KENNETH A. MARRA, District Judge.
This cause comes before the Court upon Defendants' Motion for Summary Judgment and Incorporated Memorandum in Support Thereof (DE 39); Plaintiff's Motion for Summary Judgment and Incorporated Memorandum in Support Thereof (DE 47); Defendants' Motion to Dismiss or Strike Plaintiff's Amended Complaint (DE 48); and Defendants Daniel Mancini and Double D's Tobacco of Stuart, Inc.'s Motion for Sanctions (DE 66).
This case stems from a trademark dispute over synthetic marijuana.
In December of 2009, Kratom Lab created, produced, and began to sell a product labeled incense "not for human consumption." (DE 46 ¶ 12) ("Am. Compl."). The packaging of this product bore the name "Mr. Nice Guy," which Kratom Lab incorporated into an original graphic design logo. (Am. Compl. ¶ 13). The Court will refer to the "Mr. Nice Guy" name and the original graphic design logo collectively as the "Trademark." (At this point, the name and logo were not officially trademarked).
Because of the popularity of the product, Kratom Lab sought to distribute it online and secured the domain "www.mr-nice-guy.com" in around January of 2010. (Am. Compl. ¶ 15). In around July of 2010, Kratom Lab started selling the product directly to third party retailers in bulk to keep up with demand. (Am. Compl. ¶ 17). It was at around this time that Mancini and David Fiore, who owned and operated a tobacco store through Double D's, came into contact with Kratom Lab regarding buying the product in bulk for retail sale to consumers. (Am. Compl. ¶ 18).
Kratom Lab applied for a federal trademark on the Trademark on August 24, 2010. (DE 46, Attach. 1).
Kratom Lab filed this action on August 31, 2011 alleging that Defendants infringed on the Trademark in various ways including by purchasing the domain "mrniceguywholesale.com" and other similarly named websites and generally by holding themselves out as the manufacturer and distributor of Kratom Lab's product. Meanwhile, in response to the DEA's ban of JWH-018, Harrison and Shealey changed the formula of their incense so that it did not contain the chemical. (Shealey Dep. at 17-18). Nevertheless, both Harrison and Shealey were arrested on July 28, 2012 for the manufacture and sale of their incense under the Analogue Act, 21 U.S.C. § 813, which criminalizes the distribution for human consumption of products with substantially similar chemical structures and pharmacological effects as controlled substances.
Harrison and Shealey have since pleaded guilty to a criminal information charging violations of the Analogue Act. The factual proffers annexed to the plea agreements set forth, among other things, that the "[p]ackaging on the Mr. Nice Guy synthetic cannabinoid products falsely stated that the product was `incense' or `potpourri' and was `not for human consumption,' when the defendant[s] knew otherwise." (Case No. 12-80218-CR-Marra/Matthewman; DE 128 ¶ 10, DE 147 ¶ 10).
Defendants move for summary judgment because Kratom Lab's fraudulent misrepresentation in the application that the incense was not for human consumption requires this Court to strike the Trademark from the Trade Mark Registry under 15 U.S.C. § 1119.
Kratom Lab responds by arguing that Harrison's and Shealey's guilty pleas should not collaterally estopp Kratom Lab from arguing that its product was not intended for human consumption based on the "not for human consumption" label on the product. Kratom Lab further argues that, even if the Court concludes it misrepresented the nature of the incense product by falsely stating that it was not for human consumption, that misrepresentation was immaterial because Defendants have not provided evidence that the Patent and Trademark Office would have denied a truthful application representing the incense as "for human consumption." Finally, Kratom Lab argues that equitable principles should preclude Defendants from successfully having the Trademark invalidated because Defendants used the Trademark to their own benefit. For the reasons that follow, Defendants' motion for summary is granted.
The Court may grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The stringent burden of establishing the absence of a genuine issue of material fact lies with the moving party. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The Court should not grant summary judgment unless it is clear that a trial is unnecessary, see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986), and any doubts in this regard should be resolved against the moving party, see Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970).
The movant "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp., 477 U.S. at 323. To discharge this burden, the movant must point out to the Court that there is an absence of evidence to support the nonmoving party's case. Id. at 325.
After the movant has met its burden under Rule 56(a), the burden of production shifts and the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electronic Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). "A party asserting that a fact cannot be or is genuinely disputed must support the assertion by citing to particular parts of materials in the record . . . or showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed. R. Civ. P. 56(c)(1)(A) and (B).
Essentially, so long as the non-moving party has had an ample opportunity to conduct discovery, it must come forward with affirmative evidence to support its claim. Anderson, 477 U.S. at 257. "A mere `scintilla' of evidence supporting the opposing party's position will not suffice; there must be enough of a showing that the jury could reasonably find for that party." Walker v. Darby, 911 F.2d 1573, 1577 (11th Cir. 1990). If the evidence advanced by the non-moving party "is merely colorable, or is not significantly probative, then summary judgment may be granted." Anderson, 477 U.S. 242, 249-50.
This case turns on whether Kratom Lab fraudulently obtained the Trademark at issue, and whether Defendants may have the Court cancel the mark under 15 U.S.C. § 1119. As set forth by the Eleventh Circuit,
Sovereign Military Hospitaller v. Florida Priory, 702 F.3d 1279 (11th Cir. 2012) (citations and quotations omitted).
The first issue before the Court is whether Harrison's and Shealey's guilty pleas in the criminal case collaterally estopp Kratom Lab from arguing that the "not for human consumption" categorization of its product on the trademark application was not a misrepresentation. "Under the doctrine of collateral estoppel a party is precluded from litigating an issue if (1) the identical issue has been (2) actually litigated in a prior suit which (3) could not have been decided without resolving the issue." Matter of Raiford, 695 F.2d 521 (11th Cir. 1983) (citations omitted). Here, Harrison and Shealey admitted in the factual proffers annexed to their plea agreements that "[p]ackaging on the Mr. Nice Guy synthetic cannabinoid products falsely stated that the product was `incense' or `potpourri' and was `not for human consumption,' when the defendant knew otherwise." (Case No. 12-CR-80218-MARRA: DE128 at 14 ¶ 10; DE 147 at 13 ¶ 10).
In Matter of Raiford, the Eleventh Circuit addressed the propriety of giving a guilty plea collateral effect:
Id. at 523. Here, Harrison and Shealey pleaded guilty to violations of the Analogue Act and, along with those pleas, made factual admissions including admissions that they knew their incense was intended for human consumption. Based on the Eleventh Circuit's rationale in Raiford, the Court concludes that the pleas and accompanying factual admissions are effective for collateral estoppel purposes. Consequently, Kratom Lab is foreclosed from arguing that it did not misrepresent its product in the trademark application by categorizing it as "not for human consumption."
Moreover, the Court concludes that, as a matter of law, Kratom Lab's misrepresentation was material. As expressed in Harrison's and Shealey's guilty pleas, the incense was never intended to be distributed as anything other than for human consumption. If Kratom Lab had truthfully categorized its product as for human consumption and listed the chemical ingredient JWH-018 as a component of the product, the Patent and Trademark Office may have rejected the application once the DEA banned JWH-018 as a scheduled I controlled substance (particularly in light of the fact that the DEA banned JWH-018 before the Trademark was officially registered). See Creagri, Inc. v. USANA Health Sciences, 474 F.3d 626, 630 (9th Cir. 2007) ("[O]nly lawful use in commerce can give rise to trademark priority."). In any event, as it stands the Patent and Trademark Office never had the opportunity to assess the legality of Kratom Lab's product because Kratom Lab misrepresented what the product was. And based on the preclusive effect of Harrison's and Shealey's guilty pleas, the Court concludes that Kratom Lab subjectively intended to deceive the Patent and Trademark Office when it misrepresented its product as "not for human consumption." See In re Bose Corp., 580 F.3d 1240, 1245 (Fed. Cir. 2009) ("Subjective intent to deceive . . . is an indispensable element in the [fraud] analysis.").
Finally, the Court rejects Kratom Lab's argument that equitable principles should preclude Defendants from seeking to invalidate the Trademark. Whether Defendants profited from using Kratom Lab's fraudulently obtained trademark is irrelevant because the trademark was fraudulently obtained. Kratom Lab had no valid trademark for Defendants to infringe.
Consistent with Defendants' position that Kratom Lab inappropriately seeks to enforce a fraudulently obtained trademark, Defendants seek attorney's fees under 15 U.S.C. § 1117(a).
Here, the requisite bad faith on the part of Kratom Lab is established—by clear and convincing evidence—through Harrison's and Shealey's guilty pleas. Based on the facts established in the pleas, Kratom Lab sought to enforce a trademark it knew to be fraudulently obtained against Defendants. Because the evidence shows that Kratom Lab acted in bad faith and with an improper motive, the Court has little trouble concluding that, as a matter of law, this action is an exceptional case justifying an award of attorney's fees to Defendants as prevailing parties.
At oral argument, Kratom Lab conceded that it had no cognizable claim if the Court concluded that Harrison's and Shealey's guilty pleas had collateral estoppel effect, that Kratom Lab's misrepresentation on the trademark application was material, and that Defendants were not foreclosed from seeking invalidation of Kratom Lab's trademark on equitable grounds. The Court has so concluded. Accordingly, it is hereby
(DE 40, Attach. 2: Harrison Dep. at 20).
