Ritani, a high-end jewelry company, sued Harout Aghjayan
(known to the trade as Harout Ritani), his wife, and several related companies
(including Harout R, LLC and H. Ritani, Inc.).
Given the names, you can guess the basic backstory: Aghjayan’s wholly
owned corporation used the Ritani mark, but then sold all its assets including
IP and good will to Ritani, LLC. He then
worked for the LLC and had confidentiality and noncompete agreements. Nonetheless, Ritani alleged, when he left he
took trade secrets, including secret design files with CAD/CAM drawings for
jewelry, and violated the noncompete agreement.
Ritani alleged that Aghjayan “tweaked” existing Ritani designs “to save
time and money, rather than undertake the slow process of building jewelry
designs from scratch.” He allegedly used
84 CAD/CAM files identical or nearly identical to Ritani’s designs, including
designs incorporating Ritani’s Three-Leaf trademark and as-yet-unpublished
designs, that allowed him to create more than 200 styles.
Aghjayan allegedly mailed out around 7,000 flyers to all of
Ritani's customers announcing the formation of Harout R. The flyers emphasized that the “R” in Harout R
stands for Ritani, and included Aghjayan’s statement that he was “previously
known as Harout Ritani.” Ritani further alleged that someone told customers and
potential customers that Aghjayan was the real “Harout Ritani.” In addition,
Mrs. Aghjayan allegedly referred to herself as Shawndria Ritani and posted a
picture of Aghjayan selling jewelry on her Flickr page, asking “Where is Harout
Ritani now?”
Additionally, Ritani alleged that defendants sold copies of
the Three-Leaf trademark in their Harout R jewelry line in a way that was
likely to cause confusion, because the designs were “virtual copies” of Ritani’s
designs.
This ruling is perhaps most notable for its dismissal
(without prejudice) of the copyright claims for failure to satisfy the pleading
requirements of Rule 8. All that’s
required at this stage is fair notice.
You might think that identifying the allegedly infringed works plus
identifying the allegedly infringing designs would be enough, but here it was
not. First, though Ritani alleged that
defendants collectively used Ritani’s designs to create their design portfolio,
Ritani didn’t identify which defendants created that portfolio or allege
specific facts supporting its claim that defendants used protected aspects of Ritani’s collections in creating that
portfolio. The complaint also lacked
specification of what acts and what times the identified copyrights were
infringed. For example, the complaint
alleged that a specific email included certain Harout R styles that were
identical to a specific design that was part of Ritani’s copyrighted sketch
book. But, even assuming Aghjayan copied
Ritani's work, the complaint failed to plead facts regarding how the rings were
substantially similar, including identifying the protectable elements of the
works. Though substantial similarity is typically
a question of fact, there are cases in which that question can be resolved as a
matter of law because any similarity is only in noncopyrightable elements or
because no reasonable jury could find substantial similarity. (I take it that the court’s point is that
this can only be done if the protectable elements are sufficiently
well-identified, including by attaching the plaintiff’s and defendant’s works
to the complaint.)
In jewelry cases, the court continued, courts have applied
both an ordinary observer and a discerning observer test, the latter of which
applies when a work contains both protectable and unprotectable elements. Copyright doesn’t cover functional elements
of jewelry (for example, presumably, the special “perfect fit” feature Ritani
claimed as part of its trade secrets that allowed a wedding and engagement ring
to fit together seamlessly) or the idea or concept of jewelry. Functional elements include the location of the
stone, type of shank, and how the prongs hold the main stone; even in the
aggregate, they are ideas rather than expression.
In this case, the complaint didn’t specify particular
protected elements of the rings, just generally alleged virtual
copying/substantial similarity of the rings overall. Assuming that there were both protectable and
unprotectable elements, it was significant that Ritani’s complaint admitted
that the rings differed (had been “tweak[ed]”).
There were no allegations of facts establishing substantial similarity,
as required in this type of case.
Finally, Ritani couldn’t maintain a claim based on wax
models allegedly produced by Aghjayan during his employment with Ritani; the
court said that there was no allegation that the models were ever “copyrighted,”
for which I will read “registered.”
Assume that images of both parties’ rings had been attached
to the complaint. Given the
functionality and idea/expression concerns cited by the court, could images
alone be enough to plead substantial similarity, or would the complaint also
have to identify particular features? (Compare
the trend in unregistered trade dress cases of requiring a specification of the
alleged trade dress in words.)
Ritani did somewhat better on the rest of its claims. Ritani had a registered mark in its Three-Leaf
design (which apparently stated a claim based on the alleged incorporation of
the design into the jewelry itself--is that inconsistent with the copyright ruling, given that the court didn't spend any time on the identification of the design?) and also pled sufficient facts to state a
claim for confusion based on defendants’ use of Ritani/claim to be the “real”
Harout Ritani. The use of an identical
mark in the same industry is likely to cause confusion so the claim was adequately
pled. (The court probably doesn’t really
mean that the plaintiff must only show use of Ritani in competition with Ritani,
regardless of other circumstances such as nominative fair use; I wonder whether
it would be possible to do a summary judgment proceeding limited to nominative
fair use, though if Ritani gets discovery into everything defendants have said
about themselves that will probably not be very limited.)
However, as to “Harout R,” Ritani didn’t allege any
trademark in the unregistered, unstylized letter R, which was not inherently
distinctive as a matter of law. Thus,
alleging the use of R was insufficient to allege likely confusion, though other
facts in the complaint did suffice. Defendants
argued that the flyer identified Harout R as a new company and only mentioned
Aghjayan’s previous association with Ritani: “[Aghjayan was] previously known
as Harout Ritani, designer and founder of New York’s RITANI’S Fine Jewelry
Brand. He is now launching his new company HAROUT R LLC. This collection is the
most innovative to date, ... Harout observed that the opportunity for variety
was limited and saw a need to introduce something that has not been done
before.” It also described Harout R as a
new brand and included a biography of Aghjayan which identified him as Ritani’s
founder, previously known as Harout Ritani and stated that he sold his interest
and left Ritani in 2009. Defendants
argued that the flyer couldn’t make the distinction between the parties any
clearer, an argument the court identified as descriptive fair use (though nominative
fair use might also make sense). The
court found that this defense couldn’t be resolved on a motion to dismiss given
the allegations: the complaint alleged that that Aghjayan “repeatedly
identified himself to trade show participants as ‘Harout Ritani’ “ and
“advis[ed] potential customers that he was the real ‘Ritani.’” These comments “are not free from ambiguity
and may potentially cause consumer confusion.”
Thus, these Lanham Act claims survived along with coordinate state law
claims.
The state law false advertising claim was dismissed for
failure to allege sufficiently consumer-oriented conduct. Though consumers might be misled into
believing that the parties were associated, there were no allegations
describing the resulting injuries to Ritani or to the public.
The state law dilution claim also survived. “Plaintiff has plausibly suggested that
Harout R’s marketing materials, Aghjayan’s maintenance and continued
registration of HR Corp. and HR LLC, and certain representations made by
Aghjayan to customers may dilute the Plaintiff's business name and reputations.”
The trade secret misappropriation and breach of the duty of
loyalty and fiduciary duty claims were also sufficient, though only against Aghjayan
and his wife (also a former Ritani employee); breach of contract survived only
against Aghjayan. By contrast, the
tortious interference claim failed. The
complaint named specific customers and alleged that Aghjayan’s actions led to
“the breakdown of negotiations between Ritani LLC and Helzberg, which resulted
in Helzberg’s placement of $2.8 million worth of orders with Defendant Companies,”
and that but for Aghjayan’s actions, “it is likely that Ritani LLC would have
obtained the financial benefit of Defendants’ initial contract with Helzberg,
plus Defendants’ ongoing business from Helzberg and Blue Nile.” I’m not quite sure what the problem is, but
the court held that, nonetheless, Ritani failed to allege that “as a result of
Aghjayan’s actions, … any of these customers did not buy from Ritani, or that
any order was canceled or that it had an actual, legitimate expectation as to
their further patronage.” Instead, the
complaint simply alleged that Helzberg and Blue Nile ordered from defendants
and that “it is likely” that Ritani might have benefited from the contract. In addition, Ritani failed to plead
sufficient facts to show that Aghjayan acted “with a wrongful purpose ...
motivated solely by malice and/or to inflict injury” to Ritani, as required. “In
starting his new business ventures, Aghjayan set up meetings with vendors that
he was familiar with and with whom he had previous relationships with.”
Ritani’s claim for breach of an implied covenant not to
solicit business, based on Aghjayan’s previous sale of his business with its
associated goodwill, was also dismissed.
Aghjayan individually didn’t sell his goodwill; it was assigned by an
agreement to which Aghjayan wasn’t a party.
In any event, the parties to a sale can negotiate and narrow any implied
covenant, which the parties did here: they negotiated a restrictive covenant
for Aghjayan limited to a one-year non-compete, which was later modified, and
permitted Aghjayan to sell to all current Ritani customers, listed on its
website, after December 31, 2010. It
didn’t restrict who he could solicit, thereby modifying any implied restriction
that might otherwise have existed.
Separately, Ritani didn’t plead improper solicitation, which
requires something more than general ads and announcements to the public and
competition with the business’s buyer. “Nowhere
in the marketing materials is there a suggestion that he is touting his goods
over Ritani’s.” The facts alleged over
7000 brochures sent to potential customers, and such broad advertising is
allowed.
Posts
No comments:
Post a Comment