InProcessOut, LLC v. World Tech Toys, Inc.

Western District of Texas, txwd-5:2018-cv-00869

Response in Opposition to Motion, filed by World Tech Toys, Inc., re [46] MOTION to Dismiss filed by InProcessOut, LLC

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IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION INPROCESSOUT, LLC Plaintiff, CIVIL ACTION NO. 5:18-CV-0869-FB v. WORLD TECH TOYS, INC. Defendant. DEFENDANT/COUNTER PLAINTIFF'S RESPONSE IN OPPOSITION TO PLAINTIFF/COUNTER DEFENDANT'S MOTION TO DISMISS/STRIKE Defendant/Counter Plaintiff Word Tech Toys, Inc. ("World Tech") respectfully files this Response in Opposition to Plaintiff/Counter Defendant InProcessOut, LLC ("InProcessOut")'s "Motion to Dismiss for Failure to Properly Plead under Rules 8(c)(1) and 9(b); Motion to Strike under Rule 12(f); Motion to Dismiss under Rule 12(b)(6)" ("Motion"). World Tech requests that InProcessOut's Motion be denied in its entirety. I. Introduction World Tech's Answer asserts twelve affirmative defenses, including "1. Plaintiff's First Amended Complaint fails to state a cause of action for which relief can be granted[,]" and "8. Plaintiff has committed fraud on the United States Patent and Trademark Office." See Dkt. No. 42. InProcessOut's Motion requests that the Court strike World Tech's First and Eighth affirmative defenses pursuant to Rule 12(f). World Tech's Answer also asserted counterclaims for I. Declaratory Judgment of Noninfringment of U.S. Registration No. 5,491,614, II. Cancellation of Registration under 15 U.S.C. §1119, III. Federal Unfair Competition Under the Lanham Act, 15 U.S.C. § 1125(a), and IV. Common Law Trademark Infringement. 1 InProcessOut's Motion asks the Court to dismiss all four of World Tech's counterclaims pursuant to Rule 12(b)(6). II. Argument and Authority A. Rule 12(f) Motion to Strike Federal Rule of Civil Procedure 12(f) allows a party to request the Court strike an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter from a pleading. See BCOWW Holdings, LLC v. Collins, No. SA-17-CA-00379-FB-ESC, 2017 U.S. Dist. LEXIS 150222, at *3-6 (W.D. Tex. Sep. 15, 2017) (citing Fed. R. Civ. P. 12(f)). The Fifth Circuit applies a "fair notice" pleading standard for affirmative defenses. See Woodfield v. Bowman, 193 F.3d 354, 362 (5th Cir. 1999). This "fair notice pleading requirement is met if the defendant sufficiently articulated the defense so that the plaintiff was not a victim of unfair surprise." Id. (internal quotations omitted). The Fifth Circuit has not directly addressed whether the Twombly and Iqbal heightened plead standards replace the fair notice pleading requirement for affirmative defenses. BCOWW Holdings, LLC, 2017 U.S. Dist. LEXIS 150222, at *3-6. However, this Court has considered the issue and elected to continue applying the fair notice requirement for affirmative defenses. Id. Motions to strike are viewed with disfavor and are infrequently granted "because striking a portion of a pleading is a drastic remedy, and because it often is sought by the movant simply as a dilatory tactic." Id. (quoting FDIC v. Niblo, 821 F. Supp. 441, 449 (N.D. Tex. 1993)). A motion to strike should not be based on "technical failure[s]" when an asserted affirmative defense does not result in unfair surprise. See BCOWW Holdings, LLC, 2017 U.S. Dist. LEXIS 150222, at *3-6 (quoting Ingraham v. United States, 808 F.2d 1075, 1079 (5th Cir.1987)). Moreover, "striking portions of a pleading under Rule 12(f) is appropriate only upon a showing 2 of prejudice to the moving party." Stross v. Active Network, LLC, No. 1:19-CV-8-RP, 2019 U.S. Dist. LEXIS 85983, at *10-11 (W.D. Tex. May 22, 2019). Here, InProcessOut's Motion does not address how InProcessOut is prejudiced by World Tech's Affirmative Defenses 1 or 8. InProcessOut's Motion also fails to demonstrate how InProcessOut is unduly surprised by World Tech's Affirmative Defenses 1 or 8. Accordingly, the Motion fails to establish that striking pursuant Rule 12(f) is necessary and denial of InProcessOut Motion is appropriate. InProcesOut also requests the Court strike various paragraphs of World Tech's Counterclaims pursuant to Rule 12(f) as redundant of World Tech's Affirmative Defenses. First, a declaratory judgment counterclaim provides stand-alone relief separate from an affirmative defense and is therefore not redundant. See Blackmer v. Shadow Creek Ranch Dev. Co., No. H- 07-681, 2007 U.S. Dist. LEXIS 99224, at *4-5 (S.D. Tex. June 26, 2007) ("[T]he Court recognizes the potential qualitative difference between merely prevailing in Plaintiff's lawsuit, and receiving an affirmative declaration of rights pursuant to a declaratory judgment."). Second, striking the purportedly "redundant" portions of Defendant's counterclaims is not warranted because Plaintiff has provided no explanation as to how it is prejudiced by the purportedly "redundant" language. Id. (explaining that motions to strike pursuant to Rule 12(f) "should be denied unless the challenged allegations cause some form of significant prejudice to the moving party."). B. Rule 12(b)(6) Motion to Dismiss Motions to dismiss are rarely granted and generally viewed with disfavor. Test Masters Educ. Servs., Inc. v. Singh, 428 F.3d 559, 570 (5th Cir. 2005). "To survive 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, 678 (2009) (quoting Bell Atlantic Corp. 3 v. Twombly, 550 U.S. 544 (2007)). A claim is "plausible" if there are enough facts for the "reasonable inference the defendant is liable for its conduct." Id. "The 'issue is not whether the plaintiff will ultimately prevail, but whether he is entitled to offer evidence to support his claim.'" Jones v. Greninger, 188 F.3d 322, 324 (5th Cir.1999); accord Twombly, 550 U.S. at 556 (noting that the general pleading standards "simply call[] for enough fact[s] to raise a reasonable inference that discovery will reveal evidence" of the claim). Counterclaim I InProcessOut asserts that "[World Tech's] Counterclaim I essentially alleges fraud" and argues that the Court should therefore apply the heightened pleading requirement of Rule 9(b). InProcessOut's characterization of Counterclaim I as "essentially" fraud claim is inaccurate (the term fraud is not used anywhere in Counterclaim I). Instead, Counterclaim I very clearly asserts non-infringement of the asserted trademark because World Tech used the ORION mark before InProccessOut used the ORION Mark. See Dkt. No. 42 at ¶10 ("Because Defendant's use of the ORION trademark predates Plaintiff's [use of the ORION trademark], Defendant seeks a Declaratory Judgment from this Court that Defendant has not infringement[.]"). Accordingly, InProcessOut's reliance on Rule 9(b) is misplaced. World Tech's Counterclaim I sufficiently states a claim for declaratory judgment of noninfringement. It is axiomatic to trademark law that the first person to use a mark in commerce is the senior user and has rights in the mark. Blue Bell, Inc. v. Farah Mfg. Co., 508 F.2d 1260, 1265 (5th Cir. 1975) ("The exclusive right to a trademark belongs to one who first uses it in connection with specified goods."). World Tech's Counterclaim 1 clearly alleges that Defendant used the ORION Mark before Plaintiff used the ORION MARK, and therefore Defendant has the superior rights in the Mark. These are sufficient allegations to plead a claim of noninfringment. Counterclaim II 4 InProcessOut asserts that World Tech's Counterclaim II Cancellation of Registration under 15 U.S.C. § 1119 should be dismissed because 15 U.S.C. § 1119 provides a "remedy, not a cause of action per se." Dkt. No. 46 at ¶27. However, InProcesOut did not provide any legal authority to support this position, and World Tech is not aware of any supporting authority. Nonetheless, World Tech adequately plead a claim for cancellation. The Court has the power under 15 U.S.C. § 1119 and 15 U.S.C. § 1115(d) to cancel a registration when a party establishes (1) priority of rights in a mark, and (2) a likelihood of confusion between the party's mark and a registered mark. La. Ath. Down on the Bayou, L.L.C. v. Bayou Bowl Ass'n, No. 11- 303-BAJ-SCR, 2013 U.S. Dist. LEXIS 68582, at *31 (M.D. La. May 14, 2013) (explaining "prior use of a confusingly similar mark. . . is grounds for cancellation."). Here, World Tech's Counterclaim II alleges that World Tech used the ORION Mark before InProcessOut, and therefore InProcessOut's registration 5,491,614 should be cancelled pursuant to 15 U.S.C. § 1119. See Dkt. No. 42 ¶14. InProcessOut itself has alleged there is a likelihood of confusion between its ORION Mark and World Tech's ORION Mark. See Dkt. No. 24 at ¶ 32, 33, 36. Accordingly, World Tech has sufficiently stated a claim for cancellation of Registration 5,491,614 pursuant to 15 U.S.C. § 1119. Counterclaims III and IV World Tech's Counterclaims III and IV assert unfair competition under 15 U.S.C. 1125(a) and common law trademark infringement, respectively, based on InProcessOut's use of the ORION trademark. In order to sufficiently plead these claims, World Tech must allege (1) superior rights in the ORION Mark, and (2) InProcessOut's use of a the ORION Mark creates a likelihood of confusion. See Viacom Int'l, Inc. v. IJR Capital Invs., L.L.C., 891 F.3d 178, 184 (5th Cir. 2018) (explaining requirements for common law trademark infringement); see also Scott Fetzer Co. v. House of Vacuums, Inc., 381 F.3d 477, 483 (5th Cir. 2004) (explaining 5 requirements unfair competition under 1125(a)). World Tech's Counterclaims III and IV allege that World Tech used the ORION Mark before InProcessOut used the ORION Mark. See Dkt. No. 42 at ¶15-16. InProcessOut itself alleged there is a likelihood of confusion between the parties' respective ORION Marks. See Dkt. No. 24 at ¶ 32, 33, 36. Accordingly, Plaintiff has sufficiently alleged claims of unfair competition under 15 U.S.C. 1125(a) and common law trademark infringement. III. Conclusion InProcessOut's Motion fails to establish that striking or dismissing any of World Tech's Affirmative Defenses or Counterclaims is appropriate. With regard to Rule 12(f), InProcessOut completely fails to demonstrate how it is prejudiced by the defenses and language it wants stricken from World Tech's pleading. With regard to 12(b)(6), InProcessOut ignores the factual allegations in its own Complaint. More specifically, InProcessOut asserted claims of infringement against World Tech based on World Tech's use of the ORION trademark. World Tech is defending and counterclaiming by asserting World Tech is actually the senior user of the ORION trademark, and therefore it is InProcessOut who is the infringer. InProcessOut's Motion needlessly delays this proceeding by attacking the format in which World Tech characterized its defenses and counterclaims. However, if the Court determines there is a defect in World Tech's Affirmative Defenses or Counterclaims, World Tech respectfully requests leave to amend same. PRAYER WHEREFORE, World Tech respectfully requests that InProcessOut's Motion to Dismiss for Failure to Properly Plead under Rules 8(c)(1) and 9(b); Motion to Strike under Rule 12(f); Motion to Dismiss under Rule 12(b)(6) be dismissed in its entirety. 6 Respectfully submitted, GUNN, LEE & CAVE, P.C. Callaghan Tower 8023 Vantage Drive, Suite 1500 San Antonio, TX 78230 (210) 886-9500 Phone (210) 886-9883 Fax /Robert L. McRae/ Robert L. McRae, TSB # 24046410 Brandon T. Cook, TSB # 24084166 ATTORNEYS FOR DEFENDANT WORLD TECH TOYS, INC. CERTIFICATE OF SERVICE I hereby certify that I electronically filed the foregoing with the Clerk of Court using the CM/ECF system on August 21, 2019, which will send notification of such filing to the following: H. Dale Langley, Jr. The Law Firm of H. Dale Langey, Jr., P.C. 1803 West Avenue Austin, TX 78701 (512) 477-3830 Fax: (512) 597-4775 Email: Matthew J. Booth Matthew J. Booth PC 5501 A Balcones Dr. Ste 301 Austin, TX 78731-4907 512-474-8488 Fax: 512-596-2875 Email: ATTORNEYS FOR PLAINTIFF INPROCESSOUT, LLC /Brandon T. Cook/ Brandon T. Cook 7