Town & Country Linen Corp. v. Ingenious Designs LLC

• Decision Date: 29 January 2020
• Docket Number: 18 Civ. 5075 (LGS)
• Citation: 436 F.Supp.3d 653
• Parties: TOWN & COUNTRY LINEN CORP.; and Town & Country Holdings, Inc., Plaintiffs, v. INGENIOUS DESIGNS LLC; Joy Mangano ; and HSN, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

436 F.Supp.3d 653

TOWN & COUNTRY LINEN CORP.; and Town & Country Holdings, Inc., Plaintiffs,

v.INGENIOUS DESIGNS LLC; Joy Mangano ; and HSN, Inc., Defendants.

18 Civ. 5075 (LGS)

United States District Court, S.D. New York.

Signed January 29, 2020

Lauren Brette Sabol, Robert M. Isackson, Hoda Rifai-Bashjawish, Yuval Hod Marcus, Leason Ellis LLP, White Plains, NY, for Plaintiffs.

Andrew Samuels, Baker Hostetler, Columbus, OH, Carrie Ann Longstaff, Baker & Hostetler, New York, NY, Jared Brandyberry, Baker Hostetler, Denver, CO, Jason Paul Grier, Baker & Hostetler LLP, Atlanta, GA, Kevin W. Kirsch, Baker Hostetler LLP, Cincinnati, OH, for Defendants.

OPINION AND ORDER

Lorna G. Schofield, United States District Judge

Plaintiffs Town & Country Linen Corp. and Town & Country Holdings, Inc. ("Plaintiffs") bring this action against Defendants Ingenious Designs LLC, Joy Mangano and HSN, Inc. (collectively, the "Defendants"), alleging patent infringement under 35 U.S.C. § 271 ; copyright infringement under 17 U.S.C. §§ 106, 501 ; trade secret misappropriation under 18 U.S.C. § 1836 ; and trade secret misappropriation, misappropriation of ideas, quantum meruit, unjust enrichment, unfair competition, breach of contract and tortious interference under New York common law. Defendants move to dismiss the claims of patent infringement, copyright infringement, misappropriation of ideas, quantum meruit, unjust enrichment and unfair competition, in whole or in part, pursuant to Federal Rules of Civil Procedure 12(b)(1) and (6).

For the following reasons, the motion to dismiss is granted as to the claims of copyright infringement and misappropriation of ideas as to all Defendants, and granted as to the claim of patent infringement only against Defendant Mangano. The motion to dismiss is otherwise denied.

I. BACKGROUND

The following facts relevant to Defendants' motion are taken from the Second Amended Complaint (the "Complaint") and supporting exhibits unless otherwise noted, and are accepted as true for purposes of this motion. See Hu v. City of New York , 927 F.3d 81, 88 (2d Cir 2019) ("In deciding a Rule 12(b)(6) motion, the court may consider only the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the pleadings[,] and matters of which judicial notice may be taken.") (internal quotation marks omitted).

Plaintiffs are companies that "design, source, manufacture, market, and sell a variety of consumer products." Plaintiffs began working with Defendants in approximately 2012 to develop and manufacture products to be sold by Defendants. On February 25, 2015, Plaintiffs signed a Mutual Non-Disclosure Agreement (the "MNDA") with Defendant Ingenious Designs LLC ("IDL") and its affiliates. Defendant HSN, Inc. is an affiliate of IDL, and Defendant Mangano is a representative under the MNDA. The MNDA provided for the exchange of Evaluation Material in order to pursue "the mutual business purpose of a possible transaction" between Plaintiffs and Defendants, wherein the Evaluation Material was to be used "solely for the purpose of evaluating the Transaction" and "kept strictly confidential." The MNDA had a term of three years. The parties developed an understanding wherein, when Plaintiffs developed a product, Plaintiffs would have the product manufactured, sell it to Defendants, and keep the profits they earned from fulfilling orders within their supply chain.

A. The CloseDrier

In October 2015, Defendants asked Plaintiffs to redesign a portable clothes dryer system previously sold by Defendants. Plaintiffs spent approximately three years designing, building and testing prototypes of a new portable garment drying product for Defendants (the "CloseDrier"), investing hundreds of thousands of dollars. The parties had an express contract, contract implied in fact and/or contract implied in law relating to the development of the CloseDrier and, if commercialized, the parties agreed that Plaintiffs would be compensated according to the parties' regular course of dealings. Plaintiffs provided Defendants with at least six design concepts as part of this process, three working prototypes, and significant additional information relating to the product's production, marketing and testing, among other things. In conjunction with this project, Plaintiffs provided Defendants with certain ideas, including: incorporation of a refresh cycle using Defendants Forever Fragrant ("FF") odor eliminating discs; three modifications to improve the drying environment and efficiency of the CloseDrier; the addition of extension poles to improve the CloseDrier's stability; a new external shape; use of a fixed handle with certain distinct characteristics; a fixed touchscreen control unit on the top of the CloseDrier; and thermal self-regulation to improve safety and operation. During this process, Defendant IDL communicated features that Defendant Mangano was "adamant" about having, stating that "the item can not move forward without them." Defendant IDL would hand carry Plaintiffs' prototypes to Defendant Mangano for her feedback and approval.

In September 2016, Plaintiffs filed a design patent application for the CloseDrier. In March 2017, it became clear that the parties could not agree on a final product and discussions ceased. In October 2017, Plaintiffs' patent application was approved. Plaintiffs also subsequently registered the control panel on the top of the CloseDrier with the U.S. Copyright Office. On March 23, 2018, Defendant Mangano posted an advertisement on her Twitter account for the JOY CloseDrier Portable Garment Drying Unit with Forever Fragrant ("JOY CloseDrier") being sold by Defendant HSN, Inc. Defendant Mangano also posted similar advertisements on Facebook and Instagram. She subsequently appeared on Defendant HSN, Inc.'s Home Shopping Network channel to further advertise the product. Defendants utilized the information provided to them by Plaintiffs, and copied Plaintiffs' copyrighted control panel, in developing the JOY CloseDrier. Plaintiffs did not consent to the production or sale of the JOY CloseDrier, nor have they been compensated.

On January 26, 2018, Plaintiff Town & Country Linen Corp. executed Patent Security Agreements ("PSAs") with two third-parties. These PSAs were executed pursuant to loan agreements, and they provide for the grant of security interest in IP collateral, including the patent of Plaintiffs' CloseDrier. The PSAs state that Plaintiff Town & Country Linen Corp. ("Grantor"),

[A]s collateral security for the prompt and complete payment and performance when due ... of the Secured Obligations of such Grantor[ ], hereby pledges and collaterally assigns to the Collateral Agent ... and grants to the Collateral Agent ... a Lien on and security interest in, all of its right, title and interest in, to and under the following Collateral of such Grantor (the "IP Collateral"): (a) all of its Patents ...; (c) all income, royalties, proceeds and liabilities at any time due or payable or asserted under and with respect to any of the foregoing, including all rights to sue or recover at law or in equity for any past, present and future infringement, misappropriation, dilution, violation or other impairment thereof.

The PSAs further state that "[e]ach Grantor hereby agrees that, anything herein to the contrary not withstanding, such Grantor shall assume full and complete responsibility for the prosecution, defense, enforcement or any other necessary or desirable actions in connection with their Intellectual Property subject to a security interest hereunder." The Agreements include a choice of law clause providing that the agreements are governed by the laws of the State of New York.

B. The Aramid¹ Fiber Luggage Project

In 2014, Plaintiffs developed an idea to use aramid fiber woven into fabric that could be used for luggage-type projects. Plaintiffs approached Defendants Mangano and IDL with the proposal to incorporate Kevlar into luggage products for sale through Defendant HSN, Inc. Defendants Mangano and IDL expressed interest and provided general specifications for Plaintiffs to meet in the project design. Plaintiffs invested hundreds of thousands of dollars to locate a suitable fabric weaver and develop and test a woven fabric that incorporated Kevlar aramid fibers that would be durable, cost-effective, and aesthetically pleasing. In conjunction with this process, Plaintiffs provided Defendants with the following ideas: (1) to make a fabric woven with aramid fibers for improved abrasion, tear and puncture resistance for luggage-type products; (2) to make an oxford fabric weave that is woven with aramid fibers only in the weft for luggage-type products, such that the aramid fibers are not visible from the outside of the luggage; (3) to make a fabric for luggage-type products having a minimal amount of aramid fiber, with a specific application of between 1.7% and 10% of aramid fibers in an oxford weave fabric, depending on cost to manufacture targets; and (4) to make a fabric for luggage-type products having a minimal amount of aramid fiber, and a specific application of weaving aramid fibers in the weft in a weaving pattern having aramid fibers spaced apart by about one-half inch, the actual distance being variable depending on cost to manufacture targets. Ultimately, Plaintiffs developed a proprietary weaving pattern and method that they also provided to Defendants.

Defendants Mangano and IDL demanded exclusivity in receiving this information, stating that they "were adamant about locking [the Aramid Fiber Luggage Project] up by category, broad territory, and exclusivity overall." By May 2015, the parties had agreed upon a running royalty based on a percent mark-up on the purchase price of the products that Defendants would pay to Plaintiffs. Defendant Mangano stated that she wanted to "move ahead" with the project. At least Defendants Mangano and IDL reviewed the fabric samples developed by Plain...