The Effect of Twombly/Iqbal on Trademark Lawsuits in the Fourth Circuit
Article Date: Thursday, March 07, 2013
Written By: Gary L. Beaver
For any attorney who does not practice in the federal courts or who has been living in the wild away from any news source for the past six years, in 2007, in an antitrust lawsuit, the United States Supreme Court added a plausibility requirement drawn from Fed.R.Civ.P. 8 to measure whether pleadings were sufficient to withstand a motion to dismiss under FedR.Civ.P. 12(b)(6). Bell Atlantic Corp. v. Twombly, 550 US. 544,127 S.Ct. 1955 (2007). Initially there was confusion as to whether the plausibility requirement applied to all pleadings or just complaints alleging antitrust claims. In 2009, the Supreme Court made clear in Ashcroft v. Iqbal that plausibility was required for all claims alleged in federal lawsuits. 556 U.S. 662,129 S.Ct 1937 (2009). This article focuses on the impact of those decisions on lawsuits involving trademarks and trade dress, especially with respect to cases decided within the Fourth Circuit.
The Fourth Circuit has applied Twombly/Iqbal analysis in only three cases in which the word "trademark" appears. The court did not analyze any trademark claims in any of the three. Of them, the case providing the most guidance and often cited by federal district courts in the Fourth Circuit is Nemet Chevrolet, Ltd. v. Consumeraffairs. com, Incorporated, 591 F.3d 250 (4th Cir. 2009). The other two cases are Wag More Dogs, LLC v. Cozart, 680 F.3d 359 (4th Cir. 2012) and Robertson v. Sea Pines Real Estate Cos., 679 F.3d 278 (4th Cir. 2012), but those two cases did not involve trademark or trade dress infringement or any other aspect of the Lanham Act. In Nemet, the defendant operated a website that allowed consumers to comment on the quality of businesses, goods, and services. 591 F.3d at 252. The plaintiff took offense to some remarks about its business and sued the defendant for defamation and tortious interference with a business expectancy. Id.The defendant moved to dismiss under Rule 12(b) (6) because, it claimed, Section 230 of the Communications Decency Act precluded holding interactive computer service providers liable for publishing information created and developed by others. 591 F.3d at 252. Applying Twombly/Iqbal, the Nemet court found that the factual allegations were insufficient to show that the defendant was an information content provider, including finding some allegations to be threadbare and conclusory. 591 F.3d at 258.
The federal district courts in the Fourth Circuit have applied Twombly and Iqbal many times, including in evaluating trademark and other Lanham Act claims. Lets review the Twombly/Iqbal standards in the context of opinions from those district courts and the Fourth Circuit.
"Factual plausibility" is the overarching requirement The parties must allege "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 129 S.Ct at 1949 (quoting Twombly, 550 U.S. at 570,127 S.Ct at 1974). A claim is facially plausible provided the pleading party provides enough factual content to enable the court to reasonably infer that the other party is liable for the misconduct alleged. Iqbal, 556 U.S. at 678. The allegations do not have to make liability probable, but to be plausible liability must be more than a sheer possibility. Id.The "factual allegations must produce an inference of liability strong enough to nudge the  claims' across the line from conceivable to plausible."' Nemet, 591 F.3d at 256 (citing and quoting Iqbal and Twombly).
While "detailed factual allegations" are not required, the courts need not give credence to "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555, 127 S.Ct. at 1965. The courts may draw upon "judicial experience and common sense" to infer "more than the mere possibility of misconduct Nemet, 591 F.3d at 256 (quoting Iqbal, 129 S.Ct. at 1950).
In applying Twombly/Iqbal, do not forget to apply pre-existing pleading standards that were not overruled by those cases. A party "must allege facts that, if true, plausibly satisfy each element" or "allow the Court to infer that all elements of each of his causes of action exist" See Dickson v. Microsoft Corp., 309 F.3d 193, 213 (4th Cir. 2012); Inman v. Klockner-Pentaplast of America, Inc., 467 F.Supp.2d 642, 647 (W.D.Va. 2006). Take care not to cite Jordan v. Alternative Res. Corp., 458 F.3d 332, 344-45 (4th Cir. 2006) for the inference quote. The Western District of Virginia court made that holding in Inman but then, in St. Clair v. Banker Steel Co. LLC, 2007 WL 45785 *2 (W.D.Va. Jan. 5, 2007), mistakenly referred to it as a quote from the Jordanopinion. Since then the Western District of Virginia has repeated the error 30 times, the Eastern District of Virginia five times, and the District of Maryland once. The inference holding is sound in light of language in Iqbal and Nemet but the Fourth Circuit has never made the quoted holding.
The Iqbal court suggested that a court should do a two-step analysis. First the court should identify and separate the conclusions from the facts as the conclusions are not entitled to the assumption of truth. 129 S.Ct at 1950. You should also note that the court will not "accept as true allegations that contradict matters properly subject to judicial notice or by exhibit" Venev v. Wyche, 293 F.3d 726,730 (4th Cir. 2002). That rule seems particularly useful where a claimant misstates the terms of a contract or other document that is referred to and is essential to the claims so that the opposing party may submit the document as a pleading exhibit for the court's consideration. For the second step, the court should assume the truth of the factual allegations and determine whether they plausibly give rise to an entitlement to relief. Id.The court draws upon its "judicial experience and common sense" to determine whether the alleged facts allow the court to infer "more than the mere possibility of misconduct" Iqbal, 129 S.Ct at 1950; Nemet, 591 F.3d at 256.
The North Carolina federal district courts have applied Twombly and/or Iqbal in at least 30 cases in which the word "trademark" appears though most have not actually involved determining the plausibility of trademark claims. For example, in Marvel-Schebler Aircraft Carburetors LLC v. AVCO Corporation, 2012 WL 3637674(M.D.N.C. Aug. 12,2012), in which the author participated, the court dismissed three state law claims using Twombly/Iqbal standards in a case which also involved trademark infringement claims. Of course, other federal district courts in the Fourth Circuit have also applied Twombly/Iqbal to trademark allegations. As of Jan. 28, 2013, there were at least 30 cases in which the Virginia federal district courts applied Iqbal and/or Twombly and in which the word "trademark" appears; 16 in the Maryland federal district court; iour in South Carolina; and four in West Virginia. As in North Carolina, in many of those cases the plausibility standard was applied to claims other than those for trademark infringement.
To allege a claim for trademark infringement under the Lanham Act, a plaintiff must allege that: (1) plaintiff possesses a valid, protectable mark; (2) defendant used the mark; (3) defendant used it "in commerce;" (4) defendant used it "in connection with the sale, offering for sale, distribution, or advertising" of goods or services; and (5) defendant used the mark in a manner likely to confuse consumers. See 15 U.S.C. §§ 114, 1125(a); Lamparello v, Falwell, 420 F.3d 309, 313 (4th Cir. 2005). The federal district courts in the Fourth Circuit generally determine whether there are plausible alleged facts for each of these elements. See, e.g., Herbert Richter Metall Warren-Appa-ratebau GMBH & Co., v. GIB Services, LLC, 2011 WL 2517232 *6 (E.D.Va. June 4, 2011) (granting default judgment for trademark infringement after analyzing the claim for plausibility); Ray Comm'ns., Inc. v. Clear Channel Comm'ns, Inc., 2009 WL 159608 (E.D.N.C. Jan. 21, 2009) (denying motion to dismiss trademark infringement and other claims). The same approach is taken in cases involving contributory infringements of the Lanham Act. Sec Coach, Inc. v. Farmers Market & Auction, 2012 WL 3195132 (D.Md. Aug. 7, 2012) (this case involved claims of contributory trademark infringement, contributory trade dress infringement, other Lanham Act violations, and unjust enrichment). In Coach, the court cut the plaintiff some slack on its trade dress allegations because some of the trade dress evidence had been seized by and was in the custody of the police. Id.at *6.
The first element is usually obvious - if there is a registered trademark at issue, the registration is a simple fact to allege. See, e.g., Sed, Inc. of South Carolina v. Seven Creeks Entm't, LLC, 2012 WL 525730 *3 (E.D.N.C. Feb. 16, 2012). However, if you do not allege a superior right to the trademark, the claim will be dismissed under Iqbal. See, e.g., Web Mgmt., Inc. v. Sparkle Pool Co., 2010 WL 374979 (S.D.WVa. Jan. 27, 2010). Pleading a superior right to the trademark may be more complex where the trademark claim is based on common law, i.e., first use rather than federal registration. In Diamonds Direct USA, Inc. v. BFJ Holdings, Inc., the court evaluated four counterclaims alleging that the plaintiff lacked a valid, enforceable service mark. 2012 WL 2505282 *2 (E.D.Va. June 28, 2012). The plaintiff alleged a common law mark based on continuous use in Virginia for years. Id.The court found the allegations supported the state law claims for service mark infringement, unfair competition, and false advertising. Id.at *3. If you are going to assert that a mark is not legally valid and protectable, you cannot base your arguments on facts that are not found in the complaint. In Field of Screams, LLC v. Olney Boys 8c Girls Community Sports Association, the court vOfa&g& arguments that the plaintiff was not the owner of the federally registered trademark and that a Google search revealed at least twenty other similar attractions with the same name across the country because those facts were not in the Complaint. 2011 WL 890501 *6 (D.Md. Mar. 14, 2011). The court also rejected an argument that the mark was not inherently distinctive and lacked secondary meaning because that was an issue of fact. Id.
Likewise, the use elements are usually not difficult to allege as most plaintiffs have some direct evidence of uses that brought their attention to the defendants' activities to trigger the lawsuit. However, one area of concern is alleging with enough specificity the wrongdoing of each defendant where there is more than one defendant. In Kiawah Resort Associates, L.P. v. Akers, Ellis Real Estate and Rentals, LLC, 13 of the 17 defendants moved to dismiss all nine causes of action. 2012 WL 485065 (D.S.C. Jan. 27, 2012). The court dismissed the trademark infringement claim because ot the plaintiff's failure to allege what each defendant had done to infringe, as the plaintiff had only alleged that "several of the individual defendants" but not all of them were involved in infringement did not provide sufficient notice under Iqbal. Id.at *5. One must usually provide some facts showing how each defendant infringed the trademark. See Myung Ga, Inc. v. Myung Ga of MD, Inc., 2011 WL 3476828 (D.Md. Aug.8, 2011) (dismissing trademark and trade dress infringement claims for failing to allege how the defendants infringed; the plaintiff merely pled the elements without facts).
The more difficult element may be plausibly alleging facts showing the use was likely to cause customer confusion. In Goldtoemoretz, LLC v. Implus Footcare, LLC, 2010 WL 3474792 (W.D.N.C. Aug. 31, 2010), the court found that the plaintiff's exhibits showed substantial similarities between the plaintiffs alleged trademark and defendant's competing product. Id.at *5. The similarities "could cause a likelihood of confusion" and diat was enough to satisfy the court. Id.If you are making the claim, you may want to be sure to add exhibits to your complaints making it easy for the court to make similar comparisons. Of course, you should add allegations describing the similarities or at least alleging that there are substantial similarities with a reference to the attached documents showing the similarities.
The federal courts are less likely to find "information and belief" allegations sufficient. In Bogopa Service Corp. v. Shulga, 2009 WL 1628881 (W.D.N.C. June 10, 2009), the court refused to enter a default judgment against a defendant who did not timely answer. First, the allegations were threadbare and conclusory in making blanket assertions that certain actions were taken by all of the defendants rather than by only the corporate defendant as alleged in an earlier complaint. Id.at "2. There were no fact allegations showing what the individual defendant did wrong or on what basis he would be personally liable for the infringement by the corporation. Id.Second, the allegations that the individual "directed" the company's infringements were made on information and belief. The court held that [t]his states a mere possibility, an open conjecture, much like the allegations found wanting in" Iqbal. Id.
You can supplement your fact allegations with materials filed with the complaint or otherwise properly submitted to the court. In Slep-Tone Entertainment Corp. v. Mainville, 2011 WL 4713230 (W.D.N.C. Oct. 6, 2011), the court described in its opinion the complaint factual allegations in detail and cited the complaint paragraphs containing them to support its holding that die trademark infringement and unfair competition allegations, when viewed in conjunction with investigative reports filed under seal by the plaintiff, met the Twombly/Iqbal standards. 2011 WL 4713230 at *3.
The Twombly/Iqbal standards apply to counterclaims and affirmative defenses in trademark cases, too. See Military Order of the Purple Heart Sen'. Found., Inc. v. Others First, Inc., 2012 WL 6761816 (D.Md. Dec. 28, 2012) (dismissing counterclaims for fraudulent procurement of the trademark and for antitrust violations); Jeffrey J. Nelson & Assocs., Inc. v. LePore, 2012 WL 2673242 (E.D.Va. July 5, 2012) (dismissing counterclaims for breach of fiduciary duty, unjust enrichment, defamation, and three types of tortious interference). In Assurant, Inc. v. MedAssurant, Inc., 2010 WL 3489129 *1 (W.D.N.C. July 26, 2010), the plaintiff alleged trademark infringement under the Lanham Act based on defendants use of the name "MedAssurant" and associated internet domain names. The defendant's counterclaims sought to cancel registration of plaintiff's trademarks. Applying the plausibility standards, the court dismissed one of the counterclaims because it alleged a factual basis not permitted by the applicable federal statute - 15 U.S.C. § 1064. Id.at *3. The court denied a motion to dismiss three other counterclaims to cancel the registration. Though the court found them to be thin on alleged facts, they did state grounds allowed by Section 1064, those being that one of the marks had become generic, that it was generic under the doctrine of foreign equivalents, and that it was obtained fraudulently. Id, at *3-*9.
Remember if you are challenging trademark claims, the basis of the challenge should be focused on the plausibility of the fact allegations, not on whether or not the allegations are true - an issue the court will not reach. See, e.g., Leisure Sys., Inc. v. Cogdill, 2009 WL 427275 (W.D.N.C. Feb. 19, 2009).
The Twombly/Iqbal standards may even be invoked in the context of a motion to amend in a trademark case. In High Voltage Beverages, LLC v. Coca-Cola Co., the plaintiff claimed defendants
"Vault" mark infringed on plaintiffs "Volt" mark. 2010 WL 2342458 (W.D.N.C. June 8, 2010). Defendant asserted that plaintiff registered the Volt mark solely to sue defendant, i.e., it was a trademark troll. Id.at *1. In discovery, the defendant obtained (over plaintiff's obstruction) information that led it to move to amend to add claims for champerty and maintenance. Id.The plaintiff objected to the order granting the motion to amend. Id.In deciding that the motion to amend was not futile, the court agreed with the magistrate judge that the discovery materials before the court showed that the new fact allegations would likely pass muster under the plausibility standards. Id.at "3.
The federal district courts in the Fourth Circuit will continue to provide case-by-case analysis under Twombly/Iqbal from which black-letter guidelines will be difficult to discern. You will have to force yourself to be objective in analyzing particular factual allegations under the guidance provided by Twombly, Iqbal, and Nemet to determine whether they pose more than a mere possibility. As is the case in the other circuits, Twombly/Iqbal has reduced the burden to obtain a dismissal of a complaint based on thin fact allegations. However, due to the reluctance of the courts to grant (or even entertain) Rule 11 motions, obtaining dismissals under Twombly/Iqbal will likely remain difficult when the allegations are drafted by skilled litigators who can walk the tightrope between the plausibility standard and Rule 1 Is fact allegations requirement to have an evidentiary basis or the likelihood of obtaining such evidence. •
Gary Beaver is a member in the Greensboro office of Nexsen Pruet, PLLC, where he engages in commercial litigation involving products liability, intellectual property, internet/e-commerce, false advertising, contract disputes, and breaches of covenants and fiduciary duties.
Views and opinions expressed in articles published herein are the authors' only and are not to be attributed to this newsletter, the section, or the NCBA unless expressly stated. Authors are responsible for the accuracy of all citations and quotations.