Opinion
A-22-CV-00583-DII
06-22-2023
JAMES K DONOHUE, DRYSHOD INTERNATIONAL, LLC, Plaintiffs v. ZHENYIN “STEVEN” WANG dba DRYCODE Defendant
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
DUSTIN M. HOWELL UNITED STATES MAGISTRATE JUDGE
TO UNITED STATES DISTRICT JUDGE
Before the Court is Plaintiffs James K. Donohue and Dryshod International, LLC's Motion for Preliminary Injunction, Dkt. 6, and all related pleadings. The district court referred this matter to the undersigned for report and recommendation. The undersigned held an evidentiary hearing on August 17, 2022.
Defendant maintains the Court lacks personal jurisdiction over it because it has not been properly served. Service was effected on July 22, 2022. Dkt. 13. This argument is without merit and jurisdiction has been addressed by additional filings by the undersigned.
I. BACKGROUND
Plaintiffs James K. Donohue and Dryshod International, LLC own and sell a brand of premium waterproof footwear and accessories under the federally registered mark DRYSHOD. Defendant Zhenyin Wang, a Chinese resident, sells an alleged knockoff version of Dryshod's footwear under the mark DRYCODE. Plaintiffs allege this mark infringes theirs, that Defendant is engaging in unfair competition under the Lanham Act, and requests a preliminary injunction ordering Defendant to cease: (1) all use of the infringing DRYCODE mark (and any other marks confusingly similar to Dryshod's) in the United States; and (2) all manufacturing, marketing, importation, distribution, and sale of Infringing Products in the United States until a Final Judgment is entered.
II. ANALYSIS
For a court to issue a preliminary injunction, the moving party must establish by a preponderance of the evidence that: “(1) it is substantially likely to succeed on the merits of its claim; (2) it will suffer irreparable injury in the absence of injunctive relief; (3) the balance of the equities tips in its favor; and (4) the public interest is served by the injunction.” Sahara Health Care, Inc. v. Azar, 975 F.3d 523, 528 (5th Cir. 2020) (emphasis added). Because “[a] preliminary injunction is an ‘extraordinary remedy,'” Texans for Free Enterprise v. Texas Ethics Commission, 732 F.3d 535, 536 (5th Cir. 2013), a preliminary injunction “should not be granted unless the party seeking it has ‘clearly carried the burden of persuasion' on all four requirements.” Bluefield Water Ass'n, Inc. v. City of Starkville, 577 F.3d 250, 253 (5th Cir. 2009).
A. Likelihood of success on the merits
The Lanham Act allows the owner of a mark used in interstate commerce to bring infringement actions in federal court. Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 768 (1992); see also 15 U.S.C. § 1114(1)(a) (registered marks), § 1125(a)(1) (unregistered marks). “To prevail on [a] claim of trademark infringement under the Lanham Act, [the claimant] must show two elements: (1) it possesses a legally protectable trademark and (2) [the alleged infringer's] use of this trademark ‘creates a likelihood of confusion as to source, affiliation, or sponsorship.'” Streamline Prod. Sys., Inc. v. Streamline Mfg., Inc., 851 F.3d 440, 450 (5th Cir. 2017) (quoting Nola Spice Designs, LLC v. Haydel Enters., Inc., 783 F.3d 527, 536 (5th Cir. 2015)).
1. Legally protectable mark
Wang does not contest that Dryshod owns a legally protectable mark. DRYSHOD asserts that it has used its DRYSHOD mark continuously in the United States since at least October 2017 giving it senior trademark rights as to Defendant. Union Nat'l Bank of Laredo, Tex. v. Union Nat'l Bank of Tex., Austin, Tex., 909 F.2d 839, 842-43 (5th Cir. 1990). Additionally, Dryshod owns a registration with the PTO giving it uncontestable status. 15 U.S.C. § 1065.
2. Likelihood of confusion
The Fifth Circuit uses these factors, known as the “digits of confusion,” to evaluate the likelihood of confusion: “(1) the type of trademark; (2) mark similarity; (3) product similarity; (4) outlet and purchaser identity; (5) advertising media identity; (6) defendant's intent; (7) actual confusion; and (8) care exercised by potential purchasers.” Jim S. Adler, P.C. v. McNeil Consultants, L.L.C., 10 F.4th 422, 427 (5th Cir. 2021) (quoting Xtreme Lashes, LLC v. Xtended Beauty, Inc., 576 F.3d 221, 227 (5th Cir. 2009)). The list is non-exhaustive, and the digits are “fact-specific and flexible.” Id. (quoting Xtreme Lashes, LLC, 576 F.3d at 227). “These ‘digits' are mere guideposts on the road to a finding of confusion; they are not ‘an exact calculus' for reaching such a finding.” Springboards to Educ., Inc. v. Pharr-San Juan-Alamo Indep. Sch. Dist., 33 F.4th 747, 750 (5th Cir. 2022) (quoting Scott Fetzer Co. v. House of Vacuums Inc., 381 F.3d 477, 485 (5th Cir. 2004)). The parties contest these factors.
a. Strength of mark
There are four categories that roughly correlate to the five-levels used for distinctiveness of marks. Compare Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 768 (1992) (identifying five categories of marks (generic, descriptive, suggestive, arbitrary, and fanciful), with Sun Banks of Fla. Inc. v. Sun Fed. Sav. & Loan Ass'n, 541 F.2d 311, 315 (5th Cir. July 1981) (identifying four categories of strength, (1) a strong mark usually being “fictitious, arbitrary, or fanciful and is generally inherently distinctive”; (2) followed by the “comparatively weak mark, a suggestive mark” that is “protected without proof of secondary meaning”; (3) followed by descriptive marks that tell “something about the product; it is protected only when secondary meaning is shown”; and (4) the weakest mark, generic marks that are not protectible). Extensive third-party use can weaken a mark and negate a likelihood of confusion. See Sun Banks, 541 F.2d at 316.
Plaintiffs maintain that the DRYSHOD mark is conceptually and commercially strong. The more distinctive the mark, the stronger it is. Viacom Int'l v. IJR Capital Inv., LLC, 891 F.3d 178, 193 (5th Cir. 2018). Plaintiffs argue that DRYSHOD is a distinctive mark because it is not a dictionary term and consumers must use imagination to associate with footwear products. See Xtreme Lashes, 576 F.3d at 227; Dkt. 6-1, Donohue Decl. ¶ 4. Plaintiffs further argue the DRYSHOD mark is presumed at least somewhat conceptually strong because it is federally registered. See Nola Spice, 783 F.3d at 537 (5th Cir. 2015) (affirming that registration of a mark with the PTO is “prima facie evidence that the marks are inherently distinctive”). And, Plaintiffs argue, the DRYSHOD mark also carries marketplace strength from years of continuous use, promotion, and the sale of millions of DRYSHOD-branded footwear products across the entire United States. See Quantum Fitness Corp. v. Quantum Lifestyle Ctrs., L.L.C., 83 F.Supp.2d 810, 819 (S.D. Tex. 1999) (“Marks may be strengthened by ... extensive advertising, length of time in business, public recognition, and uniqueness.”) (citations and quotations omitted); Dkt. 6-1, Donohue Decl. ¶¶ 7, 12.
Defendant maintains that the DRYSHOD mark is weak because it is “descriptive” and “suggestive.” In support, they argue the term “dry” merely describes a quality of characteristic of Plaintiffs' products and “shod” relates to shoes or footwear. Defendant also argues that Dryshod does not have the right to the term “dry.”
The undersigned can rule out a finding that the mark is descriptive. A descriptive term provides an attribute or quality of a good. Xtreme Lashes, 576 F.3d at 227. While “dry” taken alone may be descriptive of the boot's purpose, the term “dryshod” is not obviously descriptive of Plaintiff's product. Thus, the mark is at the very least suggestive. A suggestive mark “suggests, but does not describe, an attribute of the good; it requires the consumer to exercise his imagination to apply the trademark to the good.” Id.; see also Streamline Prod. Sys., Inc. v. Streamline Mfg., Inc., 851 F.3d 440, 452 (5th Cir. 2017) (“Examples of suggestive terms include ‘Penguin' for a refrigerator brand, and ‘Coppertone' for sun tanning products.”). There is no evidence before the Court that suggests the term is commonly used in connection with footwear “Shod” is not a commonly used English word, and “dryshod” is a created word. Thus, any association between the mark and the product is not “intrinsic,” but requires some imagination on the part of the customer. See, e.g., All. for Good Gov't v. Coal. for Better Gov't, 901 F.3d 498, 509 (5th Cir. 2018). The undersigned thus finds that the mark is, at least, suggestive and deserving of the inherently distinctive status. This factors weights in favor of a finding of confusion.
b. Mark similarity
In assessing the similarity of the marks, courts consider the “marks' appearance, sound, and meaning” and asks “whether, under the circumstances of use, the marks are similar enough that a reasonable person could believe the two products have a common origin or association.” See Viacom Int'l, 891 F.3d at 193 (citation omitted). Plaintiffs assert that the marks on Defendant's Infringing Products are highly similar to the DRYCODE mark. They point to the fact that the word marks are visually and phonetically similar, both using all capital font, both starting with the word “dry”, both being seven letters long, and both containing five of the same seven letters. Also both marks present with an orange-colored “dry” element followed by a neutral-colored second syllable, and the marks are presented product tags and packaging in similar ways. Plaintiffs argue that the marks create the same overall impression.
Defendant maintains that DRYSHOD and DRYCODE have differences in appearance, sound, and commercial impression, making the marks dissimilar. Defendant argues DRYSHOD indicates water resistant shoes, and that DRYCODE relates to an identity or idealism or that the owner “likes the word code,” and relates to a specific brand of good.
Here, the marks as used are so similar in appearance, sound, and meaning that a reasonable person could quite well believe the two have a common origin or association. This factor weighs in favor of a finding of confusion.
p Product similarity, outlet and purchaser identity, and advertising identity
Plaintiffs ask the Court to consider these three factors together. Plaintiffs assert that the parties are selling the same type of product, rubber waterproof boots, through similar online trade channels, to the same end-users. The parties advertise online and use overlapping retailers, including Amazon.
Defendant responds that Dryshod's focus and advertising is primarily on boots, camping bags and related products, while Drycode's focus is on boots, rainwear protective products, and chest waders. Defendant further asserts that the retail outlets of the two differ as Drycode sells only through ecommerce platforms like Amazon, while Dryshod sells in ecommerce platforms along with retail stores such as BassPro Shops, REI, Dick's, and Red Wing.
The greater the similarity between the products and services, the greater the likelihood of confusion. Streamline, 851 F.3d at 454 (quoting Xtreme Lashes, 576 F.3d at 229). Both parties sell the same type of product, rubber footwear. “The greater the overlap between the outlets for, and consumers of, the services, the greater the potential for confusion.” All. for Good Gov't, 901 F.3d at 512. In this case, the parties both sell to consumers of rubber boots. Both parties sell their products on Amazon, and promote their products on social media, while Dryshod also sells its products at other retailers. “The greater the degree of overlap in the marketing approaches of the two entities, the greater the likelihood of confusion.” Dallas Cowboys Football Club, Ltd. v. Am.'s Team Props., Inc., 616 F.Supp.2d 622, 639 (N.D. Tex. 2009). Both parties promote their products through ecommerce sites, notably Amazon, and social media. These factors weigh in favor of a finding of a likelihood of confusion.
d. Defendant's intent
Plaintiffs argue that Defendant adopted its infringing mark with the intent to mislead customers. As evidence, Plaintiffs point to the fact that Defendant reached out to Dryshod in May 2019 to pitch Defendant's manufacturing services in China to Dryshod. Dkt. 6-1, Donohue Decl. ¶¶ 17-20. Less than two years after, and Dryshod did not use Defendant's manufacturing services, Defendant began using the DRYCODE marks and filed applications to register those marks. Id. Defendant responds that Steven Wang conceived and selected the mark with no intent to “copy” or benefit from Plaintiffs. In his brief, Defendant pleads “Defendant selected the DRYCODE mark because he xxx [sic].” Dkt. 10, at 10. The undersigned finds that the evidence supports that this factor favors a finding of a likelihood of confusion
a Actual confusion
Plaintiffs offer no evidence of actual confusion, which Defendant relies upon in pointing out that this factor weighs against a finding of a likelihood of confusion. However, it is well established that “[e]vidence of actual confusion is not necessary to a finding of a likelihood of confusion.” Elvis Presley Enters., Inc. v. Capece, 141 F.3d 188, 203 (5th Cir. 1998); Bd. of Supervisors for La. State Univ. Agric. & Mech. Coll. v. Smack Apparel Co., 550 F.3d 465, 483 (5th Cir. 2008) (“It is well established, however, that evidence of actual confusion is not necessary for a finding of a likelihood of confusion.”). The undersigned finds this factor neither weighs for nor against a finding of likelihood of confusion.
f. Care exercised by purchasers
Plaintiffs argue that Defendant's products are cheap $70 knockoffs of their higher priced products, and qualify as impulse purchases that are “not purchased with a high degree of care.” Smack Apparel, 550 F.3d at 483. Defendant responds that that the degree of care exercised in this case weighs in favor of a finding on no likelihood of confusion because Defendant's products range from $40 to $80 while Plaintiff's products range from $90 to $400. Defendant maintains that “a consumer would exercise high care when selecting the products since plaintiff's products are much more expensive,” making confusion less likely to occur. Dkt. 10, at 11. Plaintiffs reply that the Fifth Circuit has only considered the infringing product's price to weigh this factor. The law holds that when items are expensive and buyers are sophisticated, then confusion is less likely to occur. John Crane Prod. Sols., Inc. v. R2R & John Crane Prod. Sols., Inc., 803 F.2d 166, 174 (5th Cir. 1986). The undersigned finds the fact that this factor weighs slightly in favor of a likelihood of confusion.
Because the factors combined and properly balanced weigh in favor of a finding of a likelihood of confusion, the undersigned finds that Plaintiffs have established a likelihood of success on the merits of their claims.
B. Irreparable harm
Dryshod argues it will suffer irreparable harm without injunctive relief. It relies on Lanham Act amendment in 2020 establishing a rebuttable presumption of irreparable harm triggered when a court finds a likelihood of success on the merits. 15 U.S.C. § 1116(a); see also Abraham v. Alpha Chi Omega, 708 F.3d 614, 627 (5th Cir. 2013).
Dryshot additionally asserts that consumers are likely to confuse its products or otherwise perceive some association, with the Infringing Products. Dryshod argues the Infringing Products are cheap knockoffs, and Dryshod cannot control their quality. Dryshod asserts this situation poses a substantial threat to Dryshod's reputation and goodwill, which money damages alone cannot remedy. See Paulsson Geophysical Servs., Inc. v. Sigmar, 529 F.3d 303, 313 (5th Cir. 2008) (affirming a preliminary injunction where the trademark owner could not control the quality of the goods associated with its mark); Lakedreams v. Taylor, 932 F.2d 1103, 1109 (5th Cir. 1991) (“[W]hen economic rights are especially difficult to calculate, a finding of irreparable harm may be appropriate.”). Additionally, Dryshod argues, Defendant is a resident of China, so collecting money damages will be difficult if not impossible. See Qin v. P'ships & Unincorporated Assocs., No. 6:21-cv-1243-ADA, 2022 WL 80274, at *3 (W.D. Tex. Jan. 7, 2022) (finding irreparable harm where the defendants were foreign individuals and entities from whom there was “little assurance that [plaintiff] could collect monetary damages”) (internal quotation omitted).
Defendant responds that Plaintiffs delayed in seeking injunctive relief, and this lack of urgency undercuts the necessity of a preliminary injunction. Dkt. 10, at 12 (citing Kensington Partners v. Cordillera Ranch, Ltd., No. SA:98-CA-121-DWS, 1998 WL 1782540, at *13 (W.D. Tex. 1998) (holding that a ten month delay in filing lawsuit precluded finding of irreparable injury in a trademark infringement matter); Gonannies, Inc. v. Goupair.Com, Inc., 464 F.Supp.2d 603, 609 (N.D. Tex. 2006) (finding that a six month delay in seeking preliminary injunction for trademark infringement rebutted any presumption of irreparable injury)). Defendant alleges that Plaintiffs did not file suit until a year after Defendant's marks were registered.
Plaintiffs reply that they filed a petition to cancel Defendant's registration of DRYCODE at the USPTO less than one month from the date it was registered and filed this suit two months after. Dkts. 2, 6. Thus any argument of delay is without merit.
The undersigned finds that Plaintiffs have established that because of actual confusion and the inability to collect damages from a Chinese infringer, they will suffer irreparable harm if Defendant is not enjoined.
C. Balance of equities
Plaintiffs argue that the balance of equities heavily favor Dryshod. Dkt. 6, at 19. They claim that the harm from Defendant's unlawful activities far outweighs any inconvenience a preliminary injunction would pose because Dryshod has built up substantial goodwill in its marks, which is now threatened by Defendant's actions. See JUUL Labs, Inc. v. Gladys Smoke Shop, No. 1:20-cv-353, 2021 WL 7184950, at *8 (E.D. Tex. Sept. 7, 2021) (“The balance of the equities in denying this injunction would greatly harm [plaintiff], who has expended extensive time and energy into developing its brand. Additionally, denying the injunction would deny [plaintiff] exclusive use of its trademark.”). Plaintiffs point out that Defendant would be able to sell other footwear products just not the Infringing Products or those with the DRYCODE mark. Additionally, Plaintiffs argue that Defendant knew about the DRYSHOD marks, and therefore should have to bear the costs of the risk it should have known to avoid. See Denbra IP Holdings, LLC v. Thornton, 521 F.Supp.3d 677, 690 (E.D. Tex. 2021).
Defendant responds that if a preliminary injunction issues it would likely cause drastic and severe financial injury to it, including loss of goodwill and revenue, along with sunk costs in advertising and establishing its logo, mark and brand, outweighing the threatened injury to Plaintiffs. See Tinnus Enters., LLC v. Telebrands Corp., No.6:16-CV-0033 RWS-JDL, 2016 WL 9131960, at *2 (E.D. Tex. Nov. 21, 2016) (“Loss of revenue and goodwill may also be incalculable and irreparable.”), report and recommendation adopted, No. 6:16-CV-0033 RWS-JDL, 2017 WL 24147 (E.D. Tex. Jan. 3, 2017), aff'd, 708 Fed.Appx. 1019 (Fed. Cir. 2018). Defendant also claims it is a young business, and the cost of an injunction would “also force a consideration of downsizing its staff.” Dkt. 10, at 13.
Plaintiffs reply that any harm to Defendant is self-inflicted. Additionally, it is a self-described young company and the main harm seems to be small as it need only “consider” downsizing its staff, despite its outlays in establish the DRYCODE brand. The undersigned agrees and finds that the balance of equities is in favor of Dryshod and granting the injunction.
D. Public interest
Lastly the parties dispute whether the public interest weighs in favor of granting the preliminary injunction. Plaintiffs assert a preliminary injunction will serve the public interest, because the public interest lies in requiring compliance with the Lanham Act and enjoining the use of infringing marks. Defendant asserts that the public interest supports the public having choices in the marketplace, and lawful competition. The undersigned finds that violations of the Lanham Act violate lawful competition, and thus the public interest is served by enjoining infringing conduct.
III. RECOMMENDATION
In accordance with the foregoing discussion, the undersigned RECOMMENDS that the District Court GRANT Plaintiffs James K. Donohue and Dryshod International, LLC's Motion for Preliminary Injunction, Dkt. 6, and ENJOIN Defendant to cease: (1) all use of the infringing DRYCODE mark (and any other marks confusingly similar to Dryshod's) in the United States; and (2) all manufacturing, marketing, importation, distribution, and sale of Infringing Products in the United States until a Final Judgment is entered.
IV. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The District Court need not consider frivolous, conclusive, or general objections. See Battle v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987). A party's failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen days after the party is served with a copy of the Report shall bar that party from de novo review by the District Court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the District Court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).