American Cruise Lines, Inc. v. HMS American Queen Steamboat Co.

Citations: 223 F. Supp. 3d 207; 2016 U.S. Dist. LEXIS 177232; 2016 WL 7410781Docket: No. 13-cv-324 (RGA)

Court: District Court, D. Delaware; December 21, 2016; Federal District Court

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Plaintiff American Cruise Lines filed a Rule 12(b)(6) motion to dismiss Defendants’ counterclaims VII through XII. Counterclaims VII to X aim to cancel the Plaintiff's incontestable trademarks for "American Cruise Lines," "American Glory," "American Spirit," and "American Star," alleging misrepresentation of source and priority. Counterclaim XI seeks cancellation of the "American Eagle" mark based on fraudulent procurement and priority, while Counterclaim XII requests damages related to the fraud claim in XI. During oral arguments, Plaintiff indicated the dismissal request for Counterclaim XI only concerns the fraudulent procurement basis, not the priority claim.

The legal standard for a Rule 12(b)(6) motion requires the court to accept the well-pleaded allegations as true and determine if they could establish a claim for relief. While detailed factual allegations aren’t mandatory, the complaint must surpass mere labels or formulaic recitations of legal elements. Bald assertions or legal conclusions are not to be credited. A claim must demonstrate "substantive plausibility," evident from the complaint's face, enabling the court to infer liability from the alleged misconduct. The assessment of plausibility is context-specific, utilizing judicial experience and common sense. Additionally, Rule 9 imposes a stricter pleading standard for fraud, necessitating particularity in detailing the circumstances of the alleged fraud, while allowing general allegations of malice or intent. Overall, the complaint must present a viable claim supported by sufficient factual background.

Plaintiffs' motion to dismiss counterclaims VII, VIII, IX, and X is granted, while counterclaims XI and XII are denied. Defendants' argument for canceling Plaintiffs' trademarks based on prior use of the "American Queen" mark fails, as prior use is not a valid ground for canceling a trademark that has been registered for over five years. The statutory framework under 15 U.S.C. § 1065 establishes that a mark can achieve incontestable status after five years of continuous use, which protects it from cancellation except under specific grounds outlined in § 1064. Defendants incorrectly rely on § 1065, which does not support their claim for cancellation based on prior use. The relevant provisions indicate that once a mark is incontestable, it is afforded greater protections, contradicting Defendants' position that such marks could be more easily canceled than non-incontestable marks. Additionally, there is no legal precedent supporting the cancellation of an incontestable mark due to another's prior use. Defendants' reliance on a cited case, Cuban Cigar Brands N. v. Upmann Int’l Inc., is also flawed, as that case states that prior use does not justify cancellation. Consequently, the court finds Defendants lack a viable legal theory for their claims, leading to the dismissal of the relevant counterclaims.

Defendants inadequately pleaded claims of intentional misrepresentation regarding the source of services, failing to substantiate counterclaims VII, VIII, IX, and X with necessary allegations. Under Section 1064, a party can seek cancellation of a registered mark if it misrepresents the source of goods or services. This "passing off" claim requires proof that the Plaintiff deliberately misused its marks to suggest that its services originated from Defendants, intending to deceive the public. Misuse must be blatant and cannot merely recast a likelihood of confusion claim. Rule 9(b) applies, necessitating specificity in fraud allegations, which Defendants failed to provide, mostly resorting to legal standards and conclusory statements. While Defendants claimed to have built goodwill and noted market confusion, they did not sufficiently allege that Plaintiff passed off its services as theirs. The allegation regarding Plaintiff's use of paid search terms indicates initial interest confusion but does not prove that Plaintiff blatantly misrepresented its services as those of Defendants. Therefore, since neither the priority nor misrepresentation claims are viable, the motion to dismiss counterclaims VII, VIII, IX, and X is granted.

Defendants claim that Plaintiff did not adequately demonstrate knowledge or belief that Defendants had a right to use a confusingly similar trademark, which is essential for their fraud allegation regarding the procurement of Plaintiff's trademark. A trademark can be canceled if it was obtained fraudulently, requiring clear and convincing evidence of false representations made knowingly during the trademark application process. Additionally, a complainant must show the registrant intended to deceive the Patent and Trademark Office (PTO) and was aware of another entity's use of a similar mark.

Defendants allege that Plaintiff's Vice President, Timothy Beebe, falsely declared that no other corporation had rights to use a confusingly similar mark. They argue that Beebe was aware of a likelihood of confusion between Plaintiff's marks and Defendants’ mark, American Queen, but failed to disclose this to the PTO. The timing of Beebe's declaration, shortly before the filing of the First Amended Complaint, supports this claim. Defendants argue that if Plaintiff believed there was confusion between its marks and the American Empress mark, it likely believed the same regarding American Queen.

Defendants have specified the who (Beebe), what and where (the false statement to the PTO), when (weeks before the First Amended Complaint), and how (failure to disclose American Queen). Plaintiff counters that the fraud claim fails because it relies on non-disclosure of a registered mark, citing a precedent that suggests the PTO is presumed to be aware of all registered marks, making non-disclosure non-material.

The SCOA Board's position on fraudulent execution of the oath is not adopted, as it is not the sole authority referenced by the Plaintiff. The registered status of an undisclosed trademark does indicate some materiality regarding fraudulent execution but does not decisively prove it. The complexity of trademark registrations is highlighted by the existence of over 67,000 marks containing "America" or "American." The concept of inequitable conduct in patent law parallels the trademark context, requiring proof that an applicant intentionally withheld a known material reference from the PTO; if established, it can invalidate a patent. The comparison allows for the possibility that a registered mark could substantiate a fraudulent procurement claim. Thus, the Defendants have presented sufficient allegations to withstand a motion to dismiss. The Plaintiff's motion to dismiss counterclaims XI and XII is denied, while it is partially granted for counterclaims VII, VIII, IX, and X. The order, issued on December 22, 2016, confirms that the Plaintiff’s Motion to Dismiss is granted in part and denied in part. Additionally, it notes that Rule 9(b) applies to the passing off claim, although the Plaintiff did not argue this, and the counterclaim inaccurately suggests a likelihood of confusion between American Queen and Plaintiff's marks.