JOHN A. MENDEZ, District Judge.
Defendant and Counterclaimaint Nuova Ricambi, s.r.l.'s ("NRSRL") Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment (the "Motion") came on for hearing on August 27, 2019. The Court having considered the Motion, the opposition filed by Progressive Marketing, Inc. ("Progressive"), any oral argument, as well as the pleadings and documents on file, and for all the reasons stated in the attached transcript
1. The Court grants NRSRL's motion for summary judgment on Progressive's first cause of action for infringement of a federally registered trademark;
2. The Court grants NRSRL's motion for summary judgment on Progressive's second cause of action for federal trademark infringement, false designation of origin and unfair competition;
3. The Court grants NRSRL's motion for summary judgment on Progressive's third cause of action for common law trademark infringement unfair petition;
4. The Court grants NRSRL's motion for summary judgment on Progressive's fourth cause of action for breach of contract;
5. The Court grants NRSRL's motion for summary judgment on Progressive's fifth cause of action for unfair competition under California Business & Professions Code § 17200, et seq.;
6. Accordingly, the Court grants NRSLR's motion for summary judgment on all causes of action Progressive brought against NRSRL.
7. The Court also grants NRSRL's motion for summary judgment on its first cause of action for the cancellation of trademark registration No. 3,873,210.
THE CLERK: Calling civil 17-2644, Progressive Marketing, Incorporated versus Sproparts.
Can I have counsel state their appearances, please.
MR. CAMPBELL: Yes. I'm Mark Campbell for the plaintiff, Progressive Marketing, Inc.
MS. COFFIELD: Jessica Coffield here for plaintiff.
THE COURT: Use the microphones, if you could.
MS. COFFIELD: Sorry about that. Jessica Coffield.
MR. GRANT: Jeff Grant on behalf of defendant and counterclaimant Nuovo Ricambi and Marcello Zanesi.
MR. PETERSON: Good afternoon, your Honor. Glenn Peterson, Peterson Watts Law Group, for the defendants La Marzocco and Sproparts.
THE COURT: Okay. Have a seat. Make sure the microphones are in front of you.
Mr. Grant, are you on the pleadings?
MR. GRANT: I entered a notice of appearance last week.
THE COURT: Okay. So you are intimately familiar with the motion?
MR. GRANT: Yes, your Honor.
THE COURT: Okay. There are a number of motions for summary judgment before the Court this afternoon, and we'll take them up. Let me start with the evidentiary objections, give you my reaction and response to those.
Progressive, the plaintiff, has objected to paragraphs 20 and 21 of the defendants' statement of undisputed facts. In paragraph 20, the statement says Progressive cannot create a genuine dispute of material fact that the attorney who represented it before PTO, all in caps, in 2010 did not know the difference between a trade name and a trademark. And paragraph 20 of the undisputed facts statement says Progressive cannot create a genuine dispute of material fact as to whether the PTO relies on an applicant's declaration of superior use.
Progressive objected to these facts on the grounds that the plaintiff's attorney is not a party to the action, and second, the purported facts are not actually facts. That is correct. These are statements or conclusions of law, not facts. So the Court sustains the objections.
We're going to refer to Nuovo Ricambi, S.R.L. as NRSRL, all in caps. They've raised objections to Exhibit 118 in Progressive's opposition as well as a number of statements in Mr. Lemos's declaration. They've also objected to Exhibit 106. In terms of the exhibits, Exhibit 118, it's a web page that Mr. Campbell found on La Marzocco, L-a M-a-r-z-o-c-c-o, on their website. An evidentiary objection is raised that the exhibit lacks foundation and it's hearsay. The statement of a party opponent is not hearsay, and Mr. Campbell has established personal knowledge. The objection to that exhibit is overruled.
On Exhibit 106, which is the bill of sale, a company in the asset sale agreement, the defendants object arguing that Mr. Lemos failed to establish personal knowledge of the exhibit, that argument I didn't find to have much merit. The objection to that exhibit would be sustained only to the extent that the statements in this agreement are offered for the truth of the matter asserted.
And then there were a number of objections to several statements made in Mr. Lemos's declaration. In particular, paragraphs 11, 18 and 19, 31, 44 through 45 and 47 on the grounds that Mr. Lemos lacks personal knowledge. Those objections to those specific statements have been and are going to be sustained, other than if they're offered for state of mind. The Court has considered them for that purpose. Paragraph 45 is hearsay. There is no exception to the hearsay rule, and the objection is sustained.
And then La Marzocco and Sproparts, that's spelled S-p-r-o-p-a-r-t-s, also challenged Mr. Lemos's declaration a bit more generally that his declaration is replete with unsupported conclusory statements that are patently outside the scope of his personal knowledge, and in particular they point to paragraphs 18 and 34. The objections to both of those are sustained.
Having made those rulings, quite honestly it makes little or no difference to the Court's overall view of the motions for summary judgment. Courts self-police in terms of evidentiary objections. Lawyers feel the need to make them, I understand, but again they carry little or no weight in terms of the actual merit or lack thereof of the motions for summary judgment.
Okay. Let me start with the motion made by the individual Mr. Zanesi, Marcello, M-a-r-c-e-l-l-o, Zanesi. Mr. Campbell, you named him in a counterclaim after answering the counterclaim filed by NRSRL. It honestly was somewhat difficult to figure out why you brought a claim or what the claim was for. It appears to be a breach of contract claim since the allegation says, let's see, if for some reason Zanesi's claim to be successor in interest to the Nuovo Ricambi USA, LLC is successful, he is then liable for the LLC's breach of contract. So I'm assuming it's a breach of contract claim.
Mr. Zanesi correctly points out that he's not a party to the contract, and the contract doesn't purport to confer Progressive rights to the Nuovo Ricambi USA trademark. You didn't file any specific opposition to his motion for summary judgment. Normally when that happens, I take that as a concession that there really isn't any basis for bringing a claim against him, so I'm not sure what you think is the basis for allowing the counterclaim against him to go forward. I'll give you an opportunity to hear from you, but I didn't see anything in your opposition that addressed that specifically.
MR. CAMPBELL: Yes, your Honor. I was taken by surprise by that motion. I guess in hindsight maybe I could have assumed that they were going to file a motion for Mr. Zanesi on his individual claim, but that was never part of our meet-and-confer process. So I think if I had it to do all over again I would have brought it up at the time at the meet and confer.
But so when I got it, I mean, I looked at it and I said, well, the basis for this, they're admitting here that he's not a party to the contract. And if he's not a party to the contract, he can't sue on the contract. So his action's barred by that admission, and I felt like with that out of the way, then they were right.
THE COURT: Okay. So you're conceding that you don't — you can't bring a counterclaim. I'm not — I don't have his counterclaims —
MR. CAMPBELL: I understand.
THE COURT: — in front of me. I'm just focusing on what is before me.
MR. CAMPBELL: Yes.
THE COURT: Okay. So I am going to grant summary adjudication/summary judgment in favor of Mr. Zanesi on his motion for summary judgment on the breach of contract counterclaim.
Okay. And I want to turn to NRSRL's motion for summary judgment just on the claims brought by Progressive. So on the complaint itself, there's five claims, and beginning with the breach of contract claim, again I'm not sure your theory as to how you think you can file a breach of contract claim against NRSRL under the asset sales agreement when they weren't a party to that contract. There's two reasons that they give as to why they think you can't maintain that claim. One is that they weren't a party to the asset sale agreement, and second, and we'll get into this, but that the asset sale agreement in fact didn't purport to transfer ownership of any trademark. Just focusing on that first reason though, again it's undisputed, right? They're not a party to that asset sale agreement?
MR. CAMPBELL: Well, in the sense of being — appearing with that name of that entity on a signature line, that's the case. But we contend that Mr. Zanesi, Sr. provided a broad authorization to his son to act on behalf of that entity. That is 101, Exhibit 101.
THE COURT: It's attached to your complaint too, right?
MR. CAMPBELL: No. That is not.
THE COURT: The agreement for purchase and sale of assets?
MR. CAMPBELL: It's a different document. I was referring to —
THE COURT: Isn't that the contract we're talking about?
MR. CAMPBELL: I think it's part of the group of documents that makes up the contract as a whole.
THE COURT: Well, your breach of contract claim is for that — an alleged breach of that agreement, right?
MR. CAMPBELL: We didn't know of the existence of this Exhibit 101 at the time it was filed. We contended in the complaint that Mr. Zanesi was acting — Mr. Zanesi, Jr. was acting as an agent of the S.R.L. at the time of the negotiations and at the time the written agreement was drafted, redrafted, and signed. Subsequently, we —
THE COURT: But the contract itself contradicts that. I mean, there's nothing in here that mentions NRSRL at all, unless I'm looking at the wrong contract, but I don't think I am. Am I incorrect, Mr. Grant?
MR. GRANT: No, your Honor.
THE COURT: Your client's not a party to this contract.
MR. GRANT: That's correct, your Honor.
MR. CAMPBELL: There is a letter from Mr. Zanesi, who is the CEO of the SNC, stating that he's giving his son —
THE COURT: That's fine. But the contract still doesn't include — again, if that's your argument, I understand it. I don't in any way think it allows you to maintain the breach of contract claim, but if that's all, I read that argument in your opposition. Is there anything else you're relying on other than that?
MR. CAMPBELL: Well, all of the circumstances surrounding the negotiation of the written agreement, the fact that Mr. Zanesi, Jr. was working for SNC at the time, admittedly was spending half of his time in Italy working there and half in the United States, the fact that he pled in his answer and counterclaims that he was in charge of the export function of that entity and was present negotiating, all of those things go into our allegation that, when he made the representations that are contained in that written contract, he was authorized to do that expressly by the letter of authority and also impliedly by all the circumstances.
THE COURT: Okay. I understand your argument. The second part of the argument as to why you can't maintain the breach of contract claim is in fact the contract itself doesn't transfer ownership of a trademark. It transfers ownership of a trade name and, as you point out, goodwill. Your response in the statement of undisputed facts in the opposition brief is that transfer of goodwill in effect is, as a matter of law, a transfer of the trademark. I'm simplifying but that basically was your response to the argument. You didn't get a trademark. You got a trade name and goodwill in the asset purchase agreement. There's nothing in any contract that I've seen that's been submitted by the parties that uses the phrase trademark or purports to transfer a trademark in this asset purchase agreement, again reading the four corners of the documents.
So am I understanding your argument right that because the word "goodwill" is included in the contract, your argument is, as a matter of law, I should consider that to be a transfer of the trademark?
MR. CAMPBELL: I think when a trade name is conveyed in conjunction with the goodwill, I rely upon the cases that say the goodwill is inseparable from the trademark, and there are several cases like that. So that's — that is our argument.
THE COURT: Okay.
Okay. I think you covered this in your briefs, Mr. Grant, but I wanted to give you a chance to respond if you want or add anything to what's already in your briefs.
And Mr. Peterson, I'm not sure, but I don't — maybe I'm wrong, but I didn't get the impression that your clients were named in the breach of contract claim.
MR. PETERSON: They're not.
THE COURT: Okay. Go ahead.
MR. GRANT: Yes, your Honor. On page 4 of 14 of our motion we identified some Ninth Circuit authority that draws a very bright line between trademarks and trade names, even to the extent that trade names can't be trademarked. But, you know, at the end of the day, Progressive could only be assigned what Nuovo Ricambi USA was in possession of, no more. And I think it's manifestly obvious from the briefing that the LLC, as it's called, Nuovo Ricambi USA, LLC never had any trademark rights, so it couldn't assign more than it had. But in any event, under Ninth Circuit authority, trade names are not tantamount to trademarks.
THE COURT: Okay. Anything further you want to add on that claim?
MR. CAMPBELL: I would say that looking at the Ninth Circuit authority, the trade names are given essentially the same enforceability and the same effect with the exception of some cases that talk about how the categories may be different for characterizing the trade names under section 43 of the Lanham Act, and so having a trade name effectively would give us most of the relief that we're after.
THE COURT: Okay.
MR. CAMPBELL: I'm thinking specifically of the Accuride case and some other cases that cite it.
THE COURT: Okay. And then turning to the remaining claims in the original complaint, there are claims for federal trademark infringement, false designation of origin, unfair competition, a common law trademark infringement unfair competition claim, and then the Business and Professions Code 17200 unfair competition claim.
I don't have a lot of questions. I think the legal arguments are spelled out clearly in terms of why the defendants believe that you should not be allowed, as a matter of law, to proceed with those claims as well, and it really comes down to prior use under 15 U.S.C. 1115(b)(5) and what flows from a prior use defense.
So again, I don't have a lot of questions. I understand the arguments. I just want to give each of you an opportunity if there's anything you want to add, and Mr. Campbell, particularly in your case if there's anything you want to respond to in the reply briefs, obviously because you don't get to reply in writing with respect to those claims.
MR. CAMPBELL: Yes, your Honor. There are some things that I would like to add both in the sense of the responding to the reply but also there are some points that I don't think we really got across as well as we might have in the opposition brief.
THE COURT: Okay. Go ahead.
MR. CAMPBELL: The place I want to start is making the point that prior use is a shorthand for this concept, but the cases make it clear it's prior and continuous use.
THE COURT: Right.
MR. CAMPBELL: And we went through these invoices. I supplied a summary of the contents of the invoices produced, and they display a very clear series of interruptions in the transactions in the United States.
THE COURT: Right. Except you saw their response to that which is that argument ignores the fact that it was continuous to your client throughout all the years, so you can't ignore the fact that they were supplying your client. So it was in fact continuous throughout despite these, as you point out, these years where there was — at least appeared to be a slowdown or a lack of use. So that's really the point you have to respond to. That's the part in the reply briefs that say how can you ignore that — how can you argue it was not continuous when in fact the plaintiff itself was receiving on a continuous basis year after year the supply from the defendant.
MR. CAMPBELL: Yes, your Honor. I think examining the facts in the case as closely and the analysis of the — that's used in those cases —
THE COURT: Well, let me start with that do you dispute that fact though? That's an undisputed fact, right?
MR. CAMPBELL: That my client bought parts from the Italian SRL?
THE COURT: Continuously for the entire period.
MR. CAMPBELL: Yes, that's true.
THE COURT: Okay. So doesn't that defeat your argument that there wasn't a continuous use?
MR. CAMPBELL: No. I think the focus of the analysis in the cases is not on the sale to the distributor. It's on the sale to the consumer, right, the retail sale. The cases that they're relying upon for this imputing of the use in commerce from the distributor sales to the supplier don't support that conclusion. I'm talking about the Sengoku case, the cases — the line of cases starting with that Premier Dental and so on. I can walk through what I see to be the distinguishing features of that.
The first case in the line of cases is Premier Dental.
THE COURT: And what do you believe Premier Dental holds —
MR. CAMPBELL: Well —
THE COURT: — that allows you to maintain this claim?
MR. CAMPBELL: The approach of the court there is that they were dealing with a manufacturer in that situation which we don't have in the situation here. We have a supplier. And the question was that there was an assignment that was threatened by or challenged by a third party. The reason that I've referred to this is this is the first instance where there's a question of the effectiveness of the assignment even though the rights are reserved to the assignor. The focus on who has the goodwill leads to Sengoku to apply it in a dispute where the dispute is between a manufacturer and a distributor, not a third party. So that's — as far as I could tell, that's the origin of that idea.
The next one is Omega Nutrition, and that had to do with a similar situation. And it led to the development of these four — this four-part test. Now as I understand this four-part test, that's — these cases are cases in which the court had no — it was difficult to tell what the first sale was because the distributor and the manufacturer would both claim that an initial transaction was there for sale and/or the mark wasn't created or put into use until after the relationship was established. But for one reason or another neither could, to the satisfaction of the court, prove being first chronologically.
The point I want to make is neither the Sengoku case or the WATEC case, WATEC versus Lui, which follows these earlier ones that I've already cited, address my point. And the point we're making in this case is that the use was not continuous. That point has not come up in those cases. They are cases in which they appear to be using this four-part test that's created in Omega Nutrition as a substitute for the fact that the facts themselves and these relationships don't lend themselves to identifying a transaction that should be connected to either party.
So we get into this exception, and when it's a tie, if you will in that sense, the courts had said okay, well, there's a presumption in favor of the manufacturer, giving a manufacturer here, it's going to be a presumption, but it's a rebuttable presumption, and we're going to have this four-part test that should be considered to break the tie if you will. But those cases all — none of them address the situation I'm talking about with these breaks in the use, the sale to third parties, and none of those cases will say directly that the — or the Courts don't decide directly that the sale of the distributor is to be imputed to the supplier.
THE COURT: And I can — I can imagine the lawyers on the other side are going to respond that there's no case supporting your point that a break in use of sale to a third party when you also still have sales to a distributor is in fact a break in the use. In other words, there's no case to support your view. You're trying to distinguish their cases, but there's no case that supports, at least the view that you want me to adopt, that under the facts of this case you've demonstrated that there were breaks in sales to third parties. But the undisputed facts are also there was no break in sales to Progressive itself.
MR. CAMPBELL: I don't think we get to that point. That's my argument. We don't get to that point because, first of all, all of these cases begin by saying, if there's a written agreement, that controls. And here we have a written agreement that clearly is conveying the trade name to my client and the goodwill. So I think that that differentiates or distinguishes our case from even the use of this approach of the four-part test, the tie breaker as you will.
And then when you get into those cases, you'll find that, for example, in Sengoku there's no mention made whatsoever the continuity of the use, and there's an imputation based upon representations that are made about the supplier in that case being the owner of the trademark, and they're in the writings that are produced in discovery by the distributor.
In the following case, that WATEC case, there's a license there and the court says the license is sufficient. And again we have cases after jury trial, and there's a heavy preference given to the jury's conclusions which are procedurally different than what we have in this case. But the WATEC court has that license and determines that that is sufficient to conclude that the distributor is selling in the name of the supplier, and that's a very different situation than what we have here.
THE COURT: Okay. Let's stay on that point, Mr. Peterson and Mr. Grant, you want to respond at all to that argument? I know you did so in the briefs, but anything you want to add?
MR. GRANT: Not that's already set forth in the brief. Use is, we believe, exhibited through sales to Progressive, but it's also through Progressive's own use of our name to sell the products. And so the use is demonstrated by the sales and the advertising use that they use to sell our products. Otherwise, I'm going to rely on the papers.
THE COURT: Okay. Mr. Peterson, anything you want to add?
MR. PETERSON: The only thing I would add, your Honor, to what's already before the Court in the briefs is that the continuity of use as to La Marzocco has not been refuted.
THE COURT: Right.
MR. PETERSON: And so I think that having been said, I think that the law of the Ninth Circuit is quite clear both in the Sengoku case and the Water Co. case, those are cited on page 7 of our reply. I think the law is clear in that regard. But irrespective of any discontinuity in use, there has been no gaps established against La Marzocco.
THE COURT: Why is La Marzocco named as a defendant? I was going to get to them last, but let's pick that up now. I had a hard time figuring out why you named them as a defendant.
MR. CAMPBELL: Well, they were promoting the Sproparts venture. The president of La Marzocco is also the president of Sproparts.
THE COURT: Well, you named Sproparts but why La Marzocco?
MR. CAMPBELL: They were publishing literature to promote Sproparts as the new Nuovo Ricambi, if you will.
THE COURT: Right.
MR. CAMPBELL: And that's why we named it.
THE COURT: Okay.
MR. CAMPBELL: It was use of the mark or the trade name in the competition, and they were actively promoting it and enabling it.
THE COURT: Disagree with that, those facts. Whether it gives rise to a legal claim is another issue, but —
MR. PETERSON: I mean, it really shouldn't matter based on — the primary basis for La Marzocco's motion is a laches defense.
THE COURT: Yeah. But you also are part of the other prior use defenses as well.
MR. PETERSON: True, true.
THE COURT: Okay.
MR. PETERSON: Again, I mean, there hasn't been anything to refute the Colello declaration as to the continuity of use.
THE COURT: Okay.
MR. CAMPBELL: Your Honor, may I be heard?
THE COURT: Yes, go ahead.
MR. CAMPBELL: I'm going to come back to these invoices, okay? These are presented in discovery, and I questioned Mr. Zanesi in his deposition about them. He says they were a complete set. And they show huge breaks of time of sales to La Marzocco, and this creates I think a material question of fact as to the accuracy of these statements made by Mr. Colello that during this entire period of time they were selling goods acquired from Nuovo Ricambi S.R.L. They didn't get them from Nuovo Ricambi S.R.L. I don't know where they got them from because they didn't get them from the SRL because there are no invoices to support that. There are at one point a seven-and-a-half-year gap where there's no sale to La Marzocco.
THE COURT: Okay. I understand the argument.
I cut you off in the sense were there other points that you wanted to raise in response to whatever you may have seen in the reply briefs?
MR. CAMPBELL: Yes, your Honor. There are some that I'd like to make. I do — I would like to go back, if I may, to add to what we put in the opposition.
THE COURT: As long as it's responsive to what's in the reply, go ahead.
MR. CAMPBELL: I'm not sure I understand. There's some evidence I would like to point out.
THE COURT: You can't add new evidence or new arguments at oral argument. If you are responding directly to something raised in the reply brief, then I'll allow you to, in effect, supplement your record, but you can't suddenly raise new arguments that they haven't had a chance to respond to. That's the whole point of a reply brief.
MR. CAMPBELL: Well, they're not new. They're in the documents that we provided, and they're in the separate statement.
THE COURT: Okay.
MR. CAMPBELL: Yeah. They're all in front of the Court, and they've all been, you know, part of what was served on the parties.
THE COURT: Okay.
MR. CAMPBELL: It's not new material in that sense.
THE COURT: Okay.
MR. CAMPBELL: I just don't think that this got communicated as effectively as I would like to have seen it communicated.
THE COURT: Go ahead.
MR. CAMPBELL: The point I want to make is that the — when you — if you look at the summary of the transactions at Exhibit 117 where you see these gaps, I did not observe another gap that's a two-year, one-month gap between the sale to — last sale to Armando Espresso on March 25th, 2005, and the sale to the East Coast customer, one of the sales that was done in breach of the exclusive agreement of September 10th, 2007. So there's two years and four or five months' gap there in addition to the ones that are identified in the red letters on the right-hand column. So we've got a total of three that are over a year, one that's ten months, one that's three years, and one that's two years. So it's in the documents that have been given to everybody, but I did not pick up on it when I put together the summary.
THE COURT: Okay.
MR. CAMPBELL: The other thing I think that needs to be — I would like to draw your attention to is if you look at this summary from the point of view of Mr. Lemos and his state of mind at the time of the declaration that they allege constitutes a fraud allowing them to set aside the — or to defeat the cause of action based upon a registered trademark, you will see that in fact there are no transactions within five years of that declaration at all except for those that he wouldn't have known about because they were being done on the side, on the sly, to these East Coast customers. So part of the proof has to be in this fraud allegation is that he knew what he was saying was false when he executed the declaration to the USPTO. And, you know, it was not false, even going beyond his state of mind and going to the actual facts, there was more than a five-year gap.
The other thing is they keep dropping the last part of that declaration off of the quotes when it's talked about. There's a requirement and there's a provision in there that says if a declarant is saying they are not aware of any other use, that is likely to cause confusion in commerce. And that is explained in Mr. Lemos's declaration as to his state of mind as to why that declaration could be executed truthfully because he believed that all of these other uses were uses that were not going to create confusion because they were, if you will, side deals that weren't going to go to his customer base.
THE COURT: And it's a nice segue to the last issue that I wanted to raise with the defendants, and it's on the motion for summary judgment on the counterclaim, the first claim in the counterclaim, the cancellation of the trademark claim, and following up on those comments. I want to give you an opportunity to address those comments, but I tend to agree with Mr. Campbell that on that issue, the fraud and the procurement issue, that there is a genuine issue of material fact. It really is — I know you want me to draw an inference that because the statements used for registration purposes were not true, were false, that I can draw from that inference that Mr. Lemos had the intent to induce the PTO.
And given all the facts that have been submitted to the Court and the evidence submitted, in particular both at deposition and the declaration, even if you sustain the objections to the declaration itself, raise a genuine issue of material fact on the intent to issue. Your argument is, Judge, you can draw that, an inference, in a summary judgment stage. I'm very reluctant to draw that type of inference particularly when the evidence has to be viewed in the light most favorable to the opposing party.
If you want to add anything, that's fine, but I can tell you honestly that's where I'm headed with respect to that motion. I just think it's an issue that a jury should decide, not a court at a summary judgment stage.
MR. GRANT: Thank you, your Honor. So our counterclaim for cancellation is predicated on two grounds. The first, as you noted, is the fraud. It should be canceled based on fraud. But the second ground is the prior continuous use by a senior user, and this is part and parcel with the discussion that we've had up until now. The cancellation is appropriate for all of the reasons that their infringement claims fail is that there's a prior senior user out there that invalidates their trademark.
THE COURT: Mr. Peterson, you want to add anything?
MR. PETERSON: Well, even if the Court ultimately rules as its indicated, that we would go to trial on the fraud claim, the issue of Mr. Lemos's intent when he filed the registration papers with the PTO, I think on this record there's abundant evidence to support cancellation based on the prior use, or if not cancellation, the Court could properly rule on summary judgment that the plaintiff can assert, you know, no claim. So there are cases, at least one, that talks about even where the court stops short of cancellation, it issues a declaratory-type judgment that the plaintiff can't assert any claims against the prior users or those protected by prior use.
The other minor comment I would make on the issue of Mr. Lemos's intent — and I appreciate the Court's, you know, rulings on the evidentiary objections, but something that Mr. Lemos said in his declaration really kind of tickles the issue of judicial estoppel. I mean, what he's told the Court in his declaration is that I was aware of La Marzocco's rights to import and sell in the United States. I was aware of Armando Espresso's similar rights. I just didn't take any action on it because, eh, you know, I didn't think it was a big deal. So and I noticed —
THE COURT: Right. They were selling to Starbucks.
MR. PETERSON: Right. Okay. But I mean what he's saying is, for purposes of defending against our laches claim, he's telling your Honor, you know, my delay was not unreasonable because, yeah, I knew they were out there, but I didn't think it was a big deal. That doesn't harmonize with his declaration testimony regarding what he intended when he submitted the registration filings with the trademark office.
So he's telling the Court two slightly different stories. And I just wanted to point that out because I understand where the Court's headed or where its tentatively headed. And it's a little bit of a wobbler on summary judgment where there's state of mind at issue, but I think the Court would rightly take note of the inconsistent statements under oath by the plaintiff.
THE COURT: So Mr. Campbell, coming back to you, assuming I agree with you that there's a genuine issue on the fraud defense, the second issue is also what they're arguing would give the Court a basis for granting summary judgment on the cancellation of the trademark, and that is the prior continuous use by a senior user. What's your response to that, if that's the grounds for granting summary judgment on the cancellation of the trademark? Isn't it undisputed that there was —
MR. CAMPBELL: We contend there wasn't continuous use.
THE COURT: Okay. So it comes back to your argument.
MR. CAMPBELL: Yes. It goes back to the argument. And as far as being inconsistent in the declaration, I don't believe that's the case.
THE COURT: You don't have to worry about that. I'm just focused on this prior continuous use. And again, your response to that is, as a matter of law, prior continuous use wouldn't include sales to Progressive?
MR. CAMPBELL: That's correct.
THE COURT: Okay.
MR. CAMPBELL: Yeah. I mean, the Casual Corner case I cited in the brief deals with a situation in the — it's an 1125 cause of action there. But these cases all line up pretty good on any of the theories in terms of the continuity of use, and I've found a number of cases that, you know, expressly say that the — this applies to the 1125 action. So we're back to that continuous use requirement, and I don't think that they have continuous use. So the fact that their use is earlier doesn't get them there.
THE COURT: And again, you believe you have continuous use because it's undisputed that there was continued sales to Progressive, at a minimum?
MR. GRANT: At a minimum.
THE COURT: Okay. You don't dispute the breaks that the invoices show or that he discovered or at least that would create an issue as to whether there was continuous use to third parties? I mean, you really can't dispute that because that creates an issue of fact.
MR. GRANT: Correct, your Honor. We don't dispute the validity of those invoices, and there are no additional sales from us or from the Italian company to the American distributor during those windows.
THE COURT: Okay.
MR. PETERSON: Your Honor, on that point —
THE COURT: Go ahead.
MR. PETERSON: — La Marzocco does dispute the contention that there was any gap in use or importation and sales by them. The invoices that were presented to you in the opposition came from discovery responses from Nuovo Ricambi. La Marzocco's never answered any discovery responses in this case. They were never asked, give us all the records to support your continuous use. So I just want to point out to the Court that I don't think there's anything close to a proper evidentiary record that would break La Marzocco's continuity of use in the evidence that they've presented.
THE COURT: I guess my response to that is but it's your summary judgment motion, so did I miss something, or did you present evidence on behalf of La Marzocco that shows that there was continuous use?
MR. PETERSON: Yes, the Colello declaration does that.
THE COURT: Okay. And there's nothing to dispute that in the opposition?
MR. PETERSON: No, sir.
MR. CAMPBELL: We believe there is.
THE COURT: What do you believe?
MR. CAMPBELL: There was invoices.
THE COURT: Well, are there any invoices from La Marzocco?
MR. CAMPBELL: There are no invoices from La Marzocco to third parties, and all the invoices we have, where else would they have gotten these parts but from the party that comes to the court saying they have the first use, they have the primary right to the trademark, and that contend that they have been continuing to use it all this time. So I don't know where they got the parts Mr. Colello is talking about, but from what we see in evidence, it isn't from this Italian company.
THE COURT: So what's the response to that, Mr. Peterson?
MR. PETERSON: The response to that is that La Marzocco shouldn't be bound by discovery responses from —
THE COURT: I agree. But you still have to prove that there was —
MR. PETERSON: Right.
THE COURT: — continuous use.
MR. PETERSON: Right.
THE COURT: And other than, in effect, some would argue a self-serving declaration, what supports his declaration? What evidentiary support is there?
MR. PETERSON: Well, he gave detailed evidentiary statements about what they've done for the past 20 years, and they not only imported and distributed in the United States, they sold the rights at one point to another company by the name of Franke. And then later I think it was in 2008 they bought the rights back.
THE COURT: Right.
MR. PETERSON: So what I'm hearing is that the plaintiff wants to challenge the evidence that we've submitted of continuous use over the past 20 years by saying, well, wait a minute. The invoices from Nuovo Ricambi don't show sales to La Marzocco.
THE COURT: Right.
MR. PETERSON: And what I'm saying is that isn't sufficient evidence to overcome what we've presented.
THE COURT: I understand.
MR. PETERSON: Okay.
MR. CAMPBELL: It's a disputed fact.
THE COURT: All right. We're going to take a break. I'm going to take a look at a few things, and I'll come out. I actually am prepared to rule on the motions this afternoon, but I want to look at a few more things. Okay. Give me about ten minutes.
(Recess taken 2:20 p.m. to 2:33 p.m.)
THE COURT: All right. The Court is prepared to render its decision on the remaining motions for summary judgment. I will not be preparing a written opinion. The Court's comments here during the oral argument will serve as the Court's opinion. If anyone wants to order a transcript, you're free to do that, but there will not be a follow-up written opinion as well.
All right. Let's start with the breach of contract claim and the defendant's — NRSRL's motion for summary judgment on that claim. Progressive has brought a breach of contract claim against NRSRL alleging that they — it breached the asset sales agreement by not providing the trademark rights it promised to provide to Progressive, instead using the trademark rights for its own benefits. A breach of contract claim requires a plaintiff to show the existence of a valid contract, plaintiff's performance or excuse for nonperformance, defendant's breach and the resulting damage to the plaintiff, NRSRL has argued that the Court should grant summary judgment on this claim for two reasons. First, that it was not a party to the asset sale agreement, and second that the asset sale agreement in fact did not purport to transfer ownership of. NRSRL's trademark.
Progressive has argued that NRSRL was a party to the asset sale agreement because Mr. Zanesi was acting as an agent of NRSRL when he signed the contract. Specifically, Progressive argues that, quote, an agent acting within his apparent or ostensible authority binds the principal where the principal has intentionally or negligently allowed others to believe the agent has this authority. Progressive bases this argument in part on a representation that NRSRL made before Progressive signed the asset sales agreement that's Exhibit 101.
It says the firm Nuovo Ricambi SNC/Italy authorizes Zanesi Marcello to sign for our name the possible documents that concern us. The scope of an agent's authority is a question of fact, but to summary judgment, a disputed question of fact must be material. Here the question of whether Mr. Zanesi was acting as an agent of NRSRL is immaterial the Court finds because Progressive cannot prove breach either way. The asset agreement does not, as Progressive contends, purport to transfer NRSRL's trademark rights.
Rather the agreement includes the sale of Nuovo Ricambi USA, LLP's, quote, trade name and goodwill, closed quote. That's Exhibit 103 to the opposition. Progressive does not and cannot identify any place in the agreement that mentions a, quote, trademark, closed quote, or quote, mark, closed quote. It simply contends and argues that goodwill is inseparable from trademark rights.
But as NRSRL argues, a trade name is not the same as a trademark, citing Self-Realization Fellowship Church versus Ananda Church of Self-Realization, a Ninth Circuit case from 1995. A trade name symbolizes the reputation of a company or organization and the activities it engages in. A trademark, on the other hand, is used to identify and distinguish the various products sold by that business. A designation may be a trade name. A trademark, neither or both. But a designation used only as a trade name cannot be federally registered as a trademark.
While true that a trademark may not be sold without also conferring a business's goodwill, a business's goodwill can be transferred without selling its trademark, and that's what we have in this case.
The basic rule of trademark assignments is that a trademark cannot be assigned to another separate from the goodwill associated with that mark. And again that's the holding in Self-Realization Fellowship Church in which the court held that a trade name symbolizes a business and its goodwill. But Progressive's argument that, quote, goodwill, closed quote, is synonymous with trademark fails as a matter of law. There is nothing in the asset sales agreement that compelled NRSRL to sell Progressive the trademark rights to Nuovo Ricambi USA, LLC, and absent such a term, Progressive's claim that NRSRL breached the asset agreement cannot stand; and the Court therefore grants NRSRL's motion for summary judgment on Progressive's breach of contract claim.
Progressive's complaint also alleges trademark claims and an unfair competition claim under Business and Professions Code Section 17200. NRSRL argues that it is entitled to summary judgment on all of these claims. To succeed on its motion for summary judgment, NRSRL must overcome two hurdles. First it must prove that incontestable status of Progressive's trademark does not apply, and then it must prove that its use of the Nuovo Ricambi trademark is senior to Progressive's. The Court does find that NRSRL has made both of these showings because it has and obviously the other defendants will benefit from the Court's rulings as well.
In terms of the incontestable mark issue under 15 U.S.C. Section 1065, a registered trademark becomes incontestable after the mark has been in continuous use for five consecutive years subsequent to the date of registration if certain conditions are met. To the extent that the right to use the registered mark has become incontestable under section 1065, the registration shall be conclusive evidence of the validity of the registrant's exclusive right to use the registered mark in commerce. That's 15 U.S.C. Section 1115(b).
Section 1115(b), however, does contain nine defenses to a trademark's incontestable status. When a party proves one of these defenses, then the registrant's previously incontestable registration is no longer conclusive evidence of its right to use the registered mark. It becomes only prima facie evidence of that right.
A challenger may rebut a registrant's prima facie claim to a trademark by proving his use of the mark has priority over the registrant's. In this case NRSRL contends that it is entitled to summary judgment on Progressive's trademark infringement, false designation of origin and unfair competition claims because the defenses in Sections 1115(b)(1) and 1115(b)(5) bar these claims as a matter of law.
The Court finds that the 1115(b)(1) defense raises disputes of material fact and therefore would preclude summary judgment under that argument. That's the fraud and the procurement claim. NRSRL is, however, the Court finds, entitled to claim the Section 1115(b)(5) defense.
Just very briefly, as I mentioned during oral argument and the questions that I raised, I do think there is a genuine issue of material fact as to intent that the plaintiffs have raised sufficient facts to raise a genuine issue on the intent issue under the 1115(b)(1) fraud in a procurement defense. And so I'm not going to spend a lot of time on that, but I think there is again sufficient evidence to preclude the Court from granting summary judgment because of the intent to deceive requirements under that section.
On the 1115(b)(5), the prior use defense the Court, as I mentioned, does find this to be a valid defense as a matter of law and entitles the defendants to summary judgment for these reasons: A registered trademark loses its incontestable status when the purportedly infringing mark was adopted without knowledge of the registrant's prior use and has been continuously used by such party from a date prior to the date of constructive use of the mark established. To prove this defense, the defendants must show, first, that it adopted the use of the disputed mark without knowing about the registrant's prior use. And 2, it has continuously used the mark from a point in time prior to the mark's registration until the present. That's the Casual Corner Associates case, a Ninth Circuit case from 1974.
The Court finds that Progressive has failed to identify a genuine disputed material fact that would preclude NRSRL from availing itself of the prior use defense under 15 U.S.C. Section 1115(b)(5). A defendant claiming the prior use defense must show it has common law rights to the mark that predate the mark's registration. Establishing common law rights to a trademark requires that party to show that it used the mark in commerce. Courts have determined whether a mark was used in commerce under a totality of the circumstances test considering factors such as market penetration, advertisements, participation in trade shows, et cetera.
In this case it is undisputed NRSRL adopted use of the Nuovo Ricambi mark without knowing about the registrant's prior use. As early as 1994, before NRSRL had a domestic distributor, it did in fact attend trade shows in the United States to promote its brand and services. It also sold products to at least two United States customers, La Marzocco and Armando Espresso.
Progressive does not and cannot contend that it used the Nuovo Ricambi USA mark before becoming NRSRL's domestic distributor, nor does it or can it dispute the adequacy of NRSRL's initial use of the Nuovo Ricambi mark in commerce. In fact, the Court finds that NRSRL has satisfied the first element of this prior use defense.
The second element is this continuous use, and Progressive has attempted to raise a genuine issue of material fact as to the continuous use element. The Court does not find as a matter of law that is sufficient. There is no genuine dispute about whether NRSRL has continuously used its mark within the United States from a time before the mark's registration until present if you include the sales to Progressive. And I'll get to that.
Continuous usage requires sufficiently public usage to identify or distinguish the marked goods or services in an appropriate segment of the public mind as those of the adopter of the mark. Use of the mark must be bona fide and made in the ordinary course of trade. It must be deliberate and continuous, not sporadic, casual, or transitory. In Casual Corner the Ninth Circuit found a gap in sales of one year was enough to render a party's claimed use noncontinuous.
Progressive has argued that in its summary of NRSRL's invoices there is reflected gaps in NRSRL's sales to the United States, three gaps of a little over one year, one gap of a little over three years, and an additional gap that Mr. Campbell mentioned today during oral argument. But as NRSRL identifies in the reply, Progressive's summary completely excludes NRSRL's sales to Progressive from 1998 to 2016. And the Ninth Circuit has previously found that courts consider a foreign supplier's sales to its United States distributor in the continuous use analysis.
The WATEC Co. case that we discussed clearly is similar, and in that case the Ninth Circuit found that the sale by a foreign supplier to its United States distributor did satisfy the continuous use. The facts were similar in WATEC. The court held that a person claiming senior rights in a trademark must establish not only that he or she used the mark before the mark was registered, but also that such use has continued to the present. Watec Japan argued that it can establish continuous use during the time between Watec America's formation and Genwac's formation based on Watec America and Liu's use because Watec America and Liu were using the marks as Watec Japanese licensees during that time period. While it may have been a license, it still involved sales from a supplier to a distributor, and I think WATEC is instructive on that legal point.
NRSRL also contends that it continuously sold parts and accessories into the United States marked under the Nuovo Ricambi brand since 1989. That's the same undisputed fact number 7. Progressive does purport to dispute this statement, but Progressive has failed to provide any evidentiary support for the notion that there was any gap whatsoever in NRSRL's sales to Progressive during the pendency of the 1998 distribution agreement. Therefore, there is no disputed fact that is genuine and cannot be used. There's no disputed fact that can be used to preclude summary judgment. The Court finds on this issue that NRSRL's claim to the prior use defense under Section 1115(b)(5) is meritorious.
While overcoming a trademark's incontestable status does not in and of itself defeat the registrant's trademark infringement claim, devoid of its incontestable status, registration of a trademark is still prima facie evidence that the registrant is the owner of the mark. But a nonregistrant, in this case NRSRL, can rebut this presumption by showing that the registrant had not established valid ownership rights in the mark at the time of registration. The nonregistrant must make this showing by a preponderance of the evidence.
The standard test of ownership in trademark law is priority of use. In this sense, the test for trademark ownership is synonymous with the first element with a prior use defense to incontestability. To acquire ownership of a trademark, the party claiming ownership must have been the first to actually use the mark in the sale of goods or services. As the Court has discussed, it is undisputed that NRSRL was the first to use the Nuovo Ricambi mark. NRSRL's use of the Nuovo Ricambi mark therefore clearly has priority over Progressive's use of Nuovo Ricambi USA. Because NRSRL's use of the Nuovo Ricambi mark is senior to Progressive's use of the Nuovo Ricambi USA mark, Progressive cannot show it has an ownership interest in NRSRL's mark. And absent a protectable ownership interest, Progressive's trademark infringement claim fails as a matter of law.
For those reasons, the Court grants NRSRL's motion for summary judgment on Progressive's first cause of action for federal trademark infringement. On the second cause of action for a trademark infringement, false designation of origin and unfair competition, and on the third caution of action for common law trademark infringement unfair competition claim. With summary judgment being granted on those claims, the Business and Professions Code Section 17200, the unfair competition, the state law claim fails as a matter of law since it is derivative and dependent on those other claims. So the Court does grant summary judgment in its entirety on all the claims in the complaint brought by Progressive against NRSRL.
The complaint also alleges trademark infringement false designation of origin and unfair competition claims against La Marzocco and Sproparts. La Marzocco and Sproparts, as they argue, are entitled to summary judgment on each of these claims as well because — and the Court has found that NRSRL's rights to the Nuovo Ricambi mark are senior to Progressive's.
I'm not going to and do not have to reach the equitable defenses arguments, laches, acquiescence, and unclean hands given the Court's findings that the prior use entitles La Marzocco and Sproparts to summary judgment. So therefore, with respect to those two defendants on their summary judgment motions, those are granted, and the complaint is dismissed against them as well.
That leaves the motion for summary judgment by NRSRL on its cancellation of the mark claim. There are again two bases for this motion claiming that, first of all, because Progressive fraudulently procured its registration that NRSRL would be entitled to a cancellation of the trademark, I have already found there are genuine issues and genuine disputes of material fact that would preclude granting summary judgment on that grounds, but because of the Court's findings on prior continuous use because prior continuous use would entitle NRSRL to summary judgment on the cancellation of trademark claim, for all those reasons the Court does grant the motion for summary judgment on the cancellation of a trademark claim brought in the counterclaim.
That is the Court's rulings. If anyone wants again a — we'll prepare a minute order that will reflect the Court's rulings. The transcript also obviously will stand as a basis for the Court's rulings. If there is any need for a written order, my suggestion is you can submit one, put it on the docket, and attach the transcript which is probably the easiest way to do that.
Okay. I think there's a pretrial conference since the counterclaim still is active. Mr. Peterson, your clients are out, I think.
MR. PETERSON: Right.
THE COURT: When is the pretrial, Mr. Vine?
THE CLERK: October 4th, your Honor.
THE COURT: Okay. So October 4th is the pretrial. We'll see all of you then. Thank you.
MR. GRANT: Thank you, your Honor.
(The proceedings adjourned 2:56 p.m.)
I certify that the foregoing is a true and correct copy of the transcript originally filed with the clerk of court on 9/5/19, Docket No. 44, correcting the transcript at page 41, line 15, changing the word "wouldn't" to "would."
