June/July 2011 Issue
Coach, Inc. v. Gata Corp.,
98 USPQ2d 1911 (D.N.H. 2011)
The District of New Hampshire denied defendant flea-market operators’ motion to dismiss plaintiff’s contributory-trademark-dilution claim arising out of defendants’ operation of a flea market in which counterfeit merchandise was sold by third-party vendors, finding that contributory trademark dilution is a valid cause of action. The court held that although the contributory-dilution cause of action is not well established, the limited jurisprudence on the subject makes clear that such a cause of action exists.
Plaintiff Coach, Inc. (“Coach”) manufactures and sells high-end purses, handbags, and other luxury goods. Coach brought suit against defendant Gata Corp. and its owner Martin Taylor (collectively “Gata”) based on Gata’s operation of a flea market in Derry, New Hampshire, where counterfeit Coach merchandise was allegedly sold by third-party vendors. Coach brought a number of claims against Gata, including contributory trademark infringement, contributory trademark dilution/tarnishment, and contributory and vicarious copyright infringement. Gata filed a motion to dismiss Coach’s vicarious copyright infringement and contributory-trademark-dilution claims. With respect to the contributory-dilution claim, Gata based its motion to dismiss on the premise that such a cause of action does not exist.
To determine whether Coach had stated a valid claim for contributory trademark dilution, the court considered the opinion of a leading commentator and analyzed relevant decisions by other courts. The court first noted that Professor McCarthy approved the concept of contributory-dilution claims in his prominent trademark treatise. The court then analyzed three cases from other courts that had addressed the validity of contributory-dilution claims: Kegan v. Apple Computer, Inc., 72 USPQ2d 1053 (N.D. Ill. 1996); Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980 (9th Cir. 1999); and Tiffany (NJ), Inc. v. eBay, Inc., 576 F. Supp. 2d 463 (S.D.N.Y. 2008).
In Kegan, the plaintiff sued Apple for various trademark and unfair-competition claims arising out of use by Apple and third-party software developers of various GUIDE-formative marks for computer software. The court denied—without discussion—Apple’s motion for summary judgment on Kegan’s contributory-dilution claim because “genuine issues of material fact exist as to whether Apple’s encouragement of other software developers to create software in the GUIDE family constitutes contributory dilution.” Kegan, 72 USPQ at 1062.
In Lockheed, the Ninth Circuit affirmed a district court’s refusal to grant leave to the plaintiff to amend its complaint to add a contributory-dilution claim. The court noted that “no appellate court or statute has yet established the [contributory-dilution] cause of action.” Lockheed, 194 F.3d at 986. The court did not, however, hold that no such cause of action exists. Instead, it affirmed the trial court’s decision because the plaintiff could not assert the factual allegations necessary to establish a claim of contributory dilution under the “encouraging others to dilute” standard introduced by Kegan. Specifically, the Lockheed court held that Kegan imported the “contributory” standard from the Supreme Court’s decision in Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982). According to the Lockheed court, Inwood requires that the defendant engage in direct control or monitoring of third-party conduct for a finding of contributory liability. On the facts before the court in Lockheed, the defendant did not have the requisite level of control over third-party conduct such that it could be held contributorily liable. Lockheed, 194 F.3d at 986. Accordingly, the Lockheed court held that the trial court correctly denied the plaintiff’s motion for leave to amend its complaint to add a contributory-dilution claim on grounds of futility.
Finally, in eBay, the Southern District of New York, without any analysis, assumed that contributory dilution is a valid cause of action, but concluded that plaintiff Tiffany’s contributory-dilution claim would fail for the same reason that its contributory-infringement claim failed. eBay, 576 F. Supp. 2d at 526. Specifically, citing Lockheed and Inwood, the eBay court held that Tiffany had failed to demonstrate that eBay knowingly encouraged others to dilute Tiffany’s trademarks. On appeal, the Second Circuit did not address Tiffany’s contributory-dilution claim. Tiffany (NJ), Inc. v. eBay, Inc., 600 F.3d 93 (2d Cir. 2010).
Reflecting on the Kegan, Lockheed, and eBay decisions, the Coach court held:
So, what the contributory dilution jurisprudence shows is one claim that survived summary judgment, [Kegan], one claim that went to the factfinder, [eBay], and no appellate decisions rejecting the existence of such a cause of action . . . . Because the cause of action does, in fact, exist, defendants are not entitled to dismissal of [plaintiff’s contributory-dilution claim] based on the argument they have advanced.Finding that Coach also sufficiently stated a claim for vicarious copyright infringement, the court denied Gata’s motion to dismiss.
This case provides further support for the validity of the relatively untested “contributory trademark dilution” cause of action. Although no clear test for proving a contributory-dilution claim has emerged beyond the vague “encouragement” standard established by the Northern District of Illinois in Kegan, courts continue to acknowledge the existence of such a claim. Interested parties should keep an eye out for a fully developed ruling on the merits.