Rosta AG v. Lovejoy, Inc.

Filing 24

ORDER ADOPTING IN PART REPORT AND RECOMMENDATION 20 and granting in part Defendant's motion to dismiss 9 ; signed by District Judge Paul L. Maloney (Judge Paul L. Maloney, cmc)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
ROSTA AG,

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Plaintiff,
-vLOVEJOY, INC.,
Defendant.

No. 1:16-cv-199
Honorable Paul L. Maloney

ORDER ADOPTING IN PART REPORT AND RECOMMENDATION AND
GRANTING IN PART DEFENDANT’S MOTION TO DISMISS
This matter comes before the Court on a report and recommendation issued by the
magistrate judge. (ECF No. 20.) Defendant Lovejoy filed a motion to dismiss. (ECF No. 9.)
After the motion was referred, the magistrate judge issued a report recommending the
motion be granted in part and denied in part. (ECF No. 20.) Plaintiff filed an objection
(ECF No. 21), and Defendant filed a response (ECF No. 22).
I.
After being served with a report and recommendation (R&R) issued by a magistrate
judge, a party has fourteen days to file written objections to the proposed findings and
recommendations. 28 U.S.C. ' 636(b)(1); Fed. R. Civ. P. 72(b). A district court judge
reviews de novo the portions of the R&R to which objections have been filed. 28 U.S.C. '
636(b)(1); Fed. R. Civ. P. 72(b). Only those objections that are specific are entitled to a de
novo review under the statute. Mira v. Marshall, 806 F.2d 636, 637 (6th Cir. 1986) (per
curiam) (holding the district court need not provide de novo review where the objections are

frivolous, conclusive or too general because the burden is on the parties to Apinpoint those
portions of the magistrate=s report that the district court must specifically consider@).
II.
Plaintiff Rosta AG owns several trademarks issued by the US Patent Office in June
2015. Between 1988 and 2006, Rosta and Defendant Lovejoy executed three agreements
under which Lovejoy was granted a license to manufacture and distribute certain Rosta
products. The third and final agreement ended on August 31, 2014. Rosta alleges, after the
third agreement terminated, Lovejoy continued to sell products “under Plaintiff Rosta’s
distinctive SE and AB marks[.]” (Compl. ¶ 35 PageID.8.) In November and again in
December 2015, Rosta informed Lovejoy that “its actions constituted trademark
infringement.” (Id. ¶ 36 PageID.9.)
The complaint explicitly identifies five claims: (1) Count 1 – Trademark
Infringement, (2) Count 2 – Contributory Trademark Infringement, (3) Count 3 – False
Designation of Origin, (4) Count 4 – Trade Dress Infringement, and (5) Count 5 – Michigan
Common Law Unfair Competition. As part of Count 1, Rosta requests either damages for
up to three times Lovejoy’s profits or, at Rosta’s election, statutory damages under 15 U.S.C.
§ 1117(c). Although the complaint did not include, as an enumerated Count, a claim for
counterfeiting, as part of its motion to dismiss, Lovejoy argued that Rosta did not state a claim
that would entitle it to counterfeiting statutory damages under 15 U.S.C. § 1117(c).
The magistrate judge reviewed the motion, response, and pleadings and issued a
report recommending the dismissal of Count 2 only. The magistrate judge recommended
denying the motion to dismiss for Counts 1, 3, 4 and 5. The magistrate judge also concluded

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that the complaint failed to state a claim for use of a counterfeit mark and, therefore, the
request for statutory damages under § 1117(c) should be dismissed.
III.
A.
Lovejoy has not objected to the recommendation that Count 2 be dismissed. Rosta
has not objected to the recommendation that the motion to dismiss be denied for Counts 1,
3, 4, and 5 be denied. Therefore, those recommendations are adopted by this Court.
B.
The magistrate judge concluded that “the Sixth Circuit views trademark counterfeiting
as a separate cause of action,” citing Laukas v. Rio Brands, Incorporated, 391 F. App’x 416,
425 (6th Cir. 2010). With that conclusion, the magistrate judge recommended dismissing
the claim for statutory damages, reasoning that “[b]ecause Rosta has not alleged a separate
claim for federal trademark counterfeiting, there is no basis for an award of treble or statutory
damages under 15 U.S.C. § 1117(b) and (c).” (R&R at 14 PageID.169.)
Rosta objects. Rosta argues that Laukas does not require that the cause of action be
brought as a separate and distinct claim.
Rosta’s objection is UPHELD. The unpublished opinion in Laukas does identify
what a party has to plead and ultimately prove for statutory damages under § 1117(c), but the
holding does not require that the elements be set forth in a distinct claim. In Laukas, the
plaintiff pleaded counterfeiting as a separate cause of action, and the district court denied the
claim on a motion for summary judgment. The circuit court discussed the facts that the
plaintiff had to prove to survive the motion for summary judgment. The magistrate judge

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noted that other courts have found that counterfeiting is not a separate and distinct cause of
action, citing All Star Championship Racing, Inc. v. O’Reilly Auto. Stores, Inc., 940 F. Supp.
2d 850, 866 (C.D. Ill. 2013). (R&R at 14 n.1 PageID.169.)
The Court is compelled to address other arguments raised in Lovejoy’s motion to
dismiss and in its response to Rosta’s objections to the R&R. First, the notice pleading
requirements in the Federal Rules do not require Rosta to use the word “counterfeit” in
order to state a claim for counterfeiting. The rules only require Rosta to plead sufficient facts
to put Lovejoy on notice of the claim. Lovejoy’s motion demonstrates that it was well aware
of the fact that Rosta was seeking statutory damages for counterfeiting.
Second, Rosta has alleged sufficient facts to state a claim for counterfeiting. Lovejoy
asserts that Rosta did not plead facts to show that any use of counterfeit marks was willful.
But, as pointed out by Rosta, in paragraph 36 and 37 of the Complaint, Rosta alleges it
advised Lovejoy of trademark infringement and, despite the information and warnings,
Lovejoy continued to sell products using Rosta’s trademarks. Those facts would support the
willfulness element necessary for a counterfeiting claim.
Third, whether Lovejoy is a holdover licensee or franchisee, is not a question that can
be resolved as part of this motion to dismiss. In U.S. Structures, Inc. v. J.P. Structures, Inc.,
130 F.3d 1185 (6th Cir. 1997), the court held that attorney fees could not be awarded for
counterfeiting “where, as in this case, a holdover franchisee continues to use the franchisor’s
original trademark after the franchise has been terminated.”1 Id. at 1192. Citing U.S.

It is not entirely clear from the opinion why the court reached this conclusion. See, e.g., Century
21 Real Estate, LLC v. Destiny Real Estate Props., No 4:11-cv-28, 2011 WL 6736060, at *3 (N.D.

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Structures, Lovejoy argues it cannot be liable for counterfeiting because it is a former licensee
or authorized user. The Court notes that the Sixth Circuit used the phrase “holdover
franchisee” not “former franchisee.” Thus, Rosta’s counterfeiting claim cannot be resolved
in Lovejoy’s favor simply because Lovejoy is a former licensee.

Furthermore, U.S.

Structures, and the other cases cited by Lovejoy, were all resolved on motions for summary
judgment, where the record established the relationship between the parties and the actions
of the franchisee after termination of the agreement. In U.S. Structures, the defendant
continued to use the plaintiff’s mark after the franchise was terminated for lack of payment,
and while the two parties were in negotiations to settle their dispute. Id. at 1187. In Motor

City Bagels, LLC v. American Bagel Co., 50 F. Supp.2d 460, 489 (D. Md. 1999), the district
court also declined to award attorney fees and treble damages for counterfeiting. After the
franchise agreement was terminated, the franchisee continued to use the franchisor’s marks
on cash register receipts and on exterior signs. Id. at 488. The record also established that
the franchisee took “significant steps” to inform customers that it was no longer associated
with the franchisor.

Also, local zoning ordinances prevented the franchisee from

immediately changing the exterior signs and there were technological challenges to replacing
the register receipts. Id. at 487.

Ind. Dec. 19, 2011) (summarizing the holding in U.S. Structures and concluding that the court’s
“holding did not explain why the defendant had not committed counterfeiting by attaching the
plaintiff’s trademark to unauthorized products and services.”).

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For these reasons, the Report and Recommendation (ECF No. 20) is ADOPTED
IN PART. The R&R is adopted as this Court’s opinion, except for the portion of the R&R
concluding that Rosta’s claim for counterfeiting should be dismissed. Accordingly, Lovejoy’s
motion to dismiss (ECF No. 9) is GRANTED IN PART. Count 2, Rosta’s claim for
contributory trademark infringement, is DISMISSED.
IT IS SO ORDERED.
Date: August 14, 2017

/s/ Paul L. Maloney
Paul L. Maloney
United States District Judge

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