Market Studies LLC v. Technical Analysis Incorporated

Filing 43

ORDER denying 18 Defendant's Motion for Judgment on the Pleadings; granting 28 Plaintiff's Motion to Amend. Plaintiff shall file its Amended Complaint within 14 days of this Order. Signed by Judge James A Teilborg on 3/28/12.(TLJ)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 MARKET STUDIES, LLC, 10 Plaintiff, v. 11 12 TECHNICAL ANALYSIS, INC., 13 Defendant. 14 ) ) ) ) ) ) ) ) ) ) ) CV-11-1895-PHX-JAT ORDER 15 Pending before the Court are Defendant’s Motion for Judgment on the Pleadings 16 (Doc. 18) and Plaintiff’s Motion for Leave to File Amended Complaint (Doc. 28). The Court 17 now rules on both Motions. 18 19 I. BACKGROUND 20 Plaintiff Market Studies, LLC (“MS”) provides financial research, information, 21 education, and consulting services based on its analysis and compilation of data to measure 22 the performance of certain financial markets. MS also provides subscription services, both 23 directly and through licensees, and publishes and distributes materials pertaining to the 24 DeMark Indicators, a suite of tools created by Thomas Demark, the founder and CEO of MS. 25 MS’s customers, which include traders and investors, rely on the Indicators to help them 26 make predictions about the markets and identify market trends. Additionally, MS owns 27 federal trademark rights in the trademarks DEMARK INDICATORS, SEQUENTIAL, 28 SETUP, and COUNTDOWN with respect to the relevant classes for financial services, 1 publication, and education. MS also owns the copyright to DeMark on Day Trading Options, 2 a book about the Indicators and market timing. 3 Defendant Technical Analysis, Inc. (“TA”) publishes Technical Analysis of Stocks & 4 Commodities, a monthly magazine, in print and on its website. TA’s publications include 5 both written articles and computer software code related to financial market analysis. In the 6 September 2011 issue of Technical Analysis of Stocks & Commodities, TA published an 7 article entitled “TD Sequential and Ermanometry for Intraday Traders.” The article included 8 multiple references to Mr. DeMark and the Demark Indicators and multiple uses of terms and 9 phrases that are similar or identical to MS’s registered trademarks. TA also published 10 downloadable software code related to the DeMark Indicators that also used such terms and 11 phrases. TA has no licenses to the Indicators or to MS’s trademarks. 12 In response to the published article and code, MS filed a complaint on September 26, 13 2011, alleging copyright infringement, trademark infringement, unfair competition, and 14 unjust enrichment. TA filed a motion for judgment on the pleadings on December 9, 2011. 15 Subsequently, MS filed a motion for leave to amend its complaint on January 12, 2012. In 16 amending its complaint, MS has dropped its copyright claims and added a claim for 17 intentional interference with a business relationship, among other amendments. The Court 18 will first consider Plaintiff MS’s motion for leave to file its amended complaint. 19 20 II. ANALYSIS 21 Rule 15(a) provides in pertinent part: 22 25 A party may amend its pleading once as a matter of course within: 21 days after serving it, or if the pleading is one to which a responsive pleading is required, 21 days after service of a responsive pleading or 21 days after service of a motion under Rule 12(b), (e), or (f), whichever is earlier. In all other cases, a party may amend its pleading only with the opposing party’s written consent or the court’s leave. The court should freely give leave when justice so requires. 26 Fed. R. Civ. P. 15(a) (emphasis added). Although the decision to grant or deny a motion to 27 amend is within the discretion of the district court, “Rule 15(a) declares that leave to amend 28 ‘shall be freely given when justice so requires’; this mandate is to be heeded.” Foman v. 23 24 -2- 1 Davis, 371 U.S. 178, 182 (1962) (citation omitted). “In exercising its discretion[,] . . . 2 ‘a court must be guided by the underlying purpose of Rule 15—to facilitate decision on the 3 merits rather than on the pleadings or technicalities.’ . . . Thus, ‘Rule 15’s policy of favoring 4 amendments to pleadings should be applied with extreme liberality.’” Eldridge v. Block, 5 832 F.2d 1132, 1135 (9th Cir. 1987) (citations omitted). “This liberality . . . is not dependent 6 on whether the amendment will add causes of action or parties.” DCD Programs, Ltd. v. 7 Leighton, 833 F.2d 183, 186 (9th Cir. 1987). 8 However, the liberal policy in favor of amendments is subject to limitations. After 9 the defendant files a responsive pleading, leave to amend may be denied if the “amendment 10 would cause prejudice to the opposing party, is sought in bad faith, is futile, or creates undue 11 delay.” Madeja v. Olympic Packers, LLC, 310 F.3d 628, 636 (9th Cir. 2002) (quoting 12 Yakama Indian Nation v. Wash. Dep’t of Revenue, 176 F.3d 1241, 1246 (9th Cir. 1999)). 13 “Generally, this determination should be performed with all inferences in favor of granting 14 the motion.” Griggs v. Pace Am. Grp., Inc., 170 F.3d 877, 880 (9th Cir. 1999) (citing DCD 15 Programs, 833 F.2d at 186). Significantly, “[t]he party opposing amendment bears the 16 burden of showing prejudice,” futility, or one of the other permissible reasons for denying 17 a motion to amend. DCD Programs, 833 F.2d at 187; see Richardson v. United States, 18 841 F.2d 993, 999 (9th Cir. 1988) (stating that leave to amend should be freely given unless 19 opposing party makes “an affirmative showing of either prejudice or bad faith”). 20 Regarding the futility of amendments to add claims, “[a] district court does not err in 21 denying leave to amend where the amendment would be futile . . . or would be subject to 22 dismissal.” Saul v. United States, 928 F.2d 829, 843 (9th Cir. 1991) (citations omitted); 23 see Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988) (“A motion for leave to 24 amend may be denied if it appears to be futile or legally insufficient.”) (citation omitted). 25 A motion for leave to amend is futile if it can be defeated on a motion for summary 26 judgment. Gabrielson v. Montgomery Ward & Co., 785 F.2d 762, 766 (9th Cir. 1986). 27 “However, a proposed amendment is futile only if no set of facts can be proved under the 28 amendment to the pleadings that would constitute a valid and sufficient claim or defense.” -3- 1 Miller, 845 F.2d at 214; see Foman, 371 U.S. at 182 (stating that “[i]f the underlying facts 2 or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be 3 afforded an opportunity to test his claim on the merits”); DCD Programs, 833 F.2d at 186 4 (stating that “a motion to make an ‘[a]mendment is to be liberally granted where from the 5 underlying facts or circumstances, the plaintiff may be able to state a claim’”) 6 (quoting McCartin v. Norton, 674 F.2d 1317, 1321 (9th Cir. 1982)). 7 Here, Defendant has opposed Plaintiff’s motion to amend only on the grounds that 8 Plaintiff’s amendments to its complaint are futile. Particularly, Defendant argues that, even 9 with the new amendments, Plaintiff’s complaint fails to state a claim because the nominative 10 fair use doctrine applies and protects any use by Defendant of Plaintiff’s marks. With respect 11 to Plaintiff’s state law unfair competition, unjust enrichment, and intentional interference 12 with a business relationship claims, Defendant again argues that nominative fair use bars all 13 three claims, in addition to arguing that federal patent law preempts Plaintiff’s unjust 14 enrichment claim and that Plaintiff has not sufficiently alleged the required element of 15 improper motive with respect to its intentional interference claim.1 Thus, in Defendant’s 16 view, Plaintiff’s amendments are futile because all of its amended claims are subject to 17 dismissal. 18 To successfully raise a nominative fair use defense to a trademark infringement claim, 19 the alleged infringer of a mark must establish (1) the product or service in question is not 20 readily identifiable without use of the trademark; (2) only so much of the mark or marks as 21 is reasonably necessary to identify the product or service is used; and (3) the user does 22 nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the 23 24 25 26 27 28 1 Defendant also argues that estoppel bars Plaintiff from asserting that Defendant’s published code represents incomplete and inaccurate versions of Plaintiff’s Indicator formulas because, in its opposition to Defendant’s motion, Plaintiff stated that “TA infringed MS’s copyright by publishing software code that recites the exact steps of the DeMark Indicator compilations.” (Doc. 29, at 14) (emphasis added). The Court finds that Plaintiff’s assertions are not sufficiently contradictory to rise to the level of estoppel, and further, Plaintiff’s original statement related to its copyright claims, which Plaintiff has removed from its amended complaint. Thus, Defendant’s argument is unavailing. -4- 1 trademark holder. New Kids on the Block v. News Am. Publ’g, Inc., 971 F.2d 302, 308 (9th 2 Cir. 1991). Further, this test replaces the traditional test for likelihood of confusion only 3 when a defendant’s use of the mark refers to the trademarked good itself. Toyota Motor 4 Sales, USA, Inc. v. Tabari, 610 F.3d 1171, 1175 (9th Cir. 2010). Moreover, because of its 5 factual nature, fair use analysis is generally considered to be premature at the pleadings stage. 6 See, e.g., Autodesk, Inc. v. Dassault Systemes Solidworks Corp., No. C 08-04397 WHA, 2008 7 WL 6742224, at *4-5 (N.D. Cal. Dec. 18, 2008);, LLC v. Kackson, No. 8 CIV. S-07-879 LKK/EFB, 2007 WL 3479562, at *4 (E.D. Cal. Nov. 15, 2007). 9 Here, Defendant has not established that Defendant’s use of Plaintiff’s marks 10 constitutes nominative fair use as a matter of law. Significantly, the Court finds that a 11 question of fact exists as to whether Defendant’s use of the mark referred only to Plaintiff’s 12 products. Defendant’s article and published code, which Plaintiff attached to its complaint, 13 use Plaintiff’s marks extensively. Though some of these uses clearly function to identify 14 Plaintiff’s “Indicators,” questions of fact exist as to whether other uses, particularly with 15 respect to the published code, do not. Hence, Defendant has not shown that it can 16 exclusively rely on a nominative fair use defense, and accordingly, several fact issues remain 17 as to whether Plaintiff can establish infringement under the traditional likelihood of 18 confusion test. It is clear to the Court, however, that Plaintiff has properly stated its claims 19 for infringement based on likelihood of confusion. 20 Furthermore, even if Defendant’s use of Plaintiff’s marks was solely to identify 21 Plaintiff’s products, additional issues of material fact exist with respect to application of the 22 Ninth Circuit’s test from New Kids. In particular, questions of fact exist at least with regard 23 to whether Defendant’s multiple uses of Plaintiff’s marks were reasonably necessary and 24 whether Defendant’s use of Plaintiff’s marks suggest any sponsorship or endorsement by 25 Plaintiff. Thus, Defendant has failed to establish that application of the nominative fair use 26 doctrine renders Plaintiff’s amended trademark infringement claims futile. Similarly, to the 27 extent that Defendant relies on nominative fair use to establish the futility of Plaintiff’s 28 amended state law claims, Defendant has not succeeded. -5- 1 Defendant’s additional arguments with respect to the adequacy of Plaintiff’s state law 2 claims are also unavailing. First, the Court does not find that federal patent law preempts 3 Plaintiff’s unjust enrichment claim. In its amended complaint, Plaintiff alleges that “[b]y 4 utilizing [Plaintiff’s] intangible property, including the content of and goodwill associated 5 with the ‘DeMark Indicators’ tools, [Defendant] has benefitted in the financial services 6 market at the expense of [Plaintiff] and diverted and will continue to divert substantial profits 7 from [Plaintiff].” (Doc. 28, Ex. A, at ¶ 46). Defendant is correct that to the extent the 8 “content” of the tools refers to intellectual property that could be afforded protection under 9 the federal patent laws, those laws preempt Plaintiff’s claims. See G.S. Rasmussen & 10 Assocs., Inc. v. Kalitta Flying Serv., Inc., 958 F.2d 896, 904-05 (9th Cir. 1992). However, 11 Plaintiff also alleges that Defendant utilized Plaintiff’s “goodwill,” which could not be 12 afforded patent protection, and moreover, questions of material fact exist as to what exactly 13 is encompassed by the “content and goodwill” of Plaintiff’s tools. 14 Additionally, the Court finds that Plaintiff has sufficiently pled its claim for 15 intentional interference with a business relationship. Under Arizona law, the elements of this 16 claim require “the existence of a valid contractual relationship or business expectancy; the 17 interferer’s knowledge of the relationship or expectancy; intentional interference inducing 18 or causing a breach or termination of the relationship or expectancy; and resultant damage 19 to the party whose relationship or expectancy has been disrupted.” Miller v. Hehlen, 104 20 P.3d 193, 202 (Ariz. Ct. App. 2005). Furthermore, “[t]he interference must be improper 21 before liability will attach. And, a competitor does not act improperly if his purpose at least 22 in part is to advance his own economic interests.” Id. (internal quotations and citations 23 omitted). Relying on Miller, Defendant argues that Plaintiff has not properly alleged that 24 Defendant was “motivated solely to injure Plaintiff’s business.” (Doc. 33, at 7). 25 In its amended complaint, Plaintiff alleges that Defendant “intentionally interfered 26 with [Plaintiff’s] business expectancies by publishing the Trader’s Tips knowing the 27 publication contained inaccurate and misleading representations of the DeMark Indicators.” 28 (Doc. 28, Ex. A, at ¶ 52). The Court finds that this statement sufficiently alleges that -6- 1 Defendant improperly interfered with Plaintiff’s business expectancy. Taking the alleged 2 facts to be true and construing them in a light most favorable to Plaintiff, it is enough that 3 Defendant knowingly published inaccurate and misleading representations of the Indicators 4 to attribute an improper motive to the Defendant, including the absence of any intent to 5 advance its own economic interests. 6 In sum, the Court finds that Defendant has failed to show that Plaintiff’s amendments 7 to its complaint are futile. Therefore, Plaintiff’s motion to amend is GRANTED, and 8 Defendant’s motion for Judgment on the Pleadings is DENIED as moot. 9 10 III. CONCLUSION 11 Accordingly, 12 IT IS ORDERED denying Defendant’s Motion for Judgment on the Pleadings (Doc. 13 18). 14 IT IS FURTHER ORDERED granting Plaintiff’s Motion For Leave to File 15 Amended Complaint (Doc. 28). Plaintiff shall file its Amended Complaint within 14 days 16 of this Order. 17 DATED this 28th day of March, 2012. 18 19 20 21 22 23 24 25 26 27 28 -7-

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