Blake v. Prof'l Coin Grading Serv., NO. 11-11531-WGY

CourtUnited States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts
Writing for the CourtWILLIAM G. YOUNG
PartiesDUANE C. BLAKE, Plaintiff, v. PROFESSIONAL COIN GRADING SERVICE, NUMISMATIC GUARANTY CORPORATION OF AMERICA, and COLLECTORS UNIVERSE, INC., Defendants.
Docket NumberNO. 11-11531-WGY
Decision Date16 October 2012

DUANE C. BLAKE, Plaintiff,
v.
PROFESSIONAL COIN GRADING SERVICE, NUMISMATIC GUARANTY CORPORATION OF
AMERICA, and COLLECTORS UNIVERSE, INC., Defendants.

NO. 11-11531-WGY

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

October 16, 2012


MEMORANDUM

YOUNG, D.J.

I. INTRODUCTION

This is a case of an attorney who claims that he has discovered a method to grade the "eye appeal" of coins. Duane C. Blake ("Blake") is a coin collector and inventor of this method, which he called the "axial ultimate refractory angle of the coin" ("AURA System" or "AURA"). Blake sought to promote the AURA System with Professional Coin Grading Service ("Professional Grading"), Collectors Universe, Inc. ("Universe"), and its competitor Numismatic Guaranty Corporation of America ("Numismatic") (collectively, the "Defendants"). During initial talks with the Defendants, Blake communicated some marketing proposals that adopt the plus (+) symbol in the promotion of the

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AURA System. The Defendants were not interested in working with Blake and instead launched an idea similar to the AURA System. This case revolves around the protectability and confidentiality of Blake's ideas and the duties owed to Blake by the Defendants, if any.

A. Procedural Posture

On August 31, 2011, Blake filed a nine-count complaint ("Complaint") against Professional Grading, Universe,1 and Numismatic, claiming violations of the Lanham Act, conversion, unjust enrichment, civil conspiracy, misappropriation of trade secrets, and unfair business practices. Compl. ¶ 4, ECF No. 1. Blake further alleged a breach of contract claim and breach of the covenant of good faith and fair dealing against Numismatic. Id.

On October 14, 2011, Professional Grading and Universe moved to dismiss Blake's Complaint in its entirety. Defs.' Collectors Universe, Inc. & Professional Coin Grading Service's Mot. Dismiss All Counts Pl.'s Compl., ECF No. 12; Defs. Collectors Universe, Inc. & Professional Coin Grading Service's Mem. Law Supp. Mot. Dismiss Pl.'s Compl. ("Universe & Professional Grading's Mem."), ECF No. 13. On October 28, 2011, Blake filed a memorandum opposing the motion to dismiss, Mem. Supp. Pl.'s Opp'n Defs.

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Collectors Universe, Inc. & Professional Coin Grading Service's Mot. Dismiss, ECF No. 21, but subsequently refiled it on November 4, 2011, to comply with the twenty-page limit, Mem. Supp. Pl.'s Opp'n Defs. Collectors Universe, Inc. & Professional Coin Grading Service's Mot. Dismiss (Re-Submitted Pursuant Court Order Comply 20 Page Limit), ECF No. 24 ("Blake's Opp'n Universe & Professional Grading's Mot.").2 On November 28, 2011, Universe and Professional Grading submitted a reply brief. Defs. Collectors Universe, Inc. & Professional Coin Grading Service's Reply Br. Supp. Mot. Dismiss Pl.'s Compl. ("Universe & Professional Grading's Reply"), ECF No. 31.

On November 1, 2011, Numismatic filed a motion to dismiss Blake's Complaint in its entirety. Def. Numismatic Guaranty Corp. Am.'s Mot. Dismiss All Counts Pl.'s Compl., ECF No. 22; Def. Numismatic Guaranty Corp. Am.'s Mem. Law Supp. Mot. Dismiss Compl. Pursuant Fed. R. Civ. P. 12(b)(6) ("Numismatic's Mem."), ECF No. 23. On November 16, 2011, Blake filed a memorandum opposing the motion to dismiss. Mem. Opp'n Numismatic Guaranty Corp. Am.'s Mot. Dismiss ("Blake's Opp'n Numismatic's Mot."), ECF No. 26. On November 28, 2011, Numismatic submitted a reply brief. Def. Numismatic Guaranty Corp. Am.'s Reply Mem. Law Further Supp. Mot. Dismiss Compl. Pursuant Fed. R. Civ. P.

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12(b)(6), ECF No. 30. On December 8, 2011, Blake filed his surreply. Combined Sur-Reply Defs.' Replies Mot. Dismiss, ECF No. 33.

During the motion hearing held on December 13, 2011, the Defendants declined the Court's invitation to convert the motion to dismiss into a motion for summary judgment. Mot. Hr'g Tr. 4:11-21, 8:13-25, 9:25-10:19, Dec. 13, 2011, ECF No. 36. At the motion hearing, Blake's counsel confirmed that the supplementary materials attached as exhibits to the Complaint and referred to therein could properly be considered by the Court at this stage. Id. at 17:3-10. The Court took the matter under advisement. Id. at 24:9.

On December 16, 2011, Blake filed a motion for leave to file an amended complaint, attaching the proposed amended complaint and newly discovered documents. Mot. Leave File First Am. Compl. ("Blake's Mot. Leave to Amend"), ECF No. 35. Professional Grading and Universe opposed the motion and urged this Court to deny Blake's motion for leave to amend the Complaint, alleging that the amendment disrupts the pending motion to dismiss and is futile because it would not survive scrutiny under Federal Rule of Civil Procedure 12(b)(6). Defs.' Collectors Universe, Inc.'s & Professional Coin Grading Service's Opp'n Pl.'s Mot. File First Am. Compl., ECF No. 40. On similar grounds, Numismatic opposed Blake's motion for leave to amend the Complaint. Def. Numismatic

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Guaranty Corp. Am.'s Opp'n Pl.'s Mot. File First Am. Compl. ("Numismatic's Opp'n to Amend"), ECF No. 41. Blake submitted a reply brief on January 9, 2012. Pl.'s Combined Replies Opp'ns Pl.'s Mot. Leave File First Am. Compl., ECF No. 44.

B. Facts as Alleged

Rare coins have avid collectors,3 and some companies independently grade, label, and sell those coins. Compl. ¶ 16. Coin grading and labeling removes uncertainty as to the coin's condition and authenticity, which helps to determine its value. Id. ¶ 23. Over the past decades, coin dealers have refined the distinctions among coin grades for valuation purposes, resulting in a plethora of grading systems and labels.4 Blake purports to have created a new grading system to evaluate the "eye appeal" of coins. See id. ¶¶ 29, 33.

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Blake is a coin collector and dealer, doing business in Massachusetts as the Aura Coin Company.5 Id. ¶ 6. As a coin dealer, Blake buys, sells, and grades collectible coins, primarily United States coins. Id. Blake is the sole creator and independent owner of the AURA System, which has a pending patent application before the United States Patent and Trademark Office. Id.; id., Ex. A, United States Patent Application ("Application"), ECF No. 1-3. AURA has a priority date of July 14, 2009, and the patent application was made public on June 2, 2011. Id. ¶ 6 & n.3.

Blake postulates a new twist to refine the distinctions among coins of the same grade. The AURA System proposes grading the "eye appeal" of coins with labels that grade the overall appearance of a coin within the same numeric grade. See Application 4:25-36. To achieve eye appeal, the AURA System evaluates the "axial ultimate refractory angle of the coin" (hence the name AURA). Id. at 5:20-38. Blake posits certain symbols6 as labels for the "eye appeal" grade:

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The manner of labeling is flexible, and also contemplates placing . . . other colors or material (e.g., a label or sticker), characters (e.g., alphanumeric, roman, Arabic, Chinese, etc.), symbols (e.g., QWERTY symbols [i.e. typewriter or computed keyboard symbols] text, pictures, art) and colors at any place on/inside of a coin holder (so long as view of the coin itself is not obscured). This includes labeling that is embedded in or part of the coin holder itself (e.g., a colored or etched coin holder or alpha-numeric or symbolistic grade). As a definitive example in this case, the AURA designator of above average 51, average 53 and below average 55 can be alternatively labeled with any QWERTY symbol. For example, a "+" [Plus] sign can be printed on the label to indicate an above-average quality coin . . . .

Id. at 14:19-27. Blake proposed labeling the coin's eye appeal and taking a digital photograph during the grading process to have a record of the coin, which would allow a collector to track any alterations or modifications to the coin's condition.7 Compl. ¶ 30.

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Before Blake developed the AURA System, Numismatic already used a star (i) symbol next to the numerical grade on the plastic holder to designate a coin that had exceedingly beautiful eye appeal within its assigned grade. Application 2:28-30. Professional Grading also considers the eye appeal of a coin as one factor in its "PQ" (Premium Quality) label. See Blake's Opp'n Numismatic's Mot., Ex. B, at 4, ECF No. 26-2.

The main problem that Blake seeks to resolve with AURA is that, while "each [coin grading] service may utilize the same technical numerical grading system, . . . no coordination exists for the consistant [sic] recognition of eye appeal within the industry." Application 3:35-37.

Blake brought suit against Universe, Professional Grading, and Numismatic. Compl. ¶¶ 7-9. Universe is a Delaware corporation and has its principal place of business in California. Id. ¶ 9. Professional Grading is an unincorporated division of Universe in the business of providing third-party grading services to coin collectors and dealers. Id. ¶ 7.8

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Numismatic is a privately owned corporation located in Florida and New Jersey, with its principal place of business in Florida, and it is also in the business of providing third-party grading services to coin collectors and dealers. Id. ¶ 8.

Blake claims that Professional Grading and Numismatic rebranded AURA and launched the plus (+) designation9 based on previous communications Blake had with both companies....

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