Opinion
04 Civ. 1322 (HB).
July 26, 2004
OPINION ORDER
Defendants Brijender Singh, Dipti Singh, (collectively, "the Singhs") and Innovative Concepts ("IC") (collectively, "the defendants") move pursuant to Federal Rule of Civil Procedure ("Fed.R.Civ.P.") 12(b) to dismiss the complaint of pro se plaintiff Prakesh Melwani ("Melwani"), in which he alleges Lanham Act violations and state law causes of action for unjust enrichment, quasi contract, unfair competition, and breach of contract. For the reasons set forth below, defendants' motion is granted.
I. BACKGROUND
Accepting all well-pleaded allegations as true, as we must, the pertinent background facts are as follows. Melwani is the author and creator of the Soup Nutsy marks, which depict, "a comic, fanciful design of a smug, smirking chef with the words `Soup Nutsy' alongside a fiery, steaming soup pot." Am. Compl. ¶ 8. Between 1996 and 1998, Melwani was one of the principal officers of the New York-based Soup Nutsy Corporation ("SNC"). During this same period of time, Melwani was responsible for marketing the Soup Nutsy marks. On approximately January 28, 1999, IC and its principles, the Singhs, entered into a five-year licensing agreement ("the License") with SNC for the use of the Soup Nutsy marks in connection with the sale of soups and other foods and to acquire trade secrets related to the preparation and marketing of the Soup Nutsy foods. The License was to run from April 1, 1998 to March 31, 2003, License ¶ 2.1, and, according to its terms, defendants were to pay SNC $6,000 upon signing the License and $6,000 at the beginning of each license year thereafter,id. ¶ 3. Failure to make any payment would result in automatic termination of the License, which was considered an incurable breach of the agreement. Id. ¶¶ 10.2, 10.2.4, 3. The defendants made the initial payment of $6,000 and then began to sell soup and food products under the Soup Nutsy mark in the Reagan Building and Union Station in Washington, DC. Melwani alleges the defendants continue to do so despite the fact that they failed to pay any sums for the remaining four years of the License.
"When determining the sufficiency of plaintiffs' claim for Rule 12(b)(6) purposes, consideration is limited to the factual allegations in plaintiff's amended complaint, which are accepted as true, to documents attached to the complaint as an exhibit or incorporated in it by reference, to matters of which judicial notice may be taken, or to documents either in plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit." Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993).
The License also provided "If sales under this License do not reach $200,000 per annum by the end of the second year of the agreement, then Licensee shall have the right to terminate this agreement with no further obligations or repercussions." License ¶ 2.1.1.
SNC was dissolved by proclamation on June 26, 2002. Some seven months later, on January 29, 2003, SNC assigned Melwani its right, title, and interest in the Soup Nutsy marks and all goodwill of the business associated with those marks. Assignment of Common Law Rights (Trademarks, Service Marks and Trade Names) ("the Assignment") at 2. Thereafter, on March 27, 2003, Melwani submitted the Assignment to the United States Patent and Trademark Office ("USPTO") for recordation. On August 20, 2003, the USPTO mailed a copy of such recordation to Melwani.
On February 21, 2004, Melwani filed suit against IC and its principles, the Singhs, and asserted violations of sections 32 and 43 of the Lanham Act, 15 U.S.C. § 1114, 1125, as well as pendent state law claims of unjust enrichment, quasi contract, unfair competition, and breach of contract. Melwani seeks to enjoin defendants' unlawful use of the marks, a declaratory judgment that the defendants have no rights with respect to the Soup Nutsy marks and trade secrets, and monetary damages, pre- and post-judgment interest, as well as the costs of bringing this action. Defendants subsequently moved to dismiss the Amended Complaint on May 11, 2004. Oral argument on the motion was held on June 24, 2004.
Melwani filed an Amended Complaint on April 23, 2004.
II. DISCUSSION
Defendants move to dismiss the Amended Complaint on several grounds. First, the defendants argue that Melwani has no interests in the marks because: (1) SNC abandoned the marks prior to their assignment to Melwani and thus had no interest to convey; (2) the assignment of the marks to Melwani was invalid because it was undertaken after SNC's dissolution; and (3) Melwani has not used the marks in commerce. Second, the defendants argue that Melwani cannot assert contract claims related to IC's alleged breach of a licensing agreement because: (1) he was not a party to the agreement; and (2) the agreement terminated by its terms three years prior to when Melwani allegedly incurred an interest in the marks. Finally, IC argues that Melwani's pendent state law claims should be dismissed for lack of a valid federal claim. Because I conclude that SNC abandoned the Soup Nutsy marks prior to their assignment to Melwani, I need not address defendants' remaining arguments.A. Abandonment
Under 15 U.S.C. § 1127, "[a] mark shall be deemed to be `abandoned' . . . [w]hen its use has been discontinued with intent not to resume such use. Intent not to resume may be inferred from circumstances. Nonuse for 3 consecutive years shall be prima facie evidence of abandonment." Melwani acknowledges that IC breached the License in April 1999 when it failed to make the $6,000 annual payment to SNC. The License then automatically terminated by its terms, as such failure was an incurable breach of the agreement. License ¶¶ 10.2, 10.2.4, 3. IC candidly admits that it continued to use the marks following this breach and further asserts that it was the only entity using the marks in commerce at this time. Nevertheless, SNC did not take any steps during the critical three-year period, as defined by 15 U.S.C. § 1127, to remedy the breach or prevent IC's admittedly unauthorized use of the marks. Indeed, SNC took no action with respect to the marks until it purportedly assigned them to Melwani in January 2003, nearly four years later. Defendants have therefore alleged more than three years of nonuse from which intent not to resume can be inferred. This, under 15 U.S.C. § 1127, constitutes prima facie evidence of abandonment that Melwani must rebut.
In response, Melwani offers two bases for SNC's alleged use of the Soup Nutsy marks. First, he argues that SNC used the marks by virtue of its license agreement with IC. This type of vicarious use, however, is insufficient. As noted previously, the License was breached and automatically terminated after only one year. IC continued to use the marks, but there is no indication whatsoever that SNC controlled or supervised such use as required. E.G.L. Gem Lab Ltd. v. Gem Quality Inst., Inc., 90 F. Supp.2d 277, 300 (S.D.N.Y. 2000), aff'd, 4 Fed. Appx. 81, 2001 WL 170455 (2d Cir. 2001) ("A licensor must exercise some degree of supervision over the licensee on pain of abandonment of the mark.");Schieffelin Co. v. Jack Co. of Boca, Inc., No. 89 Civ. 2941, 1992 WL 156560, at *5 (S.D.N.Y. Jun 28, 1992) ("It is well established that when the owner of a registered trademark licenses the use of its trademark, it must exercise careful control over the use of its trademark by its licensees, `because a licensor who fails to monitor its mark risks a later determination that it has been abandoned.'") (quoting Church of Scientology Int'l v. Elmira Mission of the Church of Scientology, 794 F.2d 38, 43 (2d Cir. 1986)).
This control and supervision requirement is premised on the need to protect the consuming public from "the danger that products bearing the same trademark might be of diverse qualities." Dawn Donut Co. v. Hart's Food Stores, Inc., 267 F.2d 358, 367 (2d Cir. 1959). As the Second Circuit has explained, "[i]f the licensor is not compelled to take some reasonable steps to prevent misuses of his trademark in the hands of others the public will be deprived of its most effective protection against misleading uses of a trademark" and the purpose of the Lanham Act will be undermined. Id. It is evident that SNC did not supervise or control IC's use of the Soup Nutsy mark after April 1999, given that IC's use during this time was unauthorized and in express breach of the License. Moreover, SNC was dissolved over three year later without making use of the marks or seeking to enforce its rights against IC for its breach or unauthorized use. Melwani concedes that SNC made no direct use of the marks and admits that discovery would not produce any additional evidence on this score.
Second, Melwani contends that he maintained the use of the mark when he filed registration documents with the USPTO and initiated the instant lawsuit. This argument, of course, assumes that the Assignment was valid, which it was not given that SNC had already abandoned the marks and thus had no interest to convey to Melwani. Even if the Assignment were valid, this argument would not aid Melwani because, as defendants note, "use" of a mark is defined as "the bona fide use of such mark made in the ordinary course of trade, and not made merely to reserve a right in a mark." 15 U.S.C. § 1127; Stetson v. Howard D. Wolf Assoc., 955 F.2d 847, 851 (2d Cir. 1992) ("A lawsuit, without more, is not sufficient of itself to overcome a claim of abandonment."). In Stetson, the Second Circuit held that the plaintiff had preserved his use of the mark because in his lawsuit he sought royalties, injunctive relief, and a declaration of sole ownership, which indicated that he "wished to continue the economic activity associated with [the mark]." Id. at 852. However, Stetson was the manager of the musical group that was infringing on his mark and therefore the only means available to him to exploit the mark was through the very musicians who previously performed under his management. Id. On these facts, the Second Circuit concluded that the only means available for Stetson to use the mark was for him to file suit.Id.
The same cannot be said of Melwani and thus his lawsuit alone does not constitute use. Melwani insists that he intended to use the marks once he perfected his rights. While his intentions are laudable, they are insufficient. Cline v. 1-888-PLUMBING Group, Inc., 146 F. Supp.2d 351, 364 (S.D.N.Y. 2001) ("`A bare assertion of possible future use is not enough' to dispel an alleged intent not to resume.") (quoting Silverman v. CBS, Inc., 870 F.2d 40, 47 (2d Cir. 1989)). Moreover, SNC's abandonment of the mark is fatal to any future use by Melwani, given that "a party who has abandoned its trademark rights cannot revive those rights by resumed use." General Cigar Co., Inc. v. G.D.M. Inc., 988 F. Supp. 647, 659 (S.D.N.Y. 1997) (citing 2 McCarthy, Trademarks and Unfair Competition, § 17:3 at 17-4 (1996)).
B. Licensee Estoppel
Melwani contends that the defendants are barred from contesting the validity of the marks by "licensee estoppel." E.G.L. Gem Lab Ltd., 90 F. Supp.2d at 292 (deciding that "licensee estoppel" applied to license agreements and prevented the defendant from arguing that the plaintiff's marks were invalid). "The general rule of licensee estoppel provides that when a licensee enters into an agreement to use the intellectual property of a licensor, the licensee effectively recognizes the validity of that property and is estopped from contesting its validity in future disputes."Idaho Potato Comm'n v. M M Produce Farm Sales, 335 F.3d 130, 135 (2d Cir. 2003), cert. denied, 124 S.Ct. 2066 (2004). Licensee estoppel may also be used to prevent a licensee from subsequently asserting ownership of a mark. Martha Graham Sch. Dance Found., Inc. v. Martha Graham Ctr. of Contemporary Dance, Inc., 153 F. Supp.2d 512, 520 (S.D.N.Y. 2001), aff'd, 43 Fed. Appx. 408, 2002 WL 1467852 (2d Cir. 2002). The underlying premise of this doctrine is that "one should not be permitted to challenge the validity of a trademark while reaping its benefits." Papercraft Corp. v. Gibson Greeting Cards, Inc., 515 F. Supp. 727, 728 (S.D.N.Y. 1981). This doctrine is "equitable in nature and is not subject to rigid application." Martha Graham Sch. Dance Found., Inc., 153 F. Supp.2d at 520.
Certainly, the defendants' forthright admission of IC's breach of the licensing agreement and subsequent unauthorized use of the marks raises equitable concerns and is certainly not to be condoned. Nevertheless, upon closer examination, fairness considerations do not weigh so heavily against the defendants because SNC abdicated its duty to make use of the marks. As defendants note, trademarks protect use; they are not intangible rights. As the Supreme Court has explained, "[t]here is no such thing as property in a trade-mark except as a right appurtenant to an established business or trade in connection with which the mark is employed." United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 97 (1918). Thus, "the right to a particular mark grows out of its use. . . ." Buti v. Perosa, S.R.L., 139 F.3d 98, 103 (2d Cir. 1998). In this sense, interest in a mark is both derived from and sustained by its use.
Here, quite simply, SNC allowed its rights to the Soup Nutsy marks to lapse. And despite the fact that IC breached the License only one year after it was entered into, no claim was made to enforce SNC's rights until the instant lawsuit some five years later. After SNC's rights lapsed, it necessarily lost the ability to assign these rights to Melwani, and, consequently, Melwani has no basis for his assertion of licensee estoppel. As an equitable matter, because trademarks protect use in connection with commerce, IC's right to the Soup Nutsy marks is now equal to or greater than that of Melwani. Stetson, 955 F.2d at 851 (2d Cir. 1992) ("A trademark must be used or lost to another economic actor more willing to promote the mark in commerce."). Although IC's use of the Soup Nutsy marks after its breach was initially unauthorized, there is nothing that prevents it from using the marks once they were abandoned. Defiance Button Machine, Co. v. C C Metal Prods. Corp., 759 F.2d 1053, 1059 (2d Cir. 1985) (ruling that after abandonment, "others are no longer restrained from using [the mark] since it ceases to be associated in the public's mind with the owner's goods or services."). Finally, licensee estoppel would be inappropriate in this case because, as one court has noted, "the overwhelming number of cases applying the doctrine of licensee estoppel have involved licenses that were in place for a substantial period of time," Martha Graham Sch. Dance Found., Inc., 153 F. Supp.2d at 522 (citing cases that involved license agreements from 5 to 42 years), something that is clearly not present in the case at bar.
SNC's assignment to Melwani was therefore invalid because it had no interest in the marks to convey and he therefore had no standing to assert his trademark infringement claims. Having concluded that Melwani's federal trademark claims fail, I decline to exercise supplemental jurisdiction over his pendent state law claims.
III. CONCLUSION
For the foregoing reasons, defendants' motion to dismiss is granted. The Clerk of the Court is instructed to close this case and remove it from my docket.
THIS CONSTITUTES THE DECISION AND ORDER OF THE COURT.