Wednesday, January 18, 2012

False use of (R) symbol as false advertising


Perfect Pearl Co., Inc. v. Majestic Pearl & Stone, Inc., 2012 WL 98493 (S.D.N.Y.) 
Perfect moved for leave to amend its complaint against Majestic to add claims for misuse of the ® notice and false advertising under federal and state law to its initial unfair competition claims.  The court granted the motion in part and denied it in part. 
Perfect began the case claiming that it was the prior owner of MAJESTIC and MAJESTIC PEARL for jewelry.  In discovery, Pearl learned more about Majestic’s activities: it argued that it found out that Majestic falsely used the ® after its registration expired, and falsely claimed the registration on its website as a point of distinction from Perfect. 
Since a scheduling order had already been entered, leave to amend required good cause, meaning that Perfect needed to show that it had been diligent and neither knew nor should have known the relevant information before.  The court found that Perfect had shown good cause for delay in adding allegations based on continuing use of ® on Majestic’s promotional materials, but not for new claims based on content on Majestic’s website.  A late deposition (whose lateness was largely due to problems on Majestic’s side) revealed that undated materials using the ® had been produced in large numbers and were still in use, even though the registration lapsed in March 2008, more than 2 years before the present suit was filed.  The court stated that, even if the materials were produced before cancellation, continuing to supply them to customers long after the registration expired might constitute false advertising.  However, “it would have taken Perfect little investigation and probably no more than 15 minutes' time to determine that Majestic's publicly-accessible website continued to falsely claim registered trademark status.”  Thus, it was too late to add allegations based on the website. 
Majestic also argued futility: misuse of trademark notice is only an affirmative defense, not a freestanding cause of action, so that claim was not allowed.  But the Lanham Act false advertising claim was not merely, as Majestic argued, a claim of trademark misuse.  The court quoted McCarthy:  the “use of ... the ® adjacent a mark not federally registered is ... a form of false advertising which may result in serious repercussions.”  Perfect’s allegations satisfied the federal pleading standards.  Majestic argued that Perfect needed to show willfulness to bring a false advertising claim predicated on misuse of a ® symbol; even if that was true, which the court did not resolve, Perfect had adequately pled facts to support an inference of willfulness.  Perfect alleged that Majestic knew for more than two years that it did not own an active registered trademark, persisted in disseminating promotional materials with the ® symbol to potential customers. 
Majestic also argued it would be prejudiced by the addition of new claims because of significant additional required discovery.  But Majestic only identified one issue as to which additional discovery might be required: its own intent.  “Any discovery as to that issue would, presumably, be sought by Perfect—for Majestic should have accessible to it the evidence bearing on its own state of mind—and Perfect represents that it is not seeking additional discovery.”  Granting the motion wouldn’t extend the litigation much—the court pointedly noted that the motion was pending for far shorter than the time it took Majestic to produce the Rule 30(b)(6) witness who provided the key information that led to the motion for leave to amend.

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