Court: District Court, D. Nevada; December 12, 2011; Federal District Court
Defendant has filed a Motion to Stay Discovery pending the resolution of its Motion to Dismiss, citing Rule 26(c)(1) of the Federal Rules of Civil Procedure. The court considered the Motion, along with Plaintiffs’ Opposition and Defendant’s Reply. The case, initiated by Plaintiff’s Complaint on May 3, 2011, seeks declaratory relief regarding trademark rights concerning the mark TRADEBAY, which Plaintiff claims to own and intends to use for online services. Plaintiff alleges it has invested significantly in the mark and that it is a valuable asset, having received USPTO approval for publication on January 27, 2010.
Defendant claims ownership of several trademarks that include the eBay mark and contends that Plaintiff's mark is confusingly similar, asserting trademark infringement and demanding Plaintiff cease use of the mark or face legal action. Plaintiff has expressed apprehension about litigation and financial loss due to Defendant's threats, which impede its business operations.
Defendant's Motion to Dismiss raises issues related to the court's subject matter jurisdiction and is fully briefed, awaiting decision. The Defendant argues that the motion is potentially dispositive and can be resolved without discovery, emphasizing that the case is currently at the pleading stage with no discovery served. A stay, according to Defendant, would conserve judicial resources and is justified given the circumstances.
Plaintiff opposes Defendant eBay’s motion to dismiss, asserting that the lawsuit was filed to obtain a declaration that its Tradebay mark does not infringe or dilute eBay’s marks. This action followed cease and desist letters from eBay, which threatened legal action unless Tradebay ceased its use of the mark. Plaintiff argues that eBay's motion to dismiss contradicts its earlier position, claiming that it fails to demonstrate a lack of a live case or controversy, thus questioning the court's subject matter jurisdiction. Plaintiff believes that discovery should not be stayed unless eBay can conclusively prove it will succeed on the motion to dismiss.
Plaintiff also contends that eBay's arguments ignore the threats made against it and rely on an incorrect legal standard, which has been rejected by higher courts. Furthermore, Plaintiff asserts that since no discovery requests have been made, the court cannot determine if any requested discovery would prejudice eBay, making a stay inappropriate. Plaintiff argues eBay has not shown a compelling reason for a protective order under Rule 26, as it has not convincingly established that it will prevail on the motion to dismiss.
In response, eBay filed a reply requesting an expedited resolution, highlighting that Tradebay rejected its informal request for a short stay of discovery pending the court’s decision on the motion. eBay scheduled a Rule 26(f) conference and expressed concern that proceeding with discovery before resolution of the motion would undermine its efforts. eBay acknowledges that a pending motion to dismiss typically does not justify a stay but argues that exceptions exist when the motion addresses jurisdictional issues. It maintains that the motion could dismiss the case entirely and that no discovery is necessary to resolve the motion, given that the case is still at the pleading stage.
Finally, eBay asserts that Plaintiff has not demonstrated any potential prejudice resulting from a brief stay of discovery, while eBay risks significant prejudice if forced to engage in discovery for a case that may be dismissed. The excerpt concludes with a note on the standards for motions to stay, emphasizing that the Federal Rules of Civil Procedure do not automatically stay discovery when a dispositive motion is pending, and highlighting the need for timely resolution of litigation.
Two decisions from this district establish that a dispositive motion typically does not justify a stay of discovery. The parties seeking a stay must demonstrate more than just a potentially valid motion under Rule 12(b)(6); they must show that the plaintiff is unlikely to succeed in stating a claim for relief. Courts may grant a stay when the dispositive motion addresses issues of jurisdiction, venue, or immunity. However, a district court may abuse its discretion by halting discovery if it is pertinent to a potentially dispositive motion, as seen in cases involving subject matter jurisdiction or class action determinations.
The Ninth Circuit emphasizes that discovery during the pleading stage is only warranted when factual issues arise from a Rule 12(b) motion. Under Federal Rule of Civil Procedure 26(c), courts can restrict discovery to prevent undue burden or expense, but the burden lies heavily on the party requesting a stay to convincingly argue their case. Merely citing inconvenience or costs does not fulfill the requirement for establishing good cause; specific and detailed justification is necessary for a protective order. Overall, maintaining a discovery stay aligns with judicial efficiency, but a party's request must be supported by substantial evidence.
The Ninth Circuit permits district courts to issue protective orders to stay discovery during the pendency of a motion to dismiss for failure to state a claim if the court believes the plaintiff cannot establish a claim for relief. However, it can be an abuse of discretion to deny discovery while a dispositive motion is pending under certain conditions. The purpose of a Rule 12(b)(6) motion is to allow defendants to contest the legal sufficiency of a complaint without engaging in discovery.
Although the Ninth Circuit has not outlined specific factors for deciding on a stay of discovery, federal district courts in California often employ a two-part test: first, the motion must be potentially dispositive of the case or the relevant issue; second, the court must ascertain if the motion can be resolved without further discovery. Courts assessing a stay must conduct a "preliminary peek" at the merits of the dispositive motion. If both criteria are met, a protective order may be issued; otherwise, discovery proceeds.
Other Ninth Circuit courts have adopted a more lenient standard, recommending a preliminary examination of the motion's merits to identify a clear potential for its success. Additionally, a Central District of California judge has suggested a case-by-case evaluation, considering several non-exhaustive factors such as the type of motion, the complexity of the case, and the litigation stage. This approach emphasizes that a stay may be justified only when legal issues are clear and no factual inquiries remain. The overarching goal is to ensure that the Federal Rules of Civil Procedure facilitate just, speedy, and economical resolutions in litigation, acknowledging the high costs associated with discovery. The standards set forth by Judges Reed and Hunt in prior cases should guide the evaluation of stay requests.
A stay of discovery may only be granted if the court is convinced that the plaintiff cannot state a claim for relief. Courts must exercise caution when evaluating a dispositive motion, as a magistrate judge's preliminary assessment does not prejudge the outcome, and the district judge may have a different perspective. The court must balance the need for expedited discovery against the necessity of a cost-efficient resolution under Rule 1. The rise of Rule 12(b)(6) motions, particularly following key Supreme Court decisions, complicates prompt case resolutions. A blanket stay of discovery is generally unwarranted unless the pending motion challenges all claims.
The Defendant's motion to dismiss argues that the amended complaint lacks sufficient factual allegations to support a claim for declaratory judgment, asserting that there is no actual controversy under the Declaratory Judgment Act or Article III of the Constitution. The motion emphasizes that the Plaintiff must demonstrate a concrete intention to use the trademark in commerce, which is undermined by the fact that the contested trademark application was filed by a different entity. Defendant contends that the Plaintiff fails to meet the Federal Circuit's two-prong test for establishing an actual controversy, particularly arguing that the Plaintiff has not shown a definite intent to use the mark. Consequently, the Defendant claims that subject matter jurisdiction is lacking, characterizing the Plaintiff's request as seeking an advisory opinion. In response, the Plaintiff asserts that the Defendant's prior threats of litigation constitute sufficient evidence of an actual controversy, citing a cease and desist letter sent by eBay shortly after the trademark application was filed.
A cease and desist letter was issued following Tradebay, Inc.'s application to the USPTO for its Tradebay mark on January 6, 2009. Tradebay, Inc. transitioned to Tradebay, LLC on March 30, 2011, thereby inheriting all assets, including the disputed mark. The Plaintiff asserts that in the Ninth Circuit, a mere real and reasonable apprehension of liability suffices for jurisdiction, without needing to demonstrate apprehension of litigation, referencing cases such as Chesebrough-Pond’s, Inc. v. Faberge, Inc. and Rhoades v. Avon Products, Inc. The district judge's inquiry in the motion to dismiss centers on whether the amended complaint presents a justiciable case or controversy per the Declaratory Judgment Act and Article III of the Constitution. The Declaratory Judgment Act allows U.S. courts to declare rights and legal relations of parties, but requires evidence of an "actual controversy" for jurisdiction. It does not independently establish subject-matter jurisdiction; instead, a jurisdictional basis must come from another source. The Act, enacted in 1934 and upheld in Aetna Life Insurance Co. v. Haworth, is constrained by Article III, which limits federal jurisdiction to justiciable cases or controversies. The Supreme Court's ruling in MedImmune, Inc. v. Genentech, Inc. clarified that the jurisdiction for declaratory judgment actions hinges on demonstrating a substantial controversy with immediate and real adverse legal interests. In MedImmune, the context involved a patent licensing agreement between MedImmune and Genentech concerning the drug Synagis, which became contentious after Genentech's assertion of patent rights and royalty expectations.
MedImmune contended it owed no royalties to Genentech due to the invalidity and unenforceability of the patent in question and the lack of infringement by Synagis. Despite this, MedImmune perceived Genentech's letter as a threat to enforce the patent, terminate their 1997 license agreement, and initiate a patent infringement lawsuit should it fail to make the requested royalty payments. Consequently, MedImmune paid the royalties under protest, reserving its rights, and filed a declaratory-judgment action. The Supreme Court determined that a case or controversy existed, reversing the Federal Circuit's ruling that such a controversy was absent because MedImmune continued to pay royalties. The Court recognized Genentech's letter as a clear indication of its intent to enforce the patent and pursue legal action, which could result in significant financial repercussions for MedImmune, including treble damages and a sales injunction on Synagis, its primary revenue source.
The Supreme Court clarified that MedImmune was not obligated to terminate the license agreement before seeking declaratory judgment on the patent's validity or infringement status. The Court overruled the Federal Circuit's reasonable apprehension of suit test, emphasizing that all circumstances must be evaluated in declaratory judgment cases. Subsequent cases, like Revolution Eyewear, confirmed that the Federal Circuit's stringent requirements for establishing a reasonable apprehension of infringement suit were unwarranted. Plaintiff's opposition to the motion to dismiss referenced several Ninth Circuit cases, asserting they supported the establishment of a prima facie case or controversy. However, the specifics of those cases differed materially from the current jurisdictional facts, particularly highlighting that in Societe, the plaintiff was a manufacturer facing a direct threat of litigation. The Ninth Circuit, relying on the precedent set in Maryland Casualty, found a substantial controversy warranting a declaratory judgment under the circumstances.
The Ninth Circuit identified a significant case or controversy issue when a plaintiff has not initiated manufacturing or preparation for a patented product, suggesting such a scenario invites an advisory opinion from the court. In the case of Chesebrough-Pond’s, the plaintiff had invested approximately $650,000 in a product line and was using a disputed trademark in commerce. After receiving a threatening letter from the defendant regarding the potential opposition to the trademark registration, the Ninth Circuit determined that an actual case or controversy existed, as the letter indicated intent to oppose, claimed trademark infringement, and asserted ownership of a registered mark. Although no formal lawsuit was threatened, the plaintiff faced a genuine apprehension of litigation, forcing it to choose between competing in a growing market or risking significant damages and customer relationships.
In Rhoades, the Ninth Circuit overturned a dismissal of a trademark declaratory relief action, affirming that the plaintiff, a cosmetics company facing challenges from the well-known defendant Avon regarding several trademark registrations, sufficiently alleged a true case or controversy. Avon’s threats of litigation and its actions to contest the plaintiff's trademarks contributed to a reasonable perception of threat. The court noted the plaintiff was actively manufacturing and marketing products using the contested marks, thus establishing a real apprehension of litigation. The dismissal motion did not dispute this apprehension but focused on whether the plaintiff's conduct brought it into adversarial conflict with Avon, referencing the two-prong test from the Federal Circuit's 1987 Windsurfing decision. In that case, the absence of evidence demonstrating adversarial conduct led to a finding against the plaintiff, AMF, failing to meet the second prong of the test.
AMF claimed interest in using the marks "Windsurfer" and "Windsurfing" for its products but admitted to avoiding their use and instructing dealers not to use them. The Federal Circuit determined that AMF's interest did not create a legal conflict with Windsurfing International, Inc. (WSI) regarding WSI’s trademark registration, resulting in a lack of subject matter jurisdiction to hear AMF's cancellation claim. In response, WSI argued that the Ninth Circuit has dismissed the Federal Circuit’s two-part test for establishing a case or controversy, instead requiring a reasonable apprehension of litigation. The Supreme Court's MedImmune case emphasized that a totality-of-the-circumstances test is necessary to establish Article III jurisdiction.
WSI's opposition to the motion to dismiss did not counter AMF's claims about its non-use of the mark nor request to amend the complaint for further jurisdictional clarity. Therefore, the court analyzed the jurisdictional facts as presented in WSI's amended complaint. The court accepted the allegations as true but concluded that WSI failed to demonstrate an Article III case or controversy, as it did not assert actual use of the mark or significant investment in it. The amended complaint contained inconsistent and conclusory statements regarding WSI's trademark, including ownership of the trademark Tradebay, intentions to protect its rights, and claims of substantial impairment due to AMF's actions. Despite detailing AMF's alleged trademark infringement, WSI's allegations did not sufficiently establish a legitimate legal claim.
The amended complaint lacks clarity and contains vague, conclusory, and contradictory allegations regarding the Plaintiff's use of the mark and the resources expended for its development. The Plaintiff's opposition to the motion to dismiss does not request permission to amend the complaint to add jurisdictional facts. The court finds that the pleadings do not establish whether the Plaintiff is currently using, has used, or merely intends to use the mark, which raises concerns about the existence of a substantial case or controversy necessary for declaratory judgment. The court concludes that it lacks subject matter jurisdiction under Article III, as the Plaintiff has not demonstrated sufficient immediacy or reality. The motion to dismiss raises significant legal issues without factual disputes, meaning it can be resolved without discovery. Consequently, the court grants the Defendant’s Motion to Stay Discovery until the motion to dismiss is resolved. If the motion to dismiss is denied, the parties must collaborate to submit a discovery plan and schedule based on the court's decision date.
