IP UPDATE
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IP UPDATE
Exploring the Latest in Intellectual Property Law
Unfair Competition
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Unfair Play: Unjust Enrichment for Copying and Using Non-Trade-Secret Spreadsheet

by | Nov 9, 2023 |

The US Court of Appeals for the Second Circuit reversed a district court’s dismissal of an unjust enrichment claim, finding that unjust enrichment claims do not necessarily rise or fall with trade secret misappropriation claims and may be advanced where there is a dispute as to whether a contract’s scope covers the parties’ disagreement. Pauwels v. Deloitte LLP, Case No. 22-21 (2d Cir. Oct. 6, 2023) (Sacks, Robinson, JJ.) (Jacobs, J., dissenting in part).

Andre Pauwels is a contractor who was retained without written agreement by The Bank of New York Mellon and its parent company (collectively, BNYM) to work on investment valuation. In 2014, while working for BNYM, Pauwels developed the “Pauwels Model” for valuation, which was implemented in Excel spreadsheets. Pauwels typically would send BNYM only the outputs from the Pauwels Model. According to Pauwels, the Pauwels Model and spreadsheets were confidential and proprietary, although the spreadsheets were not password-protected, encrypted or labeled confidential, and Pauwels sometimes shared the spreadsheets with BNYM.

In 2016, BNYM engaged Deloitte and related entities (collectively, Deloitte) to take over Pauwels’s duties. Pauwels never authorized BNYM to share the Pauwels Model spreadsheets with Deloitte, and BNYM assured Pauwels that Deloitte was not using those spreadsheets. In April 2018, Pauwels discovered that BNYM had given Deloitte the spreadsheets and that Deloitte had copied the Pauwels Model. BNYM terminated its relationship with Pauwels in May 2018.

In March 2019, Pauwels sued BNYM and Deloitte for trade secret misappropriation, unfair competition and unjust enrichment and further alleged that BNYM committed fraud and negligent misrepresentation. After BNYM and Deloitte moved to dismiss, the district court granted the motion in relevant part. The district court dismissed the unjust enrichment claim as duplicative of the trade secret misappropriation claim, citing the 2009 Second Circuit case Faiveley Transp. Malmo v. Wabtec for the proposition that “where an unfair competition claim, and a misappropriation claim arise from the same factual predicate . . . the two claims generally rise or fall together.” The district court dismissed the remainder of the claims for failure to plausibly allege the existence of trade secrets, that BNYM and Deloitte had “misappropriated” anything, or that Pauwels suffered damages. Pauwels appealed.

The Second Circuit reversed the dismissal of Pauwels’s unjust enrichment claim as to BNYM. Initially, the Court found that Pauwels’s unjust enrichment claim was not duplicative of his trade secret misappropriation claim, distinguishing Faiveley Transp. and explaining that misappropriation is not an element of unjust enrichment claims. The Court rejected BNYM’s argument that Pauwels’s unjust enrichment claim was precluded by the contract between the parties. The Court found that Pauwels could maintain his claim because there was “a bona fide dispute . . . whether the scope of an existing contract covers the disagreement between the parties.” According to Pauwels, he was engaged and paid for his advice and expertise only, meaning that BNYM had no right to benefit from the Pauwels Model spreadsheets by sharing them with Deloitte. According to BNYM, [...]

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What’s Kühler Than Kühl? No Likelihood of Confusion

by | Sep 28, 2023 |

Addressing unfair competition claims under the Lanham Act, the US Court of Appeals for the Tenth Circuit concluded that no reasonable juror would confuse an alcohol distributer’s use of the word “kühl” with use of a similar mark by a clothing company. Alfwear, Inc. v. Mast-Jägermeister US, Inc., Case No. 21-4029 (Fed. Cir. Sept. 7, 2023) (Holmes, Kelly, Carson, JJ.)

Alfwear has used the mark KÜHL on its outdoor apparel line since 1993 and has registered the mark in connection with apparel, wine and beer. Mast-Jägermeister US (MJUS), a German herbal liqueur distributor, began incorporating “kühl” into its advertisements on billboards, commercials and digital advertising in phrases such as “kühl as ice” and “drink it ice kühl.” In response, Alfwear filed suit against MJUS, asserting trademark infringement and unfair competition. The district court granted MJUS’s motion for summary judgment, finding that there was no likelihood of confusion because all but one factor for assessing likelihood of confusion supported MJUS. Alfwear appealed.

Alfwear argued that the district court erred by not concluding that MJUS’s use of the word “kühl” was likely to cause confusion with Alfwear’s use of the essentially the same word. To determine whether a likelihood of confusion exists, the following factors must be considered:

  • The degree of similarity between the marks
  • The intent of the alleged infringer in adopting its mark
  • Evidence of actual confusion
  • Similarity of products and manner of marketing
  • The degree of care likely to be exercised by purchasers
  • The strength or weakness of the marks.

The Tenth Circuit found that the two marks were not similar in sound, meaning or appearance, and that MJUS only used “kühl” in association with other MJUS marks. The Court explained that Alfwear often depicts the KÜHL mark alongside a logo of a shield-type shape containing a stylized, snow-covered mountain peak in the colors brown, black and white against a bright blue sky. In contrast, MJUS uses the word “kühl” in phrases such as “kühl shots” or “kühl as ice,” on top of a black or green background and accompanied by a combination of either the mark JÄGERMEISTER, the Jägermeister logo or images of a Jägermeister bottle.

The Tenth Circuit also found that MJUS did not intend to copy Alfwear’s mark, explaining that MJUS was not aware of Alfwear’s trademark when designing the new advertising campaign, and noting that when MJUS became aware of the trademark, MJUS intended to avoid infringement by not placing the mark on its apparel or liquor products. The Court also determined that there was insufficient evidence of actual confusion. Alfwear presented anecdotal evidence from Alfwear executives who had heard about confusion from individuals and survey evidence that demonstrated consumers experienced an approximately 30% chance of confusion. The Court found that the anecdotal evidence was de minimis and found that the survey was not designed properly because the products were not shown to survey participants as they would appear in the marketplace and used leading questions. The Court also found that the two [...]

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Watermelon Sugar: Candy Shape and Color Deemed Functional

by | Sep 21, 2023 |

The US Court of Appeals for the Third Circuit upheld a district court’s decision that a candymaker cannot trademark the shape and colors of watermelon candy, finding that the combined colors and shape of the candy are functional because they help signal to consumers that the candies have a watermelon flavor. PIM Brands Inc. v. Haribo of America, Inc., Case No. 22-2821 (3rd Cir. Sept. 7, 2023) (Chagares, Bibas and Matey, JJ)

PIM is a leading confectionary company that introduced its Sour Jacks Wedges, a chewy gummy candy, in the early 2000s.

PIM obtained a federal trademark registration in “the shape of a wedge for candy, with an upper green section with white speckles, followed by a narrow middle white section and followed by a lower red section with white speckles.”

Haribo, a well-known German confectionery company, introduced its own watermelon-flavored sweet treat in 2019. Like the Sour Jacks Wedges, Haribo’s candy is red, white and green, with an elongated watermelon wedge shape. PIM sued Haribo for trademark and trade dress infringement under the Lanham Act and for unfair competition under New Jersey common law, alleging that Haribo copied PIM’s Sour Jacks Wedges design.

Haribo countered that PIM’s trade dress was functional and requested that the district court cancel PIM’s trademark. Haribo claimed that it designed its chewy candy’s shape and colors to match its flavor (watermelon) and that PIM’s trademark should not have been granted since it closely resembled an actual slice of watermelon. The district court agreed, finding that PIM’s trademark design was functional and not protectable since PIM’s combination of colors and shape helps identify the candy’s watermelon flavor. PIM appealed.

PIM acknowledged that the coloring of its watermelon candy was functional since it identified the candy’s flavor. However, PIM argued that the candy’s wedge shape identified the brand and challenged the district court’s decision because it did not consider the wedge shape in isolation from the colors when assessing functionality.

The Third Circuit rejected PIM’s argument, concluding that each feature of the candy’s trade dress serves a single function, which is to identify its flavor, and therefore is ineligible for trademark protection. The Court explained that a design is functional if it is useful for anything beyond branding. The Court cited to its 2021 decision in Ezaki Glico v. Lotte International America, explaining that “[e]ven if the design chosen both promotes a brand and also ‘makes a product work better,’ it is functional and unprotectable.” The Court went on to explain that if design choices (e.g., shape and color) serve the same function (e.g., identifying the flavor), they should be considered together.

PIM further argued that its Sour Jacks Wedges do not match exactly with watermelon, noting that the bottom could be more curved and have a thinner band of darker green, the wedge could be wider, the point could be sharper and a deeper red, and there could be black seeds. The [...]

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Back to the Future: Prior Third-Party Settlement Doesn’t Impact Future Trademark Licensees

by | Sep 7, 2023 |

The US Court of Appeals for the Eleventh Circuit ruled that under certain circumstances a trademark licensee can bring a claim against a third party for unfair competition under the Lanham Act even if the licensing agreement does not expressly authorize it to do so. Overhead Door Company of Kansas City v. OGD Equipment Company, LLC, Case No. 22-10985 (Fed. Cir. Aug. 22, 2023) (Branch, Brasher, JJ.; Winsor, Dist. J., sitting by designation).

This appeal involved three parties: D.H. Pace Company, Overhead Door Corporation and Overhead Garage Door (OGD). All three companies are involved in selling and servicing garage doors. Pace is a licensee of Overhead. Under its license, Pace is permitted to advertise and promote the trade name OVERHEAD DOOR COMPANY. OGD is a competitor of Overhead and Pace. Prior to the current appeal, Overhead and OGD had been involved in litigation involving OGD’s alleged trademark infringement and unfair trade practices, which resulted in a settlement. As a part of the settlement, OGD and Overhead could not bring suits against each other. However, the settlement terms were not expressly binding on any current or future licensees of Overhead.

In the current litigation, Pace filed suit against OGD for unfair competition in violation of § 43(a) of the Lanham Act, deceptive trade practices and various state trademark infringement violations. Pace alleged that OGD was leading consumers to believe that it was the same company as, or was affiliated with, Overhead (Pace’s licensor). In response, OGD moved for summary judgment, which the district court granted. The district court ruled that the licensing agreement between Pace and Overhead was a contractual bar to relief because the agreement did not affirmatively give Pace the right to sue. The district court also ruled that as a non-exclusive licensee, Pace lacked standing to bring its suit. The district court held that because Pace’s trademark rights were derived from a licensing agreement with Overhead, by discharging rights in the prior settlement with OGD, Overhead also discharged Pace’s right to sue.

Through a de novo review, the Eleventh Circuit disagreed with the district court’s grant of summary judgment against Pace. As the district court recognized, under § 43(a) of the Lanham Act, parties other than the owner of the mark can bring suit, but here the district court barred Pace’s claims based on the licensing agreement, Pace’s status as a non-exclusive licensee and the settlement agreement between OGD and Overhead. In reversing, the Eleventh Circuit held that none of these reasons was sufficient to bar Pace’s claims.

According to the Eleventh Circuit, the licensing agreement did not bar Pace from suing since there were no contractual term imposing a bar. While a licensee’s right to sue can be restricted, there was nothing in the licensing agreement at issue that limited Pace’s right to sue. The license agreement did not address trademark enforcement or either party’s ability to sue.

The Eleventh Circuit explained that the district court misread the Eleventh Circuit’s 2019 decision in Kroma Makeup v. Boldface [...]

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Personal Jurisdiction? Selling Products via Interactive Website Will Do It

by | Jul 13, 2023 |

The US Court of Appeals for the Ninth Circuit reversed and remanded a district court’s dismissal for lack of personal jurisdiction, deciding that the sale of a product via an interactive website provides sufficient “minimum contacts” to support jurisdiction over a nonresident defendant in a state where the defendant causes the product to be delivered. Herbal Brands, Inc. v. Photoplaza, Inc., Case No. 21-17001 (9th Cir. July 5, 2023) (Graber, Clifton, Christen, JJ.)

Herbal Brands sells health, wellness, fitness and nutrition products directly to consumers and through authorized third-party retailers in Arizona. Photoplaza sold Herbal Brands products through two e-commerce storefronts without Herbal Brands’ permission. Herbal Brands sent three cease-and-desist letters, stating that Photoplaza’s sales harmed Herbal Brands in Arizona. Herbal Brands accused Photoplaza of trademark infringement and unfair competition under the Lanham Act, false advertising under the Lanham Act and tortious interference with contracts and business relationships under Arizona law. The district court granted Photoplaza’s motion to dismiss for lack of personal jurisdiction. Herbal Brands appealed.

The Ninth Circuit noted that Photoplaza failed to submit any evidence to contradict the jurisdictional allegations in the complaint. The Court found that under its three-part test, Photoplaza had sufficient minimum contacts with Arizona to warrant personal jurisdiction:

  1. Photoplaza purposefully directed its activities at the forum.
  2. Herbal Brands’ harm arose out of Photoplaza’s contacts with Arizona.
  3. Exercise of jurisdiction over Photoplaza would be reasonable.

The second and third prongs of the Ninth Circuit’s test were easily resolved. Herbal Brands’ claimed harm rose out of and related to Photoplaza’s conduct of selling the products to Arizona residents. The Court referred to its 2004 holding in Schwarzenegger regarding a plaintiff’s burden to establish jurisdiction, whereupon the burden shifts to the defendants under the seven-factor balancing test of Freestream Aircraft (2018). The Court found that Photoplaza did not meet its burden to present a compelling case that exercising jurisdiction would be unreasonable.

The bulk of the Ninth Circuit’s decision focused on the first prong (purposeful availment), which applies when “a case sounds in tort,” such as claims of trademark infringement, false advertising and tortious interference with business relationships, each of which requires an intentional tortious or “tort-like” act. Referring to the effects test from the 1984 Supreme Court decision in Calder v. Jones, the Ninth Circuit explained that Photoplaza purposefully directed its activities toward the forum if it (1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that Photoplaza knew was likely to be suffered in the forum state. Related to the Calder test’s first and third prongs, Photoplaza’s product sales to Arizona residents were intentional acts, and the cease-and-desist letters informed Photoplaza that its actions caused harm in Arizona.

Regarding the “express aiming” prong, the Ninth Circuit explained that when a website itself is the only jurisdictional contact, the analysis turns on whether the site had a forum-specific focus or whether the defendant exhibited an intent to cultivate an audience in the forum. The Court explained that [...]

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On the Border of Art and Trademark: First Amendment Trumps the Lanham Act

by | Dec 8, 2022 |

The US Court of Appeals for the Eleventh Circuit weighed trademark rights against free speech considerations and found that the First Amendment protected use of an artistic work that was not deliberately misleading. MGFB Properties Inc. et al. v. 495 Productions Holdings LLC et al., Case No. 21-13458 (11th Cir. Nov. 29, 2022) (Luck, Brasher, Hull, JJ.) (Brasher, J., concurring).

The suit was brought by MGFB Properties, Flora-Bama Management and Flora-Bama Old S.A.L.T.S. (collectively, the plaintiffs). The plaintiffs own and operate the Flora-Bama Lounge, Package and Oyster Bar on the Florida-Alabama border. The lounge has been in business since 1964 and is well known in the region. The plaintiffs registered their trademark FLORA-BAMA in 2013.

Viacom and 495 Productions (collectively, the defendants) produce reality television series, such as the hit 2009 series Jersey Shore. In light of Jersey Shore’s success, the defendants produced several spinoffs. In 2016 the defendants decided to develop a new spinoff based on “southern beach culture” and chose the term “Floribama” to describe “relaxing Florida beaches with the down-home Southern vibe of Alabama.” The defendants were aware of the name’s connection to the Florabama Lounge but used the term regardless to identify a specific stretch of the Gulf Coast (the Florida and Alabama coasts) and inserted dialogue into the show to explain the term. The show’s logo emphasized its connection to the Jersey Shore franchise:

The plaintiffs argued that the defendants’ use of “Floribama” was a violation of the Lanham Act and caused unfair confusion and damage to their brand. The district court granted summary judgment for the defendants. Plaintiffs appealed.

The Eleventh Circuit upheld the district court’s judgment that the defendants’ First Amendment rights as the creators of an artistic work outweighed the plaintiffs’ interest in their trademark and in avoiding confusion around their brand: “[c]reative works of artistic expression are firmly ensconced within the protections of the First Amendment.” In reaching its outcome, the Court applied the 1989 Rogers v. Grimaldi test.

Under the first prong of the Rogers test, “an artistically expressive use of a trademark will not violate the Lanham Act unless the use of the mark has no artistic relevance to the underlying work whatsoever.” Here, the Eleventh Circuit found that the defendants’ use of the term “Floribama” to describe the geographic area featured in Floribama Shore and the subculture of that region satisfied the first element of the Rogers test. The Court held that it was sufficient for the defendants’ use of “Floribama” to be relevant to their show, even if the term was not “necessary” to production of the show.

Under the second prong of the Rogers test, the Eleventh Circuit found that the defendants’ use of “Floribama” was not explicitly misleading “as to the source or content of the work” [...]

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Tableware Designer Gets Heavenly Results on Its Pearly Plates

by | Jul 21, 2022 | ,

The US Court of Appeals for the Fifth Circuit reversed a district court decision, reversing the dismissal of a copyright claim based on lack of standing and finding ownership of the copyright in the claimant based on an assignment of that claim. The Fifth Circuit also found that the plaintiff had a protectible trade dress under the Lanham Act based on secondary meaning. Beatriz Ball, LLC v. Barbagallo Co., LLC, Case No. 21-30029 (5th Cir. July 12, 2022) (Jones, Haynes, Costa, JJ.) (per curiam).

Beatriz Ball, the founder of Beatriz Ball, LLC, alleged that Pampa Bay was marketing and distributing products that infringed on Ms. Ball’s registered copyrights and unregistered trade dress for its “Organic Pearl” line of tableware. Ms. Ball brought suit against Pampa Bay in Louisiana federal court, asserting claims for copyright infringement under the Copyright Act and unfair competition under § 43 of the Lanham Act.

Pampa Bay has marketed and distributed products similar to the Organic Pearl collection but made with cheaper materials since 2016. Ms. Ball alleged that Pampa Bay infringed upon her copyright and its unregistered trade dress because the products are confusingly similar and look and feel like the Organic Pearl trade dress in every way. The district court ruled against Ms. Ball, finding that it had not established that its unregistered trade dress acquired “secondary meaning” as is required for protection of an unregistered trade dress under the Lanham Act. The district court further held that Ms. Ball lacked standing to bring the copyright claims as a result of a lack of legal interest because when “Beatriz Ball Collection” transferred ownership in the copyrights to “Beatriz Ball, LLC,” the language of the assignment did not specifically transfer the right to a cause of action for prior infringements predating the assignment. The assignment clause in issue read:

Assignment. Assignor [Beatriz Ball and Beatriz Ball Collection] hereby irrevocably conveys, transfers, and assigns to Assignee [Beatriz Ball, LLC], and Assignee hereby accepts, all of Assignor’s right, title and interest in and to any and all copyrights, whether registered or not and whether or not applications have been filed with the United States Copyright Office or any other governmental body. This assignment expressly includes any and all rights associated with those copyrights.

The district court found that because the assignment did not specifically transfer the assignor’s right to causes of action for prior infringements, the LLC lacked standing to challenge infringements pre-dating the assignment. The district court therefore never reached the merits of the copyright claim.

On appeal, the Fifth Circuit first reviewed the standing issue to determine if the LLC owned the copyrights at the time of the alleged infringement or if the right to vindicate prior infringements had been effectively assigned to Ms. Ball. Reversing the district court’s ruling, the Court concluded that the LLC had standing to bring the suit as the actual copyright holder. The Court reasoned that § 411(b)(1), which provides that a registration with “inaccurate information” can support an infringement action [...]

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Delay in Enforcing Trademark Measured from When Infringement Became Actionable

by | May 26, 2022 |

Addressing laches and progressive encroachment, the US Court of Appeals for the Eighth Circuit reversed and remanded a district court’s grant of summary judgment based on laches because the district court failed to “conduct a meaningful analysis” as to when the trademark infringement first became actionable. A.I.G. Agency, Inc. v American International Group, Inc., Case No. 21-1948 (8th Cir. May 13, 2022) (Loken, Gruender, Grasz, JJ.)

A.I.G. Agency (Agency) is a family-owned insurance broker in Missouri and American International Group, Inc. (International) is a large insurance company. Each company has used its version of an AIG trademark for decades. Agency first adopted the mark in 1958 while International began using AIG sometime between 1968 and 1970. In 1995, International sent a demand letter to Agency notifying it of International’s trademark registration and requesting that Agency cease use of the AIG mark. Agency responded that it had the right to use AIG in Missouri and Illinois because it had been using the trademark in those states long before International obtained its registration. In 2008, International again reached out to Agency demanding that it stop using AIG as a mark. Agency again asserted that it had the right to use the mark in Missouri and Illinois. International responded that it did not object to Agency’s use of AIG in St. Charles and St. Louis Counties in Missouri, but it would contest Agency’s use beyond that limited geographic scope.

Nearly a decade later, in 2017, Agency sued International for common law trademark infringement and unfair competition. International asserted that Agency’s claims were barred by laches and counterclaimed for trademark infringement, trademark dilution and unfair competition. Both parties moved for summary judgment, and the district court granted summary judgment for International, finding that Agency’s claims were barred by the doctrine of laches. Agency appealed.

The Eighth Circuit explained the difference between the equitable affirmative defense of laches (which is meant to bar claimants from bringing unreasonably delayed claims) and the doctrine of progressive encroachment (under which the period of delay in a trademark infringement case is measured not from when a claimant first learned of the allegedly infringing mark, but from when that infringement first became actionable). The Court explained that “[t]he doctrine [of progressive encroachment] saves trademark holders from being hoisted upon the horns of an inequitable dilemma—sue immediately and lose because the alleged infringer is insufficiently competitive to create a likelihood of confusion, or wait and be dismissed for unreasonable delay.” Here, Agency argued that it did not have an actionable and provable claim for infringement until 2012 when International changed its marketing strategy.

The Eighth Circuit found that the district court failed to “conduct a meaningful analysis” to determine when the infringement became actionable, noting that the district court found that laches barred the claims because “both parties have been using ‘AIG’ in the same markets for decades, each with full knowledge of the other’s activities.” The Court further criticized the district court for not employing a specific test to determine [...]

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Appeal Shuttered for Lack of Finality

by | Jan 27, 2022 |

The US Court of Appeals for the Eighth Circuit held that it lacked jurisdiction under 28 U.S.C. § 1291 and therefore dismissed an appeal of a district court decision staying a federal action pending state court litigation between the parties. Window World Int.’l, LLC et al. v. O’Toole et al., Case No. 21-1108 (8th Cir. Jan. 7, 2022) (Loken, Colloton, Benton, JJ.).

Window World International owns registered trademarks for the marketing of exterior remodeling products, such as custom-made vinyl windows. Window World distributes products through 200 independently owned and operated franchisees, including Window World of St. Louis, Inc. and Window World of Springfield-Peoria, Inc., companies co-owned by James T. Lomax III (collectively, the Lomax parties). Window World sublicenses its franchisees to use its trademarks.

In January 2015, the Lomax parties and other Window World franchisees sued Window World in the North Carolina Business Court. The Lomax parties alleged that Window World failed to make franchise disclosures required by federal and state law. They also asserted claims of fraud and breach of contract. In April 2019, the Lomax parties sent letters to Window World customers making several misrepresentations about Window World’s product warranty. Window World commenced action in federal court, asserting causes of action under the Lanham Act for false advertising, trademark infringement, unfair competition and dilution of a famous mark.

The Lomax parties moved to dismiss for failure to state a claim or stay the federal action pursuant to the Supreme Court’s 1976 decision in Colorado River Water Conservation Dist. v. US, which held that the interests of effective judicial administration may lead a federal court to reject taking jurisdiction in a case involving a concurrent state proceeding. Window World opposed the dismissal and stay requests. The district court dismissed several of Window World’s claims but ruled that it had a plausible trademark infringement and unfair competition claim and denied dismissal as to those claims. The district court also stayed the federal action pending determination of the scope of the claims regarding the protected marks in the North Carolina litigation. Window World appealed.

The Eighth Circuit found that the issued stay order was neither a final order under 28 U.S.C. § 1291 nor a collateral interlocutory order that may be appealed. As a result, the Court dismissed the appeal for lack of jurisdiction. In doing so, the Court explained that an order staying civil proceedings is interlocutory and not ordinarily a final decision for purposes of § 1291. However, if the stay effectively ends the litigation, then the order is final and jurisdiction under § 1291 is proper. Here, the Court concluded that the lower court’s stay was not a final order because the order contemplated further litigation in federal court. Additionally, the stay was not a final order merely because it had the practical effect of allowing a state court to be the first to rule on common issues. Therefore, the Court concluded that the stay order was not appealable as a final order and dismissed the appeal.



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Foreign Company’s Purposeful US Activities Blemishes Lack of Personal Jurisdiction Defense

by | Sep 9, 2021 |

The US Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of a complaint, finding that the foreign defendant was subject to specific personal jurisdiction in the United States in light of the defendant’s marketing, sales and operations, each of which reflected a significant focus on the United States. Ayla, LLC v. Alya Skin Pty. Ltd., Case No. 20-16214 (9th Cir. Aug. 27, 2021) (Rakoff, J.)

Ayla is a beauty and wellness brand based in the San Francisco area that offers skincare and hair products through retail and online sales, as well as health and personal care advice on its website. Ayla has three registered trademarks “for use of the ‘AYLA’ word mark in connection with on-site beauty services, online retail beauty products and cosmetics services, and cosmetics.” Alya Skin is a skincare company with its place of incorporation and principal place of business in Australia. Alya Skin sells and ships its products worldwide but about 10% of its total sales are made to the United States.

Alleging a “confusingly similar” mark on its products and advertisements, Ayla sued Alya Skin for trademark infringement and false designation of origin pursuant to the Lanham Act, as well as unfair competition under the California Business & Professions Code and California common law. Alya Skin moved to dismiss the lawsuit for lack of personal jurisdiction. The district court granted Alya Skin’s motion to dismiss, finding that it did not have personal jurisdiction. Ayla appealed.

On appeal, Ayla challenged the district court’s determination that it did not have nationwide jurisdiction over Alya Skin under Fed. R. Civ. Pro. 4(k)(2). The Ninth Circuit framed the issue on appeal as a question of whether the district court “erroneously held that the exercise of nationwide jurisdiction over Alya Skin does not comport with due process.” The Court noted that the due process analysis under 4(k)(2) is “nearly identical” to the traditional personal jurisdiction analysis but “rather than considering contacts between [the defendant] and the forum state, we consider contacts with the nation as a whole.” Because trademark infringement is “treated as tort-like for personal jurisdiction purposes,” the Court focused its specific jurisdiction analysis on whether Alya Skin “purposefully directed its activities toward the United States.”

The Ninth Circuit’s inquiry focused on a totality analysis surrounding Alya Skin’s marketing, sales and operations, each of which reflected a significant focus on the United States. The Court noted that Alya Skin promoted its allegedly infringing products specifically to US individuals through “significant advertising efforts.” These efforts included, for example, an Instagram post directly referencing the “USA,” Alya Skin’s advertising efforts during “Black Friday” and Alya Skin’s reference on its website that its products were featured in US magazines. Moreover, Alya Skin presented to consumers “that its products are FDA approved,” which the Court found to be “an appeal specifically to American consumers for whom the acronym ‘FDA’ has meaning.” The Court also noted that Alya Skin’s volume of sales reflected a purposeful direction toward the United States.

[...]

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