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The Steep Price of Not Being Exceptional

by Paul Devinsky | Mar 11, 2021 | Trademarks

Addressing the appropriate standard for determining what makes a trademark case sufficiently exceptional to warrant an award of attorney fees, the US Court of Appeals for the Seventh Circuit upheld the denial of a renewed motion for attorneys’ fees under the Octane Fitness standard. LHO Chicago River, LLC v. Rosemoor Suites, LLC, Case No. 20-2506 (7th Cir. Feb.19, 2021 (Kanne, J.)

Some say that imitation is the highest form of flattery—but not in the world of trademarks. And certainly not according to LHO Chicago River. In 2014, LHO rebranded one of its Chicago hotels as “Hotel Chicago.” Two years later, Rosemoor did the same to its hotel on the west side of Chicago. LHO sued Rosemoor for trademark infringement (among other claims). Ultimately, LHO dropped the lawsuit after an unsuccessful motion for preliminary injunction. Rosemoor’s quest for attorneys’ fees, however, lived on.

Rosemoor’s initial request for attorneys’ fees amounted to $500,000. According to Rosemoor, the case was exceptional as defined by the Lanham Act and therefore justified reimbursement of its attorneys’ fees. Rosemoor’s first request was denied. Rosemoor appealed, arguing that the district court’s denial of attorneys’ fees was based on an incorrect standard as to what makes a trademark case exceptional. The renewed request for attorneys’ fees totaled $630,000. Once again Rosemoor was left to cover its own fees, and once again it appealed, but to no avail.

In denying Rosemoor’s initial request for attorneys’ fees, the district court used the “abuse-of-process” standard as explained in Burford v. Accounting Practice Sales. According to Rosemoor, the district court should have used the standard articulated in Octane Fitness v. ICON Health & Fitness to determine whether the case was exceptional. The Seventh Circuit agreed with Rosemoor regarding the appropriate standard, but did not agree that the case was exceptional.

Under Octane, “a case can be ‘exceptional’ if the court determines, under the totality of the circumstances, that it ‘stands out from others with respect to [1] the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or [2] the unreasonable manner in which the case was litigated.'” Relevant considerations for a party’s litigating position “include ‘frivolousness’ and ‘objective unreasonableness.'”

The Seventh Circuit determined that the district court did not abuse its discretion in deciding that the case was not exceptional and did not warrant fee shifting. The Court explained that LHO’s preliminary injunction pleading was not “frivolous or unreasonable,” LHO provided evidence of actual customer confusion, the disputed mark was “not plainly unworthy of protection,” LHO provided evidence of the mark’s secondary meaning, and Rosemoor failed to show that LHO engaged in exceptional litigation misconduct.

Practice Note: When the post-litigation dust settles, practitioners should help their clients evaluate whether their case truly is exceptional within the meaning of the Lanham Act and would thus warrant an award of attorneys’ fees. Appealing a disappointing judgment without strong “exceptional” grounds may end up costing more than it is worth.

Click Fraud: Predicate to False Designation of Origin

by Jodi Benassi | Mar 11, 2021 | Trademarks

The US Court of Appeals for the Fifth Circuit affirmed that pay-per-click advertisers may be liable under the Lanham Act for “click fraud.” WickFire, LLC v. Laura Woodruff et al., Case No. 17-50340 (5th Cir. Feb. 26, 2021) (Owen, J.)

WickFire and TriMax Media are advertisers that compete in the pay-for-performance search engine marketing business, also known as pay-per-click marketing. In this type of marketing, every time a user clicks on an advertisement, the advertiser pays the search engine (i.e., Google) a small fee. If the user makes a purchase on the merchant’s site, the merchant pays the advertiser a commission. When a pay-per-click campaign runs smoothly, the advertiser pays a small amount for a click, the click results in a sale, and the commission to the advertiser is more than the advertiser paid for the click.

WickFire filed a lawsuit against TriMax, alleging that TriMax violated Section 43 of the Lanham Act by committing “click fraud” through repeatedly clicking on WickFire’s ads without any intent to make a purchase, and created false advertisements that were made to appear as though they belonged to WickFire, among other state law claims. Section 43(a) of the Lanham Act prohibits a person from making, “in connection with any goods or services,” a “false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which . . . is likely to cause confusion . . . as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities.” WickFire alleged that the ads included a trademark and links to a WickFire website designed to aggregate coupons for online merchants.

The case went to trial, and a jury found for WickFire with respect to the state law claims and the false advertising claim (although it did not award any damages for violation of the Lanham Act). The jury determined that TriMax misrepresented WickFire as the source of advertisements by placing ads containing identifying information distinct to WickFire in a manner that was likely to cause confusion. TriMax filed for judgment as a matter of law and for a new trial. The district court denied the motions and entered judgment. TriMax appealed.

On appeal, TriMax alleged that WickFire’s Lanham Act claim was foreclosed by the Supreme Court’s decision in Dastar v. Twentieth Century Fox. The Fifth Circuit disagreed. The Court explained that WickFire was not concerned with protecting an original idea, as Fox attempted to do in Dastar. Instead, WickFire was trying to protect the genuineness of its brand.

TriMax next argued that it was entitled to judgment as a matter of law because the jury did not have a legally sufficient evidentiary basis to find for WickFire. The Fifth Circuit thought otherwise, holding that it did not need to decide whether the evidence was sufficient as a matter of law because the jury did not award WickFire damages to the claim. The Court noted that since the jury found that there were no damages, WickFire [...]

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Colorful Non-Functionality Argument Misses the (Design) Mark

by Paul Devinsky | Mar 4, 2021 | Trademarks

Addressing the functionality of colors in design marks, the US Court of Appeals for the Second Circuit reversed the district court’s entry of judgment for a trademark owner on its unfair competition and trademark claims, ruling that where color is used as an indicator of size or parts matching, it is functional and does not qualify as trade dress. Sulzer Mixpac AG v. A&N Trading Co., Case No. 19-2951 (2d Cir. Feb. 18, 2021) (Pooler, J.)

Sulzer Mixpac and A&N Trading are competitors that manufacture and supply mixing tips, which dentists use to create impressions of teeth for dental procedures. Mixpac obtained trademarks for the colors yellow, teal, blue, pink, purple and brown (collectively, the Candy Colors) as applied to mixing tips. Mixpac filed suit against A&N, claiming unfair competition; common law trademark infringement; and trademark infringement, trademark counterfeiting and false designation of origin under the Lanham Act. A&N countersued, claiming that Mixpac’s use of the Candy Colors on mixing tips was functional and therefore not entitled to trademark protection. The district court concluded that Mixpac’s use of the Candy Colors was non-functional (based in part on the increased cost of adding color to the mixing tips, and noting that other competitors used clear tips), and entered judgment and a permanent injunction in favor of Mixpac. A&N appealed.

The Second Circuit reversed, explaining that the district court erred by failing to apply the Louboutin three-part aesthetic functionality test to Mixpac’s marks. Under the Louboutin test, to determine whether a design feature is non-functional and thus entitled to trademark protection, courts look to whether the design feature (1) is “essential to the use or purpose” of the product, (2) “affects the cost or quality” of the product, and (3) has a significant effect on competition. A&N argued that the mixing tips’ color coding helps users identify useful product characteristics, such as diameter, and that it aids users in selecting the correct tip. Applying the Louboutin test in the first instance and citing trial testimony, the Second Circuit concluded that the colors signify diameter, which assists users when selecting the proper cartridge, as the colors “enable users to quickly match the proper mixing tip with the proper cartridge, and (citing Louboutin) thereby ‘improve[] the operation of the goods.'”

Practice Note: In trade dress cases, be sure to apply the Louboutin three-part aesthetic functionality test. Failure to do so may lead to reversal on appeal. In this case, the Second Circuit noted that “[t]he district court erred because it did not apply this test when it considered only that Mixpac’s use of the Candy Colors adds to manufacturing costs and that other companies use different or no colors.”

That’s So Metal: Ninth Circuit Confirms Standard of Review for Finding Unclean Hands on Summary Judgment

by Sarah Bro | Mar 4, 2021 | Trademarks

In a trademark infringement dispute over the brand name “METAL,” the US Court of Appeals for the Ninth Circuit resolved an issue of first impression in holding that when reviewing a grant of summary judgment on an unclean hands defense in a trademark infringement case, the correct standard of review is abuse of discretion. Metal Jeans, Inc. v. Metal Sport, Inc., et al., Case No. 19-55923 (9th Cir. Feb. 16, 2021) (VanDyke, J.) (Wardlaw, J., concurring).

Metal Jeans, an apparel brand claiming ownership of the trademark METAL, brought an infringement claim against Metal Sport, a powerlifting brand with a similar stylized mark that was also used on certain apparel items. In the district court, both parties sought summary judgment on the issue of likelihood of consumer confusion with respect to Metal Sport’s use of the METAL trademark in view of Metal Jeans’ rights in the brand name. The district court determined that material facts on the issue of infringement remained in dispute, and denied both parties’ motions on the merits. However, the district court granted a separate motion for summary judgment filed by Metal Sport claiming that Metal Jeans was barred from pursuing its infringement claim on grounds of unclean hands, while rejecting Metal Jeans’ counter-defense that Metal Sport also acted with unclean hands.

Metal Jeans appealed the unclean hands judgment, which presented an issue of first impression to the Ninth Circuit, namely the standard of review when a district court concludes that a party has acted with unclean hands. The Ninth Circuit noted that its two trademark decisions addressing unclean hands never specified the standard of review applied, and so turned to other cases in which it reviewed district courts’ application of similar equitable doctrines. With this background, the Court found abuse of discretion to be the correct standard of review.

In a separate decision memorandum, the Ninth Circuit explained that to successfully allege unclean hands, a defendant must show that the plaintiff’s conduct (1) is inequitable and (2) relates directly to the subject matter of its claims. The court also noted that factual questions related to the defense of unclean hands may only be resolved on summary judgment if evidence presented by both sides would permit the trier of fact to come to only one conclusion.

The Ninth Circuit assessed the six alleged instances of misconduct on the part of Metal Jeans, which included facts alleging that Metal Jeans provided varying accounts of how it acquired the METAL trademark and provided inaccurate or false information to the US Patent & Trademark Office, along with allegations that Metal Jeans sourced certain products from China despite its use of an “American Made” slogan. The Court determined that many of the factual allegations of unclean hands did not relate directly to Metal Jeans’ trademark infringement claims, nor did such allegations appear to have caused any harm or demonstrate malintent on the part of Metal Jeans.

Applying the abuse of discretion review standard, the Ninth Circuit determined that the district court’s findings [...]

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Collaterally Estopped: Do Not Re-Examine the Same Issues

by McDermott Will & Schulte | Mar 4, 2021 | Patents

In an appeal from an inter partes re-examination of a patent having both original and newly presented claims, the US Court of Appeals for the Federal Circuit ruled that a decision in earlier inter partes reexaminations of related patents had a preclusive effect that collaterally estopped the Patent Trial and Appeal Board from making new findings on the same issue that was determined in the prior re-examinations. SynQor, Inc. v. Vicor Corp, Case No. 19-1704 (Fed. Cir. Feb. 22, 2021) (Hughes, J.), (Dyk, J., dissenting).

Background

In 2011, SynQor asserted several patents, including the ‘190 patent, the ‘702 patent and the ‘290 patent, against Vicor. Vicor petitioned for reexamination of the ‘190, ‘702 and ‘290 patents, arguing that the claims of the ‘190 patent were unpatentable over two references: Steigerwald and Cobos. SynQor argued that an artisan would not have combined Steigerwald and Cobos because they taught circuits that operated at incompatible frequencies.

Past Appeals of Related Patents

On appeals from the reexaminations of the ‘702 and ‘290 patents, the Board affirmed that the challenged claims of the ‘702 patent were not unpatentable, because “there are incompatibilities in frequency between [Cobos and Steigerwald].” Similarly, after finding SynQor’s evidence that Steigerwald and Cobos operated at incompatible frequencies more credible than Vicor’s opposing evidence, the Board found the challenged claims of the ‘290 patent not unpatentable based on a combination of Steigerwald, Cobos and a third reference.

SynQor and Vicor had previously appealed the Board’s decisions in the reexaminations of the ‘702 and ‘290 patents to the Federal Circuit. As to the ‘290 patent, the Federal Circuit had affirmed the patentability of the challenged claims, holding that substantial evidence supported the Board’s finding that an artisan would not combine Steigerwald and Cobos because of their frequency incompatibility. The Court had also affirmed the Board’s decision finding the ‘702 patent not unpatentable, but did not (and was not asked to) reach the Board’s finding that Steigerwald and Cobos were incompatible.

Board Re-xamination of the ‘190 Patent

As to the ‘190 patent (at issue in this appeal), the Board found that Steigerwald and Cobos were not incompatible. In concluding that the challenged claims of the ‘190 patent were unpatentable over Steigerwald and Cobos, the Board was “not persuaded that the switching frequency differential is sufficient to render the combination unsuitable.” It found a new claim unpatentable based on a new ground of rejection, and SynQor opted to re-open prosecution of the new claim.

The ‘190 patent expired in January 2018. In February 2019, the Board issued its decision regarding the claims in the ‘190 reexamination, again rejecting SynQor’s argument that Steigerwald and Cobos had incompatible frequencies, and concluded that “the evidence points strongly to the lack of a frequency range discrepancy between Cobos and Steigerwald.” SynQor appealed.

Appeal as to the ‘190 Patent

On appeal, SynQor argued that common law issue preclusion arising from the ‘702 and ‘290 patent re-examinations should have collaterally estopped the Board from finding that an artisan would be [...]

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Agreement to One Is Not Consent to All

by Paul Devinsky | Feb 25, 2021 | Trademarks

Addressing a myriad of issues involving unauthorized use of professional models’ photographs for gentlemen’s clubs’ promotional materials, the US Court of Appeals for the Second Circuit held that the district court erred in its interpretation of “consent,” and vacated and remanded to adjudicate the scope of the consent given. The Second Circuit simultaneously affirmed the district court’s dismissal of claims under the Lanham Act and New York corporate and libel law. Electra v. 59 Murray Enterprs., Case No. 19-235 (2d Cir. Feb. 9, 2021) (Pooler, J.)

Eleven famous female models, including celebrity Carmen Electra, brought claims against three gentlemen’s clubs for using photographs of the models without permission. Plaintiffs had posed for the photographs for modeling agencies and signed release agreements for those agencies to use the photos. The clubs were given these photographs through third-party contractors that used the images to promote social events, including advertisements on the clubs’ website and social media. Plaintiffs never provided the clubs with any authorization or written consent to use their photos, nor were they compensated. Plaintiffs maintained that they do not endorse the clubs and were harmed by the unauthorized use of their likeness in association with prurient activities that the clubs promote. The clubs argued that their contractors obtained the images from a catalogue source that they believed had all rights in the images.

The main issues on appeal were whether plaintiffs had provided their “written consent” to the clubs to use their photos when they signed releases with their own agencies (despite never authorizing the clubs to use the photos), and whether the releases barred their claims.

Of the 11 plaintiffs, only six were not time barred, and of those, only two had disputed terms of their agreements. The Court opined for those two plaintiffs.

Under New York Civil Rights Law §§ 50-51 (statutory right of privacy and publicity), it is a misdemeanor to “use for advertising purposes, or for the purposes of trade, the name, portrait or picture of any living person without having first obtained the written consent of such person.” This protects both private individuals and those in the public eye, such as the plaintiffs, if they did not give written permission for that particular use. In deciding whether plaintiffs gave their consent for lawful use, the Second Circuit explained that there is no consent if the use exceeds the terms of the agreement, a factual inquiry into the text and terms of the releases.

The district court granted the clubs summary judgment under § 51 claims, finding that each plaintiff with a timely claim had entered into a “comprehensive” release that “grant[ed] the releasee unlimited rights to the use of the images at issue.” The plaintiffs argued that the district court erred in so finding because the record did not contain releases for the images at issue. The district court did not address whether the releases constituted written consent, but mused that it would be “inconsistent” with the statute for plaintiffs to sign unlimited releases and [...]

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Old Dawg, New Tricks: Bankruptcy Successor Is Also Inter Partes Re-Exam Successor

by Paul Devinsky | Feb 18, 2021 | Patents

Reversing the Patent Trial and Appeal Board, the US Court of Appeals for the Federal Circuit concluded that because a plaintiff was a successor in bankruptcy, it was a successor in an inter partes re-examination. The Court held that the plaintiff should be substituted for the original requestor following the sale of the original re-examination requestor’s right, title and interest in, to and under its assets to a holding company, which further assigned such assets and interests to the plaintiff. Mojave Desert Holdings, LLC v. Crocs, Inc., Case No. 20-1167 (Fed. Cir. Feb. 11, 2021) (Dyk, J.)

The dispute originated in 2012 when Crocs sued Dawgs for patent infringement. Dawgs responded by filing a third-party request for inter partes re-examination, which the US Patent & Trademark Office granted. The examiner rejected Crocs’ challenged patent claim as anticipated, and Crocs appealed to the Board.

While the appeal was pending, Dawgs filed a petition under chapter 11 of the Bankruptcy Code. Dawgs moved the bankruptcy court to approve the sale of all of its assets to a recently formed entity, Dawgs Holdings, free and clear of all liens, claims and encumbrances pursuant to Bankruptcy Code. The relevant provision of the Asset Purchase Agreement assigned Dawgs Holdings:

[a]ll of [Dawgs’] right, title and interest in, to and under all of the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including intellectual property and goodwill) . . . .

The sale order carved out from the free and clear language “any Claims [Crocs] . . . may hold for patent infringement occurring post-Closing.” Shortly after the closing, Dawgs Holdings assigned all rights, including explicitly the claims asserted by Dawgs in the district court action and the inter partes re-examination, to Mojave.

Months later, Mojave moved the Board to change the real party-in-interest from Dawgs to Mojave. The Board dismissed and expunged the request because:

The sale from Dawgs to Dawgs Holdings was silent with respect to the inter partes re-examination.
Mojave was not a party to the inter partes re-examination proceeding.
Mojave did not have standing to update the real party-in-interest.
Mojave did not file its submission within 20 days of any change of the real party-in-interest as required by 37 CFR § 41.8(a).

Subsequently, the Board reversed the examiner’s rejection of Crocs’ patent claim, which decision Dawgs appealed to the Federal Circuit, while simultaneously filing a motion to substitute Mojave.

In granting the substitution motion, the Federal Circuit noted the broad language describing the sale of all of Dawgs’ assets to Dawgs Holdings. The Court distinguished the sale language from the sale language in other cases where a buyer in bankruptcy may only acquire “substantially all” of the assets of another entity. Because the language describing the transfer from Dawgs to Dawgs Holdings was so broad, the Federal Circuit concluded that the transfer from Dawgs Holdings to Mojave included the interests in Dawgs’ claims and its successor-in-interest requestor status in the inter [...]

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Patent Extension Requires Board or Court Reversal, Multiple Examiner Actions Not Enough

by Jackie Toney | Feb 18, 2021 | Patents
The US Court of Appeals for the Federal Circuit affirmed a grant of summary judgment for the Director of the US Patent and Trademark Office (PTO), holding that the statutory language authorizing so-called “C-delay” patent term adjustment requires an adverse patentability finding that is reversed by a court or the Patent Trial & Appeal Board. Chudik v. Hirshfeld, Case No. 20-1833 (Fed. Cir. Feb. 8, 2021) (Taranto, J.) C-delay adds to a patent’s term to account for delay experienced during appellate review of an adverse patentability finding. C-delay does not apply when the examiner reopens examination after final rejection (in this case, four times over an 11-year period) because appellate review is not triggered when an examiner, and not the Board or a court, undoes a final unpatentability decision by reopening examination.

Chudik filed a patent application, and the examiner rejected all pending claims as unpatentable. Chudik declined to appeal, instead filing a request for continued examination. Over the next eight years, the examiner issued four more final rejections. After each rejection, Chudik filed a notice of appeal and opening brief, and after each notice of appeal, the examiner reopened prosecution rather than answering the appeal. The patent finally issued more than 11 years after Chudik filed the application. The PTO added time to the term of the patent for A-delay (where the PTO fails to meet certain prescribed deadlines) and B-delay (each day that the patent application’s pendency extends beyond three years), but not C-delay.

The C-delay provision of the Patent Act provides for a patent term adjustment where the delay is due to “appellate review by the [Board] or by a Federal Court in a case in which the patent was issued under a decision in the review reversing an adverse determination of patentability.” Chudik challenged the PTO’s calculation of the patent extension, arguing that he was entitled to C-delay patent term adjustment for the time his four notices of appeal were pending in the PTO. Chudik argued that the C-delay provision’s “appellate review” included the examiner’s decision to undo her final action through a reopening of prosecution. The PTO rejected that argument, concluding that the C-delay provision did not apply because the Board’s jurisdiction over the appeals never attached and no Board or reviewing court reversed an adverse determination of patentability.

Chudik then sued the PTO director in federal district court, again arguing that “appellate review” referred to the Board’s entire review process, starting when the notice of appeal is filed. Chudik also argued that “a decision in the review reversing an adverse determination of patentability” covered an examiner’s own decision, through a reopening of prosecution. Although characterizing it as “based on a reasonable construction of statutory text,” the court rejected Chudik’s challenge. Applying Chevron, the district court held that the PTO’s position must be affirmed because that position was reasonable. Chudik appealed to the Federal Circuit.

The Federal Circuit affirmed the district court’s decision, finding that the PTO’s interpretation of the C-delay provision’s statutory language was [...]

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Fairness Is the Limit for Asserting False Advertising Claims

by Christopher M. Bruno | Feb 11, 2021 | Trademarks
Addressing whether Lanham Act claims for false advertising or false association under § 43(a) (15 USC § 1125(a)) are subject to a statute of limitations, the US Court of Appeals for the Fourth Circuit concluded that the sole time limit on bringing such claims is the equitable doctrine of laches. Belmora LLC v. Bayer Consumer Care AG, Case No. 18-2183 (4th Cir. Feb. 2, 2021) (Floyd, J.)

The facts of the underlying dispute are straightforward. Bayer has sold the pain reliever naproxen as FLANAX in Mexico since 1972 and in the United States as ALEVE. Belmora began selling naproxen under the name FLANAX in the United States in 2004, where it used similar packaging and described the drug as one sold successfully in Mexico. Both companies tried to register the mark with the US Patent & Trademark Office, where proceedings unfolded. Ultimately, in April 2014, the Trademark Trial and Appeal Board cancelled Belmora’s trademark registration, finding that Belmora had blatantly misused FLANAX by drawing on the popularity of Bayer’s Mexican product. Two months later, Bayer brought claims against Belmora under § 43(a) of the Lanham Act and California unfair competition law in the US District Court for the Central District of California. The suit was transferred to the Eastern District of Virginia, where Belmora moved to dismiss, arguing that § 43(a) and state law claims were barred by the statute of limitations. Bayer replied that § 43(a) had no statute of limitations, and that the time to bring the state law claims had been tolled during the Board’s proceedings. The district court granted both of Belmora’s motions, and the appeal followed.

Because there is no express statute of limitations for a § 43(a) claim, the question before the Court was whether to assume that Congress intended that the most analogous state law statute of limitations apply, or to apply either the most analogous federal statute or common law laches doctrine. “Conclud[ing] that § 43(a) is one such federal law for which a state statute of limitations would be an unsatisfactory vehicle for enforcement,” the Court held that laches was more appropriate, for primarily two reasons. First, the statutory text provides that § 43(a) damages are subject to the principles of equity, which would include the doctrine of laches. Second, the Court found persuasive the law of the Third, Seventh and Ninth Circuits, which each apply laches as to restrict the timeliness of as § 43(a) action. That said, the Court emphasized that on remand, the district court should consider the period for bringing a similar state action as part of the laches analysis, especially because the Fourth Circuit employs a presumption that claims brought after the expiration of the most-analogous statute-of-limitations are barred by laches.

The Court noted that Bayer could overcome a presumption of laches, and cited three factors for the district court to consider:

Bayer’s knowledge (or lack thereof) of Belmora’s adverse use

Whether Bayer’s delay was inexcusable or unreasonable

Whether Belmora had been unduly prejudiced by [...]

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In Setty, Ninth Circuit Signals Shift in Arbitration Landscape for Non-Signatories

by Lauren H. Evans and Lisa M. Richman | Feb 4, 2021 | Trademarks
The US Court of Appeals for the Ninth Circuit tackled the question of whether non-signatories to an agreement may use state law doctrines to compel arbitration. Holding that the claims were insufficiently “intertwined” to permit equitable estoppel and had to be analyzed under federal law (and not state or foreign law), the Court affirmed denial of a non-signatory’s bid to arbitrate its claims for trademark infringement against one of the signatories to a contract governed by Indian law. Setty v. Shrinivas Sugandhalaya LLP, Case No. 18-35573 (9th Cir. Jan. 20, 2021) (Nelson, J.) (Bea, J., dissenting).

The dispute arose from a business partnership between brothers. Balkrishna and Nagraj Setty formed in order to continue their late father’s Indian incense business. The brothers signed a partnership deed that included an arbitration provision stating:

All disputes of any type whatsoever in respect of the partnership arising between the partners either during the continuance of this partnership or after the determination thereof shall be decided by arbitration as per the provision of the Indian Arbitration Act, 1940 or any statutory modification thereof for the time being in force.

In 2014 the brothers’ relationship fell apart, with each brother starting his own company. Balkrishna Setty and his company, Shrinivas Sugandhalaya (BNG) (SS Bangalore), brought suit against Nagraj Setty’s company, Shrinivas Sugandhalaya (SS Mumbai), for several claims, including trademark infringement. Nagraj Setty was not named in the action. SS Mumbai sought to compel the plaintiffs to participate in arbitration pursuant to the deed. The district court denied SS Mumbai’s motion, finding that only one party to the lawsuit, Balkrishna Setty, was a party to the deed and that the companies, SS Bangalore and SS Mumbai, were non-signatories. The Ninth Circuit affirmed, holding that SS Mumbai could not equitably estop SS Bangalore from avoiding arbitration. In June 2020, the Supreme Court of the United States granted certiorari, vacated the judgment and remanded for further consideration based upon its decision in GE Energy Conversion France SAS v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 (2020).

On remand, the Ninth Circuit affirmed denial of the motion to compel arbitration. First addressing choice of law, the Court found that federal rather than Indian law should apply. SS Mumbai argued that pursuant to the deed, the Indian Arbitration Act—which provides non-signatories the right to compel arbitration—should apply. The Ninth Circuit disagreed, finding that “whether SS Mumbai may enforce the Partnership Deed as a non-signatory is a ‘threshold issue’ for which we do not look to the agreement itself.” The Court acknowledged that the deed provided exclusively for disputes “arising between the partners,” not third parties. Thus, based on the federal nature of the claims and federal question jurisdiction, the Court applied federal law, opening the door to arguments concerning equitable estoppel.

Second, discussing SS Mumbai’s equitable estoppel argument, the Ninth Circuit stated that in order “[f]or equitable estoppel to apply, it is ‘essential . . . that the subject matter of the dispute [is] intertwined with the contract providing [...]

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