Opinion
No. C 04-01640 SI.
September 3, 2004
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS PLAINTIFF'S FEDERAL UNFAIR COMPETITION CLAIM
On September 3, 2004, this Court heard argument on plaintiff's motion for leave to file a second amended complaint. Having carefully considered the argument of counsel and the papers submitted, the Court hereby GRANTS plaintiff's motion for leave to file the second amended complaint.
BACKGROUND
This case arises out of plaintiff Calyx Technologies, Inc. d/b/a Calyx Software's ("Calyx") claims of copyright infringement and unfair competition, under federal and California state law, against defendant Ellie Mae, Inc. ("Ellie Mae"). Calyx designs, markets, sells and distributes loan processing software for use by mortgage brokers and lenders. Second Am. Compl. at ¶ 7. Since the early 1990s, Calyx has used "unique" screen displays as part of its Point® loan processing software to identify and promote its software. Id. at ¶ 9. Sixty-six percent of all mortgage brokers use Calyx's Point® software, id. at ¶ 24, and, according to plaintiff, Calyx Point® loan processing screen images have become widely known to its customers, the trade, and the purchasing public as indicating the source of origin of Calyx's software. Id. at ¶ 25-35.
Defendant Ellie Mae also designs, markets, sells and distributes loan processing software for use by mortgage brokers and lenders. Id. at ¶ 38. In the fall of 2003, Ellie Mae introduced "Encompass," a new loan processing software. Id. at ¶ 41. Calyx alleges that Ellie Mae deliberately copied plaintiff's Point® screens when creating its new "Encompass" program in order to "trade on Calyx's trade identity and goodwill." Id. at ¶ 43.
On June 21, 2004, defendant filed a Motion to Dismiss Plaintiff's Federal Unfair Competition Claim for Failure to State a Claim Upon Which Relief Can Be Granted. Plaintiff's opposition to the motion was accompanied by a Motion for Leave to Amend, which included a Proposed Second Amended Complaint. The Proposed Second Amended Complaint added an additional count of unfair advertising under Section 43(a) of the Latham Act, 15 U.S.C. § 1125(a). Second Am. Compl. at ¶ 2. The complaint also elaborated upon the trade dress infringement claim. Id. at ¶ 7-50. Plaintiff filed a Motion for Leave to File a Second Amended Complaint on July 22, 2004.
On August 2, 2004, the Court granted defendant's Motion to Dismiss on the grounds that "the parties are in agreement with respect to the pleading deficiencies of the current Lanham Act claim." August 2, 2004 Order at 2. However, in the order, the Court deferred its decision on plaintiff's Motion for Leave to File a Second Amended Complaint. On August 13, 2004, defendant filed an opposition to plaintiff's Motion for Leave to File, which challenges only the plaintiff's trade dress infringement claim.
LEGAL STANDARD
"Leave to amend is generally within the discretion of the district court." Swanson v. U.S. Forest Service, 87 F.3d 339, 343 (9th Cir. 1996). "[L]eave shall be freely given when justice so requires." Id. "[T]his policy is to be applied with extreme liberality." Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990) (citation omitted). However, "[a] district court does not err in denying leave to amend where the amendment would be futile . . . or where the amended complaint would be subject to dismissal." Saul v. U.S., 928 F.2d 829, 843 (9th Cir. 1991) (citations omitted). "[A] proposed amendment is futile only if no set of facts can be proved under the amendment to the pleadings that would constitute a valid and sufficient claim or defense." Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988) (citation omitted).
In order to state a claim for trade dress infringement under Section 43(a) ofthe Lanham Act, plaintiff must demonstrate that its trade dress: (i) is distinctive, (ii) is non-functional, and (iii) has a likelihood of causing confusion with defendant's trade dress. Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 768-9, 112 S.Ct. 2753, 2757 (1992). Only the elements of distinctiveness and functionality are before the Court today, as defendant has not opposed the element of likelihood of confusion.
DISCUSSION
I. Plaintiff has sufficiently plead that the trade dress is distinctive
Plaintiff claims that the screen displays in its software have acquired distinctiveness. Pl.'s Reply at 7. Plaintiff bases these claims on the "more than million dollars" spent in promotion of the product and copies of the software distributed at about sixty trade shows a year. Second Am. Compl. ¶ 21-22. According to plaintiff, these promotional efforts, coupled with criticalacclaim and widespread use, have led its screen images to "become widely known to its customers, the trade and the purchasing public as indicating the source of origin" of the software. Id. ¶ 25. In support of its claim of acquired distinctiveness, plaintiff refers to a quote from a mortgage company executive found on defendant's website that asserts that defendant's program Encompass has the "look and feel of Point. They even went down to even having the screens the same color." Pl.'s Reply at 7. This was important to the executive because Point software was "the software that most people like." Id.
Defendant argues that plaintiff fails to identify the alleged trade dress with the necessary specificity. Def.'s Opp'n at 3-4. Defendant questions the "broad categories" in plaintiff's Proposed Second Amended Complaint, which include the "selection of text, placement of texts, fonts, placement of fields, and use of color." Id. at 3. Defendant argues that plaintiff must provide a detailed description of the trade dress, identifying in the Proposed Second Amended Complaint the exact text, fonts, fields and colors that are infringed. Id. at 3-4. Without this level of detail, defendant asserts that it cannot defend the action, as it does not have notice of what is allegedly being infringed.Id. at 5.
Trade dress can "acquir[e] distinctiveness, even if not inherently distinctive, if it has developed secondary meaning."Wal-Mart Stores, Inc. v. Samara Brothers, Inc., 529 U.S. 205, 211, 120 S.Ct. 1339, 1343 (2000). Trade dress "attains secondary meaning when the purchasing public associates the dress with a particular source." Fuddruckers, Inc. v. Doc's B.R. Others, Inc., 826 F.2d 837, 843 (9th Cir. 1987).
The Court finds that plaintiff has plead distinctiveness sufficiently. Plaintiff has alleged that the public can identify the unique screen images of the software program as belonging to its specific product. This assertion is reinforced by the advertising expenditures, criticalacclaim and widespread use of plaintiff's product. Additionally, plaintiff has identified the specific screen images and elements that compose the overall appearance that form the allegedly protected trade dress in the Proposed Second Amended Complaint.
Defendant's argument that a more detailed description of the trade dress is required is not persuasive. Defendant relies onAccuimage Diagnostics Corp. v. Terarecon, Inc., 260 F.Supp. 2d 941 (N.D.Cal. 2003), in support of the assertion that plaintiff's complaint is not sufficiently detailed. In Accuimage, the court found that plaintiff did not "plead with specificity how the [reports] are unique and inherently distinctive." In the current case, plaintiff has plead several elements that could establish secondary meaning and satisfy the distinctive requirement. Defendant's other cases in support of heightened specificity in trade dress claims were determined after some form of fact finding, which has not yet occurred in this case. See Goddard, Inc. v. Henry's Foods, Inc., 291 F.Supp.2d 1021 (D.Minn. 2003) (motion for summary judgment); Landscape Forms, Inc. v. Hollywood Casino Corp., 80 F.Supp.2d 815 (N.D.Ill. 1999) (motion for summary judgment); Big Island Candies, Inc. v. The Cookie Corner, 269 F.Supp.2d 1236 (D.Hi. 2003) (motion for summary judgment).
Determining whether a "trade dress has acquired secondary meaning is a question of fact." Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1262 (9th Cir. 2001), quotingFirst Brands Corp. v. Fred Meyer, Inc., 809 F.2d 1378, 1383 (9th Cir. 1987). Given that determining if a claim of protected trade dress is distinctive is a question of fact and the generally liberal pleading standard, the Court finds that plaintiff has sufficiently met the distinctiveness requirement for a trade dress cause of action.
II. Plaintiff has sufficiently plead that the trade dress is non-functional
Defendant claims that the Second Amended Complaint fails to establish that the trade dress is nonfunctional. Defendant points to language in the complaint that discusses the "operations of its interface" and "emphasizes the attributes of `thoroughness' and `ease of use' in its alleged trade dress." Def.'s Opp'n at 5-6. Defendant also claims that plaintiff's failure to identify which text it includes in the "selection of text" for its trade dress is due to the text's functional purpose. Id.
Plaintiff responds by asserting that defendant's argument divides plaintiff's trade dress into individual elements and labels those elements as functional. Pl.'s Reply at 8-9. Instead, plaintiff's contention is that its trade dress consists of the "particular combinations and arrangements that identify its displays and distinguish them from others." Id. at 9. Additionally, plaintiff argues that functionality is a question of fact and should not be considered at this time. Id.
The Court finds plaintiff's arguments persuasive. When determining functionality, "a product's trade dress should be considered in its entirety." White Swan, Ltd. v. Clyde Robin Seed Company, Inc., 729 F.Supp. 1257, 1260 (N.D.Cal. 1989). Additionally, the inquiry should focus on whether a distinctive visual impression has been created, not on individual elements.Id. Finally, functionality is an "intensely factual issue."Tie Tech, Inc. v. Kinedyne Corporation, 296 F.3d 778, 783 (9th Cir. 2002). Plaintiff's claims that the "overall visual appearance" identifies the "unique and distinctive screen displays." Second Am. Complaint ¶ 10. Plaintiff asserts that the "unique and distinctive screen displays have come to represent the thoroughness [and] ease of use" associated with its product.Id. Plaintiff has not, as defendant asserts, plead for separate trade dress protection for each element; instead, plaintiff seeks to establish as trade dress the arrangements as a whole of the text, font, fields and colors on the screen displays. Second Am. Complaint ¶ 11-20. In White Swan, plaintiff sought trade dress protection for the arrangements of words, designs and color photographs on a product label. White Swan, 729 F.Supp. at 1260. The court found that a visual combination of functional elements could constitute protectable trade dress. Id. Therefore, plaintiff has met its requirement by alleging that a distinctive visual image has been created by its product and identifying the various unique screen displays that contain unique images and the elements that combine to form the unique images. This is sufficient given the liberal pleading rules and the factual nature of this issue.
CONCLUSION
For the foregoing reasons and for good cause shown, the Court hereby GRANTS plaintiff's motion for leave to file the second amended complaint. (Docket ## 16, 27, 33.]
IT IS SO ORDERED.