Global family feud over allegedly stolen mark

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.