LAUREL BEELER, Magistrate Judge.
This case involves the Straw Hat Pizza® restaurants. (Third Amended Complaint ("TAC"), ECF No. 1-14, ¶ 7.)
The plaintiffs/counter-defendants move to dismiss five counterclaims: (3) breach of a non-compete clause in their membership contracts; (6) trademark infringement for wrongful transfer of the marks to Straw Hat IP Holdings, in violation of the Lanham Act, 15 U.S.C. § 1114(1)(A); (8) trademark infringement by false representation of ownership and false registration with the U.S. Patent and Trademark Office, in violation of § 1125(a)(1)(a); (10) dilution of the trademark by the competing claim of ownership, in violation of § 1125(c); and (12) unfair competition, in violation of California Business & Professions Code § 17200. (Motion, ECF No. 17.)
The court finds the motion suitable for determination without oral argument under Civil Local Rule 7-1(b), dismisses claim 3 with leave to amend, and otherwise denies the motion to dismiss.
Straw Hat Cooperative is both a named plaintiff and a named defendant/counter-claimant. That is because the plaintiffs/counter-defendants and the defendants/counter-claimants each claim that they are the rightful board of directors of Straw Hat Cooperative and are entitled to control its assets (including its trademarks and other IP). This is the central issue for the claims that the plaintiffs/counter-defendants move to dismiss. The next two sections describe the parties.
The plaintiffs/counter-defendants and the counter-claims against them are as follows:
Except Straw Hat IP Holdings, the plaintiffs/counter-defendants are Cooperative members:
They are as follows. (See TAC ¶¶ 9-16; TACC ¶¶ 5-6, 16, 18.)
From 1981 until 2008, members of Straw Hat Cooperative owned and operated all Straw Hat restaurants. (TACC ¶ 13.) In 2006, Straw Hat Cooperative's Board of Directors authorized the formation of Straw Hat Restaurants. (TAC ¶ 39.) In 2008, Straw Hat Restaurants "was organized to expand and enhance the Straw Hat brand" primarily by franchising the Straw Hat restaurants to individuals and entities. (TACC ¶13.) From 2008 until 2011, Straw Hat Cooperative and Straw Hat Restaurants operated a dual system: Straw Hat Cooperative members operated their restaurants under Straw Hat Cooperative's Amended Bylaws and their Member Agreements, and Straw Hat Restaurants' franchisees operated their restaurants under their franchise agreements. (Id. ¶ 14)
In May 2011, the Straw Hat Cooperative Board "proposed a ballot measure to windup and dissolve the cooperative corporation and to permit members to obtain shares in [Straw Hat Restaurants] as [] franchises on favorable terms." (TACC ¶¶ 15, 49.) On May 1, 2011, all Cooperative members (including the plaintiffs/counter-defendants) received a ballot to vote "for," "against," or "abstain" as to the following proposition:
(TACC ¶ 50.)
On June 15, 2011, 23 Cooperative members voted to wind up and dissolve Straw Hat Cooperative, and 15 voted against it. (Id. ¶ 51.) This quorum complied with the bylaws. (Id.)
Subsequently, only English & Sons, Pizza Pierates, Formatts, Mehrok and the Sehhats did not sign franchise agreements and continued to operate their restaurants under their Straw Hat Cooperative Membership Agreements. (TAC ¶¶ 7, 53.) On October 19, 2011, they filed this lawsuit in state court challenging the dissolution of Straw Hat Cooperative. (TACC ¶ 53; see ECF No 1-1.)
On April 5, 2012, the Straw Hat Cooperative (but not its individual members) "received a request for a special meeting from" plaintiffs/counter-defendants Cole English and Nick Harrison to address (1) removal of the board of directors, (2) election of a new board, (3) rescission of the voluntary election to windup and dissolve Straw Hat Cooperative, and (4) amendment of the bylaws to eliminate the appointment of two alternate directors to serve as directors upon the resignation, death, or removal of any director. (TACC ¶ 54.) "In response, on April 20, 2012," and in compliance with the Cooperative's bylaws, Straw Hat Cooperative sent a Notice of Special Meeting to all Straw Hat Cooperative Members setting a meeting on July 5, 2012 at 9 a.m. at Straw Hat Cooperative's headquarters to address (1) the composition of the board of directors, (2) the voluntary election to wind up and dissolve Straw Hat Cooperative and replace it with Straw Hat Restaurants, and (3) the amendment of the bylaws. (Id. ¶ 55.)
"[O]n May 8, 2012, the [Straw Hat Cooperative] (but not its members) received a Notice of Special Meeting dated May 7, 2012, and signed by Cole English and Nick Harrison" setting a meeting for May 17, 2012 to address (1) the notice of the May 7, 2012 meeting, (2) the removal of the board, (3) the election of a new board consisting of Cole English, Nick Harrison, Randy Matthews, Gary Mehrok, and Olga Sehhat, (4) recission of the election to wind up and dissolve Straw Hat Cooperative, and (5) to revise the bylaws to eliminate the alternate directors. (Id. ¶ 57.)
The plaintiffs/counter-defendants held their meeting on May 17, 2012. (See Opposition, ECF No. 21 at 7 (citations omitted).) The counter-complaint alleges this about the meeting:
(TACC ¶ 60.)
At the meeting, then, the plaintiffs/counter-defendants "removed" the Cooperative board directors (and named defendants) Deborah Morris, Jeffrey Eason, Sal Listek, Clark Rupp, and Randy Wise, and "elected" Cole English, Nick Harrison, Randy Matthews, Gary Mehrok, and Olga Sehhat as the new board of directors. (TAC ¶ 55.)
In May or June 2012, the "Counter-Defendants formed [Straw Hat IP Holdings] . . . with Cole English as the managing member, for the inequitable and unjust purpose of transferring [Straw Hat Cooperative's] intellectual property, including the Straw Hat trademarks . . . to [Straw Hat IP Holdings] for no consideration." (TACC ¶¶ 17, 61.) The plaintiffs/counter-defendants "attempted and purported to transfer a minimum of . . . seven (7) Marks owned by [Straw Hat Cooperative] and licensed to [Straw Hat Restaurants], to [Straw Hat IP Holdings] without adequate consideration." (TACC ¶ 62.) "In purporting to transfer Marks with serial numbers 78967523, 76378122, 76376553,763170773, 73214150, 73144985 and 73142974 SHIPH, Counter-Defendants and each of them have sought to deprive other persons and entities operating Straw Hat Pizza Restaurants of the full use and value of the Marks and business benefits thereof." (TACC ¶ 63.)
After the May 2012 election, the defendants/counter-claimants moved for a preliminary injunction in state court to prohibit the plaintiffs/counter-defendants from taking any action as the Cooperative's board of directors. The state court granted it on August 29, 2012, finding that the plaintiffs had not produced evidence to contradict CEO Allen Strege's declaration that there were 37 Cooperative members: "Plaintiffs allege that many of these members are no longer members . . . but they have produced no evidence . . . to prove this allegation." (ECF No. 1-3 at 2-3, 7.) On January 7, 2015, the state court dissolved the injunction, finding that the plaintiffs had introduced new material facts supporting their contention that only six Straw Hat Cooperative members remained at the time the May 17, 2012 meeting took place. (ECF No. 1-13 at 5-6.)
Straw Hat Cooperative and Straw Hat Restaurants "have spent substantial time, money, and effort in developing consumer recognition and awareness of the Straw Hat Pizza mark" and "have spent significant amounts of money on print and internet advertising in order to inform consumers of the Straw Hat pizza mark." (TACC ¶ 34.) "Through extensive use of the Straw Hat Pizza mark, [they] have built up and developed significant goodwill in their entire product line . . . [and] have advertised the Straw Hat Pizza mark in a wide array of media. . . . (Id.) They are the exclusive owners of the Straw Hat Pizza registered marks and trade and service marks historically used by them in association with Straw Hat Restaurants. (Id., listing marks.)
The parties cite three documents that implicate their legal obligations: the Straw Hat Cooperative's bylaws, the licensing agreement about the use of the marks, and the membership agreements for Cooperative members.
The 2008 Straw Hat Cooperative Amended Bylaws are Exhibit A to the TACC. (See ECF No. 15-1.) The parties identify the following relevant sections.
(ECF No. 15-1 at 2-3, 6, 14-5.)
Under its "Bylaws and a separate System License Agreement dated October 27," 2008,
(System License Agreement, ECF No. 21-4 at 2-3, 7.) The agreement provides for payment of an annual fee of $50,000, and it sets forth a scheme governing IP whereby the licensor Straw Hat Cooperative retains the IP, the licensee Straw Hat Restaurants can enhance the IP and have IP ownership of those enhancements, and Straw Hats Cooperative must license in a new agreement any use of the enhancements. (Id. at 3-5.) It has termination provisions. (Id. at 6.)
The Membership Agreements for Cooperative members authorize the members to use the marks. (TACC ¶ 40 and Ex. B, Membership Agreement, ECF No. 15-2.) Each Cooperative member "has agreed and acknowledged" that Straw Hat Cooperative "has the exclusive rights to own, control, and license the use of the Marks." (TACC ¶ 43.) Each member agreed that with regard to the Marks,
(Id., quoting Membership Agreement, Article VI, § D, ¶ 1, ECF No. 15-2 at 11-12.) The Agreement provides that members can "`use Our Registered Marks only to Operate the Restaurant.'" (TACC ¶ 46, quoting Membership Agreement, Article VI, § C, ¶ 1, ECF No. 15-2 at 10.)
The Membership Agreement requires Cooperative members to pay Straw Hat Cooperative administrative fees (2%) and a marketing fee (.75%); a failure to pay fees results in delinquency and a loss of voting rights. (TACC ¶ 45; Membership Agreement, Article VII, ECF No. 15-1 at 15-17.)
The Membership Agreement also has a covenant not to compete:
(TACC ¶ 44; Membership Agreement, Article VI, § G, ECF No. 15-2 at 14-15.)
As described in Section II, the plaintiffs filed their lawsuit in October 2011, after a majority of members voted to wind up and dissolve Straw Hat Cooperative. (TACC ¶ 53.) The lawsuit involved several rounds of complaints and counter-complaints, and in 2015 — after the plaintiffs/counter-defendants added a claim of trademark infringement of the Straw Hat mark in violation of 15 U.S.C. § 1114(1)(a) — the defendants/counter-claimants removed the case to federal court. (3/25/15 Notice of Removal, ECF No. 1.) The parties consented to magistrate-judge jurisdiction. (ECF Nos. 10, 11.) The operative complaints are the TAC and the TACC.
The plaintiffs sued Straw Hat Restaurants and Straw Hats Cooperative (and its CEO Allen Strege and the five Cooperative board directors), asking for declaratory relief declaring their rights regarding the Straw Hat Cooperative (in claim 6) and alleging six additional claims (claims 1 through 5 and 7): (1) breach of fiduciary duty by the five directors during the transition to the franchise business model; (2) a right to inspect Straw Hat Cooperative's records; (3) a right to inspect Straw Hat Restaurant's records; (4) conversion (on the ground that rebates belong to Straw Hat Cooperative and not to Straw Hat Restaurant, Inc.); (5) a similar restitution claim titled "Money Had and Received"; and (7) trademark infringement in violation of 15 U.S.C. § 1114(a), because "Defendants are deceiving the public by offering their products and restaurant services under the Straw Hat Pizza trademarks, which are counterfeits "of those registered to and owned by Straw Hat" IP Holdings. (TAC, ECF No. 1-14, ¶¶ 91, 93.)
The TACC has the following claims:
(TACC, ECF No. 15, at 18-37.)
The plaintiffs/counter-defendants move to dismiss claims 3, 6, 8, 10, and 12. (Motion, ECF No. 17.) These claims were in the first amended counter-complaint ("FACC") and second amended counter-complaint ("SACC"). (Opposition, ECF No. 21 at 9-10.) The state court rejected the plaintiffs/counter-defendants' arguments to dismiss the claims for all claims except claim 3 (then cause of action 20 in the FACC); it overruled their demurrer to the FACC except that it sustained the demurrer for claim 3 (cause of action 20) with leave to amend. (Id.))
The counter-claimants first argue that the court should not overturn the state court's rulings on the same arguments. (Opposition, ECF No. 21 at 11.) The TACC supersedes the prior complaint and "renders it without legal effect." Lacey v. Maricopa Cnty., 693 F.3d 896, 927 (9th Cir. 2012) (en banc); see Ferdik v. Bonzelet, 963 F.2d 1258, 1262 (9th Cir. 1992) (same). In this situation, federal courts have permitted defendants to challenge the entire amended complaint, including those claims that the courts previously found sufficient. See O'Connor v. Uber Techns., Inc., 58 F.Supp.3d 989, 995-96 (N.D. Cal. Sept. 4, 2014) (collecting cases). Applying federal procedural rules, the court addresses the arguments in the motion.
Federal Rule of Civil Procedure 8(a)(2) requires only a "short and plain statement of the claim showing that the plaintiff is entitled to relief . . . [to] give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554 (2007). A court may dismiss a complaint under Federal Rule of Civil Procedure 12(b)(6) when it does not contain enough facts to state a claim to relief that is plausible on its face. See id. at 570. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009)."The plausibility standard is not akin to a `probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 557.)."While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the `grounds' of his `entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555 (citations and parentheticals omitted).
In considering a motion to dismiss, a court must accept all of the non-moving party's allegations as true and construe them in the light most favorable to the non-moving party. See id. at 550; Erickson v. Pardus, 551 U.S. 89, 93-94 (2007); Vasquez v. Los Angeles County, 487 F.3d 1246, 1249 (9th Cir. 2007). Courts may consider documents attached to the complaint without converting the motion into a summary-judgment motion. See Parks School of Business, Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995); Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005). Courts may also consider a matter that is properly the subject of judicial notice, such as matters of public record. See Lee v. City of Lost Angeles, 250 F.3d 668, 688 (9th Cir. 2001).
If a court dismisses the complaint, it must grant leave to amend even if no request to amend is made "unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F3.d 1122, 11127 (9th Cir. 2000) (quotation omitted).
In Claim 3, the counter-claimants claim that by transferring IP to Straw Hat IP Holdings, the counter-defendants breached a non-compete clause in their membership agreements. (TACC ¶¶ 80-83.) The counter-defendants argue that this does not state a claim because the non-compete clause prohibits only competing by the equivalent of selling pizzas, not the transfer of IP. (Motion, ECF No. 17 at 12-13.) The court agrees that the counter-claimants do not state a claim.
Claim 3 incorporates by reference the facts summarized in the Statement, supra, and has these additional paragraphs:
This is the non-compete clause:
(TACC ¶ 44 and Membership Agreement, Article VI, § G, ECF No. 15-2 at 14-15.).
The counter-defendants argue that the counter-claimants do not state a claim. (Motion, ECF No. 17 at 12.) Stripped of extra words, they assert, the non-compete clause says, "You . . . will not . . . be connected with . . . any related business that is competitive with or similar to a Straw Hat Pizza restaurant . . . except with Our prior written consent." (Id.) The TACC does not allege that Straw Hat IP Holdings is a "business that is competitive with or similar to a Straw Hat Pizza restaurant." (Id. at 16-17.) And transferring the marks is not "competition with a Straw Hat restaurant" in the way selling pizzas is. (Reply, ECF No. 22 at 9.) Thus, "the text of the non-compete covenant cannot be reasonably construed to apply to transfer of the trademarks as though it were competition with a Straw Hat restaurant." (Id.)
The court agrees: the counter-claimants do not state a claim. The non-compete clause is about conduct that is "competitive with or similar to" a Straw Hat Pizza restaurant. The transfer of IP may be an unauthorized transaction that forms the basis for other claims in the TACC. (See, e.g., TACC claim 4.) But the unauthorized transaction is not plausibly a violation of the non-compete clause's prohibition against competing with Straw Hat pizza restaurants.
The counter-claimants nonetheless argue that forming an entity that is branded "Straw Hat" for "the improper purpose" of diverting and converting the Straw Hat Cooperative's IP assets is competing for the right to control and manage the IP. (Opposition, ECF No. 21 at 12-13.) They allege as relevant the counter-defendants' acknowledgment in the membership agreements that only Straw Hat Cooperative could control the Marks. (TACC ¶ 82.) This does not change the conclusion that the assignment of the IP is not obviously a violation of the non-compete clause's prohibition against competing with Straw Hat Pizza restaurants.
The counter-claimants note that controlling the IP covers more than the marks; it includes menus, recipes, signage, and other elements that make up the Straw Hat system. (Opposition, ECF No. 21 at 13.) Diverting these, they assert, violates the covenant not to compete. (Id.) It might be that diverting IP gives the counter-defendants some business outcome that violates the non-compete clause because the conduct is "competitive . . . with a Straw Hat Pizza restaurant. . . ." (Membership Agreement, Article VI, § G.) That theory is not alleged, and the court thinks that the facts in paragraphs 1 through 79 of the TACC (incorporated by reference in claim 3) do not give "fair notice" of a claim that rests on this theory. See Twombly, 550 U.S. at 555. The court dismisses claim 3 with leave to amend.
The counter-defendants also argue that the non-compete clause violates California Business and Professions Code § 16600. (Motion, ECF No. 17 at 13.) The counter-claimants respond that their intent is to prevent misappropriation of IP, not prevent operation of a lawful business, and thus the claim does not implicate section 16600. (Opposition, ECF No. 21 at 13.) The court does not need to decide the issue because it holds that the non-compete clause does not reach the transfer of the IP.
In claim 6, the counter-claimants claim that by transferring the Straw Hat Marks to Straw Hat IP Holdings, the counter-defendants committed trademark infringement in violation of the Lanham Act, 15 U.S.C. § 1114(1)(a). (TACC ¶¶ 99-103.) The counter-defendants argue that the counter-claimants do not state a claim because they do not allege any commercial use of the trademarks other than licensed use for the Straw Hat Restaurants. (Motion, ECF No. 17 at 14-15.)
15 U.S.C. § 1114(1)(a) provides:
15 U.S.C. § 1114(1)(a).
The elements of trademark infringement are (1) a protectible ownership interest in a trademark, and (2) the defendant's use of the mark creates a likelihood of consumer confusion. See Network Automation, Inc. v. Advanced Sys. Concepts, Inc., 638 F.3d 1137, 1144 (9th Cir. 2011). "The core element of trademark infringement is the likelihood of confusion, i.e., whether the similarity of the marks is likely to confuse customers about the source of the products." Abercrombie & Fitch Co. v. Moose Creek, Inc., 486 F.3d 629, 633 (9th Cir. 2007). In determining whether there is a likelihood of confusion, a court weighs the following factors: (1) the strength of the mark; (2) the proximity of the goods; (3) the similarity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) type of goods and the degree of care likely to be exercised by the purchaser; (7) the defendant's intent in selecting the mark; and (8) likelihood of expansion of the product lines. See AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979).
The counter-defendants argue that the counter-claimants do not allege any commercial use of the marks "without the consent of the registrant." (Motion, ECF No. 17 at 14.) The only use of the mark in commerce is in connection with the operation of the restaurants, and that use is allowed by the membership agreements. (Id. at 14-15.) They assert that by definition, the licensed use of the mark cannot cause confusion or deception. (Id. at 15.) Moreover, they argue, the transfer to Straw Hat IP Holdings is not "use in commerce;" the allegation is only that the name "Straw Hat" appears in the entity name, and there is no allegation that Straw Hat IP Holdings engages in commercial activity that could cause consumer confusion. (Reply, ECF No. 22 at 9-10.) They conclude that the transfer may be illegal, but that conduct is addressed by other claims and does not amount to trademark infringement. (Motion, ECF No. 17 at 15.)
The counter-defendants' point is that this claim is about a transfer of IP to an entity that does not engage in any commercial activity, is not visible to the public, and therefore cannot create consumer confusion. But the counter-claimants allege more than this and thus plausibly state a claim. Claim 6 incorporates by reference the fact chronology summarized in the Statement, supra. (TACC ¶ 98.) That chronology establishes the core dispute in this case: who owns the marks, who can license them, and who can use them. The parties each allege that they have these rights, and they charge other with trademark infringement based on wrongful use of the marks in violation of § 1114(1)(a). For example, claim 7 in the TAC charges that the defendants/counter-claimants are deceiving the public by using the marks at Straw Hat restaurants, thus creating a likelihood of consumer confusion and deceiving the public. (TAC ¶¶ 91, 94-97.) Claim 6 in the TACC (when read in the context of the fact allegations) similarly claims trademark infringement by all plaintiffs/counter-defendants by unlawfully converting the marks, exceeding permissible use of the marks, and unlawfully claiming rights to control use of them. (TACC ¶¶ 46, 66, 101; see Opposition, ECF No. 21 at 15.) The TAC and the TACC both allege that this constitutes use of a counterfeit mark. (TAC ¶ 91; TACC ¶ 102.) In essence, both parties argue, "you do not control the marks but we do," and both argue that the others' actions have a financial impact and create customer confusion. Moreover, the plaintiffs/counter-defendants claim ownership of the marks to control (or prevent) use of them by the defendants/counter-defendants in their business. Indeed, they seek to vindicate that commercial interest by this lawsuit.
Considering these facts, the counter-claimants plausibly state a claim. They need not plead all evidence in support of their claims, and they need not plead "detailed factual allegations." See Twombly, 550 U.S. at 555. They need only state a plausible claim and give "fair notice" of what the claim is and the grounds upon which it rests." Id. The court denies the motion to dismiss claim 6.
The counter-defendants also argue that the TACC does not allege sufficiently that Straw Hat Restaurants is the registrant of the marks and as a result, Straw Hat Restaurants lacks standing to bring claim 6. (Motion, ECF No. 17 at 15-16.) The TACC sufficiently alleges facts about Straw Hat Restaurant's protectible ownership interest in the marks. See supra Statement. For example, the TACC alleges that Straw Hat Restaurants is the exclusive licensee with the right to prosecute lawsuits for infringement. (TACC ¶ 39; see Statement, supra, quoting License Agreement, ECF No. 21-4 at 2.) The counter-defendants' citation to Schedule A of the License Agreement does not change this conclusion. (Reply, ECF No. 22 at 11.) Schedule A allows the counter-defendants to maintain their restaurants. It does not eliminate Straw Restaurants' claim of an otherwise exclusive license or its standing to sue for trademark infringement.
In claim 8, the counter-claimants claim that by falsely claiming that they own the marks and by registering them with the U.S. Patent and Trademark Office, the counter-defendants falsely designated the origin of the marks, in violation of 15 U.S.C. § 1125(a)(1)(A). (TACC ¶ 110.) The counter-defendants again argue that the counter-claimants do not state a claim because they do not allege any commercial use other than licensed use at Cooperative members' Straw Hat restaurants. (Motion, ECF No. 17 at 17.) The court denies the motion to dismiss claim 8, again because the counter-claimants plausibly alleged commercial use and the potential for confusion.
15 U.S.C. § 1125(a)(1) provides:
To establish a claim for trademark infringement or false designation of origin under Section 1125(a)(1)(A), a plaintiff must prove that the defendant (1) used in commerce (2) any word, false designation of origin, false or misleading description, or representation of fact, which (3) is likely to cause confusion or mistake, or to deceive, as to sponsorship, affiliation, or the origin of the goods or services in question. See Freecycle Network, Inc. v. Oey, 505 F.3d 898, 902 (9th Cir. 2007); see also Int'l Order of Job's Daughters v. Lindeburg & Co., 633 F.2d 912, 917 (9th Cir. 1980) (claims under Section 1125(a)(1)(A), false designation of origin, or unfair competition may be proven by the same elements as common-law unfair competition, and the federal prohibitions on trademark infringement and false designation of origin each "preclude the use of another's trademark in a manner likely to confuse the public about the origin of goods") (citing New West Corp. v. NYM Co. of California, 595 F.2d 1194, 1201 (9th Cir. 1979) ("Whether we call the violation infringement, unfair competition or false designation of origin, the test is identical[:] [I]s there a `likelihood of confusion?'")). "[L]ikelihood of confusion is determined by evaluating a variety of factors including the type of trademark at issue; similarity of design; similarity of product; identity of retail outlets and purchasers; identity of advertising media utilized; defendant's intent; and actual confusion." Roto-Rooter Corp. v. O'Neal, 513 F.2d 44, 45 (5th Cir. 1975)(footnotes omitted).
The counter-defendants reiterate their argument that the TACC alleges only licensed use of the marks by their restaurants, and that claim cannot constitute confusion. (Motion, ECF No. 17 at 17.) Otherwise, they assert, the TACC does not contain any factual allegations about any of the Roto-Rooter factors. (Id.) The court disagrees. As discussed in the previous section, the case is about who owns the marks and is entitled to use or license them. The parties each claim that the others' actions constitute use "in a manner likely to confuse the public about the origin of the goods." Int'l Order of Job's Daughters v. Lindeburg, 633 F.2d at 917. Given the detailed allegations in the complaint, the counter-claimants have given "fair notice" of the claim and the "grounds upon which it rests." Twombly, 550 U.S. at 555. The court denies the motion to dismiss claim 8.
In claim 10, the counter-claimants claim that the counter-defendants' unlawful claim of ownership of the marks is trademark dilution in violation of 15 U.S.C. § 1125(c). (TACC ¶¶ 117-122.) The counter-defendants again argue that the counter-claimants do not state a claim because they do not allege any commercial use other than licensed use, and that cannot be dilution. (Motion, ECF No. 17 at 18-19.) The court denies the motion to dismiss claim 10 on the ground that the counter-claimants adequately alleged use beyond licensed use.
15 U.S.C. § 1125(c) prohibits dilution by blurring and dilution by tarnishment:
In denying the motion to dismiss claim 6, the court found that the counter-claimants plausibly alleged use that exceeded permissible use. That conclusion applies here too. The counter-defendants nonetheless argue that the plain language of the Membership Agreements establishes that they are entitled to use the marks. (Reply, ECF No. 22 at 12.) The court disagrees. These are issues of fact to be illuminated through discovery. The court denies the motion to dismiss claim 10.
In claim 12, the counter-claimants claim that the counter-defendants' actions are unlawful, unfair and fraudulent business acts or practices that violate California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200. (TACC ¶¶ 128-130.) The court denies the counter-defendants' motion to dismiss claim 12.
The UCL prohibits any "unlawful, unfair or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200. "[Because] section 17200 is [written] in the disjunctive, it establishes three separate types of unfair competition. The statute prohibits practices that are either `unfair' or `unlawful,' or `fraudulent.'" Pastoria v. Nationwide Ins., 112 Cal.App.4th 1490, 1496 (2003); see also Cel-Tech Communications, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal.4th 163, 180 (1999).
The UCL incorporates other laws and treats violations of those laws as unlawful business practices independently actionable under state law. Chabner v. United Omaha Life Ins. Co., 225 F.3d 1042, 1048 (9th Cir. 2000). Violation of almost any federal, state, or local law may serve as the basis for a UCL claim. Saunders v. Superior Court, 27 Cal.App.4th 832, 838-39 (1994). In addition, a business practice may be "unfair or fraudulent in violation of the UCL even if the practice does not violate any law." Olszewski v. Scripps Health, 30 Cal.4th 798, 827 (2003).
The court previously found that the counter-claimants plausibly alleged the Lanham Act claims. These are predicate claims that support a claim under the "unlawful" prong of the UCL. Finuliar v. BAC Home Loans Servicing, L.P., No. 3:11-cv-02629-JCS, 2011 WL 4405659, at *9 (N.D. Cal. Sep. 21, 2011) (citing People v. McKale, 25 Cal.3d 626, 635 (1979)).
In denying the motion to dismiss claims 6, 8, and 10, the court necessarily found that the counter-claimants alleged with sufficient particularity that the public (as opposed to a corporate competitor) likely would be deceived or confused by the similarity of the marks. See Capella Photonics, Inc. v. Cisco Systems, Inc., No.3:14-cv-03348-EMC, 2014 WL 8097683, at *11 (N.D. Cal., Dec. 23, 2014) (under the UCL, "a corporate-competitor `is not entitled to the protection of [the fraudulent] prong of §17200 because it is not a member of the public or a consumer entitled to such protection"); Finuliar, 2011 WL 4405659, at *10 ("to state a claim under the UCL based on fraudulent conduct, [a p]laintiff must allege, with particularity, facts sufficient to establish that the public would likely be deceived by Defendants' conduct.")
This case involves business competitors. Thus, to state an "unfair" claim under the UCL, the alleged unfairness must "be tethered to some legislatively declared policy or proof of some actual or threatened impact on competition." Cel-Tech Communications, Inc. v. L.A. Cellular Tel. Co., 20 Cal.4th 163, 186-187 (1999). In business-competitor claims, "the word `unfair' . . . means conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition. Levitt v. Yelp! Inc., 765 F.3d 1123, 1136 (9th Cir. 2014). The Ninth Circuit has held that Lanham Act claims are "substantially congruent" to state claims of unfair competition. See Cleary v. NewsCorp., 30 F.3d 1255, 1262-63 (9th Cir. 1994) (citations omitted). The counter-claimants state an "unfair" claim.
The court grants in part and denies in part the plaintiffs/counter-defendants' motion to dismiss. The court dismisses claim 3 without prejudice and denies the motion to dismiss claims 6, 8, 10, and 12. The defendants/counter-claimants must file any amended complaint within 14 days. This disposes of ECF No. 17.
