Sam’s Club Loses Motion to Dismiss David Yurman Trademark Lawsuit Based on First Sale Doctrine Defense

In September 2014, luxury jewelry designer David Yurman filed a trademark infringement lawsuit against Sam’s Club over the alleged unauthorized sales of David Yurman jewelry at Sam’s Club stores.  See David Yurman Enterprises LLC and David Yurman IP LLC v. Sam’s East, Inc. and Sam’s West Inc., Case No. 14-cv-02553 (S.D. Tex. Filed September 4, 2014).  Click here for a news article on the complaint.

In the complaint, Yurman alleged that Sam’s Club, through its purchase and resale of genuine David Yurman jewelry from authorized David Yurman retailers, infringed on Yurman’s trademark rights to the DAVID YURMAN mark as well as intentionally interfered with Yurman’s contractual relations with its authorized retailers. 

Sam’s Club filed a motion to dismiss Yurman’s complaint for failure to state a claim, primarily on the basis that its sale of Yurman’s genuine jewelry was protected by the “first sale doctrine.”  On April 9, 2015, the Court denied Sam’s Club’s motion to dismiss finding that Yurman’s complaint had sufficiently pled causes of actions for trademark infringement (sufficient to overcome Sam’s Club assertion of the “first sale doctrine” defense) as well as for tortious interference with contractual relations.  See David Yurman Enterprises LLC et al v. Sam’s East, Inc., Case No. 14-cv-02553 (S.D. Tex. April 9, 2015) (court order here)

As part of Yurman’s complaint, Yurman asserted that it only sells its jewelry through its own boutiques and authorized retailers who sign an Authorized Retailer Agreement that “expressly prohibits the transshipment, diversion, or transfer of any Yurman products to any other party.”  Yurman further asserted that Yurman’s Authorized Retailer Agreement and the prohibition against selling its jewelry to any other parties were well known in the retail industry, especially retailers of jewelry products.  As such, Sam’s Club was well aware of the prohibition (or certainly became aware after Sam’s Club was notified by Yurman to stop such purchasing), and yet intentionally sought out and purchased Yurman jewelry from one or more of Yurman’s authorized retailers despite knowing that such retailers were prohibited from selling the jewelry to Sam’s Club.  There was no dispute that Sam’s Club was selling authentic Yurman jewelry products at its stores and that Sam’s Club is not a Yurman-authorized retailer of its jewelry. 

Most importantly, Yurman alleged that “Sam’s Club prominently advertised and promoted the jewelry in its stores and on its website, in an effort to drive traffic to its stores” and that in its stores, Sam’s Club was “displaying Yurman products, placards and packaging displaying the Yurman trademark” and supposedly even Yurman-issued certificates of authenticity.  Yurman alleged that Sam’s Club’s actions created “the false impression that Sam’s Club is among Yurman’s network of authorized retailers, and has caused consumer confusion and disappointment.” (e.g., unlike an authorized Yurman retailer, Sam’s Club, at the point of purchase, was not being able to service customers purchasing or attempting to purchase DAVID YURMAN jewelry products sold in its stores).

In support of its trademark infringement claims, Yurman basically argued that Sam’s Club’s “display of the jewelry and its packaging; the prominent placement of placards, certificates, and other Yurman materials; and the prominent advertisement of Yurman products in its stores and on its website to create foot traffic to the stores, all create the false impression that Sam’s Club is authorized to sell Yurman products and that its products have been sourced directly from Yurman.”  In response, Sam’s Club maintained that Yurman’s trademark infringement claims were barred by the “first sale doctrine” (i.e., because Sam’s Club was selling genuine Yurman jewelry identified by the David Yurman trademark, there is no potential for consumer confusion regarding the source of the goods).

The Court stated the following regarding the “first sale doctrine” defense:

Under the rule “a distributor who resells trademarked goods without change is not liable for trademark infringement.” Mary Kay, Inc. v. Weber, 301F. Supp. 2d 839, 852 (N.D. Tex. 2009) (internal quotations omitted). However, there are two exceptions to the rule: 1) “[t]he doctrine does not protect alleged infringers who sell trademarked goods that are ‘materially’ different from those sold by the trademark owner;” and 2) the doctrine will not protected alleged infringers “if they have given off the false impression that they are affiliated with or sponsored by” the trademark owner. Id. The second exception is relevant to this case. Under this rule, an unauthorized dealer may use a mark to advertise or promote truthfully that it sells a certain trademarked product, so long as the advertisement or promotion does not suggest affiliation or endorsement by the mark holder. Id. (quoting Fetzer, 381 F.3d at 484).

In analyzing whether Yurman had pled sufficient facts to show that the use of the Yurman trademark creates a likelihood of confusion as to an affiliation between Sam’s Club and Yurman, the Court noted that “Yurman has pled that the stores had Yurman products and materials prominently displayed, which suggests the Yurman products were highlighted more than other products. . .[and] that Sam’s Club had prominent advertisements of the Yurman products on its website in an effort to drive foot traffic to its stores, which suggests the Yurman jewelry was featured in a way that other jewelry was not. The context of the use was that Sam’s Club was featuring Yurman products more aggressively and prominently than other products to gain more traffic to its stores.”  Because the “[p]rominent and pervasive use of a mark will suggest affiliation,” the Court found Yurman had pled sufficient facts to state claim for likelihood of confusion.

As for Sam’s Club reliance on the “first sale doctrine” defense, “the defense must be apparent on the face of the claim, and the rule does not apply if Sam’s Club has given off the false impression that it is affiliated with Yurman.”  Sam’s Club relied heavily upon another case, Matrix Essentials, Inc. v. Emporium Drug Mart, Inc., of Lafayette, 988 F.2d 587, 593 (5th Cir.1993), which held that “the mere unauthorized stocking and sale of trademarked products is not a trademark violation.”  However, the Court distinguished that case from the instant case because Yurman “alleges more than the mere unauthorized stocking and sale is occurring here. Yurman also alleges prominent and aggressive advertising, including on the Sam’s Club’s website, and a prominent display of Yurman materials and jewelry within its stores. Matrix Essentials anticipates that if more action is taken beyond mere unauthorized stocking and sale of a trademarked product, a claim might survive summary judgment.”  Accordingly, the Court denied Sam’s Club motion to dismiss Yurman’s trademark infringement claim (as well as Yurman’s other claims for false designation of origin and unfair competition, for similar reasons).

As for Yurman’s claim for tortious interference with a contract, Yurman argued that despite Sam’s Club knowledge of Yurman’s Authorized Retailer Agreement with every authorized retailers of its products prohibiting the transshipment, diversion or transfer of its products to any other party,”Sam’s Club obtained significant inventories of Yurman products to sell in Sam’s Club stores throughout the United States. . . .” And if Sam’s Club did not know about the prohibition in the Authorized Retailer Agreement initially, Sam’s Club was certainly put on notice when Yurman demanded that Sam’s Club stop inducing Yurman’s retailers into breaching their agreement (a demand that Sam’s Club refused).  Yurman further alleged that Sam’s Club could not have acquired such large inventories of Yurman products without having intentionally induced one of Yurman’s retailers to breach its Agreement with Yurman.  Based on these factual assertions, the Court found Yurman’s pleadings were sufficient to make out a claim for tortious interference with a contract

Accordingly, the Court denied Sam’s Club’s motion to dismiss.

Righthaven Remembered

It’s hard to believe that Righthaven, the company that was going to change the news media business by applying the patent lawsuit business model to the enforcement of copyrights, filed its first series of lawsuits five years to go.  (The events were so notable that even this trademark dedicated blog could not resist writing up a copyright related post).

To mark the anniversary, former Las Vegas Sun Reporter Steve Green (now a staff writer with the Orange County Register), who helped shine a spotlight on Righthaven as the company embarked on and went about its controversial copyright enforcement campaign, published a new article last week which looks back upon the rise and demise of Righthaven (including new quotes from Righthaven founder Steve Gibson who continues to stand by the actions taken by Righthaven).


See the photo of Steve Gibson and the infamous “bluetooth” headset. (Photo © Las Vegas Sun)



Hakkasan denied preliminary injunctive relief in cybersquatting case for failure to establish irreparable harm

Trademark attorneys in the Ninth Circuit continue to face the fallout from last year’s Ninth Circuit decision in Herb Reed Enterprises, LLC v. Florida Entertainment Management, Inc., 736 F.3d 1239, 1249 (9th Cir. 2013), cert. denied, 2014 WL 1575656 (Oct. 6, 2014) (“Herb Reed”).  In Herb Reed, the Ninth Circuit, following the Supreme Court’s precedents in eBay Inc. v. MercExchange, 547 U.S. 388 (2006) (which held that the traditional four factor test, including establishing irreparable harm, must be employed in patent cases) and Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (2008) (which held that parties seeking a preliminary injunction must demonstrate that irreparable harm is likely in the absence of an injunction), rejected the notion that a plaintiff in a trademark infringement lawsuit was entitled to a presumption of irreparable harm upon demonstrating a likelihood of confusion from alleged trademark infringement and held that a plaintiff seeking a preliminary injunction in a trademark infringement case must demonstrate irreparable harm in order to get preliminary injunctive relief:

Gone are the days when “[o]nce the plaintiff in an infringement action has established a likelihood of confusion, it is ordinarily presumed that the plaintiff will suffer irreparable harm if injunctive relief does not issue.” Rodeo Collection, Ltd. v. W. Seventh, 812 F.2d 1215, 1220 (9th Cir. 1987) (citing Apple Computer, Inc. v. Formula International Inc., 725 F.2d 521, 526 (9th Cir.1984)). This approach collapses the likelihood of success and the irreparable harm factors. Those seeking injunctive relief must proffer evidence sufficient to establish a likelihood of irreparable harm.

The Herb Reed case has since left many trademark litigation practitioners (at least those practicing in the Ninth Circuit), after years of being able to obtain preliminary injunctions based on a showing strong showing of likelihood of confusion and the presumption of irreparable harm thereby, now trying to figure out what type of actual “evidence” can be shown to overcome this threshold of demonstrating a likelihood of irreparable harm and having to inform some trademark clients that a preliminary injunction might not be as easily obtainable for trademark infringement as it once was. 

  

The latest example of the struggle to overcome this irreparable harm threshold comes from a court decision by Nevada District Judge Jennifer Dorsey who denied the owner of the Hakkasan nightclub chain preliminary injunctive relief for alleged cybersquatting against an individual who had registered various domain names containing the term “hakkasan.”  See Hakkasan LV, LLC et al v. Eddie Miller, Case No. 2:15-cv-290-JAD-PAL (D. Nev).

Hakkasan had filed a cybersquatting lawsuit against Defendant Miller for his registration of the domain names domain names , , , , and (the “Contested Domain Names”) – one of which was linked to a website offering the domain name for sale for $5000 and the other four linked to a webpage located at (also owned by Miller), which encouraged third parties to “partner” with him. 

Along with the filing of the complaint, Hakkasan also sought an ex parte temporary restraining order and preliminary injunction against Miller.  However, the Court – without receiving any opposition from Miller – denied Hakkasan’s request for preliminary injunctive relief on the grounds that Hakkasan had failed to show any evidence of a likelihood of irreparable harm arising from Miller’s actions.

In rejecting Hakkasan’s arguments of irreparable harm, the Court stated that “there is no evidence that Miller has taken any steps to compete with Hakkasan’s business beyond registering the Contested Domain Names and offering them for sale.”   And while Hakkasan alleged that Miller was using the domain names to “solicit partners to offer counterfeit services to the public,” the Court found

no indication that Miller has sold any of the domain names, partnered with any other person, or constructed a website designed to create confusion with Hakkasan’s business, siphon customers from Hakkasan’s business, or otherwise cause Hakkasan irreparable harm. Speculation of what Miller will do with the domain names is hardly enough to bridge the legal gap between Miller’s actions and Hakkasan’s irreparable injury. Instead, these are the sorts of “platitudes” that the Herb Reed court warned may show harm Hakkasan might suffer, but not harm a party seeking injunctive relief is likely to suffer

Order at p. 4 (emphasis in original).

The Court also rejected as unpersuasive several other cases cited by Hakkasan as support that its evidentiary proffer was sufficient to show irreparable harm.  One case – Starbucks Corp. d/b/a Starbucks Coffee Company v. Heller, 2014 WL 6685662, at *8 (C.D. Cal. Nov. 24, 2014) – involved a case where the court found irreparable harm where the presence of infringing products in the market could damage business goodwill.  However, the Court noted that Hakkasan had not offered any evidence that Miller had “introduced any competing or counterfeit ‘products’ into the marketplace or taken any steps other than to register the domain name and attempt to sell it to third parties.” Order at p. 4. The second case – Kalologie Franchising LLC v. Kalologie Skincare Medical Group of California , 2014 WL 953442, at *5 (C.D. Cal. Mar. 11, 2014) – involved a defendant who was continuing to use the alleged infringing mark at the defendant’s facility through a point of sale system and a website and where the court found irreparable harm from “plaintiff’s loss of control over its business reputation resulting from a defendant’s alleged unauthorized use of its protected mark during the pendency of an infringement action.”  In the case of Hakkasan, however, there was no indication that Hakkasan’s marks were being used by Miller in a manner that was similar to the Kalologie case. 

Finally, Hakkasan made one final “Hail Mary” argument that Herb Reed was a trademark infringement case and that the Ninth Circuit’s decision did not expressly overrule the presumption of irreparable harm in a cybersquatting case.  The Court rejected such argument, especially given the Ninth Circuit past statements that “cybersquatting is a form of trademark infringement.”  The Court further noted two other cybersquatting court decisions issued post-Herb Reed where the plaintiffs were granted preliminary injunctive relief  –  one involving an evidentiary record showing systematic cybersquatting that was intended to deceive customers (Bittorrent, Inc. v. Bittorrent Marketing GMBH, 2014 WL 5773197 (N.D. Cal. Nov. 5, 2014) and another where “loss of control over business reputation” established irreparable harm in circumstances where the domain name owner actually operated a business in the same market as the plaintiff and sold products “slightly dissimilar” from plaintiff’s products (Kreation Juicery, Inc. v. Shekarchi, 2014 WL 7564679, at *12 (C.D. Cal. Sept. 17, 2014)).  The Court found that Hakkasan had failed to show use of the Contested Domain Names by Miller that reached the same levels as those in the Bittorrent and Kreation Juicery cases. 

Accordingly, because Hakkasan had failed to demonstrate a likelihood of irreparable harm, the Court denied both Hakkasan’s Application for Temporary Restraining Order and Motion for Preliminary Injunction.