Patent and Trademark: Court narrows claims in trademark dispute

Where certain of the claims in a trademark dispute were not justiciable and others were not plausible, they were dismissed.

Background

Plaintiff/counterclaim defendant Zhejiang Hailiang Co. Ltd. has filed a seven-count first amended complaint, or FAC, challenging the final decision of the Trademark Trial and Appeal Board, or TTAB, that denied Hailiang’s application for the mark “HME.” Defendant/counterclaim plaintiff KME Germany GmbH opposed the application before the TTAB on the ground that the mark was likely to cause confusion with KME’s marks. KME has now moved to dismiss multiple counts of the FAC. KME also moves to strike multiple paragraphs of the FAC, as well as the prayer for relief section (d) and several affirmative defenses.

‘531 registration

In Counts Five and Six, Hailiang seeks cancellation of KME’s ‘531 and ‘711 registrations because KME has purportedly fraudulently procured or abandoned those registrations. Hailiang’s tenth affirmative defense rests in part on the same claims. The FAC has failed to allege any actual case or controversy related to the ‘531 registration because the only registrations cited in KME’s opposition to Hailiang’s application before the TTAB were KME’s ‘599 and ‘245 registrations, and its application that has since matured into the ‘711 registration.

The sole allegation in the FAC regarding the ‘531 registration is that “[t]he continued existence of certain non-pleaded KME registrations places [Hailiang] at continued risk for its own use and registration of its own marks.” Fear of undefined future litigation does not rise to the level of either a case or controversy.

Fraud

In Count Five, Hailiang alleges that the ‘531 and ‘711 registrations were procured by fraud, and in its eighth affirmative defense, it alleges that KME’s infringement counterclaim is barred because its registrations are subject to cancellation for fraud in their procurement or maintenance. KME argues that the court should dismiss this claim because Hailiang has waived its right to challenge the validity of the ‘711 registration by not raising the issue during the TTAB proceeding. Because the ‘711 registration was merely pending when the case was submitted for consideration, an attack on the ‘711 registration would not have qualified as a compulsory counterclaim. Accordingly, this portion of KME’s motion is denied.

KME argues that the allegations in the FAC do not give rise to an inference of intent to defraud because the FAC recognizes that “it is common that foreign registrants misunderstand” registration applications; however, as Hailiang correctly explains, “[t]here is a difference between proving and pleading a claim of fraud on the USPTO.” Indeed, intent to deceive may be alleged generally at the pleading stage so long as such general allegation is “plausible” and “flows logically from the facts alleged.”

Abandonment

Hailiang seeks cancellation of KME’s ‘599 registration in its entirety, portions of the ‘711 registration and some or all of the ‘245 registration due to alleged abandonment of those marks with respect to specific goods. These allegations are echoed in the seventh and tenth affirmative defenses. The court finds that Hailiang has failed to state a claim of abandonment and grants this aspect of KME’s motion.

Laches

Because the FAC has failed to allege an unreasonable delay by KME, the portions of Counts One and Three that are based on the doctrine of laches will be dismissed, and Hailiang’s first affirmative defense will be stricken.

APA limitations

In several places, the FAC alleges that KME’s infringement counterclaim is time barred because section 16 of the APA contains a contractual statute of limitations covering any disputes between the parties. KME argues that section 16 applies only to claims against KME for breaches of its warranties, and as such, the limitations provision is inapplicable. Hailiang fails to respond to his argument in its opposition.

The ninth affirmative defense alleges that “KME’s claims are time barred under German law, (including its statute of limitations) which is the choice of law established by the Asset Purchase Agreement.” KME argues that neither Hailiang’s FAC nor the ninth affirmative defense identify any claim to which German law would apply. The court agrees.

Motion to strike

KME also seeks to strike paragraphs within the FAC that discuss or quote confidential settlement discussions. In opposition, Hailiang correctly argues that Rule 408 does not prohibit all settlement-related conversations, including settlement conversations for the purpose of supporting a claim for estoppel by acquiescence. KME’s request to strike the references will be denied.

Unclean hands

Because the FAC adequately pleads that KME’s right to bring an infringement claim is a result of the USPTO declining to register the HME mark and because the FAC also alleges that KME’s opposition in the TTAB proceeding involved misconduct, it has adequately alleged an unclean hands defense.

KME’s motion to dismiss granted in part, denied in part.

Zhejiang Hailiang Co. v. KME Germany GmbH, Case No. 1:23-cv-1606, June 24, 2024. EDVA at Alexandria (Brinkema). VLW 024-3-332. 27 pp.