Dahon North America, Inc. v. Hon, 2012 WL 1413681 (C.D.
Cal.)
Dr. David T. Hon founded the folding bicycle brand Dahon. Dahon North America (DNA) was formed and began
operating an Asian subsidiary in Taiwan in 1982. Florence Hon, Dr. Hon’s wife, served as its
director and corporate secretary, and since 1992 their son Joshua worked as its
VP of Sales and Marketing. Around 1996,
the Taiwan subsidiary’s assets were transferred to Dahon Taiwan; Florence Hon
was the owner/CEO. In 2010, Joshua and
Florence created Mobility Holdings, Ltd. and approached Dr. Hon about buying
Dahon Taiwan and the Dahon brand, but he refused. They allegedly then began withholding and
diverting product orders from Dahon Taiwan.
In 2011, they officially announced Tern, a new company and brand, but
didn’t relinquish their titles or responsibilities at DNA. Mobility owns Stile Products, which sells
Tern bicycles; Stile’s president is a former DNA officer, Steve Boyd.
DNA claimed that defendants stole its IP: bicycle-related
patents, trademarks, and copyrights (along with employees, bank accounts, and
other assets). DNA registered DAHON for bicycles, BIOLOGIC for certain bicycle
parts, and ECOLOGIC for bicycles.
However, Joshua and Florence filed assignments transferring the marks
from Dahon Taiwan to Mobility, and Joshua registered the domain name and
website www.dahon.com in his own name. DNA also alleged that Boyd used his position
to transfer DNA’s IP, including the BIOLOGIC mark (the complaint was somewhat unclear
about the other TMs) to defendants and set up Stile.
Mobility argued that there was no specific jurisdiction over
it because it was a Hong Kong holding company with no US contacts, and its
ownership of Stile, a California corporation, was insufficient to extend
jurisdiction to it. The court agreed,
but noted that Mobility’s possession of the BIOLOGIC mark required separate
analysis. DNA alleged that Joshua and
Florence fraudulently assigned DNA’s IP to Dahon Taiwan, then assigned the mark
from Dahon Taiwan to Mobility, and contended that Mobility therefore
intentionally converted DNA’s property.
Mobility responded that the alleged conversion was committed by others
before Mobility came into being. The
court sided with DNA—Mobility’s receipt of the BIOLOGIC mark from Dahon Taiwan
was an intentional act for these purposes (analogizing to cases about
possession of chattels).
Personal jurisdiction under the effects test also requires
express aiming at the forum, which is satisfied when a defendant is alleged to
have engaged in wrongful conduct targeting a plaintiff who the defendant knows
to reside in the forum state. DNA argued
that Mobility aimed at California because the fraudulently conveyed IP was from
a California corporation, but Mobility responded that this action was about
Taiwanese and Chinese companies run by residents of those countries,
respectively. Defendants also contended
that US sales of Dahon bicycles account for only 6% of worldwide sales, and
California sales were far less than that.
The court again agreed with DNA: the primary effect of its conversion
deprived a California corporation of its IP.
Even though Mobility argued that it did nothing active, its alleged
possession of converted property counted as express aiming.
The final element, that Mobility caused harm it knew was
likely to be suffered in the forum, was “easily met” given the previous
allegations. Given the relationship of
these parties, it’s highly implausible that Mobility had no knowledge that its
possession would harm anyone, and, “even if Mobility is nothing more than a
‘piggy bank’ that receives assets from the other Defendants, Mobility must
still execute transfer agreements and be expected to reasonably scrutinize the
origin of its incoming assets—and therefore cannot allege lack of knowledge.”
The other prerequisites for personal jurisdiction (causation
and reasonableness) were also satisfied.
“Ordinarily, ordering an offshore holding company with limited
California contacts to defend a lawsuit in the United States would be
burdensome. But, in this case, there is no better forum because Mobility
allegedly holds a United States trademark converted from a California
corporation.” Sufficient relief would be
impossible without Mobility, and DNA isn’t likely to be able to bring a foreign
action for conversion of a US trademark.
The breach of fiduciary duty claim was properly pleaded.
The trademark claims faced an interesting wrinkle: due to
the alleged conversion, defendants are the registered owners of the marks in
the US. Since DNA wasn’t the registered
owner of the marks at the time it sued, the court dismissed the infringement
and dilution claims for lack of standing.
(Dahon Taiwan was the current registered owner of ECOLOGIC and Mobility
of BIOLOGIC, while a DNA-related company was the registered owner of DAHON—so
that last one could be fixed without winning the lawsuit.) This isn’t right—registration is not
equivalent to ownership, and in particular you can own a mark for which you
have no registration, and even sue the registrant thereupon—but as we’ll see
the court gets there; though it cites no statutory provisions, I think this part
of the opinion is best read as simple dismissal of §32 claims.
And, of course, as the court pointed out, §43(c)(6) bars
dilution claims against federally registered marks, adding an additional
wrinkle. DNA would first have to win its
ownership claim for BIOLOGIC and ECOLOGIC and get the registration/s cancelled,
at which point there’d be no allegedly dilutive conduct going forward, though
perhaps a claim for damages would persist.
However, the court went on—continuing its confusion about ownership v.
registration—ownership is not a prerequisite for dilution. Rather, fame is. DNA’s allegations of fame were too conclusory,
and it was highly implausible that BIOLOGIC and ECOLOGIC were famous. Perhaps DAHON is somewhat famous, “[b]ut
whatever that level of fame is, it falls far short of the high standard
required for a dilution claim. The Court greatly doubts that the general public
of the United States is familiar with the Original DAHON mark. Further, the
fame of the Original DAHON mark cannot compare with that of a truly famous
mark, such as Coca-Cola.” Motion to
dismiss granted.
Okay, from now on, every time “ownership” comes up, please
read “registration” instead. DNA’s false
designation of origin claim survived because DNA didn’t need to own the
underlying marks to have a cause of action.
Standing requires only commercial injury based on deceptive use of a
trademark or its functional equivalent.
DNA alleged that it’s the rightful owner of the marks at issue and that
defendants’ uses caused sales diversion and deceived consumers. That was enough to plead false
advertising/false designation of origin.
DNA also alleged a claim for fraudulent transfer and
registration of trademarks. Defendants
argued that DNA failed to plead with particularity. 15 U.S.C. § 1120 says that “Any person who
shall procure registration in the Patent and Trademark Office of a mark by a
false or fraudulent declaration or representation, oral or in writing, or by
any false means, shall be liable in a civil action by any person injured
thereby for any damages sustained in consequence thereof.” Ownership is not required as long as the
plaintiff has a reasonable interest to be protected against the use of
fraudulent statements in procuring a registration.
DNA alleged that Dahon Taiwan registered the marks knowing
they were supposed to be shared by all Dahon companies, that the PTO registered
the marks in reliance on this representation, and that DNA was suffering market
harm because of Dahon Taiwan’s present claim to exclusive ownership. This was not enough to state a claim because
DNA offered no facts suggesting that at
the time of application Dahon Taiwan made any false representations. Indeed, DNA admitted that its occasional
practice was to have Dahon Taiwan register IP in smaller markets to be held on
behalf of all Dahon companies. The court
found no authority that a fraudulent transfer
of trademarks was actionable. In any
event, there was no misrepresentation pled.
As officers of both DNA and Dahon Taiwan, Joshua and Florence had the
power to assign marks from DNA to Dahon Taiwan.
“The true dispute here is whether Defendants converted any of these
marks from DNA, not whether some fraud was perpetrated during the transfer or
registration of the disputed trademarks.”
DNA did, however, sufficiently plead tortious
interference. Defendants allegedly
contacted existing distributors, suppliers, and manufacturers; Joshua and
Florence took the distributors to a private retreat in order to reveal their
new competing brand. Defendants
allegedly told distributors that DNA no longer owned the intellectual property,
employees, and factories, and that DNA was filing for bankruptcy. They took
DNA’s website, dahon.com (interesting
disclaimer at the bottom), and used it to promote the Tern brand and disparage
DNA. DNA alleged that, as a result, it
lost distributors to defendants, along with lost profits and sales. This was sufficient.
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