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Muhlenberg College v. Sportswear, Inc.

United States District Court, E.D. Pennsylvania

February 19, 2015

MUHLENBERG COLLEGE, Plaintiff,
v.
SPORTSWEAR, INC., doing business as PREP SPORTSWEAR, Defendant.

MEMORANDUM

JEFFREY L. SCHMEHL, District Judge.

Plaintiff Muhlenberg College filed suit against Defendant Sportswear, Inc., doing business as Prep Sportswear, alleging trademark infringement and associated claims. Defendant operates a website from which customers can purchase apparel with customized colors and text in a variety of styles. Plaintiff argues the website is obviously geared towards selling unlicensed college apparel because, among other things, it presents pages with suggested product designs using the colors, names, and possibly styles and logos of specific schools, including Muhlenberg College. Defendant insists that its business model is non-infringing because customers can make many design choices that may or may not result in apparel utilizing schools' intellectual property.

After Defendant answered the complaint, Plaintiff moved to strike several affirmative defenses; the Court later granted one uncontested part of that motion but otherwise denied it as the same issues were already addressed by subsequent motions. Those motions are: Plaintiff's motion for summary judgment on all claims; Defendant's motion for partial summary judgment asking the Court to rule that Plaintiff's trademark to the stand-alone word "MUHLENBERG" is not entitled to incontestable status; and Defendant's motion for leave to amend to add a counterclaim for cancellation of Plaintiff's registration of the word "MUHLENBERG" and cancellation of Plaintiff's exclusive rights to the "MUHLENBERG" word portion of its registration of "MUHLENBERG COLLEGE" with a particular design. Several settlement conferences before both the undersigned and Magistrate Judge Richard A. Lloret have proven unsuccessful, so the Court will now address the two motions filed by Defendant but leave Plaintiff's motion for summary judgment to be decided in a future opinion.

Defendant's Motion for Partial Summary Judgment Regarding Incontestability

A mark becomes "incontestable" when it has been registered and continually used for five years without an adverse decision and an affidavit to that effect is filed. See 15 U.S.C. § 1065. Such incontestability renders the mark's registration "conclusive evidence of the validity of the registered mark and of the registration of the mark, of the registrant's ownership of the mark, and of the registrant's exclusive right to use the registered mark in commerce." 15 U.S.C. § 1115. Incontestable status can be challenged only by statutorily provided defenses, including "[t]hat the registration or the incontestable right to use the mark was obtained fraudulently" and "[t]hat equitable principles, including laches, estoppel, and acquiescence, are applicable." Id. Defendant blurs its position somewhat but insists in its reply brief that it is pursuing an inequitable conduct/unclean hands argument rather than a fraud argument. Nevertheless, based on the enumerated statutory defenses and the issues raised by both sides, the Court will address both fraud and, under the equitable principles provision, unclean hands.

A party claiming fraud in obtaining trademark registration "bears a heavy burden of proof." In re Bose Corp., 580 F.3d 1240, 1243 (Fed. Cir. 2009). "Indeed, the very nature of the charge of fraud requires that it be proven to the hilt' with clear and convincing evidence. There is no room for speculation, inference or surmise and, obviously, any doubt must be resolved against the charging party.'" Id. (quoting Smith Int'l, Inc. v. Olin Corp., 209 U.S.P.Q. (BNA) 1033, 1044 (T.T.A.B. 1981)). To this high standard, a challenger must show a "false, material representation of fact in connection" with the application for registration. Id. (quoting Torres v. Cantine Torresella S.r.l., 808 F.2d 46, 48 (Fed. Cir. 1986)). After thorough consideration, the Bose court concluded that the false, material representation must be made "with the intent to deceive the PTO." Id. at 1245; see also U.S. Soo Bahk Do Moo Duk Kwan Fed'n, Inc. v. Int'l Tang Soo Do Moo Duk Kwan Ass'n, No. 3:12·CV-00669, 2014 WL 5640979, at *4 (M.D. Pa. Nov. 4, 2014); Alliance Bank v. New Century Bank, 742 F.Supp.2d 532, 550-51 (E.D. Pa. 2010). Negligence and even gross negligence are insufficient. Bose, 580 F.3d at 1244-45. "Subjective intent to deceive, however difficult it may be to prove, is an indispensable element in the analysis." Id. at 1245. Indirect evidence is satisfactory so long as it is clear and convincing. Id.

Defendant has not made the necessary showing here. Defendant contends that Plaintiff's Vice President for Finance and Treasurer Kent A. Dyer made a false, material misrepresentation with intent to deceive the PTO when he attested that the stand-alone word mark MUHLENBERG "has become distinctive as applied to the goods and services by reason of substantially exclusive and continuous use" and that he was "not aware that the mark MUHLENBERG has been used by any other party in the education field to denote or describe any education services or related goods." In Defendant's view, these statements were obviously disingenuous because Dyer surely must have known, and in fact did know, that there are other municipalities, institutions, and even schools with "Muhlenberg" in their names, including a "Muhlenberg Elementary School" within a mile of Plaintiff's location. Plaintiff argues that the statements were accurate because they referred to substantially rather than absolutely exclusive use of MUHLENBERG; because they referred to the use of MUHLENBERG standing alone, and there is no evidence other entities use the name that way; and because the statements were made with reference to the particular type of goods and services Plaintiff provides, namely undergraduate education. It may be debatable whether Dyer was stretching the truth, and whether claiming that the mark is not used "by any other party in the education field to denote or describe any educational services or related goods" pushes the statement beyond the narrow undergraduate context. But debatably misleading words are certainly not clear and convincing evidence of subjective intent to deceive, and clearly not as a matter of law on summary judgment.

Defendant has not met the burden for fraud, but it implies that a different and perhaps lower standard for unclean hands gives it a viable defense. First, it is questionable whether the doctrine of unclean hands as it relates to misleading statements before the PTO should even be available under the statute's reference to equitable principles. The statute notes only laches, estoppel, and acquiescence (though it is admittedly not an enumerated, exhaustive list), and has a separate, express provision covering fraud. See 15 U.S.C. § 1115. If unclean hands indeed carries a lower standard, its inclusion would seem to undermine the fraud provision, and if it is not a lower standard, it would be redundant and unhelpful to Defendant in any event. Either way, application of the doctrine is highly discretionary and courts do not have to invoke it. See In re New Valley Corp., 181 F.3d 517, 525 (3d Cir. 1999).

When courts do consider the doctrine, the analytical focus is usually on the connection between the alleged inequitable conduct and the issue before the court, see id., but the question here is what conduct is sufficient to support application of the doctrine, particularly as compared to the fraud standard discussed above. There is less guidance on that aspect, but the cases generally speak of unconscionable or shocking acts, bad faith, deceit, or fraud itself. See id. ; Am. Freedom Def. Initiative v. Se. Pennysylvania Transp. Auth. (SEPTA), No. 14-5335, 2014 WL 6676517, at *5 (E.D. Pa. Nov. 25, 2014) (citing Imprisoned Citizens Union v. Shapp, 11 F.Supp.2d 586, 608 (E.D. Pa. 1998)); Adkins v. Sogliuzzo, No. 09-1123 SDW, 2014 WL 1343065, at *10 (D.N.J. Apr. 4, 2014) (citing S & R Corp. v. Jiffy Lube Int'l, Inc., 968 F.2d 371, 377 n. 7 (3d Cir. 1992) and Gaudiosi v. Mellon, 269 F.2d 873, 882 (3d Cir. 1959)).

In the patent context, courts consider "inequitable conduct" that may be "broader than common law fraud, " J.P. Stevens & Co. v. Lex Tex Ltd., Inc., 747 F.2d 1553, 1559 (Fed. Cir. 1984), and may include unclean hands, see EMC Corp. v. Pure Storage, Inc., No. CV 13-1985(RGA), 2014 WL 5795557, at *1 (D. Del. Nov. 5, 2014). The J.P. Stevens holding has been drawn back somewhat, however, and inequitable conduct in the patent context does require an intent to deceive. See Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 872 (Fed. Cir. 1988). Gross negligence by itself is insufficient: "the involved conduct, viewed in light of all the evidence, including evidence indicative of good faith, must indicate sufficient culpability to require a finding of intent to deceive." Id. at 876. The Kingsdown decision was cited in Bose, increasing the patent cases' relevance here. See also Alliance Bank, 742 F.Supp.2d at 550-51 (considering inequitable conduct in tandem with fraud and the making of intentional false statements); TruePosition Inc. v. Andrew Corp., 568 F.Supp.2d 500, 518-19 (D. Del. 2008) (finding that the court could not consider unclean hands post-trial because the doctrine would be inconsistent with other jury findings indicating that defendant had not shown intent to mislead) (subsequent history on unrelated issues). But see Saudi Basic Indus. Corp. v. ExxonMobil Corp., 401 F.Supp.2d 383, 396 (D.N.J. 2005) (holding that recklessness or blatant disregard without actual intent may be sufficient to invoke unclean hands if the behavior is nonetheless unconscionable and shocks the integrity of the court).

There is at most a very slight difference between fraud and unclean hands with respect to defending against an incontestable mark on the basis of allegedly misleading statements. For the same reasons this Court was unable to find fraud in this case as a matter of law, it does not identify any conduct that conclusively shocks its conscience in such a way as to vitiate the incontestability of the mark on the basis of unclean hands.

Defendant's Motion for Leave to Add a Counterclaim

Defendant has filed a separate motion to add a counterclaim actually seeking to cancel the registration of the mark discussed above, plus another mark, on the same general basis (misleading the PTO). Though the subject matter is similar, the standard is obviously different. If a party requests leave to amend a pleading, "[t]he court should freely give leave when justice so requires." Fed.R.Civ.P. 15(a)(2). "In the absence of any apparent or declared reason-such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.-the leave sought should, as the rules require, be freely given.'" Foman v. Davis, 371 U.S. 178, 182 (1962). See also Lutz v. Philips Electronics N. Am. Corp., 347 F.Appx. 773, 777 (3d Cir. 2009) ("Although leave to amend a complaint under Rule 15(a) should be liberally granted, we have held that such leave should not be permitted where an amendment to the complaint would be futile.").

Plaintiff's argument that the amendment sought here is untimely and prejudicial is mainly based on the fact that the motion to amend was filed after Plaintiff's Motion for Summary Judgment. Given the liberality of the amendment standard, the Court will not deny leave to amend on that basis in this case. Plaintiff's motion for summary judgment was filed almost unusually early-more than two months before the motions deadline, shortly before a scheduled conference with the Court, and even before ...


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