CDC NEWBURGH INC. v. STM BAGS, LLC and LIENAU SALES AND MARKETING, LLC (d/b/a LIENAU)
22-cv-1597 (NSR)
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
9/18/2023
NELSON S. ROMÁN
Case 7:22-cv-01597-NSR Document 56 Filed 09/18/23
Plaintiff CDC Newburgh Inc. (CDC) commenced this action on February 25, 2022 against Defendants STM Bags, LLC (“STM” or “Defendant“) and Lienau Sales and Marketing, LLC (“Lienau” or “Defendant) (collectively, “Defendants“), alleging violations of New York state and federal law arising from Defendant‘s involvement in the removal of ten of its product listings from Amazon.com. (ECF No. 1.) In its Amended Complaint (“AC“), Plaintiff advances the following claims against both Defendants: (1) defamation; (2) tortious interference with prospective business relations; (3) a declaratory judgment of non-infringement; and (4) common law unfair competition. (ECF No. 29, “AC“.) Defendant STM, in response, asserts the following counterclaims against Plaintiff: (1) trademark infringement under both federal and New York state common law; (2) false advertising; (3) unfair competition; and (4) trademark dilution. (ECF No. 35, “Answer“.)
Before the Court are Defendant Lienau‘s motion to dismiss Plaintiff‘s Amended Complaint and add a counterclaim (ECF No. 43), as well as Plaintiff‘s motion to dismiss Defendant STM‘s counterclaims (ECF No. 36). For the reasons that follow, the Court GRANTS Defendant Lienau‘s motion to dismiss Plaintiff‘s Amended Complaint in its entirety, but GRANTS in part, and DENIES in part, Plaintiff‘s motion to dismiss Defendant STM‘s counterclaims.
I. Factual Background
A. Factual Allegations in the Complaint
The following facts are drawn from Plaintiff‘s Amended Complaint and are accepted as true and construed in the light most favorable to Plaintiff for purposes of Plaintiff‘s motion to dismiss. See Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002).
i. Description of Plaintiff‘s Business and Amazon‘s Intellectual Property Infringement Policy
Plaintiff is a “non-authorized reseller” of consumer products that it purchases from resellers and distributors, among other sources, in order to resell these products at a discount. (AC ¶¶ 8-10.) Although Plaintiff does not usually purchase its inventory directly from the relevant manufacturers, it claims that its products are authentic. (Id.) Plaintiff sells its products through online marketplaces like Amazon.com (“Amazon“). (Id. ¶ 11.)
Plaintiff alleges that Amazon‘s policy regarding reports of intellectual property infringement (the “Policy“) are known to Defendants, given Defendants’ familiarity with e-commerce. (Id. ¶ 12.) The Policy purportedly encompasses the following procedures: (1) when a trademark owner submits a report that a seller is listing a counterfeit product on Amazon, Amazon automatically removes the listing without warning to the seller; and (2) Amazon does not remove product listings in response to reports that a non-authorized seller is selling authentic products (Id. ¶¶ 12-14.) Additionally, Plaintiff alleges that, following Amazon‘s removal of a product in response to a counterfeiting report, Amazon‘s algorithm considers this history of removal when determining how frequently the accused seller‘s other products appear in consumer‘s searchers. (Id. ¶ 16.) Plaintiff claims that this practice reduces the accused seller‘s sales of all products that it lists on Amazon. (Id.)
ii. Description of Defendants’ Businesses and Relationship
Defendant STM sells cases, bags, sleeves, and other accessories for electronic devices under the “STM” and “DUX” trademarks. (AC ¶ 19.) Defendant Lienau offers sales, marketing, analytics, and logistics services to companies operating in the consumer products sector, including assisting clients with removing fraudulent products from Amazon‘s website. (Id. ¶ 20.)
Plaintiff alleges that Defendant Lienau has served as a commission-based sales representative of Defendant STM at all relevant times. (Id.) Moreover, Plaintiff alleges that STM has authorized Lienau to independently enforce STM‘s trademark rights by reporting violations of these rights. (Id. ¶ 21.) Plaintiff thereby claims that Lienau acted on its own behalf and as STM‘s agent when reporting Plaintiff‘s products to Amazon, on the basis that Lienau has a financial interest in eliminating lawful non-authorized sales of STM‘s products. (Id. ¶¶ 22-23, 31.)
iii. Defendants’ Reports to Amazon that Plaintiff‘s Products were Counterfeit
On February 15, 2022, Plaintiff received a notice from Amazon that Defendant Lienau had reported Plaintiff to Amazon for selling counterfeit versions of Defendant STM‘s DUX shell sleek case for the Apple iPad Pro and that, as a result, Plaintiff‘s listing for this item was removed. (Id. ¶ 24.) In response, Plaintiff contacted Lienau to explain that this item was authentic, object to Lienau‘s filing of this report without conducting a test purchase, and demand
B. Factual Allegations in the Counterclaims
The following facts are drawn from the allegations in Counterclaim Plaintiff‘s counterclaims and are accepted as true and construed in the light most favorable to Counterclaim Plaintiff for purposes of Counterclaim Defendant‘s motion to dismiss. Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 31 L.Ed.2d 263 (1972); Oteze Fowlkes v. Adamec, 432 F.3d 90, 95 (2d Cir. 2005).
i. Counterclaim Plaintiff and its Trademarks
STM develops, manufactures, markets, and sells mobile device, smartphone, and tablet cases and accessories under the STM, STM Goods, and DUX brands.1 (Answer ¶ 4) It sells its products through a network of authorized dealers (the “Authorized Dealers“). (Id.) STM claims that it has established several trademarks (the “Trademarks“), through either the use of the trademarks in commerce or by registering them with the United States Patent and Trademark Office (the “USPTO“).2 (Id. ¶ 6.) Additionally, STM alleges that it actively uses, advertises, and markets the STM Trademarks throughout the United States and that the “general consuming public” thereby associates the STM Trademarks with high-quality mobile device cases and accessories. (Id. ¶¶ 9-13.)
ii. STM has implemented quality controls to address problems endemic to online retail.
STM alleges that online marketplaces threaten a manufacturer‘s ability to maintain its brand integrity because customers cannot easily distinguish between the authorized and unauthorized sellers of a manufacturer‘s products. (Answer ¶¶ 14-23.) In response to this issue, STM developed quality controls to ensure that purchasers of STM products receive the “special characteristics” they purportedly expect from products sold under the STM Goods and DUX names, which include the STM Warranty. (Id. ¶¶ 24-27.) STM further claims that its ability to exercise these quality controls is essential to the quality of its products as well as the value of its Trademarks. (Id. ¶¶ 27-28.)
One such quality control is STM‘s practice of conducting all sales directly or through its authorized dealers (the “Authorized Dealers“). (Id. ¶ 29.) STM‘s Authorized Dealers are required to abide by a specific policy (the “Policy“). (Id. ¶ 30.) The Policy prohibits Authorized Dealers from selling products on third-party websites,
STM alleges that these quality control requirements are “material,” because consumers consider it relevant to their purchasing decision whether the STM product they may buy is sold by an authorized seller subject to such requirements, rather than a non-authorized seller who does not need to abide by them. (Id. ¶¶ 35-36.)
iii. STM alleges that Counterclaim Defendant does not abide by STM‘s quality controls and customer service requirements.
Counterclaim Defendant is not an Authorized Dealer. (Answer ¶ 41.) STM reasons that, in consequence, it does not follow STM‘s quality control measures, particularly as it has not provided STM with its business information or given STM an opportunity to vet it. (Id. ¶ 42.) Specifically, STM notes that Counterclaim Defendant does not comply with STM‘s quality control requirements because it sells the Products on its Amazon storefront without prior approval, has not disclosed to STM where it acquired the Products, and sell the Products as “new” when they were previously sold, and potentially opened or repackaged. (Id. ¶¶ 43-45.) Counterclaim Defendant‘s failure to comply allegedly prevents STM from exercising control over the quality of the Products. (Id. ¶ 46.) STM asserts, too, that Counterclaim Defendant does not comply with STM‘s customer service requirements because it cannot provide the type of instruction and support that STM requires its Authorized Dealers to offer to consumers. (Id. ¶¶ 47-48.)
STM claims that the Products are not “genuine,” given the failure of Counterclaim Defendant to abide by STM‘s quality controls and customer service requirement and that the Products do not include the STM Warranty. (Id. ¶¶ 50-54, 59.) According to STM, the sale of these purportedly counterfeit products infringes on STM‘s Trademarks and diminishes their value because consumers associate negative experiences that may result from purchasing them with STM‘s brands. (Id. ¶¶ 55-67.)
II. Procedural Background
On February 25, 2022, Plaintiff commenced the instant action by filing a complaint against Defendants. (ECF No. 1.) Subsequently, on March 6, 2022, Defendant STM answered Plaintiff‘s complaint. (ECF No. 19.) STM filed an amended answer, with the addition of five counterclaims, on April 27, 2022. (ECF No. 20.)
With the approval of the Court, Plaintiff filed an Amended Complaint on June 6, 2022. (ECF No. 29.) Defendant STM answered Plaintiff‘s Amended Complaint on August 15, 2022, again including five counterclaims in its Answer. (ECF No. 35.)
On September 14, 2022, Plaintiff filed a motion to dismiss Defendant STM‘s counterclaims, with supporting papers. (ECF
Additionally, on October 3, 2022, Defendant Lienau filed a motion to dismiss Plaintiff‘s Complaint and add a counterclaim, with supporting papers. (ECF No. 43.) Plaintiff opposed Defendant Lienau‘s motion to dismiss that same day. (ECF No. 47.)
LEGAL STANDARD
I. Rule 12(b)(6) Motion to Dismiss
Under
In determining whether a complaint states a plausible claim for relief, a district court must consider the context and “draw on its judicial experience and common sense.” Id. at 679. A claim is facially plausible when the factual content pleaded allows a court “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678.
“A motion to dismiss a counterclaim is evaluated under the same standard as a motion to dismiss a complaint.” Revonate Mfg., LLC v. Acer Am. Corp., No. 12 Civ. 6017 (KBF), 2013 WL 342922, at *2 (S.D.N.Y. Jan. 18, 2013) (citation omitted).
II. Consideration of Extrinsic Documents on a Rule 12(b)(6) Motion to Dismiss
When a party submits materials “outside the complaint” for consideration in adjudicating a
Further, “[e]ven where a document is not incorporated by reference, the court may nevertheless consider it where the complaint ‘relies heavily upon its terms and effect,’ which renders the document ‘integral’ to the complaint.” Chambers, 282 F.3d at 153 (quoting Int‘l Audiotext, 62 F.3d at 72). “A plaintiff‘s reliance on the terms and effect of a document in drafting the complaint is a necessary prerequisite to the court‘s consideration of the document on a dismissal motion; mere notice or possession is not enough.” Chambers, 282 F.3d at 153 (emphasis in original) (citing Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991)).
Under
DISCUSSION
I. Defendant Lienau‘s motion to dismiss Plaintiff‘s claims for defamation, tortious interference with prospective business relations, unfair competition, and a declaratory judgment of non-infringement is GRANTED in its entirety.
A. Defendant‘s motion to dismiss Plaintiff‘s defamation claim is granted.
Plaintiff argues that Defendant Lienau‘s Reports are defamatory, as these Reports: (1) falsely claimed that Plaintiff‘s Products were counterfeit; (2) Amazon interpreted the Reports as factual assertions that the Products were counterfeit; and (3) Amazon removed these Products’ listings consistent with that interpretation. (ECF no. 47, at 13.) Defendant, however, argues that the alleged defamatory statements that Plaintiff‘s Products were counterfeit (the “Statements“) are not actionable because they are expressions of pure opinion, not statements of fact or mixed opinion. (ECF No. 44, at 14-17.)
To state a claim for defamation under New York law, a plaintiff must allege: (i) a false statement of fact of and concerning the plaintiff, (ii) published to a third party without authorization or privilege, (iii) made with the applicable level of fault (“negligence or actual malice depending on the status of the [defamed] party“) on the part of the publisher, (iv) that either caused special harm or constitutes defamation per se. Electra v. 59 Murray Enters., 987 F.3d 233, 259 (2d Cir. 2021); see Sleepy‘s LLC v. Select Comfort Wholesale Corp., 909 F.3d 519, 528 (2d Cir. 2018) (quoting Albert v. Loksen, 239 F.3d 256, 265-66 (2d Cir. 2001)). A plaintiff must plead the defamatory statements with some particularity.
“Under both New York and federal law, statements of pure opinion are not actionable as defamation.” Qureshi, 430 F.Supp.2d at 288 (citing Gross v. New York Times Co., 82 N.Y.2d 146, 603 N.Y.S.2d 813, 623 N.E.2d 1163, 1166 (1993)); see also Levin, 119 F.3d at 196 (“[E]xpressions of opinion are not actionable....“); Mann v. Abel, 10 N.Y.3d 271, 856 N.Y.S.2d 31, 885 N.E.2d 884, 885-86 (2008) (“Expressions of opinion, as opposed to assertions of fact, are deemed privileged and no matter how offensive, cannot be the subject of an action for defamation.“). An expression of pure opinion is protected “however unreasonable the opinion or vituperous the expressing of it may be.” Hotchner, 551 F.2d at 913 (citing Gertz v. Robert Welch, Inc., 418 U.S. 323, 339-40, 94 S.Ct. 2997, 41 L.Ed.2d 789 (1974); Buckley v. Littell, 539 F.2d 882, 888 (2d Cir. 1976)). Whether a statement is one of fact or opinion is a question of law for the court to determine. Mann, 10 N.Y.3d 271, 856 N.Y.S.2d 31, 885 N.E.2d at 885.
The principle that expressions of opinion are protected “belies an often complicated task of distinguishing between potentially actionable statements of fact and nonactionable expressions of opinion.” Qureshi, 430 F.Supp.2d at 288. To distinguish statements of fact from opinion, New York courts may consider the following three factors: (1) whether the specific language in issue has a precise meaning which is readily understood; (2) whether the statements are capable of being proven true or false; and (3) whether either the full context of the communication in which the statement appears or the broader social context and surrounding circumstances are such as to signal readers or listeners that what is being read or heard is likely to be opinion, not fact. Id. (quoting Gross, 82 N.Y.2d 146, 603 N.Y.S.2d 813, 623 N.E.2d at 1166). Moreover, “[w]hen the defendant‘s statements, read in context, are readily understood as conjecture, hypothesis, or speculation, this signals the reader that what is said is opinion, and not fact.” Levin, 119 F.3d at 197 (citation omitted).
It follows that a statement of opinion is one which is either “accompanied by a recitation of the facts upon which it is based” or “does not imply that it is based upon undisclosed facts.” Steinhilber, 68 N.Y.2d 283, 508 N.Y.S.2d 901, 501 N.E.2d at 552; see also Gross, 82 N.Y.2d 146, 603 N.Y.S.2d 813, 623 N.E.2d at 1168 (“a proffered hypothesis that is offered after a full recitation of the facts on which it is based is readily understood by the audience as conjecture“). However, a statement may become a “mixed opinion,” and therefore actionable, if it “impl[ies] that the speaker‘s opinion is based on the speaker‘s knowledge of facts that are not disclosed to the reader.” Levin, 119 F.3d at 197; see also Fairstein v. Netflix, Inc., 553 F. Supp. 3d 48, 66 (S.D.N.Y. 2021) (“While a pure opinion cannot be the subject of a defamation claim, an opinion that implies that it is based upon facts which justify the opinion but are unknown to those reading or hearing it, is a ‘mixed opinion’ and is actionable“) (quoting Davis v. Boeheim, 24 N.Y.3d 262, 269, 22 N.E.3d 999, 1004 (2014) (internal quotations omitted)).
Although Plaintiff does not dispute that the Reports are integral to its Amended Complaint (ECF No. 47, at 14), it asserts that the documents Defendant describes as copies of the Reports “[do not] accurately represent how the information was presented to Amazon or the full content of [that information].” (ECF No. 47, at 14.). To support this contention, Plaintiff has provided blank copies of documents that it claims are Amazon counterfeit reporting forms and which contain a different format to the copies of the Reports that Defendant provided. (See ECF No. 48-1.) Defendant responds that: (1) Plaintiff‘s admission that it never accessed the Reports discredits their assertion that the copies of the Reports Defendant provided, and which the employee who submitted the Reports declared under penalty of perjury are true copies of them, are inaccurate; and (2) questioning the formatting of the Reports does not challenge its contents. (See ECF No. 49, at 5; ECF No. 45, at 3.)
The Court finds Plaintiff‘s assertion that the copies of the Reports are inaccurate unconvincing. First, Plaintiff concedes that it does not possess actual knowledge of the Reports. (ECF No. 47, at 14.) Second, the blank reporting form it submitted to the Court appears to contain
the “additional comments” section that also exists in Defendant‘s copies of the Reports and in which the allegedly defamatory statements were ostensibly made. (See ECF No. 48-1.) And, finally, the employee of Defendant who submitted the Reports attested that the documents Defendant provided are true copies of the Reports she sent to Amazon. (See ECF No. 45.) Thus, the Court may consider in its determination the allegedly defamatory statements that are included in the Reports Defendant provided, as it is also undisputed that the Reports are integral to the AC. See Chambers, 282 F.3d at 153.
Defendant included either one or the other of the following assertions that Plaintiff‘s Products were counterfeit in each of the ten Reports:
(1) “Please note only CaseMotions and Sportique are authorized by STM to sell on Amazon. These sellers are not authorized nor are they buying direct from STM therefore we conclude this product is counterfeit.“; and (2) “Please know STM has authorized only Sportique and CaseMotions to sell on Amazon.com outside of STM selling direct. STM has double checked their records and have no data to support this seller acquired STM product through a legitimate channel therefore we can safely assume they are selling counterfeit products.”
(See ECF No. 45-1.) The allegedly defamatory statements “we conclude this product is counterfeit” and “we can safely assume they are selling counterfeit products” are
Defendant‘s motion to dismiss Plaintiff‘s defamation claim is thereby granted, as Plaintiff has failed to plausibly allege that Defendant made a false statement of fact.
B. Defendant‘s request to file an “anti-SLAPP” counterclaim is denied.
Defendant requests that the Court permit it to file an “anti-SLAPP” counterclaim pursuant to New York‘s anti-SLAPP statute,
The Court agrees with Plaintiff that it should deny Defendant‘s request to file an anti-SLAPP counterclaim. Numerous other courts in this Circuit have concluded that New York‘s anti-SLAPP law does not apply in federal court. This Court agrees for the reasons outlined at length in these decisions—that New York‘s anti-SLAPP law conflicts with the procedures and pleading standards established in
The Court thereby rejects Defendant‘s request to file an anti-SLAPP claim, as New York‘s anti-SLAPP law does not apply in federal court.
C. Defendant‘s motion to dismiss Plaintiff‘s claim for tortious interference with prospective business relations is granted.
Plaintiff argues that Defendant tortiously interfered with its business relations with Amazon because Defendant filed the Reports with the intent of inducing Amazon to remove Plaintiff‘s Products by: (1) fraudulently omitting information necessary for Amazon to determine the basis of the reports; and (2) permitting Amazon to remove Plaintiff‘s listings under the false impression that this omission caused. (ECF No. 47, at 26.). Defendant, however, contends that their filing of the Reports does not constitute interference with Plaintiff‘s business relations with Amazon, that their conduct was not motivated by an improper purpose, and that Plaintiff‘s claim is duplicative of its defamation claim, which the Court discussed supra. (ECF No. 44, at 26-30.)
Under New York law, a plaintiff must plead four elements to establish a claim for tortious interference with prospective business relations: “(1) the plaintiff had business relations with a third party; (2) the defendant interfered with those business relations; (3) the defendant acted for a wrongful purpose or used dishonest, unfair, or improper means; and (4) the defendant‘s acts injured the relationship.” Catskill Dev., L.L.C. v. Park Place Entm‘t Corp., 547 F.3d 115, 132 (2d Cir. 2008). “[T]he plaintiff must allege that it was ‘actually and wrongfully prevented from entering into or continuing in a specific business relationship.‘” Evliyaoglu Tekstil A.S. v. Turko Textile LLC, No. 19-CV-10769 (LJL), 2020 WL 7774377, at *2 (S.D.N.Y. Dec. 30, 2020) (quoting Von Rohr Equip. Corp. v. Tanner Bolt & Nut Corp., No. 17-CV-2913 (NGG) (RER), 2017 WL 5184676, at *7 (E.D.N.Y. Nov. 7, 2017)).
As noted supra, Plaintiff‘s claim rests entirely on its allegation that that Amazon removed the listings that Defendant reported as infringing on their Trademarks.
D. Defendant‘s motion to dismiss Plaintiff‘s claim for unfair competition under New York state common law is granted.
Defendant argues that Plaintiff has not asserted a cognizable claim for unfair competition under New York state common law because Plaintiff has not sufficiently pled a theory of “palming off” or “misappropriation.” (ECF No. 44, at 31-32.) Plaintiff, however, contends that it has sufficiently plead this claim because its allegations encompass the misappropriation of commercial benefits, including goodwill, of a competitor through false or misleading conduct. (ECF No. 47, at 27.) Specifically, Plaintiff argues that it suffered damages to its sales and goodwill due to Defendant‘s Reports—these Reports (which Plaintiff alleges Defendant knew were false) resulted in the removal of its product listings from Amazon. (Id.) Plaintiff further claims that Defendant benefitted from this removal at Plaintiff‘s expense because Defendant has a financial interest in eliminating lawful non-authorized sales of STM‘s products, as they are: (1) a commission-based sales representative of Defendant STM; and (2) independently enforce STM‘s trademark rights by reporting violations of these rights. (AC ¶¶ 21-23, 31.).
“The standard of unfair competition under New York law is a virtual cognate of the federal Lanham Act and is predicated on the theory of the misappropriation of a claimant‘s commercial goodwill.” Bangkok Crafts Corp. v. Capitolo di San Pietro in Vaticano, 331 F. Supp. 2d 247, 255 (S.D.N.Y. 2004) (internal citation omitted). “The essence of both sources of protection is the likelihood that the consuming public will be confused about the source of the allegedly infringing product.” E.R. Squibb & Sons, Inc. v. Cooper Labs., Inc., 536 F. Supp. 523, 526 (S.D.N.Y. 1982). “In order for [a] defendant to succeed in demonstrating unfair competition under both the Lanham Act and the common law, defendant must show a likelihood of confusion or deception of the consuming public as to the source of the allegedly infringing product and bad faith on the part of plaintiffs.” Major League Baseball Props., Inc. v. Opening Day Prods., Inc., 385 F. Supp. 2d 256, 269 (S.D.N.Y. 2005).
New York law “recognize[s] two theories of common-law unfair competition: palming [or passing] off and misappropriation.” Carson Optical Inc., 202 F.Supp.3d at 267 (quoting ITC Ltd. v. Punchgini, Inc., 9 N.Y.3d 467, 476, 850 N.Y.S.2d 366, 880 N.E.2d 852 (2007)). “Palming off ... is the ‘sale of the goods of one manufacturer as those of another.‘” Id. at 267-68 (citations omitted); Punchgini, 9 N.Y.3d at 477 n. 2, 850 N.Y.S.2d 366, 880 N.E.2d 852 (“‘One of the most obvious forms’ of palming off ‘occurs when the copier of an article overtly and explicitly misrepresents its source[, for example], where [a] defendant ... substituted its product for plaintiff‘s when customers specifically
Defendant is correct that Plaintiff has failed to plead either palming off or misappropriation. Regarding palming off, Plaintiff does not offer any credible allegations that Defendant copied its products or substituted its products for Plaintiff‘s products—indeed, Plaintiff sells products that the entity for which Defendant provides services (i.e., Defendant STM) initially
manufactures and sells. Moreover, concerning misappropriation, Plaintiff advances the tenuous argument that Defendant misappropriated Plaintiff‘s expenditures and good will because it filed reports alleging that Plaintiff‘s listings violated STM‘s trademark rights, resulting in the removal of these listings; their removal purportedly benefitted Defendant because STM hired Defendant to enforce its trademark rights and as a “commission-based sales representative.” (AC ¶¶ 21-23, 31.) Although this circuitous reasoning may indicate that Defendant received an indirect benefit from filing the Reports, as their removal of Plaintiff‘s listings presumably benefits Defendant‘s employer, Defendant STM, the act of filing them hardly represents a misappropriation of Plaintiff‘s expenditures or good will. And even if the Court agreed with Plaintiff that Defendant committed misappropriation, Plaintiff‘s conclusory accusations that Defendants Lienau and STM “acted with actual malice or with reckless disregard for the truth of [the Reports]” and submitted the Reports to Amazon “with the intent to injure Plaintiff without regard for the accuracy of the statements” are, absent supporting factual allegations, conclusory, and thereby plainly insufficient to show that Defendant did so in “bad faith,” as is necessary to state a plausible claim for misappropriation. (ECF No 29 ¶¶ 40, 43); Barbagallo v. Marcum LLP, 820 F.Supp.2d 429, 446 (S.D.N.Y. 2011).
As Plaintiff has not plausibly alleged New York state common law unfair competition under either a palming off or misappropriation theory, the Court grants Defendant‘s motion to dismiss this claim.
E. Plaintiff‘s request for a declaratory judgment that the products that were delisted from Amazon are not counterfeit and therefore do not infringe STM‘s trademarks or constitute a false designation of origin by means of counterfeiting is denied, as the Court should not exercise jurisdiction over Plaintiff‘s request.
Plaintiff asserts that it is: (1) entitled to a declaratory judgment that the Products are not counterfeit (and thereby do not infringe on STM‘s Trademarks) because it has sufficiently demonstrated that it sells “genuine” STM products; and (2) that the Court has jurisdiction to issue this judgment because Defendant is a rights owner of STM‘s Trademarks “for all practical purposes.” (ECF No. 47, at 24.) However, Defendant claims that it is inappropriate for the Court to exercise jurisdiction over Plaintiff‘s request, as Plaintiff has not sufficiently alleged that Defendant possesses ownership rights in the STM Trademarks. (ECF No. 49, at 12.)
(1) whether the declaratory judgment sought will serve a useful purpose in clarifying or settling the legal issues involved; (2) whether such a judgment would finalize the controversy and offer relief from uncertainty; (3) whether the proposed remedy is being used merely for procedural fencing or a race to res judicata; (4) whether the use of a declaratory judgment would increase friction between sovereign legal systems or improperly encroach on the domain of a state or foreign court; (5) whether there is a better or more effective remedy; and (6) whether concerns for judicial efficiency and judicial economy favor declining to exercise jurisdiction.
57 F.4th at 99-100 (citing Niagara Mohawk Power Corp. v. Hudson River-Black River Regul. Dist., 673 F.3d 84, 105 (2d Cir. 2012)). District courts have “broad discretion to weigh the factors” enumerated in Admiral Insurance, and “no one factor is sufficient, by itself, to mandate that a district court exercise – or decline to exercise – its jurisdiction to issue a declaratory judgment.” Id. at 100. “Likewise, these factors are non-exhaustive, with district courts retaining wide latitude to address other factors as relevant to the ultimate question of whether the normal principle that federal courts should adjudicate claims over which they have jurisdiction should yield to considerations of practicality and wise judicial administration in a particular case.” Id.
Here, the initial question of whether Plaintiff has met its burden to adequately allege that it “has engaged in a course of conduct evidencing a definite intent and apparent ability to commence use of the marks on the product” is unnecessary for the Court to determine, as the first and second factors enumerated in Admiral Insurance clearly indicate that the Court should not exercise jurisdiction over Plaintiff‘s request for a declaratory judgement. Saleh, 957 F.3d at 354.
As noted supra, Plaintiff seeks a court determination that it did not sell counterfeit STM products. With respect to the first Admiral Insurance factor, this fundamentally factual question “is not a legal issue for the court to declare, and therefore declaratory judgment is not appropriate.” Exec. Park Partners LLC v. Benicci Inc., No. 22-CV-02560 (PMH), 2023 WL 3739093, at *4 (S.D.N.Y. May 31, 2023) (quoting Josie Maran Cosms., LLC v. Shefa Grp. LLC, No. 20-CV-03702, 2022 WL 3586746, at *4 (E.D.N.Y. Aug. 22, 2022)) (internal quotations omitted). Moreover, with respect to the second Admiral Insurance factor, the declaratory judgment Plaintiff seeks will not “finalize the controversy” or “offer relief from uncertainty.” 57 F.4th at 99. Plaintiff‘s requested declaratory relief does not remedy the chief harm Plaintiff asserts in this action— the removal of its product listings by Amazon. (Id.) Plaintiff‘s declaratory judgment, too, does not resolve Plaintiff‘s claims for defamation, tortious interference, and unfair competition. (Id.) Thus, declaratory relief on the non-infringement of the STM Trademarks will not resolve the underlying dispute in this action. (Id.)
As the first and second Admiral Insurance factors weigh strongly against the exercise of jurisdiction over Plaintiff‘s request for a declaratory judgment of non-infringement, Defendant‘s motion to dismiss this claim is granted.
I. Counterclaim Defendant‘s motion to dismiss Counterclaim Plaintiff‘s counterclaims for trademark infringement, unfair competition, false advertising, and trademark dilution is GRANTED in part, and DENIED in part.
A. Counterclaim Defendant‘s motion to dismiss Counterclaim Plaintiff‘s counterclaims for trademark infringement and unfair competition under federal law is denied, but its motion to dismiss Counterclaim Plaintiff‘s claim for unfair competition under New York state common law is granted.
Counterclaim Plaintiff‘s first, third, and fifth claims allege trademark infringement and unfair competition under Sections 32(1) and 43(a) of the Lanham Act,
Section 32(1) of the Lanham Act prohibits the “use in commerce ... of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive.”
The standards governing claims for unfair competition, under Section 43(a) of the Lanham Act, and for trademark infringement, under Section 32, are substantially similar. See Twentieth Century Fox Film Corp. v. Marvel Enters., Inc., 220 F. Supp. 2d 289, 297 (S.D.N.Y. 2002) (“[T]he standards for false designation of origin claims under Section 43(a) of the Lanham Act (
Additionally, a successful unfair competition or trademark infringement claim must establish that the defendant made “use in commerce” of the plaintiff‘s trademark. See
Under New York common law, the standards for trademark infringement and unfair competition are “virtually identical” to the standard under the Lanham Act, “except that [New York law] requires an additional showing of bad faith.” Lopez v. Adidas Am., Inc., 2020 WL 2539116, at *15 (S.D.N.Y. May 19, 2020) (quoting TechnoMarine SA v. Jacob Time, Inc., 2012 WL 2497276, at *5 (S.D.N.Y. June 22, 2012)).
Counterclaim Defendant clearly made “use in commerce” of Counterclaim Plaintiff‘s Trademarks by selling products bearing these Trademarks on Amazon. Moreover, as Counterclaim Plaintiff alleges that its Trademarks are registered with the USPTO, its Trademarks are entitled to protection. Counterclaim Plaintiff‘s claims for trademark infringement and unfair competition, then, hinge on whether Counterclaim Defendant‘s use of the Trademarks
Counterclaim Defendant relies on the “First Sale Doctrine” to argue that its use of the STM Trademarks is not likely to confuse consumers as to the origin of the Products— in other words, it claims that it is not liable to Counterclaim Plaintiff for trademark infringement or unfair competition because the Products are “genuine” STM products. (ECF No. 37, at 12-22.) However, Counterclaim Plaintiff asserts that Counterclaim Defendant cannot use this doctrine as a defense to the likelihood of confusion element because the Products: (1) are not subject to the same quality controls as “real” STM products; and (2) are materially different from such products because they do not contain the STM Warranty. (ECF No. 40, at 9.) Counterclaim Plaintiff also argues that, in any case, an inquiry into the “likelihood of confusion” element for claims of trademark infringement and unfair competition is inappropriate at the pre-answer stage. (Id.)
The Court agrees with Counterclaim Plaintiff— courts in this Circuit typically do not conduct a full analysis into the question of “likelihood of confusion” at the motion to dismiss stage due to its fact-intensive nature. Van Praagh v. Gratton, 993 F.Supp.2d 293, 303 (E.D.N.Y. 2014) (“[l]ikelihood of confusion is a fact-intensive analysis that ordinarily does not lend itself to a motion to dismiss.”) (quoting The Name LLC v. Arias, No. 10 Civ. 3212 (RMB), 2010 WL 4642456, at *5 (S.D.N.Y. Nov. 16, 2010)); see also Peek & Cloppenburg KG v. Revue, LLC, No. 11 Civ. 5967 (DAB), 2012 WL 4470556 at *5 (S.D.N.Y. Sept. 19, 2012) (“[A] likelihood of confusion is a question of fact as to the probable or actual actions and reactions of prospective purchasers of the goods or services of the parties.”) (quoting DC Comics Inc. v. Reel Fantasy, Inc., 696 F.2d 24, 26 (2d Cir. 1982)); Ritani, LLC v. Aghjayan, 880 F. Supp. 2d 425, 446 (S.D.N.Y. 2012) (collecting cases). Where, as here, a plaintiff alleges that the defendant used a mark identical to the mark for which the plaintiff holds a trademark to advertise or sell the same type of goods that the plaintiff sells, “[t]his suffices to support an allegation of consumer confusion at the motion to dismiss stage.” Pulse Creations, Inc. v. Vesture Grp., Inc., 154 F. Supp. 3d 48, 56 (S.D.N.Y. 2015).
Counterclaim Plaintiff has plausibly alleged at this stage in the proceedings that: (1) Counterclaim Defendant made “use in commerce” of the Trademarks; (2) its Trademarks are “entitled to protection”; and (3) Counterclaim Defendant‘s products use of the Trademarks is likely to confuse consumers as to the origin of its products. Therefore, Counterclaim Defendant‘s motion to dismiss Counterclaim Plaintiff‘s claims for trademark infringement and unfair competition under federal law is denied. However, the Court grants Counterclaim Defendant‘s motion to dismiss Counterclaim Plaintiff‘s New York state common law claim for trademark infringement, as Counterclaim Plaintiff has failed to show that Counterclaim Defendant acted in bad faith. Lopez, 2020 WL 2539116, at *15 (quoting TechnoMarine SA, 2012 WL 2497276, at *5). The only allegations of bad faith that Counterclaim Plaintiff offers in its counterclaims, for instance, are wholly conclusory— the counterclaims only allege that “[Counterclaim] Defendants have acted with fraud, malice, and willful and wanton conduct” and “Counterclaim Defendants willfully intentionally, maliciously, and in bad faith infringed on the STM and DUX Trademarks.” (Answer ¶¶ 162, 184.)
Counterclaim Defendant argues that the Court should dismiss STM‘s claim for false advertising under
Section 43(a)(1)(B) of the Lanham Act “permits anyone who ‘believes that he or she is likely to be damaged’ to [bring a false advertising claim against] a person who ‘uses in commerce any word ... or misleading description of fact, or false or misleading representation of fact, which ... in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person‘s goods, services, or commercial activities.” Adweek LLC v. Carnyx Grp. Ltd., No. 1:18-CV-09923-GHW, 2019 WL 8405297, at *2 (S.D.N.Y. June 3, 2019) (quoting
To plead a claim for False Advertising under the Lanham Act, Plaintiff must allege standing, which is “an element of the cause of action under the statute.” Lexmark, 134 S.Ct. at 1391 n.6. Plaintiff must also allege: “(1) a false or misleading statement; (2) in connection with commercial advertising or promotion that (3) was material; (4) was made in interstate commerce; and (5) damaged or will likely damage the plaintiff.” Sussman-Automatic Corp. v. Spa World Corp., 15 F. Supp. 3d 258, 269 (E.D.N.Y. 2014).
i. Standing and Injury
The Supreme Court most recently examined the standing requirement for Lanham Act claims in Lexmark International, Inc. v. Static Control Components, Inc., 134 S.Ct. 1377 (2014). Under Lexmark, a claim for false advertising brought under the Lanham Act must first fall into the “zone of interests” the Lanham Act protects, meaning that a claimant must allege “injury to a commercial interest in reputation or sales.” Lexmark, 134 S.Ct. at 1390. Second, the claim must be “proximately caused” by a violation of the statute; the Court noted that proximate cause requires that the economic or reputational injury “flow[s] directly from the deception wrought by the defendant‘s adverting,” which occurs “when deception of consumers causes them to withhold trade from the plaintiff.” Id. at 1377. It follows that a Lanham Act claimant‘s injury is proximately caused even “where a third party, and not the plaintiff ... relied on it.” Id. at 1391 (quotation marks omitted). Likewise, the fact that a step of “consumer[ ] deception” intervenes between the defendant‘s misrepresentation and the claimant‘s injury is “not fatal to the proximate cause showing the statute requires,” presuming the claimant alleges there was no “discontinuity” between injury to direct and indirect victims. See Lexmark, 134 S.Ct. at 1382.
ii. False or Misleading Statement and Materiality
To plead a false or misleading statement, a claim must raise a plausible inference that the defendant‘s false advertising is either “literally false” or “likely to mislead or confuse consumers.” Tiffany (NJ) Inc. v. eBay, Inc., 600 F.3d 93, 112 (2d Cir. 2010). Here, as indicated supra, Counterclaim Plaintiff advances a claim of literal falsity— that the Products do not include the STM Warranty, despite Counterclaim Defendant‘s advertisement that they include it.
A claim based on literal falseness “is best supported by comparing the statement itself with the reality it purports to describe.” Schering Corp. v. Pfizer Inc., 189 F.3d 218, 229 (2d Cir. 1999). Under the “false by necessary implication” doctrine, “a district court evaluating whether an advertisement is literally false must analyze the message conveyed in full context” and find literal falsity where “the words or images, considered in context, necessarily imply a false message.” Time Warner, 497 F.3d at 158 (internal quotation marks omitted). Thus, even where “no combination of words” on the page is untrue, a message can be “literally false” if the clear meaning of the statement, considered in context, is false. Id. at 154–55. To be literally false, however, the message must be unambiguous; if the representation “is susceptible to more than one reasonable interpretation, the advertisement cannot be literally false” and the advertisement is actionable under the Lanham Act only upon a showing of actual consumer confusion. Id. at 158. When a court finds that an advertisement is literally false, it is unnecessary to rely on extrinsic evidence of consumer deception or confusion. Id. at 153. Additionally, “[o]nce it is determined that a statement is false, it is presumed to be material.” Telebrands Corp. v. E. Mishan & Sons, No. 97 Civ. 1414(RPP), 1997 WL 232595, at *22 (S.D.N.Y. May 7, 1997).
As suggested supra, Counterclaim Plaintiff has sufficiently alleged literal falseness (and thereby materiality). Counterclaim Plaintiff, for instance, alleges that Counterclaim Defendant “advertise[s] that the products they sell bearing the STM Trademarks come with the STM Warranty,” as their “product listings specifically state that they come with the STM Warranty”; however, these products purportedly do not come with this warranty because they are sold by an unauthorized seller (i.e., Counterclaim Defendant), and “products bearing the STM Trademarks that are sold by unauthorized sellers who do not comply with STM‘s quality controls do not come with the STM warranty.”
iii. Commercial Advertising or Promotion and Interstate Commerce
A statement constitutes commercial advertising or promotion if it is: “(1) commercial speech, (2) made for the purpose of influencing consumers to buy defendant‘s goods or services, and (3) although representations less formal than those made as part of a classic advertising campaign may suffice, they must be disseminated sufficiently to the relevant purchasing public.” Gmurzynska v. Hutton, 355 F.3d 206, 210 (2d Cir. 2004).
Here, the alleged statement underlying Counterclaim Plaintiff‘s false advertising claim— that the Products include the STM Warranty— is clearly commercial speech that was made in interstate commerce and intended to induce consumers into buying the Products. This allegedly false statement, for instance, is part of a product listing on Amazon, a leading online marketplace used throughout the United States. (Answer ¶ 106.) Therefore, this “unambiguous” statement is specifically intended to reach as large a portion of consumers as possible who live across the United States and are looking to purchase the types of products STM sells. See Time Warner Cable, Inc. v. DIRECTV, Inc., 497 F.3d 144, 158 (2d Cir. 2007) (“To be literally false, the message must be unambiguous...”); EventMedia Int‘l, Inc. v. Time Inc., 1992–2 Trade Cas. (CCH) ¶ 70,029 at 69,055, 1992 WL 321629, at *4, 1992 U.S. Dist. LEXIS 16385, at *8 (S.D.N.Y. Oct. 26, 1992) (“only commercial speech that a competitor employs for the express purpose of influencing consumers to buy the competitor‘s goods or services is actionable under section 43(a)”); Gordon & Breach Sci. Publishers S.A. v. Am. Inst. of Physics, 859 F. Supp. 1521, 1534 (S.D.N.Y. 1994) (noting that the Lanham “Act‘s reach is broader than merely the “classic advertising campaign”).
In sum, Counterclaim Plaintiff has sufficiently stated a claim for false advertising under the Lanham Act, as it has plausibly alleged each of the requisite elements for this claim. Counterclaim Defendant‘s motion to dismiss Counterclaim Plaintiff‘s false advertising claim is, therefore, denied.
C. Counterclaim Defendant‘s motion to dismiss Counterclaim Plaintiff‘s claim for trademark dilution is granted.
Counterclaim Defendant moves to dismiss Counterclaim Plaintiff‘s claim for trademark dilution on the basis that Counterclaim Plaintiff‘s STM Trademarks are not sufficiently famous to support a claim under the Trade Dilution Revision Act (“TDRA”). (ECF No. 37, at 24-25.) However, Counterclaim Plaintiff argues that it has adequately alleged that its Trademarks are famous and that the actions of Counterclaim Defendant “blurred” and “tarnished” its Trademarks. (ECF No. 40, at 23-25.)
The TDRA,
the owner of a famous mark that is distinctive, inherently or through acquired distinctiveness, shall be entitled to an injunction against another person who, at any time after the owner‘s mark has become famous, commences use of a mark or trade name in commerce that is likely to cause dilution by blurring or dilution by tarnishment of the famous mark, regardless of the presence or absence
of actual or likely confusion, of competition, or of actual economic injury.
Therefore, “to prevail on a claim under the TDRA, a plaintiff must establish that: (1) the senior mark is famous; (2) the defendant is making use of the junior mark in commerce; (3) defendant‘s use of the junior mark began after the senior mark became famous; and (4) a likelihood of dilution.” New York City Triathlon, LLC v. NYC Triathlon Club, Inc., 704 F. Supp. 2d 305, 321 (S.D.N.Y. 2010) (citation omitted). “The element of fame is the key ingredient because, among the various prerequisites to a dilution claim, the one that most narrows the universe of potentially successful claims is the requirement that the senior mark be truly famous before a court will afford the owner of the mark the vast protections of the TDRA.” GMA Accessories, Inc. v. Croscill, Inc., No. 06-CV-6236-GEL, 2008 WL 591803, at *10 (S.D.N.Y. Mar. 3, 2008) (quoting Savin Corp. v. Savin Grp., 391 F.3d 439, 449 (2d Cir. 2004)) (internal alterations omitted). Specifically, the TDRA provides that:
[A] mark is famous if it is widely recognized by the general consuming public of the United States as a designation of source of the goods or services of the mark‘s owner. In determining whether a mark possesses the requisite degree of recognition, the court may consider all relevant factors, including the following:
(i) The duration, extent, and geographic reach of advertising and publicity of the mark, whether advertised or publicized by the owner or third parties.
(ii) The amount, volume, and geographic extent of sales of goods or services offered under the mark.
(iii) The extent of actual recognition of the mark.
(iv) Whether the mark was registered under the Act of March 3, 1881, or the Act of February 20, 1905, or on the principal register.
Courts in this district have consistently construed the fame requirement to impose a heavy burden on parties seeking to assert a trademark dilution claim. “Only trademarks that enjoy such broad renown as to at least approach (if not attain) the status of ‘household names’ may qualify as famous brands under federal law.” Schutte Bagclosures Inc. v. Kwik Lok Corporation, 193 F. Supp. 3d 245, 283 (S.D.N.Y. 2016) (collecting cases). “[A]s courts have noted, the inclusion in the TDRA of the phrase ‘widely recognized by the general consuming public of the United States’ ‘was intended to reject dilution claims based on niche fame, i.e.[,] fame limited to a particular channel of trade, segment of industry or service, or geographic region.‘” Luv N’ Care, Ltd. v. Regent Baby Products Corp., 841 F. Supp. 2d 753, 757-58 (S.D.N.Y. 2012) (quoting Dan-Foam A/S v. Brand Named Beds, LLC, 500 F. Supp. 2d 296, 307 n.90 (S.D.N.Y. 2007)). Indeed, “[o]ne of the major purposes of the TDRA was to restrict dilution causes of action to those few truly famous marks like Budweiser beer, Camel cigarettes, Barbie Dolls, and the like.” Id. (quotation and citation omitted). Other brands that have been considered sufficiently famous to support a claim under the TDRA include Nike and Mattel‘s Hot Wheels. See Nike, Inc. v. Nikepal Int‘l, Inc., No. 05-CV-1468-GEB-JFM, 2007 WL 2782030, at *5-6 (E.D. Cal. Sept. 18, 2007) (Nike); Jada Toys, Inc. v. Mattel, Inc., 518 F.3d 628, 635 (9th Cir. 2008) (Hot Wheels).
Thus, Counterclaim Defendant‘s motion to dismiss Counterclaim Plaintiff‘s claim for trademark dilution is granted, as Counterclaim Plaintiff has failed to plausibly allege that the STM Trademarks are sufficiently famous to support this claim under the TDRA.
CONCLUSION
For the foregoing reasons, the Court GRANTS Defendant Lienau‘s motion to dismiss Plaintiff‘s claims for: (1) defamation; (2) tortious interference with prospective business relations; (3) a declaratory judgment of non-infringement; and (4) common law unfair competition, and thereby dismisses all of Plaintiff‘s claims against Defendant Lienau. However, the Court DENIES Defendant Lienau‘s request to file an anti-SLAPP counterclaim against Plaintiff.
The Court also GRANTS Plaintiff‘s motion to dismiss Defendant STM‘s counterclaims for trademark infringement under New York state common law and trademark dilution.
Yet, the Court DENIES Plaintiff‘s motion to dismiss Defendant STM‘s counterclaims for: (1) trademark infringement under federal law; (2) false advertising; and (3) unfair competition.
As Plaintiff‘s Amended Complaint, and Defendant‘s counterclaims, were the first complaint and counterclaims for which motion practice occurred, the foregoing claims that are deemed dismissed without prejudice and the parties are granted leave to file amended pleadings, as outlined below.
Specifically, Plaintiff is granted leave to file a Second Amended Complaint by October 18, 2023, consistent with this Order. Plaintiff is advised that the Second Amended Complaint will replace, not supplement, the Amended Complaint, and so
Finally, as Plaintiff‘s motion to dismiss was denied as to Defendant STM‘s counterclaims for: (1) trademark infringement under federal law; (2) false advertising; and (3) unfair competition, Plaintiff is directed to file an answer, or otherwise respond, to these counterclaims by December 18, 2023, following the filing of Defendant STM‘s Answer and counterclaims by November 17, 2023.
The Clerk of Court is respectfully directed to terminate the motions at ECF Nos. 36 and 43.
Dated: September 18, 2023
White Plains, NY
SO ORDERED:
HON. NELSON S. ROMAN
UNITED STATES DISTRICT JUDGE