Solo Cup Operating Corp. v. Lollicup United States, Inc.
| Decision Date | 17 May 2017 |
| Docket Number | Case No. 16 C 8041 |
| Parties | SOLO CUP OPERATING CORPORATION, Plaintiff, v. LOLLICUP USA, INC., Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
OPINION AND ORDER
Solo Cup Operating Corporation filed suit against Lollicup USA, Inc., alleging trademark infringement and unfair competition under the Lanham Act, 15 U.S.C. §§ 1125(a) and 1114; unfair competition under both the Illinois Uniform Deceptive Trade Practices Act, 815 Ill. Comp. Stat. 510, and the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 Ill. Comp. Stat. 505; and breach of contract under Illinois common law. (Dkt. 30 at 1.) In response, Lollicup filed a number of counterclaims and affirmative defenses. (Dkt. 33 at 12-21, 40-51.) Solo Cup now moves to dismiss several of the counterclaims and defenses. For the reasons stated below, Solo Cup's motion is granted.1
Solo Cup has a registered product configuration mark,3 Registration No. 3,284,076, for its "Traveler" coffee-cup lid, pictured below.
Image materials not available for display.
The lid is the subject of design and utility patents that expired in 2001 and 2003, respectively. These two patents were disclosed to the Patent and Trademark Office (PTO) during Solo Cup's trademark registration application process.
Lollicup manufactures, advertises, and sells coffee cup lids under the brand name "Karat." Solo Cup alleges that Lollicup's "Karat" lids infringe its product configuration mark. In response to Solo Cup's complaint, Lollicup filed numerous counterclaims and affirmative defenses. Solo Cup moves to dismiss and strike some of those claims and defenses, including Lollicup's claims that (1) Solo Cup fraudulently procured the trademark registration for the "Traveler" lid configuration in violation of 15 U.S.C. § 1120, rendering it subject to cancellation under 15 U.S.C. §§ 1064 and/or 1119 (counterclaims II, V, and VI and affirmative defenses 3 and 9), (2) Solo Cup's use of its product configuration mark on the "Traveler" lid constitutes false advertising in violation of 15 U.S.C. § 1125(a) (counterclaim VII), and (3) the productconfiguration trademark for the "Traveler" lid is invalid and unenforceable due to either unconstitutionality or preemption (counterclaims III and IV and affirmative defenses 4 and 5).
The legal standard applied to a motion to dismiss a counterclaim or strike an affirmative defense is the same as the standard applied in a 12(b)(6) motion to dismiss for failure to state a claim. See Intercon Sols., Inc. v. Basel Action Network, 969 F. Supp. 2d 1026, 1067 (N.D. Ill. 2013), aff'd, 791 F.3d 729 (7th Cir. 2015); Safe Bed Techs. Co. v. KCI USA, Inc., No. 02 C 0097, 2003 WL 21183948, at *2 (N.D. Ill. May 20, 2003). To survive such a motion, the non-fraud counterclaims and affirmative defenses must "contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)). Lollicup's fraud allegations must be stated with particularity in accordance with Federal Rule of Civil Procedure 9(b). While factual allegations must be accepted as true, legal conclusions will not be considered. See Iqbal, 556 U.S. at 678.
Fraudulent procurement of a trademark registration occurs where the applicant either "withhold[s] from the Patent and Trademark Office . . . material information or fact which, if disclosed to the Office, would have resulted in the disallowance of the registration sought or to be maintained," Northwestern Corp. v. Gabriel Mfg. Co., No. 95 C 2004, 1996 WL 732519, at *16 (N.D. Ill. Dec. 18, 1996) (quoting First Int'l Servs. Corp. v. Chuckles, Inc., 5 U.S.P.Q.2d1628 (T.T.A.B. 1987)), or makes "a deliberate attempt to mislead the PTO into registering [the] mark by presenting materially false and misleading information to the PTO when . . . seeking the trademark registration." Specialized Seating, Inc. v. Greenwich Indus., L.P., 472 F. Supp. 2d 999, 1016 (N.D. Ill. 2007) (citing Money Store v. Harriscorp Finance, Inc., 689 F.2d 666, 670 (7th Cir. 1982); Zip Dee, Inc. v. Dometic Corp., 900 F. Supp. 1004, 1009 (N.D. Ill. 1995)).5
Lollicup alleges that Solo Cup fraudulently procured its product configuration trademark registration by misrepresenting to or misleading the trademark examiner about whether the mark was functional. Lollicup argues that, despite Solo Cup's disclosure to the PTO of the expired patents describing that mark, Solo Cup's written and oral statements made during the trademark application process regarding non-functionality constitute fraud. (See Dkt. 33 at 31-35; Dkt. 40-1 at 24-30.6)
"[I]n general terms, a product feature is functional, and cannot serve as a trademark, if it is essential to the use or purpose of the article or if it affects the cost or quality of the article." Traffix Devices v. Mktg. Displays, 532 U.S. 23, 32, 121 S. Ct. 1255, 149 L. Ed. 2d 164 (2001) (internal quotation marks omitted) (citations omitted). The threshold inquiry in the Seventh Circuit is "whether the feature for which trademark protection is sought is something that other producers of the product in question would have to have as part of the product in order to be able to compete effectively in the market." W.T. Rogers Co. v. Keene, 778 F.2d 334, 346 (7th Cir. 1985). The existence of a utility patent that encompasses the product configuration claimed "isstrong evidence that the features therein claimed are functional," but it is not dispositive on its own. Traffix, 532 U.S. at 29.
Functionality is not a fact that can be withheld from the PTO but, rather, a determination the examiner must make when evaluating the mark for registration. See e.g., Northwestern Corp., 1996 WL 732519, at *4. Thus, in order for a party to commit fraud on the PTO with respect to the functionality of a mark, the party must either withhold from the examiner information or facts that are material to the determination of whether the mark is functional—as in Specialized Seating, where a trademark applicant failed to disclose material utility patents to the PTO after being requested to do so, 472 F. Supp. 2d at 1004, 1016-19—or present false or misleading information that is material to the functionality determination.
Both parties acknowledge that Solo Cup disclosed the material patents to the PTO during the trademark application prosecution. (See Dkt. 36 at 10; Dkt. 40-1 at 26.) Lollicup, however, points to Solo Cup's representations, made in the trademark application, that certain features of its lid were ornamental, and argues they are inconsistent with representations made to the patent examiner about those features' functionality. (See Dkt. 33 ¶¶ 35-41.) But as any practitioner before the PTO would likely concede, applications advocate for a result by highlighting facts that are favorable. Where, as here, the trademark examiner was in a position to agree or disagree with the characterizations contained in the application by studying the patent itself, such an argument made by a trademark applicant does not give rise to a reasonable inference of fraudulent intent.7
Lollicup also challenges statements made by Steve Smith, Solo Cup's Director of Product Development, in his declaration submitted to the PTO in which he states (a) Solo Cup's lid has the same basic functional characteristics of competing lids and (b) Solo Cup's configuration does not affect the cost of manufacturing the lid to the disadvantage of others in the marketplace. (Dkt. 33 ¶¶ 43, 45.) Lollicup alleges these statements are false and misleading because the patent disclosure represents that the lid was designed "to be manufactured relatively inexpensively so as to be disposable," and the particular configuration was selected to avoid "unacceptable difficulties in molding the lid." (Id. ¶ 46.) Since Smith's statements were made under oath, if false, they could have been material to the examiner's decision. But the statements characterize the configuration in broad terms that are not demonstrably false nor directly contrary to the patent disclosure. In any event, as stated, the examiner had the utility patent to read and was free to demand explanation or more information before reaching a conclusion.
Under the pleading standard of Rule 9, Lollicup has failed to allege with sufficient specificity facts that, if proved, would permit an inference of intent to deceive. Accordingly, counterclaims II, V, and VI and strike affirmative defenses 3 and 9 must be dismissed.
Solo Cup seeks dismissal of Lollicup's claims that Solo Cup engaged in false advertising by marking its product with a fraudulently obtained trademark, which Lollicup argues misleads the public about whether Solo Cup has an exclusive right to sell lids with that configuration. (Dkt. 40-1 at 20.)
To establish a claim of false advertising under the Lanham Act, a plaintiff must prove:
(1) a false statement of fact by the defendant in a commercial advertisement about its own or another's product; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendantcaused its false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a loss of goodwill associated with its products.
Hot Wax, Inc. v. Turtle Wax, Inc., 191 F.3d 813, 819 (7th Cir. 1999).
In addition to literally false statements, a party can run...
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