Safex Found., Inc. v. Safeth, Ltd., Civil Action No. 21-cv-161

• Court: United States District Courts. United States District Court (Columbia)
• Writing for the Court: Chief Judge Beryl A. Howell
• Parties: SAFEX FOUNDATION, INC., et al., Plaintiffs, v. SAFETH, LTD., et al., Defendants.
• Decision Date: 26 March 2021
• Docket Number: Civil Action No. 21-cv-161

SAFEX FOUNDATION, INC., et al., Plaintiffs,
v.
SAFETH, LTD., et al., Defendants.

Civil Action No. 21-cv-161

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

March 26, 2021

Chief Judge Beryl A. Howell

MEMORANDUM OPINION

Plaintiffs Daniel Dabek, Safex Foundation, Inc., and Safe Exchange Foundation, LLC, seek a preliminary injunction "to enjoin Defendants Safeth, Ltd., Joseph Lathus, and Cynthia Lathus from infringing on Plaintiffs' trademarks and from disseminating written or oral statements that Safex or Mr. Dabek are engaged in a 'scam' or any other criminal activity." Pl.'s Mot. Prelim. Inj. ("Pls.' Mot.") at 1, ECF No. 4. Plaintiffs develop cryptocurrencies and a cryptocurrency-based e-commerce platform, and allege that defendants, who are proceeding pro se in this action, have infringed plaintiffs' trademark, used the trademark to market their own competing cryptocurrency and cryptocurrency-based e-commerce exchange, and have defamed plaintiffs by publicly stating both that plaintiffs are infringing defendants' trademark, and that plaintiffs are engaged in criminal activity.¹ On January 27, 2021, following a hearing on January 26, 2021, at which plaintiffs and defendants both participated, see Min. Entry (Jan. 26, 2021), a temporary restraining order was entered enjoining defendants from infringing on plaintiffs'

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trademark and from publicly stating that plaintiffs were infringing on defendants' trademark. See Amended Temporary Restraining Order (Jan. 27, 2021), ECF No. 20. The status quo remains largely unchanged since the entry of the temporary restraining order. Since then, defendants have failed to file on the docket an opposition to plaintiffs' motion for a preliminary injunction, and no counsel for any of the three defendants has entered an appearance.² Plaintiffs' only additional submission since the January 26, 2021 hearing and the entry of a temporary restraining order is a supplemental declaration of plaintiff Daniel Dabek. See Supp. Decl. of Daniel Dabek ("Dabek Suppl. Decl."), ECF No. 28. For the following reasons—largely the same reasons for which plaintiffs' Motion for a Temporary Restraining Order, ECF No. 4, was granted in part and denied in part—plaintiffs' Motion for a Preliminary Injunction is granted in part and denied in part.

I. BACKGROUND

Review of the procedural background of the instant lawsuit follows discussion of plaintiffs' relevant factual allegations against defendants.

A. Safex Develops Cryptocurrencies and a Cryptocurrency-Facilitated Online Marketplace

Plaintiffs Safex Foundation, Inc. and Safe Exchange Foundation, LLC (together "Safex") were founded by plaintiff Dabek in 2015, with their principal place of business in Washington, D.C. Decl. of Daniel Dabek ("Dabek Decl.") ¶¶ 3, 124. Safex has launched three separate cryptocurrencies, Safe Exchange Coin, Safex Tokens and Safex Cash. See id. ¶ 4. In November 2015, Safex conducted a sale of its first cryptocurrency, Safe Exchange Coin, id. ¶ 13, and

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launched its second and third currencies, Safex Tokens, in September 2018, see id. ¶¶ 17-18. Then, in December 2020, Safex launched Safex Marketplace, an e-commerce platform where consumers would be able to buy and sell goods and services using Safex Cash. Id. ¶¶ 5, 18.³ In addition to selling cryptocurrencies and developing its marketplace, Safex presents educational events, owns and operates a website, blog, and forum, and is active on social media, including Twitter, Facebook, and YouTube. See id. ¶¶ 6-12.

Safex has been using the mark "Safex" on its websites and products since 2015, see id. ¶ 9, and has been using its logo since Dabek commissioned it in 2017, id. ¶ 20. The mark and logo (collectively, the Safex trademark) are also used to identify Safex Cash and Safex Tokens on so-called "listing websites," which are online resources that provide consumers with information about cryptocurrencies, including price information, and so-called "cryptocurrency exchanges," where users can actually buy and sell cryptocurrencies. Pl.'s Mem. Supp. Mot. Prelim. Inj. ("Pls.' Mem.") at 5, ECF No. 4. Until the events giving rise to the instant lawsuit, however, plaintiffs never registered the mark "Safex" or the Safex logo with the U.S. Patent and Trademark Office ("USPTO"). See Dabek Decl. ¶¶ 62-64.

According to plaintiffs, defendant Joey Lathus began independently promoting Safex's cryptocurrencies in 2018 and 2019, speaking positively of Safex's products on his YouTube and Twitter accounts. See id. ¶¶ 44-49; see also Pls.' Mem. at 6-7.⁴ Thereafter, later in 2019, he approached plaintiff Dabek about the possibility of being hired as a paid marketing consultant, but Dabek told Lathus that he was not interested in the offer. Dabek Decl. ¶¶ 50-51. Lathus

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continued his attempts to be hired as a marketing consultant for Safex's products, id. ¶ 52, but, according to plaintiffs, soon shifted his strategy and decided to begin competing with Safex and "to steal the Safex Trademark[] and to disseminate defamatory statements about [Dabek] and Safex." Id. ¶¶ 53-55.

B. Defendants Allegedly Infringe Plaintiffs' Trademark and Begin Developing Products to Compete with Plaintiffs'

In late 2019, defendants created Safeth Ltd., designed to create a cryptocurrency to compete with Safex's two currencies, which cryptocurrency Safeth called "Safex Platinum." See id. ¶ 57; Pls.' Mem. at 8. Safeth created a website, whose name and address includes "Safex," in order to market Safex Platinum and also advertised the cryptocurrency on social media, including Facebook, Twitter, LinkedIn, and YouTube, using the mark "Safex Platinum" and a logo that bears a nearly identical resemblance to Safex's logo, with only the color of the logo noticeably different. Dabek Decl. ¶¶ 57-61; see also id. ¶ 55 (visual comparison of the respective Safex and Safeth logos). At the same time, Safeth also announced the development of a marketplace, called "Safex Platinum Market Place," which was functionally similar to Safex Marketplace. Id. ¶¶ 57, 88; see also Pls.' Mem. at 8. Further, Safeth issued a "white paper," akin to a prospectus for potential cryptocurrency purchasers, that closely resembles a "blue paper," also like a prospectus, written by plaintiffs for their Safex currencies. See Dabek Decl. ¶¶ 79-89 (highlighting similarities between the language of plaintiffs' blue paper and that of defendants' white paper).

On July 17, 2020, defendants filed a trademark application at the USPTO for "Safex Platinum" and the Safex Platinum logo, which application remains pending. Dabek Decl. ¶ 62; Pls.' Mem. at 9; see also Dabek Decl., Ex. R, July 17, 2020 Trademark/Service Mark Application, No. 90058254, ECF No. 4-19. In their USPTO application, defendants stated that

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the trademark's first use in commerce was in December 2019. Dabek Decl. ¶ 63. In November 2020, a USPTO examiner alerted defendants to a defect in the application, and they submitted a revised application in December 2020, which again stated that the trademark's first use in commerce was in December 2019. See id. ¶ 95; Pls.' Mem. at 9; see also Dabek Decl., Ex. BB, Dec. 30, 2020 Response to Office Action, No. 90058254, ECF No. 4-29.

Meanwhile, plaintiffs filed a USPTO trademark application of their own for the Safex trademark on December 24, 2020. Dabek Decl. ¶ 42; see also id., Ex. P, Dec. 24, 2020 Trademark/Service Mark Application, No. 90410526, ECF No. 4-17. Five days later, on December 29, 2020, they mailed defendants a cease and desist letter, requesting that defendants cease (1) infringing plaintiffs' trademark, (2) publicly stating that plaintiffs were infringing defendants' trademark, (3) making misrepresentations to the USPTO, and (4) making other defamatory statements about plaintiffs. Dabek Decl. ¶¶ 92-94; see also id., Ex. AA, Dec. 29, 2020 Letter from Joseph B. Evans to Joey Lathus et al. ("Cease and Desist Letter") at 1-2, ECF No. 4-28. The letter demanded a response by January 8, 2021, see Cease and Desist Letter at 2, but defendants furnished no response, Dabek Decl. ¶ 96, although social media accounts that plaintiffs allege belong to defendants posted publicly about the cease and desist letter, id. ¶¶ 97-99.⁵

C. Defendants Allegedly Mount a Campaign Against Plaintiffs and Their Products

Plaintiffs allege that defendants have used their pending trademark application to attempt, sometimes successfully, to disadvantage Safex and its products. Specifically, defendants have supposedly relied on allegations of trademark infringement to convince Twitter to suspend

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Dabek's account on that website, which inhibited Safex's ability to advertise the launch of its currencies and marketplace. Id. ¶¶ 76-78. Defendants have also allegedly relied on their pending trademark application, and allegation that plaintiffs are infringing that trademark, to convince the cryptocurrency listing website CoinGecko to delist Safex currencies. Id. ¶¶ 65-68, 70-72; Pls.' Mem. at 10-11. Additionally, defendants have allegedly attempted to use the allegation of trademark infringement to convince the cryptocurrency exchange Livecoin to delist Safex currencies, such that potential cryptocurrency customers would be unable to buy or sell Safex's currencies on Livecoin. Dabek Decl. ¶¶ 69, 71, 74-75.

In addition, plaintiffs allege that defendants have posted online that Safex is a "scam" or an "exit scam," in which Safex is a ploy to sell Safex cryptocurrencies to users with the promise that the currency will have certain functionalities and the hope that it will reach certain valuations, and then abandon development of the currency while absconding with the money that was raised through the cryptocurrency sales. Id. ¶¶ 104, 108-11. Plaintiffs have provided Twitter posts from accounts they claim are controlled by defendants, referring to "safex exit scam," and warning others not to buy Safex's cryptocurrencies. Id. ¶¶ 109-11; see also infra note 12....