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Company Has Claim for ‘Diamond’ Mark

A North Carolina company that says it has been selling diamonds to Virginia consumers for 16 years under the “Diamonds Direct” mark, with some 700 customers in Virginia, has stated claims for service mark infringement, unfair competition and false advertising against a Richmond-based jeweler allegedly using the same mark; but the Richmond U.S. District Court says plaintiff can’t bring a claim against a competitor under the Virginia Consumer Protection Act.

Plaintiff Diamonds Direct USA Inc. is a North Carolina corporation that purports to have over 700 customers in Virginia and alleges it has been serving those customers for over 16 years, using the name “Diamonds Direct.” Diamonds Direct USA of Richmond LLC is alleged to be an entity fully owned by Diamonds Direct USA of Richmond Inc., with its principal place of business in Richmond, Va. Diamonds Direct USA is presently in the formative stage of development and was not actually doing business in Virginia when the complaint was filed.

Plaintiff alleges defendant Capri Jewelers, a likely direct competitor, learned in January 2012 that Diamonds Direct was opening a Richmond location, and Capri took the preemptive step of registering the service mark “Diamonds Direct” with the Virginia State Corporation Commission. They contend Capri has begun using the phrase “Diamonds Direct” in its advertising and promotional  schemes, which is calculated to engender confusion in the Richmond market.

Taken in the best light, plaintiffs’ allegations are sufficient to state a plausible claim. Plaintiff claims a common law service mark that has evolved through its continuous use in Virginia and the southeastern U.S. over a period of 16 years. They further claim to have 700 customers in Virginia. This is sufficient to plead a claim that plaintiff has a valid mark.

Diamonds Direct USA argues that its subsidiary has a derived implied license to use its service mark in Virginia. The existence of an implied trademark license is a factual issue that turns on the objective conduct of the parties. A significant factor to be considered in this factual analysis is the existence of a special interlocking relationship between entities. In the immediate case, Diamonds Direct USA of Richmond is owned by Diamonds Direct USA. Plaintiffs have pleaded a plausible claim of implied license.

Although defendant devotes minimal attention to the false advertising claim in count III, it appears to be premised on the confusion to customers resulting from use of the poached mark. Its destiny at this juncture is therefore closely allied with the infringement count.

Defendant argues that because plaintiff is a competitor – as opposed to a consumer – it lacks standing to seek relief under the Virginia Consumer Protection Act, Va. Code § 59.1-197.

Although the Supreme Court of Virginia has never squarely addressed this issue, the limiting language of the statute and interpretative federal cases appear to support this position. Reading introductory sections of the VCPA in tandem brings the intent of the statutory scheme into clearer focus. The act is designed to provide members of the consuming public, not commercial competitors, with a statutory remedy.  This court adopts the reasoning of H.D. Oliver Funeral Apts. Inc. v. Dignity Funeral Servs. Inc., 964 F. Supp. 1033 (E.D. Va. 1997), and finds that both plaintiffs lack standing to prosecute a claim under the VCPA.

Diamonds Direct USA Inc. v. BFJ Holdings Inc. d/b/a Capri Jewelers (Hudson) No. 3:12cv303, June 28, 2012; USDC at Richmond, Va. VLW 012-3-279, 7 pp.

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