Levi Strauss & Company v. Abercrombie & Fitch Trading Company

Memorandum in Opposition CORRECTION OF DOCKET # 84

N.D. Cal.April 16, 2008

MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 MICHAEL J. BETTINGER (State Bar No. 122196) RACHEL R. DAVIDSON (State Bar No. 215517) KIRKPATRICK & LOCKHART PRESTON GATES ELLIS LLP 55 Second Street, Suite 1700 San Francisco, CA 94105 Phone: 415-882-8200 Facsimile: 415- 882-8220 J. MICHAEL KEYES (Pro Hac Vice) KIRKPATRICK & LOCKHART PRESTON GATES ELLIS LLP 618 West Riverside Avenue, Suite 300 Spokane WA 99201-0602 Phone: 509-624-2100 Facsimile: 509-456-0146 Attorneys for Defendant ABERCROMBIE & FITCH TRADING CO. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA LEVI STRAUSS & CO., Plaintiff, v. ABERCROMBIE & FITCH TRADING CO., Defendant. ____________________________________ ABERCROMBIE & FITCH TRADING CO., Counter-Claimant, v. LEVI STRAUSS & CO., Counter-Defendant. No. CV-07-3752—JSW DEFENDANT ABERCROMBIE & FITCH’S MEMORANDUM IN OPPOSITION TO LEVI STRAUSS & CO.’S MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Date: April 25, 2008 Time: 9:00 a.m. Courtroom: 2 Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 1 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -i- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 TABLE OF CONTENTS Page I. SUMMARY OF THE ARGUMENT............................................................................. v II. LAW & ARGUMENT................................................................................................... 1 A. The Legal Standards Governing Motions To Dismiss....................................... 1 B. Abercrombie’s Counterclaims sufficiently allege LS&Co.’s fraud on the PTO as a basis to cancel LS&Co.’s arcuate trademark registration............. 1 1. Abercrombie alleges that the plaintiff in Lois Sportswear claimed throughout that litigation that LS&Co. lost its trademark rights in the arcuate mark...................................................... 1 2. Abercrombie’s Counterclaims also allege that LS&Co. knowingly filed its first materially false affidavit with the PTO. .......... 2 3. Abercrombie’s Counterclaims further allege that LS&Co. knowingly filed a second materially false affidavit with the PTO. ....................................................................................................... 3 C. The Court should reject LS&Co.’s claim that it “did not misrepresent anything” to the PTO because it is premised on a patently incorrect “interpretation” of the Lanham Act.................................................................... 4 1. LS&Co.’s “counterclaim” argument disregards the plain meaning of 15 U.S.C. § 1065................................................................. 4 2. LS&Co’s “counterclaim” argument directly conflicts with federal court interpretations of 15 U.S.C. § 1065. ................................. 6 3. LS&Co.’s “counterclaim” argument based upon the text of the Trademark Manual of Examination Procedures conflicts with federal interpretations of the Lanham Act, and is inapplicable by its own terms. .................................................................................... 6 4. LS&Co.’s “counterclaim” argument is not supported by either one of the two “case law” decisions cited in its motion......................... 8 D. LS&Co.’s false statements were material because a statutory prerequisite to obtaining an “incontestable” registration is that the registrant attest that there is no proceeding involving the trademark . ............ 11 Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 2 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -ii- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 E. This Court should also reject LS&Co.’s argument that Abercrombie failed to allege sufficient facts to state a claim for “abandonment.” ............... 13 1. Abercrombie properly alleged a claim of trademark abandonment because LS&Co. knowingly consented to other third-party infringing uses of its “arcuate” trademark. ........................ 13 2. LS&Co.’s legal authority merely provides the standard of proof that Abercrombie will ultimately have to meet on its abandonment claim. ............................................................................. 14 III. CONCLUSION............................................................................................................ 15 Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 3 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -iii- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 TABLE OF AUTHORITIES Page Federal Cases Citibank, N.A v. City Bank of San Francisco, 206 U.S.P.Q. 997 (N.D. Cal. 1980)................. 14 Constellation Brands, Inc. v. Arbor Hill Associates, Inc., ___ F.3d ____ No. 02-CV- 6498 CJS, 2008 WL 515028, at *11 (W.D.N.Y. Feb. 26, 2008) ........................................... 6 Estefan Enterprises, Inc. v. Coco Bongo Grill and Bar Inc., No. 6:06-cv-742-Orl- 31KRS, 2007 WL 1602341 (M.D. Fla. Jun. 04, 2007)..................................................... iv, 6 FirstHealth of Carolinas, Inc. v. CareFirst of Maryland, Inc., 479 F.3d 825 (Fed. Cir. 2007) .................................................................................................................................... 13 Fort James Corp. v. Kimberly-Clark Tissue Co., 1999 WL 966144 (N.D. Ill. Oct. 8, 1999) ............................................................................................................................... iv, 15 Gilligan v. Jamco Development Corp., 108 F.3d 246 (9th Cir. 1997)....................................... 1 Halo Management, LLC v. Interland, Inc., 308 F.Supp.2d 1019 (N.D. Cal. 2003)................... 5 In re First Draft, Inc., 76 U.S.P.Q.2d 1183, 2005 WL 2451658 (T.T.A.B. 2005) .................... 7 In re Wine Society of America Inc., 12 U.S.P.Q.2d 1139, 1989 WL 274373 (T.T.A.B. 1989) ...................................................................................................................................... 7 Lois Sportswear v. Levi Strauss & Co., 799 F.2d 867 (2d Cir. 1986) ....................................... 4 Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 631 F.Supp. 735 (S.D.N.Y. 1985) .......... 2 National Business Systems, Inc. v. AM International, Inc., 743 F.2d 1227 (7th Cir. 1984)… 11 Orient Express Trading Co. v. Federated Dep't Stores, Inc., 842 F.2d 650 (2d Cir. 1988) ..................................................................................................................................... iv Parrino v. FHP, Inc., 146 F.3d 699 (9th Cir. 1998) .................................................................. 2 Pizzeria Uno Corp. v. Temple, 747 F.2d 1522 (4th Cir. 1984).................................................. 5 Sizzler Family Steak Houses v. Western Sizzlin Steak House, Inc., 793 F.2d 1529 (11th Cir. 1986) ............................................................................................................................... 6 STX, Inc. v. Bauer USA, Inc., 43 U.S.P.Q.2d 1492 (N.D.Cal. 1997)...................................... 13 Sunrise Jewelry Mfg. Corp. v. Fred S.A., 175 F.3d 1322 (Fed. Cir. 1999)....................... 10, 11 Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 4 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -iv- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Visa Intern. Service Ass'n v. Bankcard Holders of America, 211 U.S.P.Q. 28 (N.D.Cal. 1981).................................................................................................................... 14 W. Fla. Seafood, Inc. v. Jet Rests., Inc., 31 F.3d 1122 (Fed. Cir. 1994).................................... 7 Federal Statutes 15 U.S.C. § 1058(a)(b) ............................................................................................................... 3 15 U.S.C. § 1064 ........................................................................................................................ 5 15 U.S.C. § 1064(3) ............................................................................................................. 5, 13 15 U.S.C. § 1065 ........................................................................................................................ 3 15 U.S.C. § 1065(1) ................................................................................................................... 4 15 U.S.C. § 1065(2) .......................................................................................................... passim 15 U.S.C. § 1115 ........................................................................................................................ 5 15 U.S.C. § 1115(a)................................................................................................................ 4, 5 15 U.S.C. § 1115(b)(2)............................................................................................................... 5 15 U.S.C. § 1127 .................................................................................................................. 5, 13 Other Authorities 3 McCarthy § 19:129 ................................................................................................................. 7 Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 5 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -v- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 I. SUMMARY OF THE ARGUMENT Pursuant to this Court’s Civil Standing Orders, ¶ 6, Abercrombie & Fitch Trading Co. (“Abercrombie”) respectfully submits this summary of argument and memorandum in opposition to Levi Strauss & Co.’s (“LS&Co.”) motion to dismiss Abercrombie’s counterclaims for cancellation of LS&Co.’s “arcuate” trademarks based on “fraud on the PTO” and “abandonment.” With respect to its fraud claim, Abercrombie has alleged sufficient facts showing that LS&Co. submitted two affidavits to the PTO containing materially false statements that there was “no proceeding involving said rights.” In fact, the Lois Sportwear proceeding, in which Lois directly challenged LS&Co.’s rights in the arcuate trademark, was pending at the time both affidavits were filed. A “proceeding involving said rights” under 15 U.S.C. § 1065 includes a proceeding challenging the trademark owner’s right to enforce the trademark, even when there is no counterclaim for cancellation of the registration. See Estefan Enterprises, Inc. v. Coco Bongo Grill and Bar, Inc., No. 6:06-cv- 742-Orl-31KRS, 2007 WL 1602341, *3 (M.D. Fla. Jun. 04, 2007). LS&Co.’s failure to disclose the Lois litigation was material because disclosure would have affected the PTO’s action on the affidavits, i.e. not granted incontestable status to LS&Co.’s mark. See Orient Express Trading Co. v. Federated Dep't Stores, Inc., 842 F.2d 650, 652 (2d Cir. 1988). LS&Co.’s arguments to the contrary lack sound legal support and are void of common sense. Likewise, Abercrombie’s abandonment claim sets forth several examples of how LS&Co. knowingly allowed third parties to infringe on its arcuate trademark and that this has caused the arcuate mark to lose significance as a mark. Such allegations sufficiently plead a claim of trademark abandonment. See Fort James Corp. v. Kimberly-Clark Tissue Co., 1999 WL 966144 (N.D. Ill. 1999). LS&Co.’s contrary argument ignores these allegations and is based on legal authority that is simply not germane to the limited inquiry before this Court. For these reasons, the court should deny LS&Co.’s motion to dismiss. Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 6 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -1- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 II. LAW & ARGUMENT A. The Legal Standards Governing Motions To Dismiss. A motion to dismiss is proper under Fed. R. Civ. P. 12(b)(6) only where the pleadings “fail to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). The issue on a motion to dismiss for failure to state a claim is “not whether the claimant will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims asserted.” Gilligan v. Jamco Development Corp., 108 F.3d 246, 249 (9th Cir. 1997). The Ninth Circuit has repeatedly cautioned that the pleading standard set forth in Rule 8 establishes "a powerful presumption against rejecting pleadings for failure to state a claim." Id. (citations omitted). B. Abercrombie’s Counterclaims sufficiently allege LS&Co.’s fraud on the PTO as a basis to cancel LS&Co.’s arcuate trademark registration. Abercrombie alleged numerous facts detailing that LS&Co. submitted two materially false affidavits to the PTO. 1. Abercrombie alleges that the plaintiff in Lois Sportswear claimed throughout that litigation that LS&Co. lost its trademark rights in the arcuate mark. On December 13, 1982, Lois Sportswear U.S.A., Inc., (“Lois Sportswear”) filed a declaratory judgment action against Levi Strauss & Co. in the U.S. District Court for the Southern District of New York. See Exhibit B to Abercrombie’s Amended Answer, Affirmative Defenses, Counterclaims (“Abercrombie Counterclaims”).1 Among other allegations, the Lois Sportswear Complaint alleged that Lois Sportswear’s back pocket stitching design used on its denim jeans did not infringe on LS&Co.’s “stitched pocket design.” See id., ¶ 18. LS&Co. asserted counterclaims against Lois Sportswear claiming that 1Approximately seven months after Lois Sportswear initiated suit against LS&Co., LS&Co. commenced a separate action in the S.D.N.Y. against Textiles Confecciones Europas, the supplier of Lois jeans to Lois Sportswear. The two actions were ultimately consolidated. Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 7 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -2- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 it infringed on LS&Co.’s U.S. Trademark Registration Nos. 404,248 (the “'248”) and 1,139,254 (the “'254”), the “arcuate” registrations. Id. Incredibly, LS&Co. asserts in its present motion that Lois Sportswear did not “ask for a declaration that the mark was invalid.” 2 See LS&Co. Motion, p. 3, line 25. In fact, Lois asserted in numerous ways that LS&Co.’s “arcuate” trademark was invalid and affirmatively challenged LS&Co.’s rights in the trademark. See, e.g., Abercrombie Counterclaims, Exhibit B at ¶ 17 (Lois claiming LS&Co. lost “any trademark rights it otherwise possessed”); Id. at ¶ 4; Id. at ¶ 15; Id. at ¶ 16 (the arcuate “no longer functions as a designation of source or origin” with the defendant). 2. Abercrombie’s Counterclaims also allege that LS&Co. knowingly filed its first materially false affidavit with the PTO. On May 14, 1985—during the pendancy of Lois Sportswear in federal district court— LS&Co.’s Vice President and Corporate Secretary, Ms. Katherine Durgin, filed a “Section 8 & 15” affidavit with the PTO in order for the '254 Registration to become “incontestable.” See Exhibit C to Abercrombie’s Counterclaims. Notwithstanding the fact that Lois Sportswear was pending in federal court and that Lois had continuously alleged that LS&Co. had lost trademark rights in the in arcuate mark, Ms. Durgin testified that “there is no proceeding involving said rights pending and not disposed of either in the Patent and 2 LS&Co. also leads this Court to believe that Lois Sportswear “conceded” before the District Court that LS&Co.’s arcuate trademark was incontestable. See LS&Co.’s motion pg. 4 (citing Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co., 631 F. Supp. 735, 740 (S.D.N.Y. 1985). LS&Co. is wrong. Lois Sportswear moved for summary judgment on non-infringement and made it abundantly clear that, for purposes of its motion only, Lois Sportswear was not challenging the validity of LS&Co.’s “arcuate” trademark. See Lois Sportswear’s Memorandum of Law in Support of Motion Summary Judgment, p. 5 attached as Exhibit A to the Declaration of J. Michael Keyes. Because Abercrombie’s Counterclaims reference the fact that Lois Sportswear moved for summary judgment, see Abercrombie’s Counterclaims, ¶ 10, Exhibit E pg. 1, Exhibit F pg. 1, this Court can consider Lois Sportswear’s summary judgment brief on a motion to dismiss. Parrino v. FHP, Inc., 146 F.3d 699, 705-706 (9th Cir. 1998). Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 8 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -3- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Trademark Office or in the courts.” Id. Abercrombie alleged that Ms. Durgin knew this statement was false and that it was material. See Abercrombie Counterclaims, ¶¶ 8, 17. The PTO received LS&Co.’s affidavit but notified it that Ms. Durgin’s affidavit was filed too early. See Exhibit D to Abercrombie Counterclaims. As Abercrombie alleges, the early affidavit was submitted nearly four months too soon. Id. at ¶10.3 3. Abercrombie’s Counterclaims further allege that LS&Co. knowingly filed a second materially false affidavit with the PTO. After the first “8 & 15” affidavit was submitted to the PTO, LS&Co.’s Assistant Corporate Secretary, Ms. Jean Fowler, submitted a second “8 & 15” affidavit to the PTO on January 2, 1986. See Exhibit G to Abercrombie’s Counterclaims. Like the first affidavit, this one too claimed that “there is no proceeding involving said rights pending and not disposed of either in the Patent and Trademark Office or in the courts.” Id. LS&Co. submitted this affidavit even though at the time Lois Sportswear was pending in the U.S. Court of Appeals for the Second Circuit as Lois Sportswear had appealed the denial of its motion for summary judgment and the granting of LS&Co.’s motion for summary judgment. See Exhibit F to Abercrombie’s Counterclaims. Abercrombie alleged that Ms. Fowler knew this statement was false and that it was material. See Abercrombie Counterclaims, ¶¶ 12, 7. More than 8 months after LS&Co. submitted its second false affidavit to the PTO, a divided panel of the U.S. Court of Appeals for the Second Circuit affirmed the trial court’s decision over a vocal dissent by Judge Miner. Abercrombie’s Counterclaims, ¶ 12; see also Lois Sportswear v. Levi 3 Under the Lanham Act, an “8 & 15” affidavit can be filed only between the fifth and sixth year after the date of issuance of the registration. See Abercrombie’s Counterclaims, ¶ 6; see also 15 U.S.C. § 1058(a)(b). This affidavit is referred to as the “8 and 15” affidavit because the requirements for the contents of this affidavit are set forth in Sections 8 and 15 of the Lanham Act, or 15 U.S.C. §§1058, 1065 respectively. Since LS&Co.’s '254 Registration did not issue until September 2, 1980, the earliest possible date upon which LS&Co. could have filed its “8 & 15” affidavit was September 2, 1985. Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 9 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -4- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Strauss & Co., 799 F.2d 867, 877 (2d Cir. 1986) (Miner, J. dissenting). C. The Court should reject LS&Co.’s claim that it “did not misrepresent anything” to the PTO because it is premised on a patently incorrect “interpretation” of the Lanham Act. LS&Co. incorrectly argues that “disclosure of the pending Lois Sportswear lawsuit was not required because Lois Sportswear did not file a counterclaim” for cancellation of LS&Co.’s trademark registration in that proceeding. See LS&Co.’s Motion, p. 7. For numerous reasons, LS&Co.’s assertion is flatly wrong. 1. LS&Co.’s “counterclaim” argument disregards the plain meaning of 15 U.S.C. § 1065. 15 U.S.C. § 1065 provides that in order to obtain an “incontestable” trademark registration, the registrant must file an affidavit with the PTO attesting that: (2) there is no proceeding involving said rights pending in the Patent and Trademark Office or in a court and not finally disposed of; 15 U.S.C. § 1065 (emphasis supplied). The statute does not state (or even imply) that a “proceeding” only means a “proceeding involving counterclaims for cancellation” as LS&Co. suggests. Rather, subparagraph (2) of the statute unambiguously states that it applies to any “proceeding” involving the registrant’s “said rights” to the trademark. This “said rights” language means the “registrant’s right to register the same or to keep the same on the register.” See 15 U.S.C. § 1065(1). LS&Co.’s argument ignores the legal reality that the Lanham Act expressly provides that the “said rights” referred to in 15 U.S.C. § 1065(2) can be challenged either by way of “defense” or by way of “counterclaim.” For example, 15 U.S.C. § 1115(a) provides that a trademark registration constitutes “prima facie evidence of validity” but that it “shall not preclude another person from providing any legal or equitable defense or defect including Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 10 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -5- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 those set forth in subsection (b) of this section.” Id. (emphasis supplied). One of the enumerated defenses listed in subsection (b) is that “the mark has been abandoned by the registrant.” 15 U.S.C. § 1115(b)(2). Additionally, the Lanham Act provides that a trademark registration may be attacked by filing a “petition to cancel” the registration. See 15 U.S.C. § 1064. One of the enumerated grounds for filing a petition to cancel is if the registered mark has been “abandoned.” See 15 U.S.C. § 1064(3). As these statutory provisions make clear, a claim that a registered trademark has been “abandoned” can be asserted either as a defense under 15 U.S.C. § 1115, or as a counterclaim under 15 U.S.C. § 1064. Either way, such a claim would be a challenge to the “said rights” of the trademark owner to enforce the trademark. Pizzeria Uno Corp. v. Temple, 747 F.2d 1522, 1529 (4th Cir. 1984) (observing that “the presumption which registration thus gives the mark, though, does not preclude one charged with infringement from collaterally attack[ing] in an infringement action, either by way of an affirmative defense or by way of a counterclaim seeking cancellation of the registration”). In applying the facts as alleged by Abercrombie to the plain meaning of 15 U.S.C. § 1065, it is undisputed that Lois Sportswear challenged LS&Co.’s right to enforce its trademark. A trademark is deemed abandoned when it has “los[t] its significance as a mark”, see 15 U.S.C. § 1127, which is a loss of trademark rights as “against the world.” Halo Management, LLC v. Interland, Inc., 308 F. Supp. 2d 1019, 1029 (N.D. Cal. 2003). As set forth above, the Lois Sportswear case involved claims that LS&Co. had “abandoned” its arcuate trademark. See Abercrombie Counterclaims, Exhibit B. These factual allegations make it crystal clear that Lois Sportswear was attacking the validity of the arcuate trademark and, therefore, that lawsuit was undeniably a “proceeding” involving LS&CO.’s “said rights” in the arcuate. Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 11 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -6- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 2. LS&Co’s “counterclaim” argument directly conflicts with federal court interpretations of 15 U.S.C. § 1065. No fewer than three federal courts have interpreted “proceeding involving said rights” in 15 U.S.C. § 1065 to include a proceeding where the trademark owner’s right to enforce the trademark was challenged, even when there was no counterclaim for cancellation of the trademark registration. See e.g., Constellation Brands, Inc. v. Arbor Hill Associates, Inc., ___ F.3d ____, No. 02-CV-6498 CJS, 2008 WL 515028, at *11 (W.D.N.Y. Feb. 26, 2008) see also Estefan Enterprises, Inc. v. Coco Bongo Grill and Bar, Inc., No. 6:06-cv-742-Orl- 31KRS, 2007 WL 1602341, *3 (M.D. Fla. June 04, 2007) (proceeding in which trademark registrant filed complaint for infringement and defendant asserted affirmative defenses, including estoppel and laches, but did not assert a counterclaim for infringement, constituted “proceeding involving said rights pending…in a court not finally disposed of” and prevented registrant’s rights from being classified as incontestable); Sizzler Family Steak Houses v. Western Sizzlin Steak House, Inc., 793 F.2d 1529, 1541 (11th Cir. 1986). LS&Co. fails to cite to any of these cases in its motion to dismiss and has no legitimate basis on which to distinguish them from this case. 3. LS&Co.’s “counterclaim” argument based upon the text of the Trademark Manual of Examination Procedures conflicts with federal interpretations of the Lanham Act, and is inapplicable by its own terms. LS&Co. asserts that, based on the Trademark Manual of Examination Procedures (the “TMEP”), it had no obligation to disclose Lois Sportswear because the TMEP only requires disclosures of cases involving a “counterclaim for cancellation” of a registration. See LS&Co. Motion, pp. 7-8. This argument is demonstrably flawed for numerous reasons. Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 12 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -7- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 First, the TMEP by its own terms is not an interpretation of the statute4, and is not binding on the Trademark Trial and Appeal Board (the “TTAB”), much less a federal court. See W. Fla. Seafood, Inc. v. Jet Rests., Inc., 31 F.3d 1122, 1127 n.8 (Fed. Cir. 1994); see also 3 McCarthy § 19:129. The “examination procedures” followed at the PTO are, quite simply, irrelevant to Abercrombie’s counterclaim for fraud. Abercrombie has alleged that LS&Co. violated the provisions of a statute passed by Congress, not a procedural manual drafted by some unidentified individual at a federal agency. Second, even if the TMEP could be considered an interpretation of the statute, the TTAB has noted that when the TMEP conflicts with judicial interpretations of the Lanham Act, the TMEP obviously needs to give way. See In re Wine Society of America Inc., 12 U.S.P.Q.2d 1139, 1989 WL 274373, at *1 (T.T.A.B. 1989); see also In re First Draft, Inc., 76 U.S.P.Q.2d 1183, 2005 WL 2451658, at *6 (T.T.A.B. 2005) (affirming refusal of registration under the Lanham Act and applicable case law, despite TMEP section cited by applicant). As noted above, none of the federal courts interpreting 15 U.S.C. § 1065(2) have held that a “counterclaim for cancellation” must first be asserted before federal litigation is considered a “proceeding involving said rights” in the trademark. For this reason as well, this Court should reject LS&Co.’s argument that the TMEP precludes Abercrombie’s fraud claim. Third, even if the text of the TMEP could somehow be considered a “persuasive” interpretation of 15 U.S.C. § 1065(2), it simply does not apply here. LS&Co. casually glosses over the reality that the provision it cites applies only when the trademark owner is the plaintiff in the proceeding and there is no counterclaim for cancellation. In Lois Sportswear, 4 See Foreword to TMEP, September 2007. The Foreword provides, in pertinent part, that “[t]he Manual contains guidelines for Examining Attorneys and materials in the nature of information and interpretation, and outlines the procedures which Examining Attorneys are required or authorized to follow in the examination of trademark applications.” See id. (emphasis supplied). Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 13 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -8- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 LS&Co. was the defendant, not the plaintiff. See Abercrombie Counterclaims, Exhibit B. Thus, LS&Co. cannot avoid Abercrombie’s fraud claim simply by asserting it followed TMEP procedures, because this TMEP provision by its own terms cannot be read to exempt the Lois Sportswear proceeding from the disclosure obligation embodied in 15 U.S.C. § 1065(2). It is not the infringement action that creates the disclosure obligation but the particular defenses or counterclaims asserted by the alleged infringer challenging the validity of the trademark that prevent the incontestable status. Fourth, at the time LS&Co. filed its first false affidavit to the PTO, the text of the TMEP did not contain this “counterclaim” language relied upon by LS&Co. in support of its motion to dismiss.5 Thus, even if the current text of the TMEP cited by LS&Co. could be considered a correct, binding or persuasive interpretation of the federal statute, the text could only be applicable to the second false affidavit and not the first affidavit filed by LS&Co.6 For all of these reasons, the Court should reject LS&Co.’s erroneous assertion that the TMEP somehow insulates LS&Co. from liability for filing two false affidavits with the PTO. 4. LS&Co.’s “counterclaim” argument is not supported by either one of the two “case law” decisions cited in its motion. LS&Co. cites “case law” (actually one “opinion” from the Patent Commissioner and one Federal Circuit case) that does not support LS&Co.’s arguments on any level. See 5 Instead, the pertinent text of § 1604.03 of the TMEP provided that the “8 & 15” affidavit: must also state that there is no proceeding involving said rights pending in the Patent and Trademark Office or in a court and not finally disposed of, and “proceeding” has been interpreted to mean registrant being in position either of plaintiff or defendant. See TMEP § 1604.03 (1st Edition, Rev. 6, 1983) (emphasis supplied). The next revision of the TMEP did not take effect until January 1, 1986. 6 At the time LS&Co. filed its second false affidavit with the PTO, the pertinent text of TMEP provided that a “proceeding involving the mark in which the registrant is the plaintiff, and there is no counterclaim involving registrant’s rights in the mark, does not preclude acceptance of a Section 15 affidavit.” TMEP § 1604.03 (1st Edition, Rev. 7, 1986). Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 14 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -9- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 LS&Co.’s Motion, pp. 7-8. Contrary to LS&Co.’s characterization, In re Trademark Registration of McDonald’s Corp. (“In re McDonald’s”) did not hold that a counterclaim must first be asserted before a proceeding constitutes a “proceeding involving said rights” in a trademark. In that case, McDonald’s filed a Sections “8 & 15” affidavit for its “McChicken” registration, but the Section 15 portion was not accepted because the trademark examiner observed that the McChicken mark was “involved in a civil proceeding.” In re McDonald’s, 1984 Commr. Pat. LEXIS 10 at *2 (Comm’er of Patents and Trademarks Apr. 10, 1984). McDonald’s petitioned the Commissioner to accept McDonald’s Section 15 affidavit for filing because “the civil action involving this registration does not raise any question with respect to its rights as contemplated by Section 15.” Id. at *1-2. In assessing McDonald’s position, the Commissioner simply noted that no counterclaim had been filed by the opposer. Id. at *2. The Commissioner further noted that it had been “office practice” to withhold stamping of Section 15 affidavits “if the registration is involved in any civil proceeding, without looking to the nature of the proceeding to determine if it involves the rights contemplated by Section 15.” Id. The Commissioner observed that this “practice” was “stricter than the requirements set forth in Section 15.” Id. Accordingly, the Commissioner ordered that: The current office practice on Section 15 affidavits is hereby ordered changed. The Search Library copies of a registration may be stamped with an appropriate Section 15 notation if the registration is not involved in a proceeding which challenges the rights indicated in Section 15.” In re McDonald’s at *2-3 (emphasis supplied). As this excerpt indicates (an excerpt that LS&Co. conveniently omits from its block quotation on pg. 8 of its motion), the relevant inquiry is not whether a counterclaim for cancellation has been asserted, but whether the registration “is involved in a proceeding which challenges the rights indicated in Section 15.” As noted above, such a “challenge” can be Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 15 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -10- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 asserted as either a “defense” or a “counterclaim.” Thus, LS&Co. is incorrect that In re McDonald’s somehow precludes Abercrombie’s claim for fraud. If anything, the Commissioner’s directive is actually consistent with the plain meaning of the statute and the judicial interpretations thereof. Finally, LS&Co. cites to Sunrise Jewelry Mfg. Corp. v. Fred S.A., 175 F.3d 1322, 1327 (Fed. Cir. 1999), but fails to offer any explanation as to how it supports LS&Co.’s “interpretation” of the statute and, in fact, it does not. In Sunrise Jewelry, the trademark registrant, Fred, was involved in federal litigation and a cancellation proceeding before the PTO involving its trademark. Id. at 1323. The litigation and the PTO proceeding were resolved through settlement. Id. After the settlement of the first action, Fred brought an unrelated action for infringement of its trademark. Id. at 1324. While this second action was pending, the cancellation proceeding from the first action was withdrawn and Fred filed an incontestability affidavit. The affidavit actually mentioned the settlement and noted that “a withdrawal of the cancellation proceeding had been filed.” Id. After Fred filed the incontestability affidavit with the PTO, the defendants in the second action filed a counterclaim challenging the validity of Fred’s mark. Id. at 1325. Thereafter, the Plaintiff in Sunrise Jewelry alleged that Fred committed fraud on the PTO by filing its incontestability affidavit. Sunrise Jewelry Mfg. Corp., 175 F.3d at 1324. This claim was rejected because “at the time Fred filed the affidavit it would have been reasonable to believe that no proceeding was pending in view of the previously filed withdrawal of the cancellation proceeding.” Id. at 1327. With respect to the second action, the court noted that, at the time Fred filed his affidavit, only a claim of trademark infringement had been asserted, but the counterclaim had not yet been filed and “the Lanham Act imposes no continuing duty to update a § 15 affidavit.” Id. Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 16 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -11- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 The facts set forth in Abercrombie’s counterclaim are completely different from the facts in Sunrise Jewelry. In Sunrise Jewelry, at the time the affidavit was filed, the first proceedings had been settled and a notice of withdrawal had been filed. By contrast, at the time LS&Co. filed both affidavits, Lois Sportswear was still very much alive and Lois Sportswear was unquestionably challenging LS&Co.'s rights to the arcuate trademark. Moreover, in Sunrise Jewelry, the affidavit submitted to the PTO actually referenced the litigation and disclosed that it had been resolved through settlement. Neither one of LS&Co.’s affidavits made any mention whatsoever of the Lois Sportswear matter. Finally, in Sunrise Jewelry, the counterclaim in the second action was filed after Fred submitted the Section 15 affidavit. See Sunrise Jewelry Mfg. Corp., 175 F.3d at 1324. Not so in Lois Sportswear v. LS&Co. Lois Sportswear alleged from the outset of the litigation that LS&Co did not have an enforceable trademark. Sunrise Jewelry is inapposite. D. LS&Co.’s false statements were material because a statutory prerequisite to obtaining an “incontestable” registration is that the registrant attest that there is no proceeding involving the trademark LS&Co.'s argument on materiality is equally unsound. LS&Co. claims that because it ultimately prevailed in the Lois Sportswear litigation, the false statements it made to the PTO many months prior to the Second Circuit decision could not be “material.” This argument should be rejected on its face for both legal and policy reasons. First, whether a statement is “material” is assessed at the time the statement was made to the PTO. See Orient Express Trading Co., 842 F.2d at 653 (“knowing misstatement must have been with respect to a material fact -- one that would have affected the PTO’s action on the applications.”) (citations omitted); Crown Wallcovering Corp., 188 U.S.P.Q. at 143 (material information or facts are those “which, if transmitted and disclosed to the examiner, would have resulted in the disallowance of the registration sought.”); National Business Systems, Inc. v. AM International, Inc., 743 F.2d 1227, 1239 (7th Cir. 1984); Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 17 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -12- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Duffy-Mott Co., Inc., 424 F.2d at 1099 (noting that court needs to consider “the purpose for which the false affidavit was filed in order to determine the importance of the untrue allegations”). The relevant inquiry is not whether LS&Co.’s disclosure of the Lois litigation on its Section 8 and 15 affidavits would have affected LS&Co.’s registration. Rather, the omission was material because, had the Lois litigation been disclosed, the PTO would not have recognized LS&Co.’s Section 15 affidavit and granted incontestable status. In other words, it would have affected the PTO’s action on the incontestability applications. Instead, through its false affidavits, LS&Co. obtained an action from the PTO (i.e. incontestable status) to which it was not otherwise entitled. Such fraud is grounds for cancellation of the registration. Crown Wallcovering Corp., 188 U.S.P.Q. at 144. The purpose for which LS&Co. submitted the “8 and 15” affidavit was to obtain “incontestability,” a “new right” that is not granted with the original registration. Id. Under 15 U.S.C. § 1065, a trademark registrant would be ineligible to obtain an “incontestable” trademark unless the registrant attests that there “is no proceeding involving said rights pending in the Patent and Trademark Office or in a court and not finally disposed.” 15 U.S.C. § 1065(2). Thus, as a matter of law, LS&Co.’s affidavits that testified to the supposed “non- existence” of a court proceeding involving its rights to the trademark are unquestionably “material” under 15 U.S.C. § 1065(2) because those statements go to the heart of whether LS&Co. would have been entitled to an incontestable trademark at the time it filed its affidavits. See Orient Express Trading Co., 842 F.2d at 653 (statement of continuous use required for Section 8 and 15 affidavit, which registrant made falsely, constituted material misstatement of fact). Second, as a matter of policy, interpreting “materiality” the way LS&Co. suggests would create a safe haven for those that submit false affidavits to the PTO. Under LS&Co.’s theory of “materiality”, a trademark owner could file a false statement (or in LS&Co.’s case, Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 18 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -13- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 two false statements) with the PTO regarding pending litigation involving the trademark and, so long as that registrant ultimately prevailed in the litigation that was secreted from the PTO, it would not matter how outrageous or deceitful the statement was because it was “immaterial.” Such an absurd result is not supported by the text of the statute, the Lanham Act, judicial interpretations, or common sense. Moreover, this argument tacitly (if not overtly) seeks this Court’s imprimatur on false filings before a federal agency and it should be rejected on that basis as well. For all of the aforementioned reasons, the Court should deny LS&Co.’s motion to dismiss Abercrombie’s counterclaim for fraud on the PTO. E. This Court should also reject LS&Co.’s argument that Abercrombie failed to allege sufficient facts to state a claim for “abandonment.” 1. Abercrombie properly alleged a claim of trademark abandonment because LS&Co. knowingly consented to other third-party infringing uses of its “arcuate” trademark. The Lanham Act provides that a trademark registration may be cancelled when the trademark has been “abandoned.” 15 U.S.C. § 1064(3). “Abandonment” includes any act or omission by the registrant which causes the trademark “to lose its significance as a mark.” 15 U.S.C. § 1127. Whether a trademark has lost its significance as an indication of origin is a question of fact. FirstHealth of Carolinas, Inc. v. CareFirst of Maryland, Inc., 479 F.3d 825, 830 (Fed. Cir. 2007). Even LS&Co.’s own legal authority acknowledges that abandonment can occur when the trademark owner consents to third party infringing uses of its trademark. See LS&Co. Motion, p. 10 (citing STX, Inc. v. Bauer USA, Inc., 43 U.S.P.Q.2d 1492, 1502 (N.D. Cal. 1997), which noted that “[t]he existence of third party infringers does not constitute an abandonment of a mark where the trademark owner does not consent to the use of the mark by these others but rather, vigorously pursues these third party infringers."); see also Citibank, Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 19 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -14- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 N.A v. City Bank of San Francisco, 206 U.S.P.Q. 997, 1011 (N.D.Cal. 1980) (same); Visa Intern. Service Ass'n v. Bankcard Holders of America, 211 U.S.P.Q. 28, 41 (N.D.Cal. 1981) (same). Abercrombie has alleged numerous facts (and already presented evidence in the attachments to the Counterclaims) showing that LS&Co. knowingly consented to allegedly infringing third party uses of its “arcuate” trademark. Abercrombie alleges examples involving Federal Jeans (Counterclaims, ¶¶ 22,23), For What It’s Worth (id. at ¶ 24) and RP55 (id. ¶ 25) where LS&Co. sued these companies claiming they were infringing LS&Co.’s “arcuate” trademark, but then “knowingly allowed” use of the same or very similar “infringing” design. As the Counterclaims make clear, these are just “examples” and Abercrombie’s Counterclaim for abandonment is in no way limited to these three instances. As Abercrombie alleges, all of these examples of LS&Co. knowingly permitting infringing uses constitute “abandonment.” Id. at ¶ 29. Therefore, LS&Co.’s motion to dismiss should be denied on this basis alone. 2. LS&Co.’s legal authority merely provides the standard of proof that Abercrombie will ultimately have to meet on its abandonment claim. LS&Co.’s legal authority does not support its motion to dismiss. Notably, not one of LS&Co.’s cited cases involved a motion to dismiss a claim of trademark abandonment. Instead, LS&Co.’s cases involved proceedings that require a court to determine whether sufficient evidence exists to support a claim. See LS&Co.’s Motion, pp. 10-11. As such, they do not stand for the proposition that Abercrombie has failed to sufficiently plead a claim of abandonment. A case that is much more procedurally on point than any of the cases cited by LS&Co. is Fort James Corp. v. Kimberly-Clark Tissue Co., 1999 WL 966144 (N.D. Ill. Oct. 8 1999). There, the defendant was sued for trademark infringement and alleged several affirmative Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 20 of 21 MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS COUNTERCLAIMS FOR CANCELLATION Case No. 03:07-CV-3752-JSW -15- Printed on Recycled Paper 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 defenses, including that “widespread third-party use of similar designs, unpoliced by Fort James, has undermined consumer perception that a single source exists for the goods that bear the trademarked design.” Id. at *4. The court denied the plaintiff’s motion to dismiss the affirmative defense and counterclaim on abandonment, observing that the defendant’s pleading provided a “plausible scenario of abandonment” and the court emphasized that “ultimate success of the defense is not our concern at this stage of the case.” Id. at *5. If the limited factual allegations in Fort James were sufficient to survive a motion to dismiss, then certainly the pleading in this case—a pleading that details several instances where LS&Co. knowingly allowed third parties to engage in infringement of the “arcuate” mark thereby causing it to lose its significance as a mark—is more than sufficient to state a claim for abandonment. III. CONCLUSION For the reasons set forth herein, LS&Co.’s motion to dismiss should be denied.7 Dated: April 16, 2008 Respectfully submitted, KIRKPATRICK & LOCKHART PRESTON GATES ELLIS LLP By: /s/ Michael J. Bettinger Rachel R. Davidson J. Michael Keyes Attorneys for Defendant ABERCROMBIE & FITCH TRADING CO. 7 Should the Court grant the motion, though, Abercrombie respectfully requests it be granted leave to amend it Counterclaims to clarify its allegations. See Daw Indus. v. Proteor Holdings, S.A., 2008 U.S. Dist. LEXIS 6736, *9-10 (S.D. Cal. Jan. 29, 2008)( “A court may dismiss a complaint without granting leave to amend only if it appears with certainty that the plaintiff cannot state a claim and any amendment would be futile”). Case 3:07-cv-03752-JSW Document 86 Filed 04/16/2008 Page 21 of 21