Opinion
2:03CV00701TC
March 26, 2004
ORDER
The dispute in this case is over ownership of, and the right to use, the trademark "Black Diamond." Defendant Black Diamond Sportswear ("BD Sportswear") began using the trademark "Black Diamond" on skiwear beginning November 1, 1986, and applied for federal trademark registration on January 9, 1990. Plaintiff Black Diamond Equipment ("BD Equipment") began using the same trademark on climbing and mountaineering equipment on December 1, 1989, and applied for federal trademark registration on September 20, 1990.
On August 13, 2003, BD Equipment filed this declaratory judgment action asking the court to declare that it has not infringed BD Sportswear's Black Diamond mark, or alternatively, that the mark was unenforceable. On September 30, 2003, BD Sportswear moved to dismiss for lack of subject matter jurisdiction and lack of personal jurisdiction under Fed.R.Civ.P. 12(b)(1) and 12(b)(2). BD Sportswear contends that the court does not have subject matter jurisdiction because there is no actual case or controversy as required by the Declaratory Judgment Act. BD Sportswear also argues that the court does not have personal jurisdiction over it because it lacks the necessary contacts with Utah. Finally, BD Sportswear contends that the court should exercise its inherent discretion in declaratory judgment actions and dismiss this suit.
After this suit was filed, BD Sportswear brought suit against BD Equipment for trademark infringement in the federal district court in Vermont on October 14, 2003.
For the reasons set forth below, the court finds that there is an actual case or controversy between the parties, and therefore subject matter jurisdiction exists, and the court may properly exercise personal jurisdiction over BD Sportswear. But the court grants the motion to dismiss because the court finds it is proper to exercise its discretion under the Declaratory Judgment Act and decline to hear this case.
Background
On July 10, 2003, upon hearing that BD Sportswear was for sale, BD Equipment sent an unsolicited offer seeking to purchase BD Sportswear's Black Diamond mark. In this letter, BD Equipment stated that it thought the mark was diluted and possibly unenforceable because BD Equipment had itself been using the mark on clothing for thirteen years. BD Sportswear had acquiesced to such use. BD Sportswear responded by letter on July 14, 2003, and acknowledged that the company was for sale, but refused BD Equipment's offer for the trademark alone. Further, BD Sportswear took exception to BD Equipment's charge of acquiescence or dilution and stated:
Your occasional use of this name has thus far been sufficiently de minimis that proceedings have not been cost justified. However, we will pursue any serious infringement problems.
(Pl.'s Mem. in Opp., Ex. E, Letter from Gary Guggemos, President, BD Sportswear, to Peter Metcalf, CEO/President, BD Equipment (July 14, 2003).) BD Equipment claims this language establishes that BD Sportswear was poised to sue for trademark infringement if it became aware of either BD Equipment's extensive use of the mark on clothing or that BD Equipment had expanded its use of the mark on clothing.
Analysis
I. Subject Matter Jurisdiction.
The Declaratory Judgment Act, 28 U.S.C. § 2001, (the "Act") limits jurisdiction in declaratory judgment actions to "cases of actual controversy." The "`Act was an authorization, not a command. It gave the federal courts competence to make a declaration of rights; it did not impose a duty to do so.'" Kunkel v. Continental Casualty Co. 866 F.2d 1269, 1273 (10th Cir. 1989) (quoting Public Affairs Assoc. Inc, v. Rickover, 369 U.S. 111, 112 (1962)). "[T]here is no absolute right to a declaratory judgment." Serco. Servs, Co. L.P. v. Kelley Co., Inc. 51 F.3d 1037 (Fed. Cir. 1995). Whether a federal court "entertain[s]" a declaratory judgment action "is a matter committed to the sound discretion of the trial court." Kunkel, 866 F.2d at 1273. A court should exercise this discretion "when the judgment will (1) clarify or settle the legal relations in issue and (2) terminate or afford relief from the uncertainty giving rise to the proceeding." Id. at 1275.
Broadly stated, the declaratory judgment test is whether "there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. United States v. Fisher-Otis Co. Inc. 496 F.2d 1146, 1151 (10th Cir. 1974) (quoting Maryland Casualty Co. v. Pacific Coal Oil Co. 312 U.S. 270, 273 (1969)). Accordingly, "[t]he essential distinction between a declaratory judgment action and an action seeking other relief is that in the former no actual wrong need have been committed or loss have occurred in order to sustain the action." Id. The Act's purpose "is to settle actual controversies before they ripen into violations of law or a breach of duty." Id.; see also Kunkel, 866 F.2d at 1274 (declaratory judgment act "enables parties uncertain of their legal rights to seek a declaration of rights prior to injury"). If the plaintiff can demonstrate a "good chance" that the defendant will harm the plaintiff in the future, then the plaintiff can maintain a declaratory judgment action. Facio v. Jones. 929 F.2d 541, 544 (10th Cir. 1991).
The Federal Circuit has set forth a somewhat different test specifically for intellectual property cases that asks whether there has been: "(1) an explicit threat or other action . . . [that] creates a reasonable apprehension" on the part of the declaratory plaintiff that defendant will sue for infringement; and (2) "infringement or concrete steps taken" toward that end Amana Refrigeration. Inc. V. Quadlux, Inc., 172 F.3d 852, 855-56 (Fed. Cir. 1999); see also Windsurfing Int'l Inc. v. AMF Inc., 828 F.2d 755, 757 (Fed. Cir. 1987) (similar test that asks whether the plaintiff has "a real and reasonable apprehension of litigation" and has "engaged in a course of conduct which brought it into adversarial conflict with" the defendant).
In the present case, the Tenth Circuit test set forth inKunkel is not especially helpful as both prongs are easily satisfied: the case would both "clarify or settle the legal relations in issue" and end "the uncertainty giving rise to the proceeding" by determining the parties' rights to the Black Diamond mark. In other words, by declaring whether BD Sportswear's mark is valid the court would "clarify" and end the `"uncertainty" of whether BD Equipment may use the mark.
In this situation, the Federal Circuit's test set forth inWindsurfing is a better test. The parties do not dispute that the second Windsurfing prong is satisfied, that is, that BD Equipment has "engaged in a course of conduct which brought it into adversarial conflict with" BD Sportswear. BD Equipment has apparently admitted that it used the Black Diamond mark on clothing for thirteen years.
Instead, the parties focus on the first Windsurfing prong, whether BD Equipment has "a real and reasonable apprehension of litigation." BD Equipment argues that the letter from BD Sportswear coupled with an offer to buy the mark created this apprehension. Specifically, BD Equipment focuses on the language of that letter where Mr. Guggemos describes BD Equipment's use of the mark as "sufficiently de minimis," but also indicates that BD Sportswear "will pursue any serious infringement problems." (Pl.'s Mem. in Opp., Ex, E, Letter from Gary Guggemos, President, BD Sportswear, to Peter Metcalf, CEO/President, BD Equipment (July 14, 2003); see also Pl.'s Mem. in Opp. at 3 — 4.) On the other hand, BD Sportswear argues that this language is not sufficient to create apprehension of litigation. (Def.'s Mem. in Supp. at 5 — 6.)
It appears to the court that the above-quoted language was sufficient to create a "reasonable apprehension" of litigation. As explained by the Federal Circuit, "[t]o put a putative infringer in reasonable apprehension of suit does not require an express charge of infringement and threat of suit: rather, such apprehension may be induced by subtler conduct." EMC Corp. v. Norand Corp., 89 F.3d 807, 811 (Fed. Cir. 1996) (emphasis added); see also Hoyt Elec. Instrument Works, Inc. v. Isspro, Inc. 263 F. Supp.2d 280, 283 (D.N.H. 2003) ("[a] threat of litigation does not have to be said in so many words. It can be expressed in the attitude of defendant as expressed in `circumspect language' in a letter") (quoting 5 J. McCarthy, McCarthy on Trademarks and Unfair Competition, § 32.51 at 32-101 (4th ed. 2002) (footnotes omitted)). Additionally, letters threatening to take future action upon the happening of certain events, such as importing a certain product, are sufficient to create a "reasonable apprehension" of litigation. Fina Research, S.A. v. Baroid Ltd., 141 F.3d 1479, 1482-83 (Fed. Cir. 1998): see also Hoyt Elec. 263 F. Supp.2d at 283-84 (reasonable apprehension created without explicit litigation threat).
In the present case, the language certainly contains at least an implied threat: "Your occasional use of this name has thus far been sufficiently de minimis that proceedings have not been cost justified. However, we will pursue any serious infringement problems." (Pl.'s Mem, in Opp., Ex. E, Letter from Gary Guggemos, President, BD Sportswear, to Peter Metcalf, CEO/President, BD Equipment (July 14, 2003) (emphasis added).) Although the threatened future infringement action depends on further or more extensive use of the mark, the threat is there, and as stated in Fina Research, a contingent threat is sufficient to create a reasonable apprehension of litigation. Fina Research, 141 F.3d at 1482-83. Also, because BD Equipment admitted to using the mark for many years, the contingency, more extensive use of the mark, had essentially become reality.
In any event, the fact that BD Sportswear subsequently sued BD Equipment in Vermont for infringement removes any doubt about whether a case or controversy exists BD Sportswear argues that the court should not consider the fact that it filed the suit in Vermont, and cites a Third Circuit case, Hyatt v. Int'l Corp. v. Coco, 302 F.3d 707 (3d Cir. 2002), for the proposition that a court determines whether a case or controversy exists by looking at the facts in existence when the complaint is filed. Hyatt, 302 F.3d at 712. The Tenth Circuit, however, has a different rule. `"The proper inquiry [is] whether a controversy requisite to relief under the Declaratory Judgment Act exist[s] at the time of the hearing [on the claim for declaratory judgment]." Schepp v. Fremont County. Wyoming, 900 F.2d 1448, 1452 (10th Cir. 1990) (Quoting Golden v. Zwickler, 394 U.S. 103, 108 (1969)) (brackets in original). Moreover, even the Third Circuit in Hyatt court recognized that once the second suit is filed, and confirms a case or controversy exists, "the matter has become somewhat academic." Hyatt, 302 F.3d at 712.
For the above reasons, the court concludes that the requirement of an actual controversy is met here.
II. Personal Jurisdiction,
BD Sportswear next claims that the court lacks personal jurisdiction over it because of its insufficient contacts with Utah, Where a federal court's subject matter jurisdiction over a case arises from a federal question and no federal long-arm statute applies, the court must apply the law of the forum state to determine whether personal jurisdiction exists. Omni Capital Int'l. Ltd v, Rudolf Wolff Co., 484 U.S. 97, 111 (1987); Edmond v. U.S. Postal Serv. Gen. Counsel 949 F.2d 415, 424 (D.C Cir. 1991); Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1123 (9th Cir. 2002); seealso Carefirst of Maryland. Inc. v. Carefirst Pregnancy Ctrs., Inc., 334 F.3d 390, 396-98 (4th Cir. 2003) (analyzing personal jurisdiction in trademark case under law of forum state). In Utah, courts may gain either general or personal jurisdiction over a party. As explained by the Utah Supreme Court:
General personal jurisdiction permits a court to exercise power over a defendant without regard to the subject of the claim asserted. For such jurisdiction to exist, the defendant must be conducting substantial and continuous local activity in the forum sate. In contrast, specific personal jurisdiction gives a court power over a defendant only with respect to claims arising out of the particular activities of the defendant in the forum state. For such jurisdiction to exist, the defendant must have certain minimum local contacts.Arguello v. Indus. Woodworking Mach. Co., 838 F.2d 1120, 1122 (Utah 1992). In this case, BD Equipment admits that there is no general personal jurisdiction over BD Sportswear, so the dispute centers on the question of specific jurisdiction.
A. Specific Personal Jurisdiction.
"The Plaintiff bears the burden of establishing personal jurisdiction over the defendant." QMI Holdings. Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1091 (10th Cir. 1998) (quotation and citation omitted). Importantly, "[w]hen a district court rules on a Fed.R.Civ.P. 12(b)(2) motion to dismiss for lack of personal jurisdiction without holding an evidentiary hearing . . . the plaintiff need only make a prima facie showing of personal jurisdiction to defeat the motion." Id. The plaintiff makes a "prima facie showing by demonstrating, via affidavit or other written materials, facts that if true would support jurisdiction over the defendant." Id. To defeat a prima facie showing, the defendant "must present a compelling case . . . "that the presence of some other considerations would render jurisdiction unreasonable."' Id. (quotingBurger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985)).
"The evaluation of specific jurisdiction in Utah mandates a three-part inquiry: (1) the defendant's acts or contacts must implicate Utah under the Utah long-aim statute; (2) a nexus must exist between the plaintiff's claims and the defendant's acts or contacts; and (3) application of the Utah long-arm statute must satisfy the requirements of federal due process." Soma Med. Int'l v. Standard Chartered Bank, 196 F.3d 1292, 1298 (10th Cir. 1999).
Utah's long-arm statute provides:
Any person . . . who in person or through an agent does any of the following enumerated acts, submits himself . . . to the jurisdiction of the courts of this state as to any claim arising out of or related to: (1) the transaction of any business within this state; (2) contracting to supply services or goods in this state; (3) the causing of any injury within this state whether tortuous or by breach of warranty.
Utah Code Ann. § 78-27-24. "Because the [Utah] long-arm statue is construed liberally so as to allow jurisdiction to the full extent permitted by due process, we proceed directly to the constitutional issue." OMI Holdings, 149 F.3d at 1090 (quotation and citation omitted); see also Utah Code Ann. § 78-27-22 (Utah's long-arm statute should be "applied so as to assert jurisdiction to the fullest extent permitted by the due process clause"). Accordingly, the first and third parts of the inquiry essentially become one-an analysis of whether asserting personal jurisdiction violates due process.
1. Due Process inquiry for Specific Jurisdiction.
This inquiry has two parts. First the court "must determine whether the defendant has such minimum contacts with [Utah] `that he should reasonably anticipate being haled into court'" here. OMI Holdings, 149 F.3d at 1091 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1979)). Within this first part of the test, a court must determine (a) whether the "defendant purposefully directed its activities at residents of the forum," and (b) whether "the plaintiff's claim arises out of or results from "actions by the defendant himself that create a substantial connection with the forum state'"-the "nexus" requirement. Id. at 1091 (quoting Asahi Metal Indus. Co. v. Superior Court of California. 480 U.S. 102, 109 (1987)). The nexus requirement is met "only where a non-resident defendant has engaged in some conduct within the state and the plaintiff's claims against the defendant specifically arise from that conduct" First Mortgage Corp. v. State Street Bank and Trust Co, 173 F. Supp.2d 1167, 1176 (D. Utah 2001) (internal quotation and citation omitted).
If the first part of the test is satisfied, a court must next decide whether exercising personal jurisdiction "over the defendant offends "traditional notions of fair play and substantial justice.'" OMI Holdings, 149 F.3d at 1091 (quoting Asahi, 480 U.S. at 113)). Stated differently, under the second part, the court must decide whether exercising jurisdiction over the defendant would be "`reasonable' in light of the circumstances" of the case. Id.
a. Minimum Contacts. i. Activities Directed at Utah.
The first inquiry-whether BD Sportswear has "purposefully directed its activities at residents of the forum"-is met here. At this stage, BD Equipment must only make a "prima facie" showing. OMI Holdings, 149 F.3d at 1091. BD Equipment asserts that BD Sportswear has directed the following activities at residents of Utah: (1) selling products bearing the Black Diamond mark at two retail stores, Costco. and Kirkham's, in Salt Lake City; (2) advertising its products in the Salt Lake Tribune; (3) attending a convention in Salt Lake City at which it operated a display booth, offered its products for sale, and discussed the possibility of selling the company to representatives of BD Equipment; (4) discussing by telephone the possibility of selling the company to representatives of BD Equipment; and (5) sending the letter to Mr. Metcalf. (Pl.'s Mem. in Opp. at 9; Def.'s Rep. Mem. in Supp. at 7-8;id., Exs. 1, B, and C; Second Decl. of Gary Guggemos at 2-3.) These activities establish that BD Sportswear has "purposefully directed its activities at residents of the forum."ii. Nexus.
The issue of whether `"actions by the defendant himself that create a substantial connection with the forum state'"-presents a closer question. According to BD Equipment, BD Sportswear's actions of advertising and selling products with the mark, sending the threatening letter, traveling to Utah to attend a conference and market its products, and acquiescing to at least some level of BD Equipment's use of the mark, are all connected to the present dispute-which party has the right to use the mark.
BD Sportswear, however, attempts to frame the issue more narrowly. It argues that its activities in Utah relate only to its own use of the mark, and not to the legality of BD Equipment's use of the mark. BD Sportswear's argument is not persuasive. This declaratory action requires the court to determine whether BD Equipment's use of the mark is lawful, which necessarily includes the question of whether BD Sportswear has acquiesced to BD Equipment's use of the mark and whether the mark is diluted.
But even though this lawsuit has a connection to BD Sportswear's activity in the state, whether the dispute arises from BD Sportswear's actions is a different inquiry. BD Equipment must show that it was BD Sportswear's own actions, not those of BD Equipment, which give rise to the BD Equipment's claims in this lawsuit. The court concludes that BD Equipment has met its burden. BD Sportswear's actions, including selling products bearing the Black Diamond mark at two retail stores in Salt Lake City and advertising its products in the Salt Lake Tribune, demonstrate that it personally has undertaken sufficient activity in Utah with respect to the Black Diamond mark to give rise to the present suit These actions in Utah are sufficiently connected to the use and ownership of the mark, the very issue BD Equipment seeks to have adjudicated here.
b. Fair Play and Substantial Justice.
If this lawsuit proceeds, BD Sportswear will be forced to litigate far from its home state of Vermont. But there is no question that BD Sportswear's President has traveled to Salt Lake City to attend an annual conference. This would suggest the hardship of traveling here for litigation would not be unfair or unjust, and would not offend the constitutional requirements of fair play and substantial justice.
In summary, the due process specific jurisdiction analysis demonstrates that BD Sportswear has purposefully directed activities at Utah residents and its activities of promotion and sale of its products with the mark are sufficiently connected to BD Equipment's claims regarding ownership of the mark. Moreover, notions of fair play and substantial justice would not be offended if BD Sportswear is haled into court here.
III. Discretion Under the Declaratory Judgment Act and the First-to-File Rule.
The questions of whether the court should exercise its discretion to hear the present case and the impact of the first-to-file rule involve many of the same considerations and the court will analyze them together.
A. Discretion Under the Declaratory Judgment Action.
Although BD Sportswear argues that the court should not consider the infringement action in Vermont action for purposes of subject matter jurisdiction. It takes a different position when the issue is the court's discretion to hear the case under the Act. According to BD Sportswear, the court should exercise its discretion and decline to hear the present case in order to permit the Vermont Action to proceed. (Def.'s Rep. in Supp. at 6.) In contrast, BD Equipment argues that the issues raised in this lawsuit must be resolved by some court in the near future and there is no need to postpone the adjudication of the parties' rights. (Pl.'s Mem. in Opp. at 7-8.)
The decision whether to hear a declaratory judgment action "is a matter committed to the sound discretion of the trial court" Kunkel, 866 F.2d at 1273. The Tenth Circuit counsels that when exercising its discretion, a district court should consider the following factors:
[1] whether a declaratory action would settle the controversy; [2] whether it would serve a useful purpose in clarifying the legal relations at issue; [3] whether the declaratory remedy is being used merely for the purpose of "procedural fencing" or "to provide an arena for a race to res judicata"; [4] whether use of a declaratory action would increase friction between our federal and state courts and improperly encroach upon state jurisdiction; and [5] whether there is an alternative remedy which is better or more effective.State Farm Fire Cas. Co. v. Mhoon, 31 F.3d 979, 983 (10th Cir. 1994). Looking at the first two factors, the present case and the suit in Vermont would both "clarify or settle the legal relations in issue" and end "the uncertainty giving rise to the proceeding" by determining the parties' rights to the Black Diamond mark. As to the fourth and fifth factors, state courts are not involved and no alternative remedy exists.
But it is the third factor that is key here. The following language from the August 18, 2003, communication from BD Equipment's CEO and President to BD Sportswear's President demonstrates that BD Equipment filed this declaratory action in anticipation of an infringement suit against it:
"After receiving your letter, it was clear that a clock was ticking and sooner or later you or your purchaser would take action against us (as you stated). The only question was "when?" . . . We wanted to be in control of our destiny vs waiting for you to direct it
(Pl.'s Mem. in Opp., Ex. F, Electronic mail message from Peter Metcalf, CEO/President, BD Equipment, to Gary Guggemos, President, BD Sportswear (Aug. 18, 2003).) Accordingly, the court concludes the infringement action in Vermont is the more appropriate forum to settle the parties' dispute. See Tempco. Elec. Heater Corp. v. Omega Eng'g. Inc., 819 F.2d 746, 749 (7th Cir. 1987) (affirming district court's dismissal based on discretion under the Act because declaratory action was anticipatory and later-filed infringement action removed the need for the declaratory action).
B. The First-To-File Rule.
Federal courts generally follow the first-to-file rule. This rule counsels a federal district court to decline jurisdiction over an action when a suit involving the same parties and issues has previously been filed in a different federal court. Alltrade, Inc. v. Uniweld Prods., Inc., 946 F.2d 622, 625 (9th Cir. 1991). The first-to-file rule is not absolute, however; "simply because a court is the first to obtain jurisdiction does not necessarily mean that it should decide the merits of the case." Hospah Coal Co. v. Chaco. Energy Co., 673 F.2d 1161.1164 (10th Cir. 1982). Putting aside for a moment the issue of discretion under the Act, fairness does not favor either party, as noted above. Travel will be a necessity for one party whether the case is heard here or in Vermont. Under similar circumstances, this court quotedTempco:
There is no outstanding factor in this case which points to trial of this action in either Illinois or Connecticut. Such will inevitably be the case in actions such as this were the owner of a trademark is in one location, and an alleged infringer is at some distance.
181C at 4 (D. Utah May 22, 1998) (unpublished) (quotingTempco),
Accordingly, the first-to-file rule does not provide any strong guidance on whether this case should be heard here or in Vermont. But as discussed there is evidence that BD Equipment's declaratory action was anticipatory and "procedural fencing," and under Buzas and Tempco, the court concludes mat it is appropriate to exercise its discretion and to decline to hear the present declaratory judgment action. The Defendant's Motion to Dismiss is GRANTED
SO ORDERED.