Engine Capital Mgmt., LP v. Engine No. 1 GP LLC

ENGINE CAPITAL MANAGEMENT, LP, Plaintiff, v. ENGINE NO. 1 GP LLC, et al., Defendants.

21 Civ. 149 (VM)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

FILED: April 12, 2021

April 10, 2021

DECISION AND ORDER

VICTOR MARRERO, United States District Judge.

Plaintiff Engine Capital Management, LP ("Engine Capital" or "Plaintiff") brought this action against Engine No. 1 GP LLC, Engine No. 1 NY LLC, Engine No. 1 LLC, Engine No. 1 LP, Christopher James ("James"), and Charles Penner ("Penner") (collectively, "Defendants") for trademark infringement in violation the Lanham Act ("Count One"), cybersquatting in violation of the Lanham Act ("Count Two"), common law trademark infringement ("Count Three"), and injury to business reputation or trademark-infringement dilution in violation of New York General Business Law § 360-l ("Count Four") stemming from Defendants' use of the "Engine" mark. (See First Amended Complaint ("FAC"), Dkt. No. 15.)

Now before the Court are two motions. First is Engine Capital's motion for a preliminary injunction enjoining and restraining Defendants from using Engine Capital's "Engine" or "Engine Capital" marks, or any element confusingly similar to those marks, as or part of a trademark, trade name, or internet domain name in connection with public-market investments. (See Motion for a Preliminary Injunction, Dkt. No. 40; Plaintiff's Memorandum of Law ("Pls. Mem."), Dkt. No. 49.) Defendants oppose the Motion. (See Defendants' Memorandum of Law in Opposition ("Opposition"), Dkt. No. 56.)

Second is Defendants' letter motion requesting a premotion conference and leave to file a motion to dismiss the FAC. The Court construes the letter as a motion to dismiss¹ pursuant to Federal Rule of Civil Procedure ("Federal Rule") 12(b)(6) (the "Letter Motion," Dkt. No. 36). Plaintiff opposes the Letter Motion. (See "March 3 Letter," Dkt. No. 39.)

For the reasons that follow, the Court DENIES Plaintiff's motion for a preliminary injunction and GRANTS in part and DENIES in part Defendants' Letter Motion to dismiss the FAC.

I. BACKGROUND²

A. THE FAC'S ALLEGATIONS

Engine Capital is a limited partnership and a leading investment management firm. Engine Capital has used the "Engine Capital" and "Engine" marks since as early as July 2013 for its management and investment services. Engine Capital has gained notoriety and influence for its branded investment advisory services related to public markets and shareholder activism. Engine Capital is marketed towards institutional and retail high-net-worth investors. Engine Capital contends that it is widely referred to and known as "Engine" in the activist and investment management industry.

Engine Capital is an activist shareholder. An activist shareholder is a shareholder in a public company that takes an active role by trying to influence the company's governance, strategy, operations, mergers and acquisitions policies, allocation of capital, and corporate policies. Engine Capital has been mentioned in various media pieces on shareholder activism and has received other industry honors. Engine Capital alleges that because of its reputation, it has successfully negotiated board representation with many publicly traded companies, which has been critical to its success.

Engine Capital owns the U.S. Trademark Application Serial No. 90453755 for "Engine Capital" for investment management services, investment advisory services, asset management services, and advisory services in the field of shareholder activism. Engine Capital also owns the U.S. Trademark Application Serial No. 90453764 for "Engine" for the same set of services.

Defendants are a new investment fund that focuses on shareholder activism. James and Penner are the principals of Engine No. 1 GP LLC, Engine No. 1 NY LLC, and Engine No. 1 LLC and launched the fund in December 2020. Defendants use "Engine No. 1" as a service mark and trade name in connection with the investment fund. Defendants also own the website www.engine1.com and the website www.engineno1.com, which redirects to www.engine1.com (the "Engine1 Website"). The Engine1 Website uses the marks "Engine No. 1" and "Engine" to promote corporate activism and financial services. Defendants are also alleged to have used the term "Engine" to identify themselves in connection with a proxy contest with Exxon Mobil Corporation.

On October 20, 2020, Engine No. 1 GP LLC filed an intent to use trademark application Serial No. 90267238 with the U.S. Patent and Trademark Office ("USPTO") for "Engine No. 1" in Class 36 covering generally and specifically:

(a) investment management services; (b) financial services, namely, providing investment management strategies in the fields of long and short equity, absolute return, low net market exposure, private and public debt, private and public equity, and shareholder activism; (c) financial information relating to shareholder activism, mergers, acquisitions, and corporate transactions, debt finance, debt trading and debt issuance; and (d) investment management services and financial services.

(FAC ¶ 32 (emphasis omitted).)

Engine Capital alleges that Defendants' use of the marks "Engine No. 1" and "Engine" in connection with its investment services and shareholder activism has caused or will cause confusion in the investment community in which these entities operate. Engine Capital further alleges that third parties are likely to be confused as to the source of Defendants' services and may believe they are in fact Engine Capital's services, originate with Engine Capital, or are otherwise connected with Engine Capital. Engine Capital states that Defendants will target the same clients Engine Capital targets. According to Engine Capital, Defendants have injured Engine Capital through the use of its marks and has caused and will continue to cause irreparable injury to it for which there is no adequate remedy at law.

With respect to James and Penner, Engine Capital alleges that as principals of the defendant entities, they "have been[] the moving, acting and conscious force who caused the direct infringement and wrongdoing that is at issue in this action" because James and Penner controlled and directed the defendant entities. (Id. ¶¶ 38-39.)

B. THE EVIDENCE SUBMITTED FOR PURPOSES OF PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

In support of its Motion for a Preliminary Injunction, Engine Capital provides evidence consisting of its trademark applications, media articles and reports discussing Engine Capital, internal reports and communications concerning Engine Capital's performance, news articles about the launch of Engine No. 1 and its Exxon Mobil proxy fight, offering and marketing materials from Engine No. 1, Defendants' trademark application, and details of other third-party marks containing the term "engine" in Class 36.

Engine Capital has also submitted various affidavits. For instance, Engine Capital filed an affidavit of Arnaud Ajdler ("Ajdler"), its founder and managing partner. Engine Capital also submitted affidavits of five individuals familiar with the industry and Engine Capital, including two Engine Capital investors who mistakenly believed that Engine No. 1 was affiliated with Engine Capital. One of the investors, Adam Semler, saw an article about Engine No. 1 investing in Exxon and reached out to Ajdler to "express [his] displeasure" with that investment. ("Semler Decl.," Dkt. No. 46.) Ajdler informed Semler that Engine Capital was not affiliated with Engine No. 1. The other individuals also confused the two and subsequently learned, either through inquiring of Ajdler or other means, that there was no connection between Engine Capital and Defendants.

Engine Capital submitted the affidavit of Professor Frank Partnoy, a professor of law at the University of California Berkeley School of Law whose areas of teaching and research include public equity financial markets and shareholder activism. ("Partnoy Decl.," Dkt. No. 42.) Professor Partnoy notes that "the rise of text analytics and algorithmic trading . . . have increased the potential for confusion in investor and stakeholder reactions to announcements and media coverage," noting that "there is evidence that the public equity financial markets react to the use of a particular word that is in a firm's name, even when the use of the word is irrelevant to the firm." (Id. ¶ 27.) To support this proposition, Professor Partnoy cites the example of Signal Advance, Inc., a small medical device company, whose stock price rose after being confused with the messaging app Signal. Professor Partnoy also states that "confusion can arise even when investors and stakeholders are sophisticated." (Id.)

Defendants' evidence includes Defendants' trademark application, a list of trademark registrations and applications from the USPTO database in the financial-services class containing the word "engine," a record from the USPTO provisionally granting Defendants' trademark application for "Engine No. 1," news articles and media sources mentioning Defendants, copies of Defendants' websites, and various other materials pertaining to Defendants' Exxon campaign.

Defendants submitted the affidavit of David Swift ("Swift"), the Chief Operating Officer of Engine No. 1 LP. Swift explains that James named Engine No. 1 after one of the oldest firehouses in San Francisco, where James resides. Swift states that James sought to evoke the imagery of a firehouse or fire truck because a firehouse "brings together a community" as do Defendants, whose "investments align the interests of shareholders and stakeholders seeking to create a positive change along with positive returns." ("Swift Decl.," Dkt. No. 57 ¶ 4.) Swift worked with James when James was naming the company and notes that James conducted a trademark search during that process.

Defendants also submitted the affidavit of an expert witness, Joseph Grundfest, a professor of law at Stanford Law School. Professor Grundfest concludes...