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Noasha LLC v. Nordic Group of Companies

June 18, 2009

NOASHA LLC
v.
NORDIC GROUP OF COMPANIES, LTD., FLAMBEAU, INC., DUNCAN TOYS CO.



The opinion of the court was delivered by: O'neill, J.

MEMORANDUM

On December 4, 2008, plaintiff Noasha LLC filed a complaint alleging that defendants Nordic Group of Companies, Ltd., Flambeau, Inc. and Duncan Toys Co. engaged in trademark infringement under the Lanham Act, 15 U.S.C. § 1125, and also asserting state law claims for unfair competition and unfair and deceptive practices. Defendants filed an answer and counterclaims for trademark infringement pursuant to the Lanham Act, common law unfair competition, state law unfair and deceptive practices under 73 Pa. C.S.A. § 201-3, state law injury to business or reputation under 54 Pa. C.S.A. § 1124 and requested a declaratory judgment of non-infringement. As defendants filed a notice of withdrawal of their counterclaims on June 8, 2009, I denied plaintiff's motion to dismiss these counterclaims as moot. Presently before me are plaintiff's motion for a preliminary injunction, defendants' response, plaintiff's reply and defendants' amended sur-reply thereto. A hearing on plaintiff's motion for a preliminary injunction took place on May 19-20, 2009 with oral argument on May 27, 2009.

BACKGROUND

Defendants assert that the Warball game was created by Patricia Bell in 2001 and that she began selling it online in 2002 via www.warball.com to customers in the United States and Canada, with the first sale in the United States on May 8, 2002. Sales continued over the website for eleven months. An April 14, 2002 article in The Province reported that Bell had sold about 1,000 Warball games and that large toy companies were considering distribution. Bell decided to go into mass production and was referred to Richard Levy. He contacted several toy companies between 2002 and 2004, including Hasbro, Pressman Toys, USAopoly, Candaco Games and SpinMaster Toys. The game was initially licensed to SpinMaster on or about August 27, 2002 but SpinMaster was unable to execute the project for "technical" reasons and it returned the rights to Bell and Levy.

Defendants allege that, at Levy's request, Bell sent the Warball game to Duncan on September 6, 2005. A licensing agreement became effective in April 2006 for Duncan Toys to produce and market the Warball game. On September 12, 2006, a competitive analysis for Warball was completed and it was suggested that Duncan revise the game and market it as a trading card game rather than as a marble game.

On January 23, 2007, Duncan conducted a United States Patent and Trademark Office (USPTO) search for the term "Warball." On January 24, 2007, Duncan registered the website www.warballs.com to promote the re-launch of the Warball game. Defendants allege that bloggers began discussing the Warball game on the Duncan website www.yoyoing.com forum as early as January 27, 2007. Duncan registered the www.warballthegame.com website on March 11, 2008 and published the first Duncan press release on the Warball game on April 17, 2008 announcing a Spring 2009 launch that was later changed to Summer 2009. The Warball game was shown at multiple toy fairs in 2008 and 2009.

Plaintiff, a toy company selling Warbles, marbles with laser-etched three-dimensional figures inside them, was incorporated as a Pennsylvania LLC in December 2006. Plaintiff first showed products bearing the Warbles mark to the public at the 2008 Toy Fair trade show in February 2008 and alleges that it has since sold them through Pun's Toy Store in Bryn Mawr, Pennsylvania and the websites www.ewarbles.com and www.landofmarbles.com.

Plaintiff filed a trademark application, serial number 77326677, for its Warbles mark on November 11, 2007. On April 22, 2008, the application was published for opposition. On April 25, 2008, defendants filed a notice of opposition with the United States Trademark Trial and Appeal Board (TTAB) seeking to prevent registration of the Warbles mark. Plaintiff asserts that the TTAB opposition, filed on behalf of Bell from whom defendants have licensed the rights to the Warballs game, asserted that Bell had common law rights to the mark Warball which was confusingly similar to the Warbles mark and which predated plaintiff's trademark rights. On June 3, 2008, plaintiff filed a motion to dismiss defendants' complaint in opposition, alleging that it did not conform to the proper form for motions in opposition. Neither Bell nor defendants responded to plaintiff's motion to dismiss, an omission which defendants assert was "inadvertant," and, on July 11, 2008, the TTAB dismissed defendants' opposition with prejudice due to their failure to respond to plaintiff's motion to dismiss.

DISCUSSION

I must weigh four factors prior to disposing of a motion for a preliminary injunction: (1) whether the movant has demonstrated a reasonable probability of success on the merits; (2) whether the movant will be irreparably injured if the request for relief is not granted; (3) whether granting the preliminary relief will result in even greater harm to the non-movant; and (4) the public interest. Getty Petroleum Mkg., Inc. v. Shipley Fuels Mkg, LLC, 293 Fed. Appx. 166, 167 (3d Cir. 2008), citing McNeil Nutritionals, LLC v. Heartland Sweeteners, LLC, 511 F.3d 350, 356-57 (3d Cir. 2007).

Preliminary injunctive relief is "an extraordinary remedy" and "should be granted only in limited circumstances." Kos Pharm., Inc. v. Andrx Corp., 369 F.3d 700, 708 (3d Cir. 2004), citing Am, Tel. & Tel. Co. v. Winback & Conserve Program, Inc., 42 F.3d 1421, 1427 (3d Cir. 1994), quotation marks omitted. "[O]ne of the goals of the preliminary injunction analysis is to maintain the status quo, defined as the last, peaceable, noncontested status of the parties." Kos Pharm, 369 F.3d at 708, citing Opticians Ass'n of Am. v. Indep. Opticians of Am., 920 F.2d 187, 197 (3d Cir. 1990), citation and quotation marks omitted; see also 5 McCarthy on Trademarks and Unfair Competition § 30:50 (4th ed. 2003) (McCarthy), noting that "[t]he status quo to be preserved is not the situation of contested rights.... In a trademark case, [it] is the situation prior to the time the junior user began use of its contested mark: the last peaceable, non-contested status."

I. Likelihood of Success on the Merits

Plaintiff alleges that defendants engaged in unfair competition and trademark infringement in violation of the Lanham Act*fn1 when it used the disputed mark.*fn2 To prove trademark infringement and unfair competition under the Lanham Act, plaintiff must prove that:

(1) it owns the mark; (2) the mark is valid and legally protectable; and (3) defendants' use of the mark to identify goods or services is likely to create confusion. Checkpoint Systems, Inc. v. Check Point Software Technologies, Inc., 269 F.3d 270, 279 (3d Cir. 2001). The parties dispute the likelihood of confusion factor.

Trademark law protects owners in the exclusive use of their marks when use by another is likely to cause confusion. Lucent Info. Mgmt., Inc. v. Lucent Tech., Inc., 186 F.3d 311, 315 (3d Cir. 1999), citing A & H Sportswear, Inc. v. Victoria's Secret Stores, Inc. (A & H I), 166 F.3d 191, 205 (3d Cir. 1999). To prevail on a claim for trademark infringement or unfair competition under the Lanham Act, the owner of a valid and legally protectable mark must show that defendants' use of a similar mark for its goods "causes a likelihood of confusion." Kos Pharm, 369 F.3d at 709, citing A & H Sportswear, Inc. v. Victoria's Secret Stores, Inc., (A & H II), 237 F.3d 198, 210 (3d Cir. 2000).*fn3

A likelihood of confusion exists when consumers viewing the defendants' trade dress would probably assume that the product it represents is associated with the manufacturer of a different product identified by the plaintiff's similar trade dress. A & H II, 237 F.3d at 211. The likelihood of confusion between two trade dresses is a question of fact. McNeil Nutritionals, 511 F.3d at 357, citations omitted.

Plaintiff asserts that defendants' counterclaims admit the existence of a likelihood of confusion between the two trade dresses.*fn4 However, Federal Rule of Civil Procedure 8(d)(2) states that "[a] party may set out two or more statements of a claim or defense alternatively or hypothetically, either in a single count or defense or in separate ones."*fn5 Courts have interpreted this to mean that "counterclaims may be asserted in an alternative or hypothetical manner and need not be consistent with the defenses and denials raised in the answer." 5 Wright & Miller, Federal Practice and Procedure § 1282 at 724 (3d ed. 2004), citing Charles Rubenstein, Inc. v. Columbia Pictures, Inc., 14 F.R.D 401 (Minn. 1953).*fn6

The Court of Appeals has interpreted this rule to mean that "a court 'may not construe [a plaintiff's] first claim as an admission against another alternative or inconsistent claim.'" Indep. Enterp., Inc. v. Pittsburgh Water & Sewer Auth., 103 F.3d 1165, 1175 (3d Cir. 1997), quoting Molbergen v. U.S., 757 F.2d 1016, 1019 (9th Cir. 1985). The pleading rules developed in the Federal Rules of Civil Procedure were designed to "liberate pleaders from the inhibiting requirement of the law's insistence on technical consistency." 5 Wright & Miller, supra, § 1283 at 725. To construe defendants' counterclaims as an admission of facts that were clearly denied in the answer would run counter to the purpose of the Federal Rules of Civil Procedure. Giannone, 238 F.2d at 547; see also Keebler Co. v. Rovira Biscuit Corp. 624 F.2d 366, 374 (1st Cir. 1980); Polaroid Corp. v. Polarad Elec. Corp. 287 F.2d 492, 496-97 (2d Cir. 1961). This issue was addressed in the area of trademark law in Goodall-Sandford, Inc. v. Landers Corp., 187 F.2d 639 (C.C.P.A. 1951), in which the Court of Customs and Patent Appeals, the predecessor to the Court of Appeals for the Federal Circuit, allowed a defendant to both deny the likelihood of confusion in its answer and assert the likelihood of confusion in a counterclaim. Id. at 642. The allegations in the counterclaim were held to be alternative pleadings rather than factual admissions. Id.

Defendants denied the likelihood of confusion in four responses in the answer. Defendants did not discuss likelihood of confusion in the factual allegations that began their counterclaims; they only allege a likelihood of confusion in the counts explaining the legal theories behind the counterclaims. The allegations about likelihood of confusion contained in the counterclaims are reasonably inferred to be alternative pleadings, which are permissible under Rule 8(d)(2). See Goodall-Sandford, 187 F.2d at 642. I find that the allegations presented in defendants' counterclaims are not judicial admissions binding on defendants. I will thus consider the merits of the likelihood of confusion between the two products.

The Court of Appeals has adopted a non-exhaustive list of factors to consider in evaluating likelihood of confusion, commonly referred to as the "Lapp factors." Interpace Corp. v. Lapp, Inc., 721 F.2d 460, 463 (3d Cir. 1983). These factors were developed for cases involving non-competing products. Id. at 462. Although the Court has held that courts "'need rarely look beyond the mark itself'" in cases involving competing goods, "consideration of the Lapp factors... can be quite useful for determining likelihood of confusion even when the goods compete directly." A & H II, 237 F.3d at 212, quoting Lapp, 721 F.2d at 462. Because some of the initial Lapp factors were "not apposite for directly competing goods," the Court of Appeals "adapted [them] to make them applicable whether the products directly compete or not." Id. at 212-13. As adapted, the Lapp factors are:

(1) the degree of similarity between the owner's mark and the alleged infringing mark;

(2) the strength of the owner's mark;

(3) the price of the goods and other factors indicative of the care and attention expected of consumers when making a purchase;

(4) the length of time the defendant has used the mark without evidence of actual confusion arising;

(5) the intent of the defendant in adopting the mark;

(6) the evidence of actual confusion;

(7) whether the goods, competing or not competing, are marketed through the same channels of trade and ...


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