KJ Korea, Inc. v. Health Korea, Inc.

Citations: 66 F. Supp. 3d 1005; 2014 U.S. Dist. LEXIS 121817; 2014 WL 4344307Docket: CASE NO.: 13 CV 6902

Court: District Court, N.D. Illinois; September 2, 2014; Federal District Court

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Plaintiffs KJ Korea, Inc. and Young Ki Eun filed a complaint against Defendants Health Korea, Inc. and Kay Park, asserting multiple claims including Trademark Infringement and Unfair Competition under the Lanham Act, as well as violations of Illinois's Uniform Deceptive Trade Practices Act and Consumer Fraud Act, along with Common Law Trademark Infringement and Unjust Enrichment. The Defendants sought dismissal under Federal Rule of Civil Procedure 12(b)(6), but the Court denied their motion in full.

The complaint states that since 2008, Plaintiffs have marketed nutritional supplements, massage instruments, and health products under three marks, all referred to as 'Health Korea' in Korean or both Korean and English. Plaintiffs claim ownership of the first mark, registered as '033 Mark' in the U.S. Patent and Trademark Office, and assert common law ownership of the second mark 'HEALTH KOREA' and a third mark '1010,' which is currently in the application process.

Plaintiffs allege significant investment in marketing exceeding one million dollars and assert that their marks have gained secondary meaning due to extensive advertising and sales efforts, particularly in Chicago. Defendants are accused of infringing these rights by operating a retail store named 'Health Korea' in Chicago since 2013 and by publishing advertisements featuring the 'HEALTH KOREA' mark. The complaint details that Kay Park, prior to establishing her store, visited KJ Korea’s locations and acknowledged the recognition and popularity of the 'HEALTH KOREA' mark in the Korean community, indicating her intent to leverage this in her business.

KJ Korea's marketing director informed Defendant Kay Park that she was prohibited from using the trademark "HEALTH KOREA," which is a federally registered mark. Despite this warning, Kay Park responded on August 14, 2013, expressing her intention to name her new business "HEALTH KOREA" and to retain the storefront sign. The marketing director reiterated the prohibition later that day, requesting that Park not open her retail store under that name. Plaintiffs allege that after receiving a cease and desist letter from their attorney, the Defendants ignored it and continued to use the infringing mark, fully aware of the Plaintiffs' trademark rights. Plaintiffs claim actual confusion has resulted from the Defendants' actions, although the complaint does not provide evidence of this confusion. They assert ongoing damages due to the Defendants' infringement. The Plaintiffs have brought multiple claims under the Lanham Act and Illinois law for trademark infringement, unfair competition, and unjust enrichment. The Defendants have filed a motion to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), which tests the sufficiency of the complaint without addressing the merits of the case. To survive such a motion, the complaint must provide a clear statement of the claim and sufficient factual detail to suggest a possibility of relief, avoiding merely conclusory statements.

Specific facts are not required in a complaint; it must only provide the defendant with fair notice of the claim and its grounds, as established in *Erickson v. Pardus*, 551 U.S. 89 (2007). The complaint is assessed as a whole for plausibility (*Atkins v. City of Chi*, 631 F.3d 823 (7th Cir. 2011)). All claims in the motion share the same elements and proofs, with state unfair competition claims mirroring federal trademark infringement claims (*AHP Subsidiary Holding Co. v. Stuart Hale Co.*, 1 F.3d 611 (7th Cir. 1993)). Illinois courts apply federal case law principles to state infringement claims, including those for unfair competition under Illinois statutes (*Spex, Inc. v. Joy of Spex, Inc.*, 847 F. Supp. 567 (N.D. Ill. 1994)). Claims for trademark infringement and unfair competition require a plaintiff to demonstrate a protectable right in the trademarks and that the defendant’s use likely causes confusion (*CAE, Inc. v. Clean Air Eng’g, Inc.*, 267 F.3d 660 (7th Cir. 2001)). 

Defendants agree these elements apply to most claims but contest the common law unfair competition claim (Count VI), arguing its elements are vague and define conduct that shocks judicial sensibilities (*Wilson v. Electro Marine Systems, Inc.*, 915 F.2d 1110 (7th Cir. 1990)). Initially related to trademark law, unfair competition has evolved, particularly following *International News Service v. Associated Press*, allowing for broader interpretations beyond mere "palming off" of goods. The Seventh Circuit has noted that certain business practices may be intolerable even if not actionable under other theories of commercial torts.

The Seventh Circuit's evaluation of unfair competition claims, particularly those not related to trademark infringement, considers various subjective standards from other jurisdictions. The Court rejects the notion that the standard for common law trademark-related unfair competition is based on whether the defendants' actions "shock judicial sensibilities" or breach "commercial morality." Instead, it aligns unfair competition claims under trademark infringement with the same elements as trademark infringement itself, as supported by previous cases. 

The defendants' dismissal arguments are categorized into three areas: (1) the plaintiffs lack a protectable right in the asserted trademarks; (2) the defendants' marks are unlikely to cause confusion with the plaintiffs' marks; and (3) the defendants should succeed under a fair use defense. None of these arguments succeed at this litigation stage.

A plaintiff can establish a protectable mark by demonstrating registration on the U.S.P.T.O.’s Principal Register, which provides prima facie evidence of validity and ownership. Conversely, marks on the Supplemental Register or unregistered marks do not have this presumption, and plaintiffs must prove their entitlement to protection under 43(a) of the Lanham Act. Distinctiveness plays a crucial role in determining trademark protection; marks are classified into five categories from least to most distinctive: generic, descriptive, suggestive, arbitrary, and fanciful. Generic terms, being commonly used and not identifying any particular source, are not entitled to trademark protection.

A descriptive mark identifies the ingredients, qualities, or characteristics of goods or services but typically lacks trademark protection due to its inability to distinguish sources. However, such a mark can achieve protection if it acquires secondary meaning within the relevant community, which denotes a mental association between the mark and a specific source. Secondary meaning can be demonstrated through various means, including consumer testimony, surveys, advertising efforts, and intentional copying. 

Defendants argue for dismissal, asserting that the Plaintiffs’ marks are merely descriptive, specifically claiming that the terms "health" and "Korea" simply describe the quality of the goods. They contend that granting Plaintiffs exclusive use of these terms would be unfair to other businesses selling similar products. Additionally, Defendants maintain that Plaintiffs have not established secondary meaning. 

In response, Plaintiffs assert that their marks have developed secondary meaning, supported by specific factual allegations. They detail substantial advertising efforts over five years, including nationwide promotions and significant expenditures on advertisements, totaling over one million dollars. Furthermore, they cite instances of intentional copying, including a statement from Defendant Kay Park indicating awareness of the "HEALTH KOREA" mark and its recognition in the Korean community.

Plaintiffs’ allegations are deemed sufficient to withstand the motion to dismiss, as they provide fair notice of the claims and suggest a plausible basis for relief. Defendants’ challenges to the sufficiency of these allegations are considered premature and more fitting for a motion for summary judgment.

In the Seventh Circuit, the likelihood of confusion in trademark disputes is evaluated using a seven-factor test: (1) similarity of marks in appearance and suggestion; (2) similarity of products; (3) area and manner of concurrent use; (4) consumer care level; (5) strength of the plaintiff's mark; (6) actual confusion; and (7) the defendant's intent to mislead. No single factor is decisive, but factors such as mark similarity, intent, and actual confusion are often emphasized. The complaint presents sufficient factual allegations related to all factors except the degree of consumer care, moving the case beyond mere speculation.

Regarding mark similarity, the complaint claims that two of Plaintiffs' marks and both of Defendants' marks use the term "Health Korea," with one Plaintiff mark's English translation being "Health Korea." Defendants argue that the exclusive use of Korean in the '033 Mark differentiates the marks; however, courts assess marks based on marketplace context rather than direct visual comparison. 

For product similarity, the complaint states that both parties sell nutritional supplements, massage apparatuses, and health food products. Under the concurrent use factor, it alleges both parties operate in the Chicagoland area, with Plaintiffs advertising and selling products nationwide, including in Chicago, since at least November 2011, and Defendants running a similar retail store in Chicago since August 2013.

Evaluation of the fifth factor, the strength of the plaintiff's mark, involves assessing its distinctiveness and its ability to identify goods from a specific source. Evidence of actual confusion is significant but not mandatory to establish likelihood of confusion. Plaintiffs claim their marks have gained secondary meaning through extensive advertising and sales, indicating a stronger mark. Under the sixth factor, actual confusion, courts focus on confusion among reasonable consumers rather than industry experts. Plaintiffs assert evidence of actual confusion but lack specific details, which defendants highlight in their dismissal argument. However, the absence of detailed allegations does not negate the likelihood of confusion, as no single factor is determinative. The seventh factor examines the intent of the defendant to mislead consumers. Plaintiffs allege that Defendant Kay Park acknowledged the recognition of the "HEALTH KOREA" mark and used it despite objections. Defendants counter that their products and markets are distinct, asserting that similarities in product offerings are insufficient for confusion. This interpretation misapplies the likelihood of confusion standard, as plaintiffs only need to show similarities that could cause public attribution to a single source. Furthermore, defendants' claim of distinct markets overlooks plaintiffs’ nationwide advertising and shipping to Chicago, suggesting that their argument pertains to proof sufficiency rather than the adequacy of the complaint.

Defendants' motion to dismiss is based on the argument that Plaintiffs have not alleged sales of products bearing their trademarks, but only claimed that Defendants' store name and label infringe on these marks. Defendants fail to cite relevant case law to support this distinction and overlook essential trademark law principles outlined by the Seventh Circuit. Trademarks serve to help consumers identify the source of goods, reducing search costs and fostering competition. The value of a trademark is linked to consistent quality; if a seller fails to meet consumer expectations, it diminishes the trademark's value. The likelihood of confusion test evaluates whether consumers would be misled regarding the source of goods and services, regardless of where the infringing mark appears, including store signage or advertisements.

Defendants also raise a fair use defense for the first time in their reply brief, but the court notes that Plaintiffs are not obligated to negate affirmative defenses in their complaint. Consequently, the court denies the motion to dismiss all counts, assuming the truth of well-pleaded allegations in the amended complaint, including the identification of three marks at issue, despite Defendants' claims of only two.