Court: District Court, N.D. California; December 27, 2015; Federal District Court
The court addressed a trademark infringement case involving ArcSoft, Inc., the developer of the "Perfect365" selfie editing app, against defendants Cyberlink Corp. and its subsidiaries, who market the "YouCam Perfect" app. ArcSoft accused the defendants of infringing and diluting its trademarks and trade dress. ArcSoft sought a preliminary injunction, while the defendants moved to dismiss the claims related to federal and state trademark dilution and federal trade dress infringement.
The court found that ArcSoft did not adequately claim trademark dilution, particularly as it failed to demonstrate that its marks were "famous" before the defendants' market entry in February 2014. Additionally, ArcSoft's articulation of its asserted trade dress lacked clarity. The court determined that ArcSoft did not establish a likelihood of irreparable harm concerning its remaining claims for trademark infringement and unfair competition. As a result, the defendants' motion to dismiss was granted, and ArcSoft's motion for a preliminary injunction was denied.
ArcSoft claimed that its Perfect365 app, which has been available since November 2011 and registered with the U.S. Patent and Trademark Office, has been downloaded over 60 million times globally, with 20 million downloads in the U.S. It asserted that its extensive use and promotion of the Perfect365 Mark have created significant acquired distinctiveness and goodwill, leading to widespread consumer recognition. The app has received favorable reviews, and ArcSoft has invested heavily in advertising across various platforms, contributing to the brand's strength and recognition.
The Perfect365 app is widely recognized and used by numerous celebrities, notably members of the Kardashian family, which has significantly enhanced consumer awareness of the Perfect365 Mark. This heightened recognition is supported by extensive media coverage in prominent publications such as The New York Times, The Washington Post, and Allure magazine, which have featured the app and praised its qualities. ArcSoft asserts that the Perfect365 Mark is famous among U.S. consumers.
Additionally, ArcSoft claims ownership of distinctive and nonfunctional trade dress associated with the Perfect365 app, which includes a unique purple color scheme prominently displayed throughout the app and its icon. The app icon features a deep purple color with a floral and human face design, along with the wording "Perfect365." Key elements of the trade dress include the app’s distinctive photo-taking and editing features, characterized by a specific circular shutter button design and editing icons in the app's signature purple.
ArcSoft argues that these trade dress elements consist solely of its trademarks and aesthetic design, asserting that they do not enhance the app's functionality or affect its cost or quality. The company claims that the trade dress is inherently distinctive and has gained recognition among consumers as indicative of the Perfect365 app's source.
Seven causes of action are asserted in the complaint against the defendants, including: 1) federal trademark infringement (15 U.S.C. § 1114); 2) federal unfair competition (15 U.S.C. § 1125(a)); 3) federal trade dress infringement (15 U.S.C. § 1125(a)); 4) federal trademark dilution (15 U.S.C. § 1125(c)); 5) state common law trademark infringement (California law); 6) state trademark dilution (Cal. Bus. & Prof. Code § 14247); and 7) unfair competition (Cal. Bus. & Prof. Code § 17200). ArcSoft claims the defendants are improperly using three marks: "YouPerfect," "YouCam Perfect," and "PERFECT," the latter of which has pending trademark applications. Collectively, these are referred to as the "Infringing Marks," and the associated trade dress as the "Infringing Trade Dress." The first alleged commercial use of the YouPerfect mark was on February 20, 2014, followed by the YouCam Perfect mark and app in April 2014, and the PERFECT mark on February 2, 2015.
ArcSoft filed the complaint on August 13, 2015, and a motion for a preliminary injunction on September 1, 2015, seeking to prevent the defendants from using any confusingly similar marks or trade dress that could mislead consumers or dilute the distinctiveness of ArcSoft’s Perfect365 trademark. On November 10, 2015, the defendants moved to dismiss the third, fourth, and sixth causes of action regarding federal and state trademark dilution and federal trade dress infringement. A hearing on the motions took place on December 16, 2015.
The legal standard for a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) requires a complaint to present sufficient factual allegations to support a plausible claim for relief. The court accepts the factual allegations as true and construes them in favor of the nonmoving party, while dismissing conclusory allegations or unwarranted inferences.
The court has the authority to dismiss allegations that are overly speculative and lack factual basis. A preliminary injunction is a significant legal remedy that requires the plaintiff to clearly demonstrate: (1) a likelihood of success on the merits, (2) potential for irreparable harm without the injunction, (3) a favorable balance of equities, and (4) that the injunction serves the public interest. If the plaintiff cannot prove likelihood of success, they may still secure an injunction by showing "serious questions" on the merits and a sharply favorable balance of hardships, while satisfying the other two criteria of irreparable injury and public interest.
In the motion to dismiss, defendants seek to invalidate the fourth and sixth causes of action related to federal and state trademark dilution and the third cause concerning federal trade dress infringement. The court grants this motion. For trademark dilution claims, whether under federal or California law, the plaintiff must establish that: (1) the mark is famous and distinctive, (2) the defendant is using the mark in commerce, (3) this use began after the mark's fame, and (4) the use is likely to cause dilution by blurring or tarnishment. The defendants argue that ArcSoft has not sufficiently shown that the Perfect365 Mark is famous, which requires broad recognition among the U.S. public as a source identifier by the time the defendant began using the mark. The court considers various factors, including advertising reach, sales volume, actual recognition, and mark registration.
The Ninth Circuit emphasizes that trademark dilution is a cause of action for only a limited class of marks with strong consumer associations, and proving dilution fame is challenging. ArcSoft cites data from its complaint, noting that over 60 million users have downloaded the Perfect365 app globally, with 20 million downloads in the U.S., asserting that many consumers associate the Perfect365 Mark and the term 'Perfect' with ArcSoft’s high-quality selfie editing app and imaging services.
ArcSoft claims widespread recognition of its Perfect365 Mark in the U.S. through extensive advertising and the use of the app by numerous celebrities, including the Kardashians. The app has been featured in prominent publications such as The New York Times and The Washington Post. However, these assertions do not sufficiently establish the mark's fame as defined by 15 U.S.C. 1125(c)(2). Although the registration factor favors ArcSoft, the others do not. To substantiate its dilution claims, ArcSoft must demonstrate that the Perfect365 Mark achieved fame within the 28 months between its launch on November 2, 2011, and the defendants' use of infringing marks starting February 20, 2014. ArcSoft lacks specific timelines for its advertising efforts and fails to detail the contexts in which the mark appeared in various publications. While it notes 20 million downloads of the app, it does not clarify how many occurred before February 2014 or provide evidence that this figure signifies "household name" status. Additionally, ArcSoft's general statements about consumer recognition do not offer concrete evidence of the mark's actual recognition among a significant segment of the population by the relevant date. Overall, the claims are deemed conclusory and insufficient for establishing the mark's fame.
A plaintiff must provide substantial factual allegations to establish the fame of a trademark for a dilution claim; mere conclusory assertions are insufficient. ArcSoft has not adequately demonstrated its mark's fame by February 2014, leading to the granting of the defendants' motion to dismiss the dilution claims, with permission to amend.
For the trade dress infringement claim, ArcSoft must show that its trade dress is nonfunctional, has acquired secondary meaning, and that confusion likely exists between its products and those of the defendants. The nonfunctionality requirement, grounded in 15 U.S.C. 1125(a)(3), emphasizes that trademark law should not inhibit legitimate competition by allowing exclusive control over functional features. A feature is functional if it is essential for the product's use or affects its cost or quality. The Ninth Circuit evaluates functionality through several factors, focusing on the overall visual impression rather than individual elements. The burden rests on ArcSoft to prove non-functionality by demonstrating that the trade dress is ornamental, incidental, or arbitrary.
ArcSoft's complaint alleges that the Perfect365 Trade Dress includes several distinctive elements: a prominent purple color scheme present across the app, including the home screen and selfie editing screens; a unique app icon predominantly featuring deep purple with a flower and human face design in white; and the "Perfect365 Mark" displayed in purple on various app screens. Key functionalities contributing to the trade dress include a circular shutter button with a white inner circle and purple outer bands, as well as icons for selfie editing options in purple against a white background. ArcSoft seeks to narrow its trade dress claim to focus specifically on the appearance of the shutter button and editing icons. However, courts require trade dress plaintiffs to clearly articulate their claimed elements to provide adequate notice to defendants. ArcSoft’s inconsistent definitions of its trade dress lead to the conclusion that its initial complaint does not sufficiently identify the protectable elements, resulting in the granting of a motion to dismiss the trade dress infringement claim with leave to amend. Additionally, since its allegations regarding trademark dilution and trade dress infringement are insufficient, ArcSoft must rely on its claims of trademark infringement and unfair competition for a preliminary injunction. The inability to survive a motion to dismiss indicates that it cannot demonstrate a strong likelihood of success on the merits, as both claims require proving ownership of a valid trademark and the likelihood of confusion caused by defendants’ use of a similar mark.
ArcSoft is denied a preliminary injunction due to its failure to demonstrate a likelihood of suffering irreparable harm from the defendants' use of the Infringing Marks. Irreparable harm is defined as harm that lacks an adequate legal remedy, with economic injury alone insufficient to establish this type of harm, as it can be compensated by damages. The Supreme Court's ruling in Winter emphasizes that a preliminary injunction requires a clear showing of likely, not merely possible, irreparable harm, which must also be immediate, not speculative. The Ninth Circuit's decision in Herb Reed Enterprises reinforced that the presumption of irreparable harm in trademark infringement cases is no longer valid; plaintiffs must provide specific evidence of harm rather than rely on assumptions or vague assertions. Courts have consistently rejected claims of irreparable harm in trademark cases when supported only by conclusory statements or general consumer confusion evidence. A plaintiff cannot secure an injunction simply by demonstrating a likelihood of success on its claim and claiming without substantiation that the infringement harms its mark.
A court's finding of irreparable harm based solely on conclusory assertions would undermine the necessary factors of likelihood of success and irreparable harm, thereby reinstating a presumption of irreparable harm that was previously rejected in Herb Reed. The plaintiff, ArcSoft, argues that irreparable harm arises automatically from losing control over its business and trademark, a stance that contradicts the requirements established in Herb Reed, which mandates evidence rather than unsupported claims. While the loss of business reputation and goodwill can substantiate irreparable harm, ArcSoft's initial evidence was insufficient, as it lacked citations to support its claims. ArcSoft asserted it had suffered significant irreparable harm and was likely to suffer more due to the defendants’ infringing actions, including loss of goodwill, reputation, and distinctiveness of its Perfect365 Mark and Trade Dress. It noted instances of consumer confusion caused by the defendants’ use of confusingly similar marks. However, the defendants countered that ArcSoft's evidence was merely a reiteration of consumer confusion claims, which the Ninth Circuit has rejected. In response to this, ArcSoft submitted additional declarations indicating it had experienced decreased customer engagement and loss of goodwill due to the defendants' actions, seeking an injunction against their unlawful conduct.
Vincent Hsu, Director of Business and Development for AreSoft, states that the YouCam Perfect app has negatively impacted ArcSoft's Perfect365 app by causing a loss of downloads, users, and advertising revenue. Carol Leung's declaration details a significant decline in Perfect365's user base since early 2015, coinciding with the aggressive promotion of YouCam Perfect by Perfect California, established in February 2015. Leung notes a one-third reduction in users compared to 2014, indicating that this drop adversely affects ArcSoft's finances, although quantifying the impact is challenging. Furthermore, ArcSoft engaged in discussions with a major cosmetics company for a partnership, which ultimately chose to work with the YouCam Makeup app instead, further harming ArcSoft's potential revenue and reputation.
Despite these declarations, the evidence presented is deemed insufficient to establish a likelihood of irreparable harm due to the defendants' alleged trademark infringement and unfair competition. Hsu's claims about decreased downloads and advertising sales are considered vague and unsubstantiated. While Leung provides additional context regarding user decline, the connection between this loss and the defendants' actions remains speculative, leading to the conclusion that irreparable harm has not been convincingly demonstrated.
ArcSoft's evidence linking Perfect California's incorporation and its promotion of the YouCam Perfect app to a decrease in Perfect365 app users is insufficient. The timing and marketing efforts presented do not reasonably imply that defendants’ use of the Infringing Marks has resulted in a decline in Perfect365's user base. ArcSoft fails to demonstrate that the alleged decreases in downloads, users, and advertising sales constitute economic injuries that cannot be remedied through monetary damages, as established in relevant case law. The assertion of lost business due to trademark infringement and false advertising lacks substantiation, particularly regarding a lost partnership with a cosmetics company, which does not clearly relate to the defendants' actions. This partnership loss appears to contradict ArcSoft's claims of diverted customers, as it suggests the cosmetics company recognized the distinction between the competing apps. Consequently, the court grants the defendants' motion to dismiss and denies ArcSoft's motion for a preliminary injunction, requiring ArcSoft to file an amended complaint within 30 days. The court also grants the defendants' motion to file under seal. Additionally, the complaint details trademark applications filed by CyberLink and Perfect Cayman Islands, but ArcSoft does not differentiate between Infringing Marks for its dilution claims. A claimant in trade dress infringement must prove that the matter sought for protection is not functional, with functional features being those that provide utilitarian advantages. Despite the noted pleading deficiencies in ArcSoft’s claims, there is no likelihood of success on those claims.
Establishing dilution fame under 15 U.S.C. 1125(c)(2) presents a high challenge, and given the current allegations and evidence, ArcSoft is unlikely to meet this requirement. Similarly, ArcSoft faces significant hurdles in proving its trade dress infringement claims, which include nonfunctionality, secondary meaning, and substantial likelihood of confusion. A single incident mentioned in ArcSoft’s motion—a one-star review from a user alleging that the Perfect365 app copied the YouCam Makeup app—provides limited support for claims of lost goodwill. This review, attributed to an anonymous user, primarily addresses trade dress rather than trademark infringement and lacks substantial probative value.
Although defendants' objections to a declaration by Vickie Wei, ArcSoft’s Director of Corporate Marketing, are noted, the declaration will not be struck. However, it fails to demonstrate a likelihood of irreparable harm. The relaxed evidentiary standards applied in preliminary injunction proceedings do not alter the underlying issues, as the injunction sought by ArcSoft aims to prevent the use of infringing marks. If the decline in downloads and advertising is due to factors unrelated to the defendants' actions, the injunction may not resolve the issue. Additionally, the 18-month delay between the defendants' use of the marks and ArcSoft's motion undermines claims of irreparable harm.
Plaintiff's significant delay in seeking a preliminary injunction suggests a lack of urgency and irreparable harm. Although ArcSoft argues it acted diligently upon recognizing potential harm, the court does not base its decision solely on this delay. It is noted that a statement from ArcSoft’s counsel claiming no evidence of awareness regarding defendants' infringement prior to July 2015 misrepresents the situation. While the record does not definitively show ArcSoft's awareness before that date, it also lacks any declaration from ArcSoft denying such knowledge. The existing evidence strongly indicates that ArcSoft either knew or should have known about the defendants' use of the infringing marks well before July 2015. Specifically, Cyberlink filed for the YouPerfect Mark on November 20, 2013, and registered it on March 31, 2015. Perfect Cayman Islands applied for the "PERFECT" standard mark on May 15, 2015, and a design mark on May 22, 2015. Additionally, ArcSoft highlights that both parties share identical marketing channels, with their apps positioned adjacent to one another on the Google Play store, indicating that their consumer bases overlap significantly.
