Telebrands Corp. v. Del Laboratories, Inc.

Citations: 719 F. Supp. 2d 283; 2010 U.S. Dist. LEXIS 62041; 2010 WL 2541218Docket: 09 Civ. 1001(NRB)

Court: District Court, S.D. New York; June 15, 2010; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Telebrands Corp. filed a lawsuit against Del Laboratories, Inc., Coty U.S., and Coty, Inc. in the U.S. District Court for the Southern District of New York, asserting multiple claims in its Third Amended Complaint (TAC). The claims include four federal law violations: patent infringement (35 U.S.C. §§ 271, 289), registered trademark infringement (15 U.S.C. § 1114(1)), federal unfair competition (15 U.S.C. § 1125(a)), and copyright infringement (17 U.S.C. § 501). Additionally, two claims are under New York state law: common law unfair competition and statutory unfair competition (N.Y. Gen. Bus. Law § 360-k).

The defendants moved to dismiss the claims under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Court granted the motion to dismiss the federal unfair competition claim, the copyright claim, and both state law claims. However, the motion was denied concerning the remaining claims, and the parties were ordered to proceed with discovery focused on the central issues of the case.

Factually, Telebrands markets a product called the Fed Egg, a foot file designed for removing calluses and dead skin, while Coty markets a similar product named Pedi-Perfect under the "Sally Hansen LA CROSS" brand. The Ped Egg features three components: a handle, a stainless steel grater, and a protective cover, all designed to fit together in an egg-like shape. The product is packaged with marketing materials emphasizing ergonomic design and usability, and it is protected by a design patent (U.S. Design Patent No. D596,802).

International Edge, Inc. owns a design patent for the Ped Egg, which is not involved in the current litigation. The company also submitted a utility patent application (U.S. Patent Application No. 12/074,603) for the Ped Egg, filed on March 4, 2008, which has been rejected due to the innovations being deemed "obvious" to those skilled in the art, although an appeal opportunity remains. Additionally, International Edge holds a federal trademark (U.S. Trademark Registration No. 3,633,750) for the Ped Egg's product configuration and a copyright for its packaging (U.S. Copyright Registration No. VA X-XXX-XXX), issued on October 18, 2007.

Telebrands is the exclusive licensee of International Edge’s intellectual property rights for the Ped Egg, under a License Agreement that allows Telebrands to manufacture, distribute, and sell the product in the U.S., with the ability to sublicense others. Telebrands can assert these rights in legal actions without requiring International Edge's involvement, although the latter will join actions upon request. Telebrands is responsible for legal costs and retains any awarded damages.

The Ped Egg has reportedly sold approximately 22 million units, benefiting from substantial marketing expenditures by Telebrands. In contrast, Coty sells a competing product, Pedi-Perfect, which is similar in function but differs in assembly and design, and is available through retailers that also carry the Ped Egg.

The toe-spacer is a bright pink, foot-shaped product prominently displayed in the packaging, while the handle of the foot file is largely obscured by the blister pack's raised section. The back of the pack features usage images, instructions, and marketing text. Telebrands claims that Coty's Pedi-Perfect infringes on its intellectual property rights related to the Ped Egg, resulting in financial and reputational damage to Telebrands. 

Procedurally, Telebrands initiated the lawsuit on February 4, 2009, seeking a preliminary injunction against Coty. The plaintiff changed legal representation twice, filing a First Amended Complaint and later a Second Amended Complaint. A stipulation allowed for the filing of a Third Amended Complaint, which was submitted on August 11, 2009. Coty subsequently filed a motion to dismiss or for summary judgment on the claims. 

Legal standards for a motion to dismiss require that the court accept well-pleaded facts as true and that the plaintiff must present sufficient facts for a plausible claim for relief. Defendants challenge Telebrands' standing regarding the design patent infringement claim, asserting that Telebrands is merely an exclusive licensee and not the patent owner. However, the court finds that Telebrands does have standing to bring the patent infringement claim.

Section 281 of Title 35 of the U.S. Code provides that a patentee, including successors like assignees, can seek civil remedies for patent infringement. Exclusive licensees typically cannot sue alone and must include the patent owner in infringement actions unless they possess "all substantial rights" in the patent, effectively becoming a patentee themselves. Courts evaluate whether an exclusive licensee holds all substantial rights by examining the parties' intentions and the specifics of the license granted. Telebrands claims patent infringement against Coty without joining the patent owner, International Edge. Although Telebrands asserts it is the exclusive licensee of the Ped Egg design patent, it fails to allege that it holds all substantial rights, which is crucial for its standing. An affidavit from Telebrands' CEO claims it holds all substantial rights and could join International Edge, but this does not remedy the pleading deficiency. Affidavits cannot correct defects in complaints on dismissal motions, and a prior stipulation prevents further amendments to pleadings. Telebrands did not provide the License Agreement to substantiate its claims, though the court can consider it because it is part of the record from earlier proceedings.

The examination of the License Agreement reveals that it grants Telebrands substantial rights in the Ped Egg design patent, enabling Telebrands to have standing to sue for infringement. The determination of rights involves analyzing the intention of the parties and the specific provisions of the agreement. A crucial aspect is the clause allowing Telebrands to sue infringers in its own name without joining the patent owner, which is a strong indicator of comprehensive rights under the license. 

The court referenced previous cases, establishing that a licensee's right to sue is pivotal in assessing whether all substantial rights have been conferred. Defendants argued that International Edge retains certain rights that impede Telebrands' standing, including the right to sue for infringement, the lack of explicit language limiting International Edge's rights, and a veto over Telebrands' assignment of rights. However, these points were found insufficient to negate Telebrands' standing, as the agreement clearly allows Telebrands to sell and enforce its rights regarding the Ped Egg. 

The expressed intent of the License Agreement was to grant Telebrands all substantial rights, with the right to veto an assignment deemed a minor provision that does not affect the core allocation of rights. Overall, the analysis concludes that Telebrands possesses the necessary standing to pursue legal action based on the License Agreement's terms.

Granting Telebrands standing aligns with public policy aimed at preventing multiple lawsuits regarding the same patent against a single infringer, as highlighted by case law. The License Agreement specifies that Telebrands, rather than International Edge, is responsible for protecting the Ped Egg intellectual property in the U.S., mitigating concerns about potential separate lawsuits. Furthermore, International Edge has waived its right to be included in infringement actions and would not be harmed by Telebrands’ lawsuit against Coty. Consequently, Telebrands possesses all significant rights to the Ped Egg design patent, giving it standing to pursue the patent infringement claim, leading to the denial of the motion to dismiss this count.

In addressing the registered trademark infringement claim under the Lanham Act, defendants argue Telebrands lacks standing due to the absence of the trademark registrant, International Edge, in the lawsuit. However, Telebrands is found to have standing for similar reasons as with the patent claim. The Lanham Act allows trademark infringement actions to be initiated by the "registrant" and includes legal representatives and assigns in this definition. While some courts maintain that exclusive licensees lack standing, others recognize that exclusive licensees with vested property interests in the trademark may qualify as assignees for standing purposes.

A truly exclusive licensee possesses rights similar to trademark ownership, granting them standing to sue for infringement. This view implies that an exclusive license equates to an assignment of rights, with the licensee's standing originating from this status as an assignee. The Second Circuit's guidance, particularly from DEP Corp. v. Interstate Cigar Co., established that an exclusive distributor lacked standing when their agreement explicitly denied any rights to the mark. In a similar vein, Calvin Klein Jeanswear Co. v. Tunnel Trading reaffirmed that an exclusive licensee can only sue if the licensing agreement provides a property interest in the trademark or assigns ownership rights. 

In evaluating Telebrands' situation, the License Agreement grants them broad, royalty-free rights to sell the Ped Egg indefinitely, with no restrictions on enforcing trademarks. Therefore, Telebrands holds a property interest in the trademark, qualifying them as an assignee and granting them standing for the registered trademark infringement claim.

Regarding copyright infringement, Telebrands alleges that Coty infringed their copyright in the PED EGG packaging. Coty seeks to dismiss this claim, arguing that the Pedi-Perfect packaging is not substantially similar to the copyrighted work. Establishing a prima facie case of copyright infringement requires proof of valid copyright ownership and evidence of copying of original elements. Coty concedes both valid copyright and actual copying, leaving the question of substantial similarity between the works as the primary issue.

The standard for assessing substantial similarity between two items hinges on whether an ordinary observer, without intent to identify differences, perceives them as aesthetically similar. This "ordinary observer test" requires an average layperson to recognize the alleged copy as derived from the original copyrighted work. In cases where both protectible and unprotectible elements exist, only the protectible elements should be considered for similarity. The evaluation focuses on the total concept and overall feel of the designs in question. Substantial similarity is generally a factual matter; however, the Second Circuit allows district courts to determine it as a matter of law in specific situations, particularly when the works are attached to the plaintiff's complaint. If a court finds the works not substantially similar, it can dismiss the copyright claim, asserting that the plaintiff's complaint does not plausibly entitle them to relief.

In this case, the court determined that the Pedi-Perfect packaging is not substantially similar to the copyrighted Ped Egg packaging. Telebrands cited multiple characteristics of the Ped Egg packaging, such as design elements and layout. Many of these features were deemed unprotectible as they lack originality. The assessment of substantial similarity requires distinguishing between protected aesthetic expressions and elements that are freely accessible in the public domain, which includes basic colors, letters, and geometric forms.

Most features shared by the Pedi-Perfect and Ped Egg packaging consist of non-protectible raw materials, such as a clear blister pack, a blue and yellow color scheme on a white background, and a foot silhouette. The display of a metal cartridge through the blister pack is common to many foot file packages, appearing in six of seven alternate designs provided by Telebrands. Although some elements of the packaging may be protectible, significant differences exist: the Pedi-Perfect package has a concave raised section that conceals the foot file handle, while the Ped Egg's raised section is convex and purely aesthetic. The series of pictures on the reverse side of both packages are similar, but depict different uses; Pedi-Perfect shows the foot file on a foot, while Ped Egg shows it on a balloon and being emptied into a trash can. A casual observation reveals a distinct "total concept and overall feel" difference between the two packages. The Ped Egg package contains only the foot file, whereas the Pedi-Perfect includes a nail clipper and a bright pink toe-spacer, which alters its color scheme and highlights the additional products offered. Applying a substantial similarity analysis, it is concluded that an ordinary observer would not find the packages substantially similar, leading to the granting of the motion to dismiss the copyright infringement claim.

Regarding the Lanham Act claims in Counts II and III, Telebrands seeks to protect the Ped Egg product trade dress through registered trademark infringement and federal unfair competition claims. The Lanham Act does not offer protection for functional features, and the defendants argue that Telebrands fails to demonstrate that its alleged trade dress is non-functional. In Count III, Telebrands alleges federal unfair competition under Section 43(a) of the Lanham Act, asserting that Coty infringed on the unregistered trade dress of the Ped Egg, which includes both product design and packaging. Coty contends that Telebrands has not adequately claimed non-functionality, which is essential for the § 43(a) claim.

Coty contends that Telebrands should be barred from amending its complaint due to a prior stipulation that no further pleadings would be submitted after the filing of the Third Amended Complaint (TAC) on August 11, 2009. According to the Second Circuit, a claim under § 43(a) concerning product appearance requires the plaintiff to meet four criteria: 1) demonstrate that the claimed trade dress is non-functional; 2) establish that the trade dress has secondary meaning; 3) show a likelihood of confusion between the plaintiff's and defendant's goods; and 4) provide a clear description of the character and scope of the claimed trade dress. The plaintiff bears the burden of proving non-functionality, which is presumed to be functional unless proven otherwise. Telebrands' previous complaints did not assert that the Ped Egg trade dress is non-functional. In its opposition, Telebrands argues that describing the trade dress as "arbitrary and fanciful" in the TAC fulfills the non-functionality requirement or that the omission was an oversight that can be rectified by amending the pleading. However, the terms "arbitrary" and "fanciful" do not equate to non-functionality in trademark law and are related to distinctiveness, a separate issue. The law stipulates that functional trade dress cannot be protected, regardless of its distinctiveness. Telebrands' claim that the omission was inadvertent is met with skepticism, particularly since it had a pending utility patent application at the time, which raises questions about the strategic omission of non-functionality in the pleadings.

Telebrands filed a patent application with the PTO for the Ped Egg, emphasizing its "ergonomic" design to demonstrate that it provided a "useful improvement" over existing foot files, as required under 35 U.S.C. 101. The application claimed that the ergonomic design enhances user comfort and reduces hand fatigue during use. However, Telebrands did not assert that the Ped Egg's ovoid shape was non-functional, despite being previously notified by Coty that their amended complaint lacked this critical allegation. At a TRO oral argument, Coty’s counsel noted that Telebrands needed to prove the non-functionality of the product's trade dress, which had not been adequately addressed in the complaint. Although Telebrands later changed counsel, the new attorneys acknowledged the need to understand the case's history and had reviewed all relevant documents.

Despite this, Telebrands sought to amend its complaint to include non-functionality allegations, violating a prior stipulation that allowed no further amendments. The court ruled that granting this amendment would not serve justice, given Telebrands was aware of the defect and had strategic reasons for its initial pleading. Consequently, Telebrands' request to amend was denied, resulting in the dismissal of their federal unfair competition claim under the Lanham Act, as they had failed to plead an essential element. Additionally, Telebrands' state law unfair competition claims were deemed dependent on the federal claim and were therefore similarly dismissed.

The elements of a common law unfair competition claim are similar to those of a Lanham Act claim, leading to the dismissal of the unfair competition claim under New York General Business Law due to its dependence on a dismissed Lanham Act claim. Consequently, the motion to dismiss Telebrands' state law claims is granted. 

For the registered trademark infringement claim under Section 32(1) of the Lanham Act, the plaintiff is not required to plead non-functionality, as a registered trademark serves as prima facie evidence of validity and shifts the burden of proving non-functionality to the defendant after a 1998 amendment. Telebrands' Ped Egg, with federal trademark registration No. 3,633,750, does not necessitate pleading non-functionality.

The primary question remains whether Coty has met the burden of proof regarding the functionality of the trade dress. Functionality is a factual issue assessed by considering evidence of utilitarian benefits and four specific factors: the existence of a utility patent, advertising touting the design’s utility, lack of alternative designs, and cost-saving manufacturing methods. 

The Ped Egg's utility patent application, which claimed ergonomic design benefits, suggests functionality, potentially undermining Telebrands' position. The court notes that Telebrands’ contradictory stance on functionality raises concerns about good faith in asserting its intellectual property rights. Although the utility patent application was rejected, the Supreme Court has indicated that an expired patent application can strongly indicate functionality.

An actually-issued patent indicates that the PTO has determined a device is useful and inventive enough to warrant a monopoly under 35 U.S.C. 101. The Federal Circuit recognizes that statements from an abandoned utility patent application can have evidentiary value similar to that of an issued patent. In this case, the Ped Egg utility patent application has been rejected but remains pending without a final denial, affecting the weight of its representations toward functionality under the first Morton-Norwich factor. Defendants argue that the Ped Egg's relevant features are functional, supported by marketing claims emphasizing ergonomic design. However, the third and fourth Morton-Norwich factors favor Telebrands, as evidence shows alternative designs exist, and Coty does not assert that Ped Egg’s design is economically motivated. This balance of factors indicates that functionality cannot be conclusively determined at this stage, and thus, Coty cannot prevail on a motion to dismiss the registered trademark claim. The functionality issue is crucial for Telebrands' surviving claims, including design patent and trademark claims, as these protections only apply to non-functional aspects. Discovery will be limited to establishing whether the Ped Egg's relevant features are functional before proceeding with broader discovery. Telebrands must specify the non-functional features it seeks to protect.

Telebrands has changed its stance multiple times regarding which features of its product are considered non-functional, leading to inconsistencies noted by the defendants. During oral arguments on the motion to dismiss, Telebrands introduced a new theory concerning the Ped Egg's non-functional aspects. The court emphasizes the need for Telebrands to clearly define its position. The court partially grants the defendants' motion to dismiss: it denies dismissal for Telebrands' patent and trademark infringement claims (Counts I and II) but grants it for other claims (Counts III, IV, V, and VI). Discovery will be limited to the issue of functionality, and the parties must propose a new discovery schedule by June 29, 2010. The court recognizes the relevant facts as alleged in the Third Amended Complaint (TAC) and acknowledges its authority to consider official records from the Patent and Trademark Office. Under the License Agreement, Telebrands has extensive rights to sell and sublicense the Ped Egg, and it is responsible for legal costs related to infringement actions, retaining any damages from such actions. Telebrands’ standing to sue is supported by its rights under the License Agreement, distinguishing its case from others where licensees sued their licensors. Lastly, there is no standing issue regarding the copyright claim, as the Copyright Act allows exclusive licensees to pursue infringement claims.

The excerpt addresses issues related to trade dress protection in the context of product design and functionality. It states that a product design cannot be considered "inherently distinctive" and must demonstrate acquired secondary meaning for protection. Telebrands' inability to plead non-functionality undermines its claims regarding both product design and packaging trade dress, as functional features are not eligible for trade dress protection. The excerpt references case law, including the Supreme Court's decision in TrafFix, which clarified the approach to functionality analysis but left some ambiguity regarding alternative designs. Furthermore, the doctrine of judicial estoppel may prevent Telebrands from adopting inconsistent positions on functionality; however, since no agency has accepted Telebrands' claim due to a rejected patent application, judicial estoppel is not currently applicable. Finally, the excerpt discusses an argument concerning the ergonomic design of the Ped Egg, noting that the entire ovoid shape, including its tapered ends, is functional when used as intended, contrary to the assertion that only part of the design is functional.