeal of a coin also tends to substantiate Blake’s allegations. Blake’s Opp’n Numismatic’s Mot., Ex. F (“[C]oins receiving a + must have above-average eye appeal.”).
Therefore, Blake sufficiently alleges that the proposed marketing plan was not in the public domain and that Numismatic disclosed the information, despite the existence of an oral agreement with Blake to keep it confidential.
4. Conclusion as to Blake’s Confidential Information Allegations
While the overarching analysis of the alleged confidential information plays out differently in each count, it effectively eliminates the claimed protection of the AURA System and the plus (+) designation, and it leaves viable only those claims premised on Blake’s marketing plan. Most of the alleged damages that Blake seeks relate to the AURA System itself. Blake, however, may still be entitled to damages for the tortious acts regarding his confidential marketing plan, if the evidence so supports, and he can proceed on those factual grounds.
D. Violation of Section 43(a) of the Lanham Act (Count I)
The Lanham Act imposes liability on:
Any person who ... in connection with any goods or services ... uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which ... is likely to cause confusion ... as to the origin ... of [its] goods [or] services ..., or in commercial advertising or promotion, misrepresents the nature, characteristics [or] qualities ... [of] another person’s goods [or] services.
15 U.S.C. § 1125(a)(1) (commonly known by its Public Law designation, “Section 43(a)”). “A typical scenario involves ‘passing off,’ where a defendant sells its own goods or services while, falsely represent
The converse of “passing off’ is “reverse passing off,” which occurs when “[t]he producer misrepresents someone else’s goods or services as his own.” Dastar Corp. v. Twentieth Century Fox Film Corp.,
The First Circuit, however, has not had the opportunity to address this issue since the Supreme Court’s decision in Dastar. In Dastar, the Supreme Court held that the enactment of the Trademark Law Revision Act of 1988 clarified that “[Section 43(a)’s] language is amply inclusive ... of reverse passing off — if indeed it does not implicitly adopt the unanimous court-of-appeals jurisprudence on that subject.”
1. Blake Fails to Allege False Designation of Origin
The Lanham Act prohibits individuals from misrepresenting someone else’s goods or services as their own. See Dastar,
Here, Blake’s claim is one of authorship. Blake essentially alleges that the Defendants’ use of the “SecurePlus” and “ + ” labeling methodologies is “likely to cause confusion ... as to the origin ... of goods.” Blake argues that the Defendants impliedly represent that they are the creators of the “ + ” labeling methodology used to indicate a coin’s eye appeal. Compl. ¶¶ 76-77. Yet the “ + ” symbol is a communicative product embedded in the AURA System, to which Blake claims authorship. The Defendants are not required under trademark law to credit the
2. Blake Fails to Allege False Advertising of the Nature, Characteristics, or Qualities of AURA
Section 43(a)(1)(B) of the Lanham Act prohibits misrepresentations of “the nature, characteristics, qualities, or geographic origin of ... goods” in connection with “commercial advertising or promotion[s].” 15 U.S.C. § 1125(a)(1)(B). In dicta, the Supreme Court in Dastar left open the possibility that some false authorship claims could be brought under Section 43(a)(l)(B)’s prohibition of false advertising.
Other courts that have addressed the issue rejected this reading of Dastar. See, e.g., Baden Sports, Inc. v. Molten USA Inc.,
Here, Blake premises his false advertisement claim on two factual bases: (1) the alleged renaming and rebranding of the AURA System as “SecurePlus” and “ + ” labeling methodology; and (2) the alleged false description and representations of the “SecurePlus” and “ + ” labeling methodology. Compl. ¶ 77.
Since Blake has never marketed coins labeled with the AURA System, the public could not have been misled into believing that the AURA System has a “quite different” nature, characteristic, or quality than “SecurePlus” and “ + ” labeling methodology. Blake claims that the Defendants’ methodologies are mere rebranding and “virtually identical” to AURA, Compl. ¶ 64, yet Blake does not show how the Defendants’ attempt to differentiate the “Secure-Plus” and “ + ” labeling methodology from the AURA System; indeed, the Defendants do. not even mention the AURA System in their marketing or advertising materials.
The grading process does not change the nature, characteristics, or qualities of the coin. Arguably, a graded and labeled coin has an added value, but this value derives from the service provided by a reputable grading company. This is particularly relevant since the eye appeal evaluation is a subjective measure dependent on the expertise of the grader. The tendency in the coin grading industry is to develop new and more subtle grades to encourage customers to re-grade their coins. See, e.g., United States v. Kayne,
Under Massachusetts law, a person “who intentionally or wrongfully exercises acts of ownership, control, or dominion over personal property to which he has no right of possession at the time” is liable for conversion. Abington Nat’l Bank v. Ashwood Homes, Inc.,
At common law, a conversion claim is viable only in cases involving tangible chattels. See Harvard Apparatus, Inc. v. Cowen,
Here, Blake claims conversion of trade secrets, intellectual property, royalties, and sale proceeds. Compl. ¶¶ 50, 88-92,121.
The AURA System, the (+) designation, and Blake’s marketing plan are intangible property; therefore, Blake’s claims of conversion are not viable. See Jayson Assocs., Inc.,
Similarly, under Massachusetts law, royalty rights, goodwill, literary rights, copyrights, trademarks, and patents are considered intangible property. In re Furst,
Moreover, could a conversion claim be brought for intangible property, Blake still fails to allege that he was the rightful owner of such property. See In re Hilson,
Therefore, the motion to dismiss on the conversion count was granted in its entirety-
F. Breach of Contract (Count III)
A breach of contract claim must allege “(1) the existence of a valid and binding contract; (2) that plaintiff has complied with the contract and performed his own obligations under it; and (3) breach of the contract causing damages.” Persson v. Scotia Prince Cruises, Ltd.,
In Novel Iron Works, Inc. v. Wexler Construction Co.,
The legal principles which are to be applied in resolving the issue are well established. Where, as here, parties negotiate orally as to the terms of an agreement while intending to execute a written contract, the parties generally are not bound until the contract is signed. If, however, the parties orally agree to the essential terms of the transaction, it may be inferred that they intended to bind themselves at that time and that the writing to be drafted and delivered is a mere memorial of the contract, which is already final by the earlier mutual assent of the parties to those terms. Further, where the facts show that the parties intended to be bound at some point in their negotiations before execution of a formal contract, they will not be bound unless there is agreement as to the basic terms of the undertaking. There must be agreement on the essential terms of the transaction in order that the nature and extent of the parties’ obligations can be determined, and hence, enforced.
Id. at 407-08,
The issue, therefore, is whether Blake has alleged sufficient facts to plausibly support the conclusion that Blake and Schechter orally agreed to the essential terms of the confidentiality agreement and intended to bind themselves at that time. Blake alleges that during a telephone conversation on August 18, 2009, Schechter and Blake agreed to “treat all disclosures made by Mr. Blake as highly confidential. Schechter further agreed to return a signed Agreement to Blake.” Compl. ¶ 46. Blake alleges that he disclosed the AURA System and market testing proposal only after Schechter orally (and unambiguously) agreed to keep the disclosure strictly confidential. Id. ¶ 47. The written agreement memorialized the oral contract between Blake and Schechter. See id. ¶¶ 94-97. Numismatic’s disclosure of the confidential information to Professional Grading would thus constitute a breach of contract. Consequently, Blake has alleged sufficient facts to withstand a motion to dismiss his breach of contract claim.
G. Breach of the Implied Covenant of Good Faith and Fair Dealing (Count IV)
“In order to establish a breach of the covenant of good faith and fair dealing, a plaintiff must prove that there existed an enforceable contract between the two parties and that the defendant did something that had the effect of destroying or injuring the right of (the plaintiff) to receive the fruits of the contract.” Boyle v. Douglas Dynamics, LLC, 292 F.Supp.2d
Here, Blake alleges that a valid contract existed with Numismatic, and Numismatic breached the covenant of good faith and fair dealing. Compl. ¶¶ 110, 111. Numismatic argues that no contract exists; therefore, there can be no derivative implied covenant of good faith and fair dealing. Numismatic’s Mem. 10.
As matter of law, Blake alleges sufficient facts to establish an oral contract between Blake and Numismatic. See supra section II.F. As alleged in the Complaint, Schechter expressly agreed to treat Blake’s communications as confidential and accepted such information under that agreement. Compl. ¶ 46. Numismatic breached the contract by disclosing Blake’s marketing plan to Professional Grading. Id. ¶¶ 65,126.
Apart from the breach of contract claim, Blake makes additional factual allegations to sustain a breach of the covenant of good faith and fair dealing claim. See Christensen,
Therefore, Blake as matter of law sufficiently alleges a violation of the covenant of good faith and fair dealing.
To succeed in a claim for unjust enrichment, a plaintiff must show: “(1) a benefit conferred upon the defendant by the plaintiff; (2) an appreciation or knowledge by the defendant of the benefit; and (3) acceptance or retention by the defendant of the benefit under the circumstances would be inequitable without payment of its value.” Massachusetts Eye & Ear Infirmary v. QLT Phototherapeutics, Inc.,
I. Blake Fails to State a Claim for Unjust Enrichment Against Professional Grading and Universe
Blake alleges that the Defendants have unjustly gained valuable benefits at his expense, including the substantial profits they are making from the AURA System. Compl. ¶ 114. Blake’s claim thus falls within the realm of unjust enrichment based on misuse of confidential information. See Massachusetts Eye & Ear Infirmary,
First, Blake alleges that he disclosed only the publicly known aspects of the AURA System to Professional Grading. Compl. ¶ 39. Professional Grading, through Willis, declined to enter into a market testing agreement with Blake on the AURA System. Id. (‘Willis abruptly declined Mr. Blake’s proposal for a market testing arrangement with a terse ‘Thanks but no thanks.’ ”). Thus, Blake does not allege that he directly conferred the benefit of confidential information upon Professional Grading.
Second, Blake further alleges that Professional Grading is liable because it obtained confidential information from Numismatic. Blake relies on Data General Corp. v. Grumman Systems Support Corp.,
Blake’s reliance on this case is misplaced, however, because unjust enrichment and misappropriation of a trade secret are distinguishable causes of action. Massachusetts Eye & Ear Infirmary,
Therefore, this Court holds that Blake fails to state sufficient facts to sustain a claim for unjust enrichment against Professional Grading and Universe.
2. Blake States a Claim for Unjust Enrichment Against Numismatic
As stated above, an unjust enrichment claim based on unauthorized disclosure or misuse of confidential information requires a plaintiff to show that the defendant used the plaintiffs confidential information at the plaintiffs expense. Massachusetts Eye & Ear Infirmary,
Here, even though Schechter did not sign the confidentiality agreement sent by Blake, Schechter expressly agreed to treat all disclosures made as confidential. Compl. ¶ 46. This oral agreement does not extend to previously disclosed information or information in the public domain. Foster-Miller, Inc.,
The agreement does, however, apply to Blake’s marketing plan to use the plus (+) symbol for eye appeal grading, which he conveyed to Numismatic under the promise of confidentiality. See Compl. ¶ 50 (“Mr. Blake further disclosed his marketing plans to introduce the new value-added methods into the numismatic community.”); supra section II.C.3. Blake alleges that Numismatic used the confidential information regarding his marketing plan at his expense. Id. ¶ 67. Specifically, he alleges that Numismatic shared this information with Professional Grading and that they jointly employed his market testing ideas in launching SecurePlus and the ‘ + ’ labeling methodology. Id. ¶¶ 60, 64-67. Blake further alleges that he did not receive any licensing fee or other compensation for the use of his ideas. Id. ¶ 67. He claims he has lost the opportunity to license his ideas to other grading services and derive compensation therefrom. Id. ¶ 74. Blake thus sufficiently alleges at this stage that Numismatic used the confidential information regarding the marketing plan at Blake’s expense, which constitutes unjust enrichment. See Massachusetts Eye & Ear Infirmary,
I. Blake Fails to State a Claim for Civil Conspiracy (Count VI)
“Massachusetts recognizes two types of civil conspiracy, so-called ‘true conspiracy’ and conspiracy based on section 876 of the Restatement (Second) of Torts.” Taylor v. Am. Chemistry Council,
A civil conspiracy claim, based on § 876 of the Restatement, is a form of
Blake advances both theories. Compl. ¶¶ 121, 122. The underlying tort for Blake’s civil conspiracy claim is the conversion claim. Id. This Court held that the latter claim is not viable. See supra section II.E.
Under both theories, “concert of action” and “substantial assistance,” Blake has to allege an underlying tort. Taylor,
Turning to the underlying tort of misappropriation of trade secrets — the only tort claim surviving this motion to dismiss— Blake’s allegations fail as matter of law.
Under the “substantial assistance” theory, the plaintiff has to show that the defendant knew that the tortfeasor’s conduct constituted a breach of duty, the assistance was a substantial factor in causing the resulting tort, and the defendant had unlawful intent. Taylor,
Here, Professional Grading must know that Numismatic’s conduct constitutes a breach of a duty and give assistance that is a substantial factor in causing the resulting tort. Blake’s conclusory assertion that Numismatic disclosed Blake’s AURA System and marketing plan to Professional Grading, Compl. ¶ 65, fails to allege that Professional Grading knew that Numismatic had agreed to maintain confidentiality or that Professional Grading knew the idea was a misappropriated trade secret. Finally, there is no allegation that Professional Grading did anything to encourage Numismatic to breach a duty. See Kyte v. Philip Morris Inc.,
Under the “concerted action” theory, Professional Grading and Numismatic must have agreed to work toward an unlawful result and take steps to do it. See Grant,
Here, Blake does not allege that Numismatic and Professional Grading planned for Numismatic to trick Blake into telling them about the AURA System and the marketing idea so that both companies could misappropriate the trade secret. According to Blake, Compl. ¶ 65, Professional Grading came into the picture later, after Numismatic had the information, id. ¶¶ 66, 121. Therefore, Blake failed to allege that the Defendants agreed to take steps toward misappropriating Blake’s trade secrets.
J. Blake States a Claim for Misappropriation of a Trade Secret (Count VII)
Under Massachusetts law, it is unlawful for a person to steal or take any trade secret “by deception ... with intent to convert to his own use.” Mass. Gen. Laws ch. 93, § 42. To state a claim for misappropriation of a trade secret, the plaintiff must allege (1) the existence of a trade secret; (2) that the plaintiff took reasonable steps to protect the secret; and (3) that the defendant acquired and used, by improper means or through breach of a confidential relationship, the trade secret. See Data Gen. Corp. v. Grumman Systems Support Corp.,
Here, Blake alleges that the AURA System constitutes a trade secret and was misappropriated by the Defendants. Compl. ¶ 127. The AURA System and the use of the plus (+) designation in the grading industry is public knowledge. See supra section II.C. Blake did not take reasonable measures to keep the AURA System secret; rather, he published articles about the AURA System which were available to the public. Blake’s Opp’n Numismatic’s Mot., Ex. B, at 5-7 (indicating that Blake published his AURA System in Lincoln Cent Matte Proofs, authored by
Blake has alleged sufficient facts, however, of a trade secret in his marketing plan to test the market and implement the plus (+) symbol to grade a coin’s eye appeal. Compl. ¶ 50. The marketing plan certainly constitutes a “compilation of information” with which one can “obtain an advantage over competitors who do not know or use it.” J.T. Healy,
Numismatic argues that Blake failed to allege that he made continuous use of the secret in connection with a business, relying on J.T. Healy. See Swartz v. Schering-Plough Corp.,
Blake’s misappropriation claim against Professional Grading and Universe fails for the same reason that his civil conspiracy claim fails. Under Massachusetts law, “a third party who knowingly benefits from a trade secret which a person in a confidential relationship obtained from the plaintiff is liable to the plaintiff for the misappropriation of that trade secret.” Data Gen. Corp.,
K. Unfair Business Practice (Count VIII)
Massachusetts General Laws, Chapter 266, Section 91 (“Chapter 266, Section 91”) prohibits the publication, dissemination, or circulation of advertisements containing “any assertion, representation or statement of fact which is untrue, deceptive or misleading.” Mass. Gen. Laws ch. 266, § 91. A plaintiff must plead this claim with specificity, as it falls within the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). See Martin v. Mead Johnson Nutrition Co., No. 09-11609-NMG,
First, Blake’s claim that the Defendants misled the public under Chapter 266, Section 91 by failing to attribute the plus (+) grading label to Blake is identical to his “reverse passing-off’ claim under the Lanham Act (Count I) and fails for the same reasons. See supra section II.D.
Second, Blake alleges that the Defendants were engaged in “business chicanery” unrelated to their Lanham Act violations, including wrongful conversion, unjust enrichment, civil conspiracy, breach of contract, and misappropriation of confidential information. Compl. ¶ 140; Blake’s Opp’n Numismatic’s Mot. 15. Blake does not allege that the Defendants’ advertisements contain any false or misleading statements about the Defendants’ conduct. Blake cites American Medical Systems, Inc. v. Biolitec, Inc.,
L. Injunctive Relief (Count IX)
Because Blake has stated some claims that survive the present motion to dismiss, ultimate injunctive relief is at least a possibility on those claims. Therefore, dismissal of this count was denied.
III. CONCLUSION
For these reasons, this Court ruled as follows:
The motion to dismiss the alleged violations of the Lanham Act, 15 U.S.C. § 1125(a) (Count I) was GRANTED;
The motion to dismiss the Conversion claim (Count II) was GRANTED;
The motion to dismiss the Breach of Contract claim (Count III) was DENIED;
The motion to dismiss the Breach of the Covenant of Good Faith and Fair Dealing claim (Count IV) was DENIED;
The motion to dismiss the Unjust Enrichment claim (Count V) was GRANTED as to Professional Grading and Universe and GRANTED as to Numismatic with regard to the AURA System but DENIED as to Numismatic with regard to the marketing plan;
The motion to dismiss the Civil Conspiracy claim (Count VI) was GRANTED;
The motion to dismiss the Misappropriation of Trade Secrets claim (Count VII) was GRANTED in part and DENIED in part. The motion was GRANTED as to Professional Grading and Universe in its entirety, GRANTED as to Numismatic with regard to the AURA System, and DENIED as to Numismatic with regard to the marketing plan;
The motion to dismiss the Unfair Business Practices claim for violation of Massachusetts General Laws, Chapter 266, Section 91 (Count VIII) was GRANTED;
The motion to dismiss the claim for Injunctive Relief (Count IX) was DENIED.
Notes
. Professional Coin Grading Service is a subsidiary of Collectors Universe, Inc., a publicly traded company listed on the NASDAQ.
. Citations to Blake’s Opp’n Universe & Professional Grading’s Mot. refer to the ECF system page numbers because Blake’s brief assigned the same page number ("20”) to every page.
.Numismatic collections are a comparatively recent phenomenon; ancients do not seem to have collected coins. Modern coin collectors appreciate not only the metallic grade of the coin but also the artistic qualities and condition of the coin. See, e.g., Holtzman v. Comm’r,
. Professional Grading was the first company to encapsulate coins in plastic holders and use a combination of the two older grading systems, putting letters and numbers together. See generally Compl., Ex. A., 1:25-2:15, ECF No. 1-3.
. Blake has sued on his own behalf; the Aura Coin Company is not a party to this action.
. In essence, a symbol is a visible sign whose meaning is not evident by itself, but is communicated by association or convention (e.g., a dotted line preceded by scissors («< — ) ex
. A significant problem in numismatics is "coin doctoring,” that is treating rare coins with chemicals or heat in an effort to increase their eye appeal, and hence the condition and value of the coin. Compl. ¶31 n. 8. Coin doctoring is considered unlawful if done with fraudulent intent. See, e.g., United States v. Sheiner,
. Universe is being sued only in its capacity as the parent company of Professional Grading. See Compl. ¶ 9. Blake claims that Universe and Professional Grading are closely related and that many of the allegations ought apply with equal force to both parties. Id. Professional Grading is the company Blake had direct interaction with through David Hall (“Hall”), but Hall is at the same time the
. The plus ( + ) symbol is of ancient origin and was used widely in art. The cross with arms of equal length traditionally is known as the Greek cross. It was not until the fifteenth century the plus ( + ) symbol was used in arithmetic for the addition function as a simplification of the Latin "et.” In modem times, the plus ( + ) symbol is used for other purposes as well: for example, it is a commonly accepted method of demonstrating an increment within the same grade, as in academic grades, where, e.g., an A+ is higher than an A. Vexillologists will recognize the Greek cross on the flag of Switzerland, the International Red Cross, in the canton of the flag of Greece, and the letter ''X” flag in the International Signal Code. H. Gresham Carr, Flags of the World, plates I, XVII, XXXV (1953). Students of military decoration know it as the central motif of the Military Order of the Merit (Spain). See, e.g., Vaclav Mericka, Orders and Decorations, plates 22, 41(c) (Paul Hamlyn Ltd., 1967); Order of Manuel Amador Guerrero (Panama) Robert Werlich, Orders and Decorations of All Nations: Ancient and Modem, Civil and Military, fig. 762 (1965) Order of Merit of the Republic (Italy) Guido Rosignoli, Ribbons of Orders, Decorations and Medals, plate 41(13) (1976); and the Stars of the Order of the Garter and the Order of St. Michael and St. George and the George Cross (United Kingdom), and the Order of the Holy Lamb (Finland); Poul Ohm Hieronymussen and Jrgen Lund, Europiske Ordner I Farver, figs. 60, 65, 81, 99 (1966).
. Although unfair competition statutes "may result in the creation of ‘quasi-property rights’ in communicative symbols, the focus is on the protection of consumers, not the protection of producers as an incentive to product innovation.” Bonito Boats,
. The Supreme Court in Dastar stated:
If, moreover, the producer of a video that substantially copied the Crusade series were, in advertising or promotion, to give purchasers the impression that the video was quite different from that series, then one or more of the respondents might have a cause of action — not for reverse passing off under the "confusion ... as to the origin” provision of § 43(a)(1)(A), but for misrepresentation under the "misrepresents the nature, characteristics [or] qualities” provision of § 43(a)(1)(B).
Dastar,
. Additionally, Blake raises the violation of the United States Federal Trade Commission Consent Decree (August 16, 1990) ("FTC Decree”) in support of his Lanham Act claim. Compl. ¶ 73. The FTC Decree permanently enjoins Professional Grading from claiming that its "grading is 'objective,' 'consistent' or 'unbiased,' if such representation is contrary to fact.” Blake's Opp'n Professional Grading & Universe’s Mot., Ex. B, Consent Decree 2, ECF No. 21-2. First, it is beyond dispute that the Federal Trade Commission has not initiated any action against Professional Grading for violation of its decree. Moreover, Blake has no standing to enforce the FTC Decree. Biovail Corp. Int’l v. Hoechst Aktiengesellschaft,
Second, to the extent that Blake alleges that this Court ought be influenced by the FTC Decree to conclude that the Defendants' conduct violated the Lanham Act, see In re TJX Cos. Retail Sec. Breach Litig.,
Blake alleges that Professional Grading has engaged in exaggerated and misleading commercial advertisement in violation of the FTC Decree. Additionally, Blake alleges that Professional Grading is damaging AURA’s goodwill and business reputation, Compl. ¶¶ 82-83, by promoting the "SecurePlus” labeling methodology and creating the misleading impression that it can grade objectively and achieve "consistent grading” of coins, Blake's Opp’n Universe & Professional Grading's Mot. 8, 9-10.
Even if Professional Grading used the term "consistent” in violation of the FTC Decree, Blake simply has failed to allege that it exaggerated the reach of the methodology to the detriment of AURA. Blake himself claims that the AURA System provides a method that "objectively” and “systematically” assesses the eye appeal of coins. See, e.g., Application 4:26, 8:13-15 ("[TJhere is currently no way to objectively and consistently quantify a coin's eye appeal____[T]he [AURA] invention [does] just that.” Id. at 8:13-15).
. In his opposition, Blake raises the argument that Professional Grading agreed to a "naked license” over the " + " mark with Numismatic, the alleged licensee. Blake’s Opp’n Numismatic's Mot. 7-8. Blake first argues that Professional Grading had no right to license the " + ” mark, thus misleading the public to believe that they “are responsible for the promulgation of the standard.” Id. at 8. This argument is but a reformulation of the "reverse passing-off” claim and fails for the same reasons.
Blake’s second argument is that Professional Grading gave a naked license of the “ + ” mark “with no restrictions as to quality control,” thus misleading the public to believe that Professional Grading and Numismatic “have equivalent grading standards for the ' + ’ symbol.” Id. This assertion requires additional analysis.
Naked licensing refers to the abandonment of a mark “by allowing others to use the mark without exercising 'reasonable control over the nature and quality of the goods, services, or business on which the [mark] is used by the licensee.’ ” Eva's Bridal Ltd. v. Halanick Enters., Inc.,
The licensor has a duty to control the uniformity of the trademark’s quality "so that consumers are not deceived by the identity of names into buying a product different from what they reasonably expected.” Draeger Oil Co. v. Uno-Ven Co.,
Assignments of federally registered trademarks must be in writing. 15 U.S.C. § 1060(a)(3). Non-federally registered trademarks are still protected under common law, Volkswagenwerk Aktiengesellschaft v. Wheeler,
Here, Blake contends in his opposition that Professional Grading is the senior user of the " + ” mark and' that the " + ” mark was licensed to Numismatic. Blake’s Opp’n Numismatic’s Mot. 8. Blake's Complaint, however, does not allege that Professional Grading licensed the " + " mark but instead alleges that Numismatic "shared” the " + ” element with Professional Grading after Numismatic had misappropriated the trade secret. Compl. ¶¶ 125-26, 134. Moreover, Blake alleged in his Complaint that each company created its own mark: Professional Grading owns the SecurePlus mark and Numismatic owns the " + ” mark, Compl. ¶ 61, and each has promoted its respective label as if it had "independently created and singularly owned” each label. Thus, they have "the right to grant licenses to one another.” Id. ¶ 78.
Blake failed to allege the existence of a written or implied license agreement, however, and therefore this Court does not have to decide whether Professional Grading breached any duty to control the quality of the services bearing the " + ” mark, resulting in deceptive conduct that misled consumers.
.This is not a case, nor do the parties argue to the contrary, where the merger doctrine applies to the claim for conversion for intangible property. Under the merger doctrine, intangible property rights may be the subject of conversion if they "customarily merge in or identify with certain kinds of documents.” Commonwealth v. Rizzuto, Nos. 028008 and 028010,
. The breach of contract count is directed solely against Numismatic.
. Numismatic argues that "[a] party suing upon an alleged oral contract must plead greater detail than in the case of a written agreement,” following' Watkins v. Omni Life Science, Inc.,
. Count IV is directed solely against Numismatic.
. The parties dispute the effect of Blake’s patent application in publicizing the trade secret. Universe & Professional Grading’s Mem. 9; Numismatic's Mem. 15-16; Blake’s Opp'n Universe & Professional Grading’s Mot. 12. This dispute is immaterial, as this Court holds that Blake independently released information about the AURA System apart from the application.