Opinion
No. CV 05-3699-PHX-JAT.
March 19, 2007
ORDER
Pending before this Court is Defendants' Motion to Dismiss (Doc. #22), to which Plaintiffs filed a Response (Doc. #27). Defendants failed to file a reply and the time to reply has expired. The Motion to Dismiss is Defendants' second motion to dismiss before this Court. Defendants' first motion to dismiss referenced the fact that similar litigation between the parties was on going in New York. Defendants' second motion to dismiss does not reference the New York litigation and, instead, seeks dismissal based only on Federal Rule of Civil Procedure 12(b)(6).
A motion to dismiss for failure to state a claim is disfavored and rarely granted. Gilligan v. Jamco Dev. Corp., 108 F.3d 246, 248-49 (9th Cir. 1997). Further, the Court must construe the facts alleged in the complaint in the light most favorable to the Plaintiff and the Court must accept all well-pleaded factual allegations as true. See Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). Nonetheless, Plaintiff must still meet the pleading requirements of Fed.R.Civ.Pro. 8. Under Federal Rule of Civil Procedure 8, the complaint must contain, "a short and plain statement of the claim showing that the pleader is entitled to relief." Thus, if the complaint fails to state a theory under which Plaintiffs may recover, dismissal under 12(b)(6) is appropriate.
In this case, Defendants have web sites and sell merchandise on the internet. Plaintiffs make tanning lotion and other skin care products. Defendants sell Plaintiffs' products on Defendants' web sites. Plaintiffs claim that such sale violates Plaintiffs' trademark and copyright and interferes with Plaintiffs' contracts with its authorized distributors.
Specifically, Plaintiffs complaint lists the following counts: common law trademark infringement, state statutory trademark infringement, federal trademark infringement, trademark dilution, copyright infringement, interference with contractual relations, and unfair competition. Doc. #1.
Defendant moves to dismiss claiming that the complaint fails to state a claim because: 1) Plaintiffs' trademark and unfair competition claims fail under the first sale doctrine, 2) Plaintiffs' federal trademark infringement, unfair competition, trademark dilution, state trademark infringement, and common law trademark infringement claims fail because Defendants' use is a nominative fair use of the marks; and 3) Plaintiffs' tortious interference with contract allegations are insufficient to state a claim. Plaintiffs respond and argue that the motion to dismiss should be denied in its entirety. Plaintiffs argue that the motion should be denied in part because the nominative fair use doctrine and the first sale doctrine are affirmative defenses, not grounds for dismissal under Rule 12(b)(6). Defendants did not file a reply.
First, the Court notes that while the motion to dismiss purports to seek dismissal of all claims, it in fact does not seek dismissal of the copyright infringement claims. Therefore, even if the motion to dismiss is granted, the case will not be dismissed in its entirety.
Second, turning to the merits of the motion to dismiss, the Court will consider Defendants' request to dismiss based on the nominative fair use doctrine. Nominative fair use is when a defendant uses a plaintiff's mark to describe the plaintiff's product because there are no other words to describe the product. See New Kids on the Block v. New America Pub., Inc., 971 F.3d 302, 308 (9th Cir. 1992) (holding that a newspaper could use the name "New Kids on the Block" to describe the group New Kids on the Block and to conduct a survey about the group under the nominative fair use doctrine). Plaintiffs in this case are correct that nominative fair use is an affirmative defense on which Defendants will bear the burden of proof. Id. To prove nominative fair use, Defendants must show:
1. the product or service in question must be one not readily identifiable without use of the trademark;
2. only so much of the mark or marks may be used as is reasonably necessary to identify the product or service; and
3, the user must do nothing that would, in conjunction with the use of the mark, suggest sponsorship or endorsement by the trademark holder. Id.
In this case, Defendants move to dismiss as indicated above. Motions to dismiss based on Rule 12(B)(6) must be limited to the pleadings and all factual allegations of Plaintiffs must be construed in the light most favorable to Plaintiffs. Fed.R.Civ.Pro. 12(b); Shwarz, 234 F.3d 435. In this context, the Court, generally, agrees with Plaintiffs that it would be highly unusual for a Court to "dismiss" a complaint on 12(b)(6) grounds based on Defendants having proven an affirmative defense.
Notably, Defendants rely on Playboy Enterprises, Inc. v. Welles, 279 F.3d 796 (9th Cir. 2002) as an example of the Court of Appeals affirming, "that the complaint . . . should be dismissed" based on an affirmative defense. Motion at 9. In fact, in that case, the Court of Appeals affirmed a grant of summary judgment. Playboy, 279 F.3d at 800.
As to the merits, after identifying the three prongs of nominative fair use, Defendants fail to apply them to this case, or argue how their use of the marks in this case is a nominative fair use. Motion at 8-10. Therefore, the motion to dismiss the trademark infringement and unfair competition claims on this basis will be denied.
Next, Defendants argue that there can be no trademark dilution claim because Defendants' use of the mark is a nominative fair use, and by definition nominative fair use does not dilute the mark. Motion at 10. This argument presumes the conclusion that Defendants' use of the mark is in fact a nominative fair use. Because the Court has not reached this threshold conclusion, the Court will not dismiss on this basis.
Defendants then go on to argue that it is permissible to use a branded product's name in selling the product in an aftermarket and that the trademark law does not reach the aftermarket. Motion at 11, citing Ty Inc. v. Perryman, 306 F.3d 509 (7th Cir. 2002), cert. denied, 538 U.S. 971 (2003). This argument does not address trademark dilution specifically, but instead argues that none of trademark law can reach a second sale of a product. Basically, this is Defendants' first sale theory for dismissing Plaintiffs' claims.
Under the first sale doctrine, "the right of a producer to control distribution of its trademarked product does not extend beyond the first sale of the product. Resale by the first purchaser of the original article under the producer's trademark is neither trademark infringement nor unfair competition." Sebastian Int'l Inc., v. Longs Drug Stores Corp., 53 F.3d 1073, 1074 (9th Cir.), cert. denied, 516 U.S. 914 (1995). In this case, Defendants claim that they properly purchase Plaintiffs' products in the market and then resell these products on the internet, using Plaintiffs' trademarked names as the only way to describe Plaintiffs' products. Thus, Defendants claim that Plaintiffs' trademark claims and unfair competition claims should be dismissed. Plaintiffs respond and argue that Defendants have, "copied works, labels, drawings, images, expressions, texts, products, descriptions, photographs, marketing materials and intellectual properties belonging to [Plaintiffs . . .] and have deceived, misled and confused customers with respect to the same." Response at 4.
Courts have recognized a distinction between reselling a trademarked product, and leading the public to believe the "reseller" is actually affiliated with the original manufacturer. For example, in Sebastian, the Ninth Circuit Court of Appeals held that Sebastian, who wanted its products sold only in salons, could not prevent Longs Drug Stores from selling the products when Longs only stocked and resold the genuine trademarked products. Similarly, in Matrix Essentials v. Emporium Drug Mart, 988 F.2d 587 (5th Cir. 1993), the Court held that even though Matrix wanted its trademarked products to be sold only in professional salons, "[a]bsent more culpable conduct on the part of the seller, we are unwilling to find misrepresentation in the mere act of putting a manufacturer's product on one's shelf and offering it for sale." Id. at 593.
Conversely, courts have found Lanham Act violations when the reseller used the trademark in such a way that it would likely cause the public to be confused into believing that the reseller was part of the producer's authorized sales force or a franchisee of the producer. See Sebastian, 53 F.3d at 1076 (citing Bandag, Inc. v. Al Bolser's Tire Store, 750 F.2d 903 (Fed. Cir. 1984); Stormor, a Div. of Fuqua Indus. v. Johnson, 587 F.Supp. 275 (W.D. Mich. 1984)). Specifically,
In Bandag, the reseller used the producer's trademark in a telephone directory advertisement in such a way as to suggest the reseller was one of the producer's franchisees, 750 F.2d at 911, 916; in Stormor the reseller displayed the producer's trademark in the reseller's booth at a trade show and in a trade journal advertisement, and stamped the reseller's name on the producer's promotional literature and used it to advertise the resale of the producer's products by the reseller, 587 F.Supp. at 279.Sebastian, 53 F.3d at 1076.
As discussed above, in the context of a motion to dismiss for failure to state a claim, the Court must construe all factual allegations in favor of Plaintiffs; and, the Court cannot grant the motion "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief." Barnett v. Centoni, 31 F.3d 813, 816 (9th Cir. 1994). The Court notes that the complaint and the response to the motion do not allege many "facts" to support Plaintiffs' claim that Defendants are causing confusion with Plaintiffs' trademark. However, Plaintiffs do claim that Defendants:
For example, Plaintiffs' statement that "Defendants own and operate one or more internet web site(s) that engage in the unlawful infringement of Designer Skin's intellectual property rights, that unfairly compete in the marketplace with Designer Skin, and that intentionally and tortiously interfere with Designer Skin's agreements with one or more of its distributors" is a legal conclusion, not a factual allegation. Motion at 3, paragraph 2.
• use Plaintiffs' trademark on Defendants' web sites,
• copied Plaintiffs' works, labels, drawings, images, expressions, texts, products, descriptions, photographs, and marketing materials, and
• use Plaintiffs' trademark as metatags to cause internet searches to go to Defendants' web sites rather than authorized distributor's web sites.
Plaintiffs then go on to conclude that these uses cause consumers to be mislead about the source and the origin of the products.
This case presents a close question regarding whether internet resale of the type described is more similar to simply reselling a product like Sebastian or whether there was so much use of the trademark and related materials that a consumer would believe he or she was dealing with either the manufacturer directly or a franchisee like Bandag. However, construing the facts in the light most favorable to Plaintiffs, the Court cannot say Plaintiffs can prove no set of facts that would entitle them to relief. Therefore, Defendants' motion to dismiss based on the first sale doctrine will be denied.
Finally, Defendants seek dismissal of Plaintiffs' tortious interference with contractual relations claim on the theory that the Complaint fails to allege sufficient facts to state a claim on this basis. Plaintiffs oppose the motion.
The parties agree to at least four elements of a tortious interference claim:
1. The existence of a valid contractual relationship (or business expectancy);
2. The interfere's knowledge of the relationship (or expectancy);
3. The interferer's intentional interference inducing or causing breach (or termination of the relationship or expectancy); and
4. Resultant damage to the party whose relationship or expectancy has been disrupted.
Motion at 13 ( citing Miller v. Hehlen, 104 P.3d 193, 202 (2005)); Response at 12 ( citing Safeway Insurance Co., Inc. v. Guerrero, 83 P.3d 560 [¶ 14] (Ariz.App. 2004) opinion vacated by Safeway Ins. Co. v. Guerrero, 106 P.3d 1020, 1025 ¶ 14 (Ariz. 2005) (recognizing the same five elements for the tort of intentional interference with contractual relations)). Plaintiffs suggest an additional element:
5. The interferer's improper actions. Response at 12 (citing Safeway Insurance Co., Inc. v. Guerrero, 83 P.3d 560 (Ariz.App. 2004) opinion vacated by Safeway Ins. Co. v. Guerrero, 106 P.3d 1020, 1025 ¶ 14 (Ariz. 2005) (recognizing the same five elements for the tort of intentional interference with contractual relations)). Notably, although not acknowledged by Defendants, the case cited by Defendants also contains this element. Miller, 104 P.3d at 202 ¶ 32 ("The interference must be 'improper' before liability will attach.")
Having basically agreed to the legal framework, Plaintiffs then argue that they have contracts with their distributors that restrict the distributors ability to sell to internet retailers, that Defendants in this case are aware of these restrictions, that Defendants have misrepresented themselves to obtain Plaintiffs' products from these distributors contrary to the contracts, and that Plaintiffs suffered damages. In their Motion, Defendants argue that Plaintiffs do not make allegations that would show entitlement to relief under each prong of a tortious interference claim. However, in their Response, Plaintiffs make an allegation with respect to each prong of the tort of intentional interference with contractual relations. And, Defendants declined to file a reply. Thus, construing the facts in the light most favorable to Plaintiffs, at this stage of the case, the Court cannot conclude that Plaintiffs can prove no set of facts that would entitle them to relief. Therefore, the motion to dismiss this claim will also be denied.
For example, Defendants argue, ". . . nothing in plaintiffs' complaint demonstrates that plaintiffs have a basis for claiming that [Defendants] had done business with any distributors; or that [Defendants] knew of plaintiffs' specific contracts. . . ." Motion at 14.
Defendants further seek dismissal of Plaintiffs' request for injunctive relief. The request for injunctive relief is not a cause of action. Therefore, it cannot independently "state a claim" nor be dismissed under Rule 12(b)(6) for failure to state a claim. Accordingly, the Court will not dismiss this theory of relief. To the extent Plaintiffs seek a permanent injunction, that request will be addressed following trial (assuming a Plaintiffs' victory following trial). If Plaintiffs seek a preliminary injunction to be in force during the duration of this case, Plaintiffs may file a motion for preliminary injunction consistent with Federal Rule of Civil Procedure 65.
Based on the foregoing,
IT IS ORDERED that Defendants' Motion to Dismiss (Doc. #22) is denied in its entirety.
IT IS FURTHER ORDERED that Defendants shall answer within 10 days of this Order.
IT IS FURTHER ORDERED that the order setting rule 16 scheduling conference will follow.