GLEN E. CONRAD, Chief Judge.
On October 18, 2010, Virginia Polytechnic Institute and State University ("Virginia Tech") commenced this action against Hokie Real Estate, Inc. ("Hokie Real Estate"), asserting claims of false designation of origin and trademark dilution under the Lanham Act, 15 U.S.C. § 1125, and a supplemental claim of unfair competition under Virginia law. All three claims stem from the defendant's use of the HOKIE trademark. After the court denied Hokie Real Estate's motion to dismiss the complaint and Virginia Tech's motion for preliminary injunction, Hokie Real Estate
In May of 2000, Virginia Tech obtained a federal registration for the HOKIES trademark. The registration extends to precious metals and jewelry (International Class 14); paper goods (International Class 16); leather and imitation leather goods (International Class 18); glassware (International Class 21); and clothing (International Class 25). The federal registration permits Virginia Tech to use the symbol ® on goods covered by the registration.
Hokie Real Estate's counterclaims are based, in part, on acts of fraud that were allegedly committed by Virginia Tech, Locke White, and Lawrence Hincker in conjunction with the university's efforts to obtain and renew its federal trademark registration. Hokie Real Estate first alleges that Virginia Tech falsified its date of first use of the term HOKIES when the university submitted its trademark application to the United States Patent and Trademark Office ("PTO") on October 2, 1998. To support the application, Virginia Tech submitted a declaration stating that the university's first use of the HOKIES mark occurred at least as early as November 11, 1896. Virginia Tech also submitted a declaration that confirmed the truth of all of the facts set forth in the trademark application. Relying on an affidavit from a retired Virginia Tech professor, Virginia Tech's responses to discovery requests, and its own review of university newspapers and yearbooks, Hokie Real Estate alleges that Virginia Tech did not use the term HOKIES in or before 1896, that the university has no evidence of its alleged use of the term in or before 1896, and that the university's statements to the contrary in support of its trademark application were clearly false.
Hokie Real Estate also alleges that White and Hincker were responsible for false statements made in connection with Virginia Tech's efforts to renew its federal trademark registration. Specifically, Hokie Real Estate alleges that White and Hincker prepared and submitted declarations in 2005 and 2010, which stated that the term HOKIES was then in continuous use on all of the goods listed in the registration, when, in fact, the term was not being used on or in connection with tie tacks or gold pins in International Class 14, brief cases in International Class 18, or bath robes in International Class 25.
Hokie Real Estate also alleges that Virginia Tech has used, and continues to use, the federal registration symbol with the term HOKIE (singular), which is not registered. Hokie Real Estate contends that information provided during discovery demonstrates that Virginia Tech, White, and Hincker are aware that the term HOKIE is not registered and that it is unlawful to use the registration symbol in connection with the unregistered mark. Nonetheless, according to Hokie Real Estate, the counterclaim defendants have marketed items containing the fraudulent marking and/or permitted the federal registration symbol to be used improperly.
Hokie Real Estate further alleges that Virginia Tech has unlawfully used the federal registration symbol with the term HOKIES on classes of goods for which the
Based on the foregoing allegations, Hokie Real Estate has asserted six counterclaims. In Counterclaim One, filed against Virginia Tech, Hokie Real Estate seeks an order cancelling the registration of the HOKIES mark, pursuant to 15 U.S.C. §§ 1119 and 1064(3), on the basis that Virginia Tech made false representations of material fact in its initial trademark application and in the declarations submitted to renew the registration. In Counterclaim Two, filed against Virginia Tech, Hokie Real Estate seeks rectification of the trademark registry under 15 U.S.C. § 1119. Specifically, Hokie Real Estate requests an order requiring deletion of the 1896 date of first use in the university's federal registration. In Counterclaim Three, filed against Virginia Tech, Hokie Real Estate seeks a determination of registration rights in the term HOKIE under 15 U.S.C. § 1119. In Counterclaim Four, filed against Virginia Tech, Hokie Real Estate seeks a determination of registration rights in the term HOKIES under 15 U.S.C. § 1119. In Counterclaim Five, filed against White and Hincker, Hokie Real Estate seeks damages under 15 U.S.C. § 1120, based on false statements allegedly made in connection with declarations filed in support of Virginia Tech's efforts to renew its federal registration. In Counterclaim Six, filed against Virginia Tech, White, and Hincker, Hokie Real Estate asserts a claim of false commercial advertising or promotion under 15 U.S.C. § 1125(a)(1)(B), based on the "numerous illegal markings with the federal registration symbol ("®") of products bearing the terms HOKIE and HOKIES effected or authorized by [Virginia Tech], White, and Hincker." (Docket No. 29 at 25).
Virginia Tech, White, and Hincker have moved to dismiss the counterclaims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Rule 12(b)(6) authorizes dismissal of a claim for "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). To withstand a motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Although "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the grounds of [its] entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (internal citations and quotation marks omitted). Assuming the factual allegations in the complaint are true, they "must be enough to raise a right to relief above the speculative level." Id.
As a public university, Virginia Tech is considered an arm of the state. Consequently, the university is entitled to the Commonwealth's sovereign immunity under the Eleventh Amendment to the United States Constitution. See Carboni v. Meldrum, 949 F.Supp. 427, 433 (W.D.Va.1996) (holding that Virginia Tech enjoyed Eleventh Amendment immunity).
The Eleventh Amendment bar to suit is not absolute. Instead, it is subject to several well-established exceptions:
Bragg v. W. Va. Coal Ass'n, 248 F.3d 275, 291-292 (4th Cir.2001) (internal citations and quotation marks omitted).
In this case, Hokie Real Estate advances three arguments to support its position that the Eleventh Amendment does not bar the counterclaims against Virginia Tech. First, Hokie Real Estate argues that the Eleventh Amendment does not preclude claims for equitable relief against a state agency. Second, Hokie Real Estate contends that Virginia Tech waived its Eleventh Amendment Immunity by registering the HOKIES mark. Finally, Hokie Real Estate argues that Virginia Tech waived its immunity by commencing the instant action in federal court. The court will address each of these arguments in turn.
Hokie Real Estate's first argument, that the Eleventh Amendment only bars claims for damages against state agencies and does not preclude claims for equitable relief, is without merit. The decisions cited by Hokie Real Estate, such as Bright v. McClure, 865 F.2d 623 (4th Cir.1989), applied the exception to Eleventh Amendment immunity announced by the United States Supreme Court in Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). That exception, however, "which permits a federal court to issue prospective, injunctive relief against a state officer to prevent ongoing violations of federal law," McBurney v. Cuccinelli, 616 F.3d 393, 399 (4th Cir.2010), does not apply "in suits against the States and their agencies, which are barred regardless of the relief sought," Puerto Rico Aqueduct & Sewer Auth., 506 U.S. at 146, 113 S.Ct. 684. See also South Carolina Ports Auth. v. FMC, 243 F.3d 165, 177 (4th Cir.2001) (noting that Ex parte Young is "irrelevant" when a private party brings a complaint for legal and equitable relief against a state agency).
In College Savings Bank, the Supreme Court was presented with the question of whether a state agency retains its Eleventh Amendment immunity in an action brought pursuant to the Trademark Remedy Clarification Act, even after the agency engages in activities regulated by the Lanham Act.
Applying College Savings Bank, the court concludes that Virginia Tech did not voluntarily waive its sovereign immunity by choosing to participate in the federally regulated trademark process. While Hokie Real Estate contends that a registered trademark constitutes a "gift" or "gratuity" from the federal government, the court is unpersuaded by this argument and the district court decision on which Hokie Real Estate relies. See McGuire v. Regents of the Univ. of Mich., No. 2:99CV1231, 2000 WL 1459435, 2000 U.S. Dist. LEXIS 21615 (S.D.Ohio Sept. 21, 2000). Instead, the court agrees with Virginia Tech that the university engaged in otherwise lawful commercial activity by registering its HOKIES mark, and that conditioning participation in this congressionally regulated process on a waiver of sovereign immunity would constitute a "sanction," specifically, the "exclusion of the State from otherwise permissible activity." College Savings Bank, 527 U.S. at 687, 119 S.Ct. 2219. As Virginia Tech emphasizes in its reply brief, "[s]uch an exclusion would negate the constitutionally-required voluntariness of any waiver, and thus could not be allowed." (Reply Br. at 16). For these reasons, the court concludes that Virginia Tech is entitled to assert its immunity from suit notwithstanding its voluntary participation in the federal trademark registration system.
In its final argument, Hokie Real Estate maintains that Virginia Tech waived its immunity by commencing the instant action in federal court. For the following reasons, however, the court concludes that this argument is also unavailing.
The Fourth Circuit has held that a state that voluntarily commences an action in federal court only waives its Eleventh Amendment immunity against compulsory counterclaims. See In re Creative Goldsmiths of Washington, D.C., Inc., 119 F.3d 1140, 1148 (4th Cir.1997) (emphasizing that "well-established principles of sovereign immunity dictate that this waiver be narrowly construed"). A counterclaim is compulsory "if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim." Fed.R.Civ.P. 13(a); see also Sheehan v. W. Va. Dep't of Envtl. Prot., 55 Fed.Appx. 121, 124 (4th Cir.2003).
In determining whether a counterclaim is compulsory, the Fourth Circuit has identified four relevant inquiries:
Painter v. Harvey, 863 F.2d 329, 331 (4th Cir.1988).
Applying the factors set forth in Painter, the court concludes that Hokie Real Estate's counterclaims are not compulsory. Whereas Virginia Tech's claims are based on its alleged ownership of a protected trademark, Hokie Real Estate's use of the mark, and the likelihood of dilution and consumer confusion resulting from the defendant's actions, Hokie Real Estate's counterclaims are based on the university's alleged misuse of the federal registration symbol and on the university's allegedly fraudulent actions in obtaining registration of the HOKIES mark. The court agrees with Virginia Tech that there is little overlap of issues of fact and law between Virginia Tech's claims and Hokie Real Estate's counterclaims; that the doctrine of res judicata would not preclude Hokie Real Estate from raising its counterclaims in a subsequent proceeding; that Virginia Tech's claims and Hokie Real Estate's counterclaims will not be supported or refuted by substantially the same evidence; and that any relationship between the parties' claims is not sufficient to make the counterclaims compulsory.
In reaching this conclusion, the court is guided by the United States Court of Appeals for the Federal Circuit's decision in Nasalok Coating Corp. v. Nylok Corp., 522 F.3d 1320 (Fed.Cir.2008), in which the Court was presented with the question of whether a claim of trademark invalidity is a compulsory counterclaim to a claim of trademark infringement. The Court ultimately answered the question in the negative, holding that the claims did not arise out of the same transaction or occurrence:
Nasalok, 522 F.3d at 1326 (internal citations omitted).
Having considered the parties' arguments, the court finds the Federal Circuit's rationale persuasive. The court likewise concludes that Hokie Real Estate's counterclaims are not compulsory and, thus, that Virginia Tech did not waive its sovereign immunity by filing the instant action. Accordingly, Virginia Tech is immune
White and Hincker are named in Counterclaims Five and Six. In Counterclaim Five, Hokie Real Estate seeks damages under 15 U.S.C. § 1120, based on false statements allegedly made in connection with declarations filed in support of Virginia Tech's efforts to renew its federal registration. In Counterclaim Six, Hokie Real Estate asserts a claim of false commercial advertising or promotion in violation of 15 U.S.C. § 1125(a)(1)(B).
To the extent White and Hincker have been countersued in their official capacities, the claims for monetary damages are barred by the Eleventh Amendment. It is well-established that "a suit against a state official in his or her official capacity is not a suit against the official but rather is a suit against the official's office." Will v. Mich. Dep't of State Police, 491 U.S. 58, 71, 109 S.Ct. 2304, 105 L.Ed.2d 45 (1989). Thus, "[f]or purposes of the Eleventh Amendment, a state official acting in his official capacity is protected from a damages action by the same immunity." Ballenger v. Owens, 352 F.3d 842, 845 (4th Cir.2003).
To the extent White and Hincker have been countersued in their individual capacities, and to the extent the Eleventh Amendment does not bar Hokie Real Estate's official capacity claims for prospective injunctive relief, see Ex Parte Young, 209 U.S. at 159-160, 28 S.Ct. 441, the court nonetheless concludes, for the reasons that follow, that Counterclaims Five and Six are subject to dismissal under Rule 12(b)(6).
In Counterclaim Five, Hokie Real Estate seeks damages against White and Hincker under 15 U.S.C. § 1120, based on false statements allegedly made in connection with declarations filed in 2005 and 2010 in support of Virginia Tech's efforts to renew its federal trademark registration. Specifically, Hokie Real Estate alleges that White and Hincker falsely declared that the term HOKIES was then in continuous use on all of the goods listed in the university's federal registration, when, in fact, there were no tie tacks, gold pins, brief cases, or bath robes bearing the HOKIES mark.
Section 1120 of Title 15 provides that a person who procures a trademark registration by fraud "shall be liable in a civil action by a person injured thereby for any damages sustained in consequences thereof." 15 U.S.C. § 1120. To prevail under this statute, "it is not enough for the plaintiff merely to establish fraud in the registration of the trademark"; the plaintiff "must also show that [it] sustained some damage in consequence of the fraud." Gilbert/Robinson, Inc. v. Carrie Beverage-Missouri, Inc., 989 F.2d 985, 991 (8th Cir. 1993) (internal citation and quotation marks omitted). In this case, the court concludes that Hokie Real Estate has failed to plead sufficient facts to establish that it suffered recoverable damages as a result of any alleged fraud in the renewal of the university's trademark registration.
Hokie Real Estate's claim for damages under § 1120 is premised primarily on the effects of the instant action, including the fact that the company has been subject to significant attorneys' fees and other litigation costs. However, none of these claimed damages proximately resulted from Virginia Tech's registration of the HOKIES mark or any statements made in support of its efforts to renew the registration. As Virginia Tech emphasizes in its motion to dismiss, any defects in the federal
Gilbert/Robinson, 989 F.2d at 991 (internal citations omitted).
In Gilbert/Robinson, the plaintiff sued the defendant for infringement of its registered mark. Id. at 987. During discovery, the defendant learned that the plaintiff provided false information when it acquired the registration at issue. Id. at 988. Consequently, the defendant asserted a counterclaim for damages under 15 U.S.C. § 1120, alleging that the plaintiff had procured its registration by providing fraudulent information to the PTO. Id. A jury ultimately found that the plaintiffs registration was procured by fraud and awarded compensatory and punitive damages to the defendant. Id. On appeal, the Eighth Circuit reversed the award of damages, holding that the defendant's alleged damages were not in the "zone of interests" that the Lanham Act is intended to protect. Id. at 990. In reaching its decision, the Eighth Circuit emphasized that "the Lanham Act's purpose of preventing consumer confusion favors resolving infringement suits on the merits . . . [and] should not be invoked to block Lanham Act enforcement of [plaintiffs] marks based upon an ancient nondisclosure to the PTO that has no bearing on whether [plaintiff] today has a superior right to use the marks in commerce." Id.
In this case, Hokie Real Estate's allegations regarding Virginia Tech's purportedly fraudulent procurement and renewal of the HOKIES registration do not affect Virginia Tech's underlying rights in the HOKIES mark. Virginia Tech's asserted trademark rights arise from the university's use of the HOKIES mark, not from its federal registration. Thus, even without its registration, Virginia Tech would be entitled to pursue the claims asserted in its complaint. Consequently, the litigation expenses that Hokie Real Estate has incurred while defending the instant action are not recoverable under § 1120, since they were not proximately caused by Virginia Tech's federal registration of the HOKIES mark or the registration renewals.
The court also concludes that Counterclaim Six is subject to dismissal, because Hokie Real Estate lacks standing to assert a claim for false advertising under the Lanham Act. To establish standing for a false advertising claim, Hokie Real Estate must demonstrate that it is a competitor of Virginia Tech or that it has suffered a competitive business injury as a result of the alleged misuse of the federal registration symbol. See Made in the USA Found, v. Phillips Foods, Inc., 365 F.3d 278, 281 (4th Cir.2004) (holding that a consumer does not have standing under the Lanham Act to sue for false advertising, and noting that "the Lanham Act is a private remedy [for a] commercial plaintiff who meets the burden of proving that its commercial interests have been harmed by a competitor's false advertising") (internal citation and quotation marks omitted); see also Nemet Chevrolet, Ltd. v. Consumeraffairs.com, 564 F.Supp.2d 544, 553 (E.D.Va. 2008) (holding that the plaintiffs lacked standing to bring a claim for false advertising, since "they are not in competition with Defendant and their alleged injury is not the sort that the Lanham Act sought to prevent").
In this case, Hokie Real Estate has not asserted any facts which would suggest that it is a competitor of Virginia Tech, or that it has suffered a competitive business injury as a result of the alleged misuse of the federal registration symbol by the counterclaim defendants. Without such allegations, Hokie Real Estate does not have standing to pursue a claim for false advertising under the Lanham Act. Accordingly, Counterclaim Six is also subject to dismissal.
For all of the foregoing reasons, the court will grant the motion to dismiss filed by Virginia Tech, White, and Hincker, and White and Hincker will be dismissed from the case.
This case is also before the court on Virginia Tech's motion for leave to file an amended complaint and its motion to reopen the time for expert disclosures. For the reasons stated during the hearing and for those that follow, both motions will be granted.
Rule 15(a)(2) of the Federal Rules of Civil Procedure provides that leave to amend should be "free[ly] give[n] . . . when justice so requires." Fed.R.Civ.P. 15(a)(2). As the Fourth Circuit explained in Laber v. Harvey, 438 F.3d 404 (4th Cir.2006), "[t]his liberal rule gives effect to the federal policy in favor of resolving cases on their merits instead of disposing of them on technicalities." Laber, 438 F.3d at 426. Consequently, the Fourth Circuit has "interpreted Rule 15(a) to provide that `leave to amend a pleading should be denied only when the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would have been futile.'" Id. (quoting Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir.1986)).
The court will also grant Virginia Tech's motion to reopen the time for expert disclosures. The original scheduling order contemplated the possibility of additional experts, and the court is convinced that the circumstances of the instant case justify the university's request. However, as indicated during the hearing, Virginia Tech will be limited to two additional experts (a confusion expert and a dilution expert), and the court will leave open the possibility that Virginia Tech might be called upon to underwrite the costs of totally new discovery burdens that may be necessitated by the additional experts' reports.
For the reasons stated, the court will grant the motion to dismiss filed by Virginia Tech, White, and Hincker. The court will also grant Virginia Tech's motion to amend the complaint and its motion to reopen the time for expert disclosures.
The Clerk is directed to send certified copies of this memorandum opinion and the accompanying order to all counsel of record.
In this case, Hokie Real Estate does not contend that there has been any valid abrogation of the university's sovereign immunity. Instead, Hokie Real Estate argues that Virginia Tech waived its sovereign immunity.