Court: District Court, S.D. Texas; October 20, 2014; Federal District Court
Intellectual property is increasingly significant in the economy, especially regarding software patents. However, New York Pizzeria, Inc. (NYPI) seeks trademark protection for the flavors of its Italian dishes and their presentation. NYPI, led by Gerardo Anthony Russo, has initiated litigation against Adrian Hembree and alleged accomplices for purportedly creating a competing restaurant chain called Gina’s Italian Kitchen, utilizing NYPI’s proprietary recipes and materials. Hembree allegedly shared NYPI’s confidential information during his tenure and, after leaving, accessed NYPI’s FranConnect account using a franchisee's credentials to download trade secrets. NYPI claims that former employees were hired by Syal to disclose confidential information. The internal investigation revealed that Gina’s utilized NYPI’s recipes, leading to NYPI’s amended complaint with fifteen counts, five of which are under dismissal consideration. The counts include violations of the Computer Fraud and Abuse Act, the Stored Communications Act, and trademark and trade dress infringement under the Lanham Act, along with allegations of aiding and abetting various torts. To survive a motion to dismiss under Rule 12(b)(6), a complaint must present enough factual content to establish a plausible claim for relief, allowing the court to reasonably infer the defendant's liability.
A claim lacks plausibility if it relies solely on a formulaic recitation of legal elements or unsubstantiated assertions. In assessing a Rule 12(b)(6) motion to dismiss, courts must accept well-pleaded facts as true and view them favorably toward the plaintiff. Regarding Count 1, under the Computer Fraud and Abuse Act (CFAA), a plaintiff must demonstrate one of the specified factors in 18 U.S.C. 1030(c)(4)(A)(i). NYPI claims a loss exceeding $5,000 due to investigating the source and extent of a computer intrusion, which is acknowledged as actionable under the CFAA. The statute defines "loss" broadly, including costs for response and restoration. While defendants concede the $5,000 loss threshold is met, they challenge NYPI's request for additional compensatory damages related to trade secrets misappropriated during the intrusion, asserting such damages are not recognized under the CFAA. Courts are divided on whether lost trade secrets can be classified as damage under the CFAA. Some rulings suggest that meeting the loss threshold allows for broader compensatory claims, a point the defendants did not address in their motion. The court refrains from deciding the extent of recoverable damages at this stage, noting that limiting remedy claims via a Rule 12(b)(6) motion is an unusual but increasingly common practice. The court emphasizes that a successful motion typically results in the dismissal of the cause of action rather than merely restricting the scope of damages.
In Jameel v. Flagstar Bank, the court dismissed a Truth in Lending Act claim without prejudice due to a lack of actual damages. However, the current motion does not challenge NYPI's ability to meet the CFAA damages element or seek dismissal of that claim; it only requests a ruling that NYPI cannot recover damages for trade secret misappropriation linked to alleged computer intrusion. The court expresses skepticism about the appropriateness of such relief under Rule 12(b)(6). The motion to dismiss certain remedies, including estoppel, attorney’s fees, and exemplary damages, is denied since these are remedies rather than standalone claims. A motion under Rule 12(b)(6) addresses the sufficiency of the claim, not the remedy sought.
There is a discussion of the potential broader application of the 12(b)(6) standard regarding claims for specific damages, but the court concludes that NYPI's state law misappropriation claim remains intact and discovery will proceed regardless of CFAA damage limitations. The court finds that any determination on CFAA misappropriation damages might be moot, depending on the outcomes of the state law claim or the CFAA claim itself.
Regarding the Stored Communications Act (SCA), defendants seek full dismissal, arguing that NYPI's complaint lacks specificity regarding the franchisee involved. The court, however, deems NYPI's allegations sufficient, noting that the amended complaint indicates unauthorized access to a franchisee's account, leading to the theft of proprietary information.
For the Lanham Act claims, NYPI alleges trademark infringement related to both the flavor and presentation of its food products. Specifically, NYPI contends that its unique ingredients and preparation methods contribute to its distinctive flavor, which the defendants have allegedly infringed upon or diluted.
The Lanham Act provides a federal cause of action against anyone who uses a word, term, name, symbol, or device in commerce that is likely to cause confusion regarding the affiliation or origin of goods. Trademark protection under the Act is not limited to specific categories like color or scent; rather, it hinges on a mark's ability to distinguish a product's source. While flavors can convey meaning, they can only qualify for trademark protection if they acquire distinctiveness, meaning consumers associate the flavor with a specific source. Inherently distinctive marks are typically arbitrary or fanciful, while flavors are unlikely to be inherently distinctive since they are perceived as characteristics of the goods. Additionally, functional features of a product, which are essential to its use or affect its cost or quality, are not protectable under trademark law. This functionality doctrine presents a significant barrier for flavor trademarks, as exemplified by the TTAB's denial of a trademark for an orange flavor in pharmaceuticals, citing functionality concerns.
The flavor of medicine cannot be monopolized due to its functional necessity, which would impede competition in the pharmaceutical market. In contrast, the flavor of food is an essential quality, particularly in the restaurant industry, where customers pay for both taste and sustenance. NYPI failed to provide any case supporting a trademark claim for food flavor and did not argue that its flavor serves merely as an identifier, making the trademark claim untenable.
Regarding the plating infringement claim, NYPI asserts a trade dress interest in the visual presentation of its food, including baked ziti, eggplant parmesan, and chicken parmesan. Although non-traditional marks can receive protection, NYPI did not specify the distinctive, non-functional aspects of its plating, nor did it demonstrate consumer confusion. To establish a valid claim, NYPI must detail the elements of its claimed trade dress, as required by pleading standards set by the Supreme Court. The lack of clarity about what makes its plating distinctive results in the dismissal of the claim, as the defendants are unable to discern the basis of NYPI's allegations.
Determining the plausibility of a complaint requires a context-specific analysis by the court, which can rely on its own experience and common sense. While less detailed pleadings may be acceptable when a plaintiff lacks certain facts before discovery, the plaintiff must still provide some factual basis for claims. In this case, however, the plaintiff, NYPI, failed to adequately support its trade dress infringement claim, leading to its dismissal. Additionally, NYPI’s claim for aiding and abetting against Robert Salcedo was also dismissed. The complaint alleged that Salcedo aided other defendants in various torts, including trade secret misappropriation. However, Texas law does not recognize aiding and abetting unless it involves a breach of fiduciary duty, and NYPI did not provide supporting case law for this claim. The Texas Supreme Court has discussed concert of action liability but has not applied it to aiding and abetting in competition-related torts. As a result, the court expressed reluctance to recognize such a claim within federal jurisdiction. Ultimately, the court denied the motion to dismiss concerning NYPI's claims under the Computer Fraud and Abuse Act and the Stored Communications Act, but granted the motion regarding the Lanham Act claims and the aiding and abetting claim.
