MMS Trading Co. Pty Ltd. v. Hutton Toys, LLC
| Decision Date | 29 March 2021 |
| Docket Number | 20-CV-1360 (MKB) |
| Parties | MMS TRADING COMPANY PTY LTD., an Australian Company d/b/a Connetix Tiles, Plaintiff, v. HUTTON TOYS, LLC, a New York limited liability company, Defendant. |
| Court | U.S. District Court — Eastern District of New York |
Plaintiff MMS Trading Company Pty Ltd. commenced the above-captioned action against Defendant Hutton Toys LLC, among others,1 on March 13, 2020, alleging that Defendant fraudulently filed a copyright infringement complaint against Plaintiff on Amazon.com based on an invalid copyright in magnetic tile toys, resulting in the removal of Plaintiff's product from Amazon and a loss to Plaintiff of sales and goodwill. (Compl. ¶ 1, Docket Entry No. 1.) Plaintiff seeks declarations of copyright invalidity and noninfringement and asserts claims of trade libel, intentional interference with contract, and intentional interference with prospective economic advantage. (Id. ¶¶ 34-63.) Defendant moves to dismiss the Complaint for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, and Plaintiff opposes the motion.2
For the reasons set forth below, the Court grants in part and denies in part Defendant's motion and grants Plaintiff leave to file an amended complaint.
The Court assumes the truth of the factual allegations in the Complaint for the purposes of this Memorandum and Order.
Plaintiff and Defendant are competitors in the crowded magnetic tile toy market. (Compl. ¶¶ 2-3, 10.) "Industrywide, the designs of the various magnetic tile toys on the market are similar because so many of the core features of the designs are purely functional." (Id. ¶ 16.) "For example, the corners are rounded to avoid sharp edges that could injure . . . children," "[t]he interior lattice of the tiles includes pockets to hold magnets that help bind different tiles together," and "[t]he tiles include rivets to fasten the two halves of the tiles together." (Id.)
In September of 2014, the U.S. Patent and Trademark Office issued former defendant Yaakov Schwartz, the president of former defendant 18th Avenue Toys Ltd., U.S. Patent number D713,891 on the following designs:
Image materials not available for display.(Id. ¶ 21.) Several months later, 18th Avenue Toys Ltd. began selling SHAPE Mags magnetic tiles, claiming a date of first publication of May 1, 2015.3 (Id. ¶ 11.) A year later, in March of 2016, Schwartz registered SHAPE Mags with the U.S. Copyright Office and the office issued to Schwartz Certificate of Registration number VA 1-998-106. (Id. ¶ 23.) In January of 2019, Schwartz assigned all the rights to both the patent and the copyright to Defendant. (Assignment of Patent and Copyright, annexed to Decl. of Christopher W. Niro as Ex. D, Docket Entry No. 13-6.) The subject matter of the design patent is essentially the copyrighted material. (Compl. ¶ 1.) The copyright includes the following designs:
Image materials not available for display.
(Id. ¶ 23.)
Plaintiff alleges that, although design patent protection is limited to "original and ornamental design[s]," 35 U.S.C. § 171(a), the drawings in Defendant's design patent "do not include any ornamental designs distinct from the functional features of the magnetic tiles," (Compl. ¶ 22). Similarly, although copyright protection is limited to "original works of authorship," 17 U.S.C. § 102, and excludes "useful articles" that do not have "pictorial, graphic, or sculptural features" that "can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article," id. § 101, Plaintiff alleges that Defendant's copyright registration "claims only functional features of the magnetic tiles and is thus invalid," (Compl. ¶ 24). Plaintiff asserts that because Defendant and/or 18th Avenue did not complete and begin selling SHAPE Mags until "much later than the launch and sale of many other similar magnetic tile toys," (id. ¶¶ 10, 26), they were "well aware of the crowded nature of the magnetic tile toy market" and of the fact that they were "not the original creator of the functional features claimed" in the patent and copyright, including the rounded edges, internal lattice structure, and pockets for magnets, yet they persisted in seeking design patent and copyright protection "with the intent to stifle competition, not to protect novel ornamental designs that [they] had created." (Id. ¶¶ 22, 25.) Plaintiff further asserts that, having obtained these protections, Defendant now regularly files "fraudulent infringement complaints to Amazon" to hinder competition "in the crowded magnetic tile toy space, despite [its] knowledge that [its copyright] is invalid and not infringed upon." (Id. ¶ 20.) As a result, the validity of Defendant's copyright registration in SHAPE Mags has been challenged before. (Id. ¶ 19 ).)
Plaintiff is an Australian private company and importer of consumer goods, including the popular magnetic tile toy brand Connetix® TILES. (Id. ¶ 2.) "Connetix® TILES were first introduced in Australia in 2019" and "were first made available for sale" in the United States in May of 2019. (Id. ¶¶ 13-14.) "Consumers quickly took notice of [them,] as evidenced by a high volume of sales on Amazon.com." (Id. ¶ 15.)
On November 2, 2019, Defendant "sent a copyright complaint to Amazon.com based on [Plaintiff's] alleged infringement of [Defendant's] copyright registration." (Id. ¶ 27.) That same day, "without vetting the veracity of the content of [the] copyright registration," Amazon removed Plaintiff's product listings. (Id. ¶ 28.) On November 6, 2019, Defendant emailed Plaintiff accusing it of copyright infringement and demanding that Plaintiff provide documents relating to its purchase, sale, and remaining inventory of the alleged infringing products. (Id. ¶ 29 ().) Defendant's email, which is attached to the Complaint and which enclosed its copyright registration, also contained several thumbnail images of Plaintiff's products:
Image materials not available for display.
(Email & Certificate.)
Since Amazon removed Plaintiff's products, Plaintiff "has received many inquiries from customers regarding the availability of the Connetix® TILES sets" and "has lost, and continuesto lose, considerable sales and goodwill." (Id. ¶ 30.) In addition, Plaintiff's "unsold inventory is a financial loss." (Id.) Plaintiff alleges that Defendant acted in bad faith because it "made these copyright infringement allegations despite the knowledge that it had no enforceable rights" and despite the knowledge that Plaintiff's products "did not infringe on any protectable features" of Defendant's products "with the intent of depriving [Plaintiff] of marketing and sales channels to harm [its] place in the market." (Id. ¶ 27.) In addition, Plaintiff alleges that Defendant "intentionally waited until just before the holiday season to initiate a complaint with Amazon in an attempt to enhance the harm to [Plaintiff's] sales channels and prevent [it] from availing itself of a particularly lucrative time." (Id. ¶ 31.) Plaintiff also alleges that Defendant's "anticompetitive use" of its copyright registration has "disrupted [Plaintiff's] relationship with its distributors and resellers." (Id. ¶ 32.)
Plaintiff seeks to recover the costs of this suit; declarations that Defendant's copyright registration is invalid and that Plaintiff has not infringed it; disgorgement of Defendant's ill-gotten gains; compensatory damages for the harm caused by Defendant's alleged trade libel, intentional interference with contract, and intentional interference with prospective economic advantage, including lost profits; a preliminary injunction and a permanent injunction requiring Defendant to withdraw any Amazon.com take-down requests against Plaintiff and its products and preventing Defendant from conducting any future take-down requests with respect to Plaintiff; and punitive damages. (Id. at 17-18.)
i. Motion to dismiss
In reviewing a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a court must construe the complaint liberally, "accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff's favor." Kim v. Kimm, 884 F.3d 98, 103 (2d Cir. 2018) (quoting Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002)); see also Tsirelman v. Daines, 794 F.3d 310, 313 (2d Cir. 2015) (quoting Jaghory v. N.Y. State Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997)). A complaint must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Matson v. Bd. of Educ., 631 F.3d 57, 63 (2d Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). Although all allegations contained in the complaint are assumed to be true, this tenet is "inapplicable to legal conclusions." Iqbal, 556 U.S. at 678.
ii. Declaratory judgment
The Declaratory Judgment Act provides, in pertinent part, that "[i]n a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an...
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