Hyson USA, Inc. v. Hyson 2U, Ltd.
Decision Date | 16 May 2016 |
Docket Number | No. 14–3261.,14–3261. |
Citation | 821 F.3d 935 |
Parties | HYSON USA, INC., Leonid Tanksy, and Enna Gazaryan, Plaintiffs–Appellants, v. HYSON 2U, LTD., Karolis Kaminskas, Inc., and Karolis Kaminskas, Defendants–Appellees. |
Court | U.S. Court of Appeals — Seventh Circuit |
Jon Karl Stromsta, Attorney, Enterprise Law Group, LLP, Chicago, IL, for Plaintiffs–Appellants.
Kevin K. McQuillan, Attorney, McQuillan Law Office LLC, Naperville, IL, Judi Smith, Attorney, Law Office of Judi Smith, Naperville, IL, for Defendants–Appellees.
Before FLAUM, RIPPLE, and SYKES, Circuit Judges.
This is a trademark dispute between two food-distribution companies named Hyson. Hyson USA, Inc., is owned by Leonid Tansky and formerly employed Karolis Kaminskas as a manager. In early 2012 Hyson USA experienced a serious financial setback and suspended its operations. In a role reversal, Tansky then went to work for Kaminskas at his newly formed company Hyson 2U, Ltd. That company operated in much the same way as Hyson USA.
About 17 months later, Tansky was fired. This suit is his response. Tansky and his company, Hyson USA, accuse Hyson 2U and Kaminskas of trademark infringement. See 15 U.S.C. §§ 1114 et seq. Hyson 2U moved to dismiss for failure to state a claim, see Fed.R.Civ.P. 12(b)(6), arguing that the complaint affirmatively established the defense of acquiescence. That defense estops recovery if the trademark owner, by his words or conduct, manifested his consent to the defendant's use of the mark. The district court granted the motion and dismissed the case.
We reverse. The district judge jumped the gun in dismissing the case at the pleading stage. Acquiescence is a fact-intensive equitable defense that is rarely capable of resolution on a motion to dismiss under Rule 12(b)(6).
Hyson USA and Hyson 2U are food distributors with a common history. Hyson USA is wholly owned by its president, Leonid Tansky, and has operated since 2006. Karolis Kaminskas was one of its managers. In the spring of 2012, Hyson USA encountered serious financial difficulty, culminating in the loss of its liability insurance. That move forced the company to suspend its operations.
In September 2012 Kaminskas established Hyson 2U, and Hyson USA then transferred its branded inventory and equipment to the new company. Hyson 2U also leased the warehouse from which Hyson USA had operated. Tansky then switched roles with Kaminskas and went to work for him at his new company. After the changeup Hyson 2U operated in the same manner and in the same markets as Hyson USA.
For reasons not disclosed, in February 2014 Tansky was fired. About five months later, he and Hyson USA—now up and running again—sued Hyson 2U and Kaminskas alleging claims for trademark infringement under the Lanham Act;1 the suit also included several state-law claims.2 The defendants (we'll refer to them collectively as “Hyson 2U”) moved to dismiss the federal claims under Rule 12(b)(6), arguing that the allegations in the complaint established the affirmative defense of acquiescence. The judge agreed, dismissed the trademark claims, and relinquished supplemental jurisdiction over the state-law claims. This appeal followed.
We review de novo the district court's order dismissing the complaint under Rule 12(b)(6) for failure to state a claim. Citadel Grp., Ltd. v. Wash. Reg'l Med. Ctr., 692 F.3d 580, 591 (7th Cir.2012). Dismissal is appropriate under that rule when the factual allegations in the complaint, accepted as true, do not state a facially plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Silha v. ACT, Inc., 807 F.3d 169, 173–74 (7th Cir.2015). This case implicates the pleading principle that “[t]he mere presence of a potential affirmative defense does not render the claim for relief invalid.” Brownmark Films, LLC v. Comedy Partners, 682 F.3d 687, 690 (7th Cir.2012). That is, a plaintiff ordinarily need not anticipate and attempt to plead around affirmative defenses. Chi. Bldg. Design v. Mongolian House, Inc., 770 F.3d 610, 613 (7th Cir.2014).
An exception applies when “the allegations of the complaint ... set forth everything necessary to satisfy the affirmative defense.” United States v. Lewis, 411 F.3d 838, 842 (7th Cir.2005). However, because affirmative defenses frequently “turn on facts not before the court at [the pleading] stage,” Brownmark Films, 682 F.3d at 690, dismissal is appropriate only when the factual allegations in the complaint unambiguously establish all the elements of the defense, Brooks v. Ross, 578 F.3d 574, 579 (7th Cir.2009). In other words, the plaintiff “must affirmatively plead himself out of court.” Chi. Bldg. Design, 770 F.3d at 614.
At issue here is the doctrine of acquiescence, a fact-sensitive equitable defense that may estop a trademark owner from obtaining injunctive and monetary remedies for trademark infringement. Before turning to the specifics of the defense, it's helpful to step back and recall some basics of trademark law.
The purpose of trademark protection is to identify the source of a good or service to consumers. See Restatement (Third) of Unfair Competition § 9 (Am. Law Inst. 1995). Trademark law does this by granting the owner of a mark the right to prevent others from using the mark in a way that is likely to cause confusion. See Sorensen v. WD–40 Co., 792 F.3d 712, 726 (7th Cir.2015) () (internal quotation marks and citation omitted). Trademark protection is granted only for so long as the mark reliably identifies the source of a good or service. Accord Eva's Bridal Ltd. v. Halanick Enters., 639 F.3d 788, 790 (7th Cir.2011) () .
If a trademark owner acquiesces to another's use of his mark, however, then the mark's original source-identifying power is weakened and the owner may be estopped from obtaining relief in an infringement action against the junior user. See TMT N. Am., Inc. v. Magic Touch GmbH, 124 F.3d 876, 885 (7th Cir.1997) ; accord Eva's Bridal, 639 F.3d at 790.
Thus, acquiescence is an affirmative defense in an action for trademark infringement under the Lanham Act. See 15 U.S.C. § 1115(b)(9).
Generally speaking, acquiescence is an equitable doctrine that permits the court to deny relief in an action for trademark infringement if the evidence shows that the owner of the mark has, through his words or conduct, conveyed his consent to the defendant's use of the mark. See Magic Touch, 124 F.3d at 885 ; Piper Aircraft Corp. v. Wag–Aero, Inc., 741 F.2d 925, 932–33 (7th Cir.1984) ; see also SunAmerica Corp. v. Sun Life Assurance Co., 77 F.3d 1325, 1334 (11th Cir.1996) ; see generally Restatement (Third) of Unfair Competition § 29. The defense prevents the trademark owner from impliedly permitting another's use of his mark and then attempting to enjoin that use after the junior user has invested substantial resources to develop the mark's goodwill. See Magic Touch, 124 F.3d at 885. We've noted (as have other courts) that “acquiescence is related to the doctrine of laches, by which equity comes to the aid of an innocent user and grants him refuge from a claimant who has calmly folded his hands and remained silent while the innocent user has exploited and strengthened the mark.” Id. (internal quotation marks omitted). Indeed, our acquiescence cases import aspects of laches analysis, looking to the reliance interests of the junior user, the senior user's delay in enforcing his rights, and the prejudice to the junior user if the senior user's rights are enforced. See, e.g., Piper Aircraft, 741 F.2d at 932–33 ; Magic Touch, 124 F.3d at 885–86 ; Seven–Up Co. v. O–So–Grape Co., 283 F.2d 103, 106 (7th Cir.1960) ( ).
Importantly, however, “[w]hereas laches is a negligent, unintentional failure to protect trademark rights, [a]cquiescence is associated with intentional abandonment.” Piper Aircraft, 741 F.2d at 933 (emphasis added and quotation marks omitted). It requires an “affirmative word or deed” that conveys the trademark owner's implied consent to the junior user's use of his marks. Magic Touch, 124 F.3d at 885 (emphasis added and quotation marks omitted).
Or, as the Fourth Circuit has aptly put it, What–A–Burger of Va., Inc. v. Whataburger of Corpus Christi, Tex., 357 F.3d 441, 452 (4th Cir.2004) (internal quotation marks omitted); accord Creative Gifts, Inc. v. UFO, 235 F.3d 540, 548 (10th Cir.2000) ().
In short, although our cases sometimes blend the doctrines of acquiescence and laches, they are formally distinct and should be analyzed separately. See 6 J. Thomas McCarthy,...
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