Thursday, February 13, 2014

Trademark licensor must be joined even when plaintiff is exclusive licensee

Aceto Corporation v. TherapeuticsMD, Inc., 953 F. Supp. 2d 1269 (S.D. Fla. 2013)

Aceto sells various pharmaceutical/nutritional ingredients and other chemicals.  Defendants allegedly make and sell a line of prenatal vitamins, Prena1, that violate Aceto’s exclusive US rights to a patented ingredient known as Quatrefolic and to the Quatrefolic mark.  Aceto entered into limited sublicensing agreements for Quatrefolic, including one with Pernix.  Pernix agreed to buy Quatrefolic exclusively from Aceto, and had the right to sublicense further provided that Aceto remained the direct supplier to the sublicensee (and retained other control over the sublicense).

Defendants wanted to become sublicensees, and were allegedly aware that Aceto had the right to review and approve all proposed sublicenses, and that Aceto was required to be the direct supplier of Quatrefolic.  Nonetheless, they allegedly obtained and sold Quatrefolic products from Pernix without a license, and used the mark to promote Prena1.  Their website says “Prena1 with Quatrefolic®” is “The ONLY Authorized Generics Prescription Prenatals with Quatrefolic® and life’s DHA™,” and contains an “unauthorized detailed description” of Quatrefolic.  (This seems like a first sale issue, even from the plaintiff’s own allegations, though “authorized” is a risky word to use.)

Defendants argued that Aceto failed to join required parties—Gnosis, the licensor, and Pernix.  The court agreed about Gnosis and disagreed about Pernix.  A licensee’s standing to sue depends on its rights under the license.  The court was in the dark about this because the licensing agreement wasn’t attached to the complaint. The complaint did allege exclusivity in the US, but didn’t allege that Gnosis assigned Aceto ownership rights or that Aceto owned all substantial rights in the US, as required for standing.  Under the Lanham Act, only the registrant of record has standing to sue under §32.  “No amount of judicial interpretation or manipulation of words can turn an exclusive licensee into an assignee. A trademark assignment and license are two quite different transactions with widely different impacts.” Likewise, as the Federal Circuit has held, “although a patentee has standing to sue in its own name, an exclusive licensee that does not have all substantial rights has standing to sue third parties only as a co-plaintiff with the patentee.”  Some cases suggest that an exclusive licensee can sue if it has the right even to exclude the licensor to the territory, but whether that was the case here was unclear; nor was there evidence or allegations that Gnosis delegated to Aceto the obligation to sue for trademark infringement. Plus, standing is related to but different from joinder: defendants were arguing that Gnosis needed to be joined, and the precedent supported that for exclusive patent licensees.  “Thus, unless Plaintiff is an exclusive licensee with all substantial rights in the trademark, all entities with an independent right to enforce the Quatrefolic Mark are indispensable or necessary parties to this infringement suit.”  Motion to dismiss for failure to join Gnosis granted, with leave to amend.  Gnosis could be made an involuntary plaintiff (or defendant), or Aceto could demonstrate that it was an assignee or the legal equivalent thereof.

Pernix, however, didn’t need to be joined, since it was just a sublicensee.  The court could determine the parties’ rights without Pernix’s participation; all that was necessary was reference to the Pernix-Aceto contract.  Aceto could get the complete relief it sought without it, and defendants hadn’t shown they were at risk of inconsistent obligations from Pernix.

This got rid of the §43(a) claims and federal and state dilution claims too.  (Federal dilution?  Ugh, where is Rule 11 when you need it?)

However, the claim for Florida common law unfair competition survived.  Aceto alleged false advertising and other deceptive conduct, and that the parties acted as competitors with respect to Prena1.  Plus, the court allowed a  claim for violation of the Florida Deceptive and Unfair Trade Practices Act to proceed. Though older case law indicated that only consumers could sue under FDUTPA, its old language allowing “a consumer who has suffered a loss as a result of a violation” to bring a claim was changed from “consumer” to “person” in 2001.  The statute’s stated purpose was “[t]o protect the consuming public and legitimate business enterprises from those who engage in unfair methods of competition, or unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce.”  The natural reading is that legitimate business enterprises are a class sought to be protected by the statute.

An unjust enrichment claim, pleaded in the alternative, also survived. The fact that Pernix was the one who directly conferred the benefit on defendants didn’t matter; benefits conferred through an intermediary can still amount to unjust enrichment.

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