Gosden v. ErazorBits, Inc.

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PETER GOSDEN, d/b/a/ WICKED FISH APPAREL, et al., Plaintiff, v. ERAZORBITS, INC., Defendant.

Civ. No. 22-00075 (GC) (DEA)

United States District Court, D. New Jersey

April 25, 2023

NOT FOR PUBLICATION

MEMORANDUM OPINION

CASTNER, U.S.D.J.

THIS MATTER comes before the Court upon Defendant ErazorBits, Inc.'s Motion to Dismiss Plaintiffs Amended Complaint pursuant to Federal Rule of Civil Procedure (“Rule”) 12(b)(6). (See ECF No. 56.) Plaintiff opposed (see ECF No. 58), and Defendant replied (see ECF No. 59). The Court has carefully considered the parties' submissions and decides the matter without oral argument pursuant to Rule 78 and Local Civil Rule 78.1. For the reasons set forth below and for good cause shown, Defendant's motion is GRANTED and Counts I through IV of Plaintiffs Complaint (see ECF No. 55 ¶¶ 28-51) are DISMISSED without prejudice. Plaintiff shall be given thirty (30) days in which to file an amended complaint to the extent Plaintiff can cure the deficiencies identified herein.

I. FACTUAL AND PROCEDURAL BACKGROUND^[1]

In April 2021, Plaintiff Peter Gosden, a citizen and resident of the State of Georgia who does business as Wicked Fish Apparel, brought suit on behalf of himself and Wicked Fish L.L.C., a Georgia limited liability company (together “Plaintiff' or “Wicked Fish”), against Defendant ErazorBits, Inc., a New Jersey corporation (“Defendant” or “ErazorBits”), in the United States District Court for the District of South Carolina, alleging trademark infringement and related statelaw claims. (See ECF No. 1.) Plaintiff based federal jurisdiction on 28 U.S.C. §§ 1331 and 1338(a), which grants subject matter jurisdiction for questions and actions under federal law related to trademarks. (Id. ¶¶ 4-5.)

The action was transferred to the District of New Jersey in January 2022 upon a consent motion (see ECF No. 32) and the Court subsequently granted in August 2022 Plaintiffs motion to amend its complaint to add a breach of contract claim (see ECF No. 54). Plaintiffs Amended Complaint asserts four causes of action: Count I for Trademark Infringement under 15 U.S.C. § 1114(1); Count II for Unfair Competition under 15 U.S.C. § 1125(a); Count III for False Designation under 15 U.S.C. § 1125(a); and Count IV for Breach of Contract. (ECF No. 55 ¶¶ 2851.)

Plaintiff is the owner of a United States Trademark for marks that consist of or contain the teim “Wicked Fish.” (Id. ¶ 10.) “Wicked Fish” is known for its high quality and reputable products and has extensive consumer recognition. (Id. ¶ 13.) In or around January 2016, Plaintiff entered into a non-exclusive licensing agreement that granted Defendant ErazorBits permission to use the mark “Wicked Fish” on products it sold within the United States. (Id. ¶ 14.) In exchange for use of the mark, Defendant agreed to pay a non-refundable royalty payment of $7,500.00 and agreed to other terms, including but not limited to providing to Plaintiff proof of adequate insurance, samples of all products sold bearing the mark, and providing quarterly records of sales so that Plaintiff can accurately calculate royalty payments due. (Id. ¶¶ 14-16.) Despite Plaintiffs demands, Defendant has failed to make the full $7,500.00 royalty payment^[2] and has not abided by other terms and obligations of the 2016 licensing agreement. (Id. ¶¶ 14, 17, 20.) Defendant continues, however, to display and use Plaintiffs mark to market its products. (Id. ¶¶ 18-23.)

Plaintiff contends that Defendant's actions not only constitute a breach of contract but violate the Lanham Act (“Act”), 15 U.S.C. § 1051, et seq., by infringing on Plaintiffs federal trademarks, constituting unfair competition and false designation. (See id. ¶¶ 28-48.)

On September 16, 2022, Defendant moved to dismiss Plaintiffs Lanham Act counts for failure to state a claim pursuant to Rule 12(b)(6). (See ECF No. 56.) Plaintiff opposed on October 3, 2022, and Plaintiff replied on October 11, 2022. (See ECF Nos. 58 & 59.)

IL LEGAL STANDARD

On a motion to dismiss for failure to state a claim, courts “accept the factual allegations in the complaint as true, draw all reasonable inferences in favor of the plaintiff, and assess whether the complaint and the exhibits attached to it ‘contain enough facts to state a claim to relief that is plausible on its face.'” Wilson v. USI Ins. Serv. LLC, 57 F.4th 131, 140 (3d Cir. 2023) (quoting Watters v. Bd. of Sch. Directors of City of Scranton, 975 F.3d 406, 412 (3d Cir. 2020)). “A claim is facially plausible ‘when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'” Clark v. Coupe, 55 F.4th 167, 178 (3d Cir. 2022) (quoting Mammana v. Fed. Bureau of Prisons, 934 F.3d 368, 372 (3d Cir. 2019)). When assessing the factual allegations in a complaint, courts “disregard legal conclusions and recitals of the elements of a cause of action that are supported only by mere conclusory statements.” Wilson, 57 F.4th at 140 (citing Oakwood Lab 'ys LLC v. Thanoo, 999 F.3d 892, 903 (3d Cir. 2021)). The defendant bringing a Rule 12(b)(6) motion bears the burden of “showing that a complaint fails to state a claim.” Ln re Plavix Mktg, Sales Pracs. & Prod. Liab. Litig. (No. II), 974 F.3d 228, 231 (3d Cir. 2020) (citing Davis v. Wells Fargo, 824 F.3d 333, 349 (3d Cir. 2016)).

III. DISCUSSION

A. Counts I Through III: Lanham Act Claims

“Congress enacted the Lanham Act in 1946 in order to provide national protection for trademarks used in interstate and foreign commerce.” Park NFly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 193 (1985). The Act “was intended to make ‘actionable the deceptive and misleading use of marks' and ‘to protect persons engaged in . . . commerce against unfair competition.'” Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 767 (1992) (quoting 15 U.S.C. §1127).

Generally, “[t]o state a claim for trademark infringement, 15 U.S.C. § 1114(1), and unfair competition/false designation of origin, 15 U.S.C. § 1125(a)(1), under the Lanham Act, a plaintiff must show three elements: ‘(1) it has a valid and legally protectable mark; (2) it owns the mark; and (3) the defendant's use of the mark to identify goods or services causes a likelihood of confusion.'” Juul Labs, Inc. v. 4XPODS, 439 F.Supp.3d 341, 351 (D.N.J. 2020) (quoting A & H Sportswear, Inc. v. Victoria's Secret Stores, Inc., 237 F.3d 198, 210 (3d Cir. 2000) (“We measure federal trademark infringement, 15 U.S.C. § 1114, and federal unfair competition, 15 U.S.C. § 1125(a)(1)(A), by identical standards.”)). “A plaintiff bears the burden of proving these elements.” Id.

Defendant moves to dismiss Plaintiff's trademark infringement and unfair competition/false designation claims under the Lanham Act on the ground that “ErazorBits' use of the Licensed Mark is expressly authorized by [Plaintiff], and an authorized use pursuant to a license is not infringing as a matter of law.”^[3] (ECF No. 56-1 at 14-15.^[4]) Defendant points out that Plaintiff alleges that it entered into a licensing agreement in 2016 to allow Defendant to use the mark “Wicked Fish” on products sold in the United States, and “[t]here is no allegation that the License Agreement terminated or expired - because it remains in full force and effect. Furthermore, there is no allegation that ErazorBits' use of4 Wicked Fish' is in any way inconsistent with the rights granted to it by the License Agreement.” (Id. at 15-16.) Defendant cites decisions from several federal courts (though none in the Third Circuit) that it submits stand for the proposition that “where the trademark holder has authorized another to use its mark, there can be no likelihood of confusion and no violation of the Lanham Act if the alleged infringer uses the mark as authorized.” (Id. at 16-17 (quoting Segal v. Geisha NYC LLC, 517 F.3d 501, 506 (7th Cir. 2008)).)

In opposition, Plaintiff does not contend that the license with ErazorBits has been terminated or that ErazorBits has used the mark outside the United States or in a manner that exceeds the scope of what would have been authorized. (See ECF No. 58.) Instead, Plaintiff argues that “since Defendant never met its obligations under the terms of the contract the License Agreement was never in effect. As such any use of the Plaintiffs' trademarks by defendant constitutes trademark infringement, unfair competition and false designation of origin.” (Id. at 2.) Plaintiff underscores that Defendant did not make the full initial royalty payment of $7,500.00 (only paying $7,400.00) and that Defendant did not abide by other terms in the licensing agreement, such as keeping a record of all sales and promptly submitting royalty payments, obtaining commercial general liability insurance, or providing samples of products bearing the mark. (Id. at 3-5.) Especially as to the initial royalty payment, Plaintiff insists that this “was a condition precedent to the Licensing Agreement going into effect.” (Id. at 5.)

This motion raises the issue of when a dispute arising from a license/franchise agreement between the licensor/franchisor and the licensee/franchisee is a common law breach of contract dispute or one of infringement under federal law.

There are several principles a court can consider in determining this issue. First, there is no bar to “maintain[ing] both a Lanham Act claim and a claim for breach of contract if both are sufficiently alleged although based on overlapping facts.” Gen. Elec. Co. v. Feuz Mfg., Inc., Civ. No. 07-1008, 2008 WL 11355394, at *3 (N.D.N.Y. May 15, 2008) (collecting cases). Second, just because a contract dispute involves federal trademarks copyrights or patents does not automatically translate the contract dispute into a federal...