Wednesday, October 17, 2018

Some Lanham Act/UCL claims against TM filing entities can proceed despite potential difficulties of proof


LegalForce RAPC Worldwide P.C. v. Swyers, No. 17-cv-07318-MMC, 2018 WL 4961660 (N.D. Cal. Oct. 12, 2018)

RAPC alleges that Swyers, an attorney, owns TTC and Trademark LLC, which provide “trademark related services,” and also owns Trademark PLLC, a law firm that provides “legal services in trademark related matters.” TTC allegedly made false statements on its website, and the defendants’ business is allegedly “built upon the foundation of the unauthorized practice of law” and involves “submitting or aiding and abetting their customers in submitting fraudulent specimens to the USPTO” in violation of the Lanham Act and California’s UCL.

The court partially granted defendants’ motion to dismiss, with limited leave to amend. In terms of standing, direct competition means that “a misrepresentation will give rise to a presumed commercial injury that is sufficient to establish standing,” and RAPC alleged it “compete[s]” with TTC to provide “small businesses” with “services that allow them to protect their marks through filings with the [USPTO].” As for proximate cause, RAPC alleged lost customers, supported by the allegation that, from the year TTC was formed until the lawsuit was filed, its market share declined from “nearly 2.4%” to “approximately 1.8%,” or “approximately 2670 trademark[ ] filings per year.” RAPC alleged that it had to reduce its prices from “$499 to $199 and lower to match the unfair competition of TTC.” Though proof might be difficult, these allegations were sufficient at the pleading stage.

As for specific challenged statements, most of them were actionable. “Created by USPTO Attorneys” and similar statements were allegedly false because TTC was created by just one former USPTO Attorney – Swyers, and statements that didn’t include “former” were also allegedly false because Sywers “was excluded from practice by the USPTO in January 2017” and cannot apply for reinstatement for “at least five years.” The court found Rule 9(b) satisfied given the specificity of the allegations.  “We’ve Prepared and Filed Over 20,000 Office Action Responses” was allegedly false because TTC hadn’t done this in the time since 2015, when it was formed. The defendants argued that its statement “may refer to TTC’s successor entities, or to other lawyers.” But the complaint made no reference to any such successors or predecessors, and defendants didn’t identify any mentions of such on its website. Thus, the court couldn’t find as a matter of law that a customer would reasonably understand “we” to refer more broadly to successors or predecessors in interest, or to “other lawyers” from TTC’s “Network of Independent Attorneys.” Indeed, the webpage the defendants cited “distinguishes between ‘we’ and ‘your attorney’” by stating “Depending on the package you select we, or your attorney you select through our Network of Independent Attorneys (NIA) will work with you to assemble your office action response ....” For similar reasons, “Trusted by over 100,000 Businesses Since 2003” was sufficiently alleged to be false, since TTC was only formed in 2015 and allegedly hadn’t had over 100,000 customers.

“Created by the Top Trademark Law Firm in the United States” was allegedly false because TTC was created by Swyers personally as a sole member, and that if Trademark PLLC, a law firm, created TTC, the reference to a “top” firm is false because Trademark PLLC’s owner Swyers was disbarred by the USPTO.  However, this statement was nonactionable. First, the pages on which the statement was found couldn’t reasonably be read to say that TTC was created by a law firm. Instead, TTC stated that one of its “packages” was “created” by the unnamed “Top Trademark Firm” and that the other two packages include “software” the unnamed law firm “created,” neither of which were alleged to be false.  Also, the use of “top” to describe the firm was puffery.

TTC’s website allegedly contained the false claim “As featured in,” under which were displayed “rotating banners showing logos” of a number of businesses, specifically, “Yahoo Finance, CNNMoney.com, CNBC, Compare LegalForms, Bank of America Small Business Community, Time, NBCNews.com, the Wall Street Journal, and INC500.” But the allegation that “upon information and belief, TTC has never been featured on these websites” was not accompanied by a statement of the facts upon which the belief was founded, so it was dismissed.  

State law claims: RAPC alleged that TTC has violated § 17200 of the UCL by submitting to the USPTO “fraudulent specimens” and by engaging in the “unauthorized practice of law.”  However, RAPC lacked standing to bring the first claim; it failed to allege any facts to support a finding that its injuries occurred as the result of the submission of fraudulent specimens.  Plus, the allegations of fraud weren’t specific enough to satisfy Rule 9(b).  By contrast, RAPC had standing for the unauthorized practice of law allegations because it alleged that it “suffered losses in revenue and asset value and was required to pay increased advertising costs specifically because of the [alleged unauthorized practice of law],” even though the general purpose of the law is to protect the public and not to protect lawyers from competition.  Rule 9(b) didn’t apply because this part of the claim didn’t sound in fraud; rather than being based on advertising that defendants could engage in the practice of law, it was based on the unauthorized practice of law itself, which was sufficiently alleged in the complaint. Nor did primary jurisdiction bar the claim: “although the USPTO, as set forth above, has identified on its website conduct that, in its view, constitutes the unauthorized practice of law, the USPTO has made clear its position that ‘Congress has not authorized [it] to regulate entities such as TTC.’” However, RAPC was limited to seeking injunctive relief, not restitution because it failed to allege that TTC obtained any property from RAPC in which RAPC had an ownership interest.

§ 17200 claims against the Trademark defendants were dismissed because there were no allegations that the claims arose out of or resulted from California-related activities (e.g., submission of a fraudulent specimen or unlawful practice of law on behalf of a California customer).

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