Republic Technologies (NA), LLC et al v. BBK Tobacco & Foods, LLP d/b/a HBI International

Filing 101

MEMORANDUM Opinion and Order: Signed by the Honorable Elaine E. Bucklo on 4/18/2017. (bg, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

REPUBLIC TECHNOLOGIES (NA),
LLC and REPUBLIC TOBACCO, L.P.,
Plaintiffs,
v.
BBK TOBACCO & FOODS, LLC d/b/a
HBI INTERNATIONAL,
Defendant.

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No. 16 C 3401

MEMORANDUM OPINION AND ORDER
Before me is a motion by defendant BBK Tobacco & Foods LLP,
d/b/a HBI International (“HBI”) to dismiss Count VI of the
Second Amended Complaint (SAC) filed by plaintiffs Republic
Technologies (NA), LLC and Republic Tobacco, L.P. (together,
“Republic”). Also before me is Republic’s motion to strike
certain allegations in the amended counterclaims filed by HBI.
For the reasons below, HBI’s motion is granted in part and
denied in part, and Republic’s motion is denied.
I.
This is a trademark dispute between two makers of cigarette
rolling papers. Republic markets its rolling papers under the
trademark “OCB”; HBI markets its papers and other products under
the trademark “RAW.” Republic initially sued HBI in this court

seeking a declaratory judgment that it had not infringed any
trade dress rights that HBI may possess. It subsequently amended
its complaint to include causes of action for unfair competition
under the Lanham Act, 15 U.S.C. § 1125(a); common law unfair
competition; and violation of the Illinois Uniform Deceptive
Trade Practices Act (IUDTPA), 815 ILCS 510/1 et seq.
After unsuccessfully moving to transfer the suit to
Arizona, see Republic Techs. (NA), LLC v. BBK Tobacco & Foods,
LLC, No. 16 C 3401, 2016 WL 6248187, at *4 (N.D. Ill. Oct. 26,
2016), HBI filed counterclaims against Republic for trademark
infringement, 15 U.S.C. § 1114; false designation of origin,
unfair competition, and false advertising under 15 U.S.C. §
1125(a); common law trademark infringement and unfair
competition; federal copyright infringement; and violation of
the IUDTPA.
Republic later amended its complaint a second time to
include a claim for cancelation of HBI’s Raw trademarks pursuant
to 15 U.S.C. § 1119. The claim alleges that HBI’s trademarks
must be canceled because they are “used with goods that are
marketed, promoted and sold for use with marijuana.” SAC ¶ 81.
HBI subsequently amended its counterclaims to include
allegations that Republic’s OCB papers are marketed for use with
marijuana. Unlike Republic, however, HBI stopped short of
asserting a claim for cancelation of Republic’s mark.
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HBI has moved to dismiss Republic’s trademark-cancelation
claim. In the alternative, it seeks leave to file an amended
counterclaim seeking cancelation of Republic’s trademark.
Republic has filed a motion to strike the allegations in HBI’s
amended counterclaims regarding the marketing of its papers for
use with marijuana.
II. Trademark Cancelation
The Lanham Act provides that “[i]n any action involving a
registered mark the court may determine the right to
registration, order the cancelation of registrations, in whole
or in part, restore canceled registrations, and otherwise
rectify the register with respect to the registrations of any
party to the action.” 15 U.S.C. § 1119. Republic argues that
HBI’s trademarks should be canceled on two grounds: (1) because
the marks are used in unlawful commerce (i.e., they are used for
the consumption of marijuana); and (2) because, by failing to
disclose this information to the U.S. Patent and Trademark
Office (USPTO) in its trademark applications, HBI obtained the
marks through fraud. I consider each of these asserted bases for
cancelation separately.
A.

Unlawful Use in Commerce
Courts have “held that only lawful use in commerce can give

rise to trademark priority.” S. California Darts Ass’n v.
Zaffina, 762 F.3d 921, 931 (9th Cir. 2014) (quotation marks
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omitted); United Phosphorus, Ltd. v. Midland Fumigant, Inc., 205
F.3d 1219, 1225 (10th Cir. 2000); see also In Re Morgan Brown,
119 U.S.P.Q.2d 1350 (T.T.A.B. July 14, 2016) (“We have
consistently held that, to qualify for a federal service mark
registration, the use of a mark in commerce must be lawful.”)
(quotation marks omitted). Thus, “any goods for which a mark is
used must not be illegal under federal law.” In Re Jj206, LLC,
DBA Juju Joints, 120 U.S.P.Q.2d 1568 (T.T.A.B. Oct. 27, 2016)
(quotation marks and ellipsis omitted). Where a trademark’s use
in commerce is not lawful, the mark may be canceled. See, e.g.,
CreAgri, Inc. v. USANA Health Scis., Inc., 474 F.3d 626, 634
(9th Cir. 2007) (cancelation of trademark was proper where
product was mislabeled in violation of federal requirements).
Republic argues that the RAW marks violate the Controlled
Substances Act (CSA), 21 USC § 801 et seq. Specifically,
Republic contends that the goods sold under the RAW trademark
constitute drug paraphernalia, which the CSA defines as “any
equipment, product, or material of any kind which is primarily
intended or designed for use in manufacturing, compounding,
converting, concealing, producing, processing, preparing,
injecting, ingesting, inhaling, or otherwise introducing into
the human body a controlled substance.” 21 U.S.C. § 863(d). The
CSA sets forth a number of factors to be considered in
determining whether an item constitutes drug paraphernalia,
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including “national and local advertising concerning its use,”
“the manner in which the item is displayed for sale,” and
“expert testimony concerning its use.” 21 U.S.C. § 863(e). In
addition, the Act contains an exemption for “any item that, in
the normal lawful course of business, is imported, exported,
transported, or sold through the mail or by any other means, and
traditionally intended for use with tobacco products, including
any pipe, paper, or accessory.” 21 U.S.C. § 863(f)(2).
As HBI points out, it has registered the RAW trademark for
at least fifteen different products. 1 Neither Republic’s
complaint nor its response brief makes clear which of these
products are at issue in Count VI. Some of the products -- such
as HBI’s rolling papers -- almost certainly fall within §
863(f)(2)’s exemption for products traditionally intended for
use with tobacco products. Republic asserts that “many of the
RAW products, including papers and other items described and

1

These products include not only various types of rolling papers
(e.g., processed and organic papers), but also rolling trays for
cigarettes, cigars and herbs; cigarette filters and tubes;
cigarette rolling machines; electric vaporizers, electronic
cigarettes and tobacco pipes; cigar and cigarette lighters;
shredders and grinders for tobacco and smokeable herbs; tobacco
storage boxes; aromatherapy and scented candles; lanyards for
holding keys, whistles, badges and other small objects; a
processed “Cavendish pipe tobacco”; ceramic humidifiers for
tobacco and herbs for smoking; and machines for injecting
tobacco into cigarette tubes. See Def.’s Counterclaims, Ex. B.

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depicted in the Second Amended Complaint, do not fall within the
exemption and are illegal under federal law.” See Pl.’s Resp.
Br. at 2. In support of this claim, however, the only example
Republic cites is of rolling papers that have been made into
pre-formed “cones.” 2 This example is inapt because HBI does not
have a registered trademark for rolling paper cones. See Def.’s
Counterclaims, Ex. B; see also Def.’s Reply Br. at 2.
Nevertheless, Republic identifies at least one HBI
trademarked product -- a vaporizer -- that does not
incontrovertibly fall under the exemption. In some contexts,
vaporizers have been deemed drug paraphernalia. Cf. In Re Jj206,
LLC, DBA Juju Joints, 120 U.S.P.Q.2d 1568 (T.T.A.B. Oct. 27,
2016) (affirming refusal to register trademark for use with
marijuana vaporizing devices). Whether HBI’s device constitutes
drug paraphernalia is a factual question that cannot be resolved
at the motion-to-dismiss stage. See, e.g., United States v.
Assorted Drug Paraphernalia, 90 F. Supp. 3d 1222, 1229 (D.N.M.

2

According to Republic’s response brief:
A cone is a type of joint that is more conical than a
typical joint or cigarette. The cone starts straight
and thin but widens as the cone gets longer. A crutch
or filter is often included and stops the weed from
falling out of the bottom of the cone. It also stops
resin from clogging the end of the joint shut.

Pls.’ Resp. Br. at 3 n.1 (quoting https://www.coloradopotguide.
com/marijuana-glossary/cone/).
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2015) (denying summary judgment on forfeiture claim on the
ground that genuine dispute of material fact as to whether
scales and other items were drug paraphernalia within the
meaning of § 863(d)). Because I cannot say as a matter of law
that none of HBI’s registered products violates the Controlled
Substances Act, I deny HBI’s motion to dismiss Republic’s
cancelation claim insofar as it is based on allegations that
HBI’s products are used in unlawful commerce.
B.

Fraud
Matters are different with respect to Republic’s fraudulent

procurement theory. Obtaining a trademark registration by
supplying the USPTO with fraudulent statements is a basis for
canceling the registration. See, e.g., In re Bose Corp., 580
F.3d 1240, 1243 (Fed. Cir. 2009) (“A third party may petition to
cancel a registered trademark on the ground that the
registration was obtained fraudulently.”) (quotation marks
omitted). As Republic acknowledges, however, such claims are
subject to Fed. R. Civ. P. 9(b)’s heightened pleading standard.
See, e.g., Am. Cruise Lines, Inc. v. HMS Am. Queen Steamboat Co.
LLC, No. 13-CV-324 (RGA), 2016 WL 7410781, at *4 (D. Del. Dec.
22, 2016) (“Fraudulent procurement of a trademark is a ground
for cancellation of an incontestable mark. Counterclaim XI is a
fraud claim, so Rule 9(b) applies.”) (citations omitted); Canada
Pipeline Accessories, Co. v. Canalta Controls, Ltd., No. CIV.A.
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3:12-8448, 2013 WL 3233464, at *7 (S.D.W. Va. June 25, 2013)
(applying 9(b) to claim seeking cancelation of trademark based
on fraudulent procurement theory).
To comply with Rule 9(b), a “complaint must state the
identity of the person making the misrepresentation, the time,
place, and content of the misrepresentation, and the method by
which the misrepresentation was communicated to the plaintiff.”
U.S. ex rel. Grenadyor v. Ukrainian Vill. Pharmacy, Inc., 772
F.3d 1102, 1106 (7th Cir. 2014) (quotation marks omitted). These
requirements are not met here. As already noted, Republic’s
complaint fails to identify which of HBI’s products are at issue
in its cancelation claim. In addition, Republic offers virtually
no information about the nature of HBI’s alleged misrepresentations. Republic does not allege that HBI made any
affirmative false or misleading statement to the USPTO. Instead,
it argues that “HBI concealed and did not disclose the fact that
it markets, promotes and sells products, including RAW papers,
primarily for use with marijuana,” and that “[s]uch disclosure
was necessary to avoid making the other statements made in the
RAW trademark and copyright applications false, deceptive and
misleading.” SAC ¶ 82. But Republic offers no further
information about the specific omissions and applications in
question, and which omissions relate to which applications.
Thus, for example, it is unclear whether Republic maintains that
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HBI committed fraud in its applications by failing to disclose
that the particular product at issue was used in unlawful
commerce; or whether Republic contends that HBI committed fraud
by failing to disclose in each of its applications (including
applications for products lawfully used in commerce) that HBI
markets other products that are allegedly used in unlawful
commerce. See Resp. Br. at 8 (“Had HBI informed the USPTO that
it would be applying its mark on some products used solely for
use with marijuana, and that it was directly marketing other RAW
products for use with marijuana, the application would have been
rejected.”). In short, Republic’s fraud allegations fall short
of Rule 9(b)’s particularity requirement. Insofar as Count VI is
based on a fraudulent-procurement theory, therefore, HBI’s
motion to dismiss is granted.
III. Motion for Leave to Amend
As noted above, after Republic filed its Second Amended
Complaint, HBI amended its pleading to include allegations that
Republic’s OCB trademark is marketed for use with marijuana.
Specifically, HBI alleges that Republic is owned by DRL
Enterprises, Inc. (“DRL”), Am. Counterclaim ¶ 80, which was
“attached” to a company called Adams Apple Distributing (“Adams
Apple”), id. ¶ 83. The counterclaim cites various sources from
the 1970s and ‘80s reporting that Adams Apple was a major seller
of marijuana paraphernalia. Id. ¶¶ 83-86. HBI thus asserts that
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“the roots of [HBI’s] business involved in the marketing and
sale of marijuana paraphernalia.” Id. ¶ 87. HBI also cites
current examples of ways in which, particularly through Vanilla
LA, Republic’s primary or exclusive distributor, Republic’s OCB
rolling papers are marketed for use with marijuana. Id. ¶¶ 88105. 3
As noted previously, HBI refrained from asserting a
cancelation claim against Republic. Given its primary contention
that Republic’s cancelation claim failed as a matter of law,
asserting such a claim would have been problematic. However,
HBI’s motion requests in the alternative that, if its motion to
dismiss is denied, it be allowed to assert a cancelation claim
of its own. Republic has cast the first stone by raising
allegations regarding the marketing and use of HBI’s products
with marijuana. As a matter of parity, there is no reason why
HBI should not also be allowed to respond in kind.
Republic argues that HBI should be denied leave to amend
because the January 15, 2017 deadline I previously set for HBI
to amend its pleadings has passed. Republic points out that
during a hearing on a separate motion on February 10, 2017, I
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Whereas Republic’s cancelation claim was purportedly based both
on the claim that HBI’s products themselves were unlawful and
that HBI fraudulently procured the registrations by failing to
inform the USPTO of the illegal use, HBI’s cancelation
counterclaim appears to be based solely on a fraud theory.

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stated that no further counterclaims would be permitted.
However, HBI filed its motion for leave to amend prior to
January 15, 2017 deadline, and it attached its proposed amended
counterclaim as an exhibit to the motion. Hence, this is not a
case of dilatory conduct on HBI’s part. HBI did not file the
amended counterclaim prior to the deadline only because of its
doubts regarding its legal basis. 4
Republic argues that by not filing the amended counterclaim
prior to the deadline, HBI is requesting what amounts to an
advisory opinion. I disagree. HBI has not sought a ruling
concerning the viability of its proposed counterclaim based on a
merely abstract or hypothetical set of facts. It is asking for
leave to file the counterclaim in light of my ruling on the
concrete legal issue presented in its motion to dismiss. There
is nothing improper about a party seeking leave to amend its
pleading under these circumstances.

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Nonetheless, HBI is incorrect in asserting, based on a minute
entry dated January 18, 2017, see Doc. No. 60, that I in fact
previously granted it leave to file an amended counterclaim. The
minute entry in question granted HBI leave only to supplement
its motion to file an amended counterclaim. Id. (“Defendant’s
Motion for Leave to Supplement Motion for Leave to File a
Counterclaim After January 15, 2017 Deadline [57] is granted.”).
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I therefore grant HBI’s motion for leave to file an amended
counterclaim seeking cancelation of Republic’s OCB trademark
registrations. 5
IV. Motion to Strike
In a separate motion of its own, Republic moves to strike
HBI’s allegations concerning the marketing and use of the OCB
trademark in connection with marijuana. Under Fed. R. Civ. P.
12(f), a court may strike from a pleading “any insufficient
defense or any redundant, immaterial, impertinent, or scandalous
matter.” According to Republic, the allegations in question are
irrelevant because HBI has not asserted a counterclaim for
trademark cancelation. In addition, Republic argues that HBI’s
allegations concerning DRL and Adams Apple are irrelevant
because they are based on reports that are decades old. It
contends that the allegations regarding current promotion of OCB
rolling papers in connection with marijuana are irrelevant
because they involve the actions of Vanilla LA, not Republic.
In light of my ruling giving HBI leave to amend, this
contention fails. Even without that conclusion, however, I would
not be inclined to grant the motion to strike. As has frequently
been observed, motions to strike “propose a drastic remedy and

5

Because DRL Enterprises is the parent company and is a
necessary party for purposes of its trademark cancelation claim,
I grant HBI’s request to add DRL Enterprises as a counterdefendant.
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generally are not favored because they delay proceedings.”
Uncommon, LLC v. Spigen, Inc., No. 15 C 10897, 2016 WL 3997597,
at *6 (N.D. Ill. July 26, 2016). “[C]ourts routinely deny
motions to strike ‘unless the challenged allegations have no
possible relation or logical connection to the subject matter of
the controversy and may cause some form of significant prejudice
to one or more of the parties to the action.’” F.D.I.C. v.
Giannoulias, 918 F. Supp. 2d 768, 771 (N.D. Ill. 2013) (Charles
A. Wright and Arthur R. Miller, 5C Federal Practice and
Procedure § 1382 (3d ed. 1998)); McDowell v. Morgan Stanley &
Co., 645 F. Supp. 2d 690, 693 (N.D. Ill. 2009) (“[A] reviewing
court ordinarily will not strike a pleading unless the court can
confidently conclude that it is prejudicial to the objecting
party.”). Even without the cancelation claim, HBI makes a
colorable argument that the allegations are relevant to its
trade dress and unfair competition counterclaims. In addition,
Republic has made no attempt to show that it will suffer any
prejudice if the allegations are not stricken. Accordingly,
Republic’s motion to strike is denied.
Conclusion
For the reasons discussed above, HBI’s motion to dismiss is
granted in part and denied in part, and its motion for leave to
assert an additional counterclaim is granted. Republic’s motion
to strike is denied.
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ENTER ORDER:

_____________________________
Elaine E. Bucklo
United States District Judge
Dated: April 18, 2017

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