Dires, LLC v. Sleep Number Corporation
Filing
52
MEMORANDUM OPINION AND ORDER - Sleep Number's motion to dismiss (Doc. No. 17 ) is GRANTED. Dires's motion to amend (Doc. No. 32 ) is DENIED. This action (Doc. No. [1-1]) is DISMISSED WITH PREJUDICE.(Written Opinion) Signed by Judge Donovan W. Frank on 1/18/2023. (las)
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UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Dires, LLC,
Civil No. 22-1550 (DWF/TNL)
Plaintiff,
v.
MEMORANDUM
OPINION AND ORDER
Sleep Number Corporation,
Defendant.
INTRODUCTION
This matter is before the Court on a Motion to Dismiss and/or for Judgment on the
Pleadings or, in the Alternative, to Continue the Stay (Doc. No. 17) brought by Defendant
Sleep Number Corporation (“Sleep Number”) and a Motion to Amend Complaint (Doc.
No. 32) brought by Plaintiff Dires, LLC (“Dires”). For the reasons set forth below, the
Court grants Sleep Number’s motion to dismiss and denies Dires’s motion to amend.
BACKGROUND
In this Antitrust Action, Dires asserts that following a jury verdict in Select
Comfort Corporation v. Dires, LLC, et al., Civil No. 12-2899 (the “Trademark Action”),
Sleep Number violated Minnesota’s state antitrust laws by asserting rights in NUMBER
BED, preventing Dires from advertising online, sending cease-and-desist letters, and
engaging in other related conduct. (See generally Doc. No. 1-1 (“Compl.”).) The factual
and procedural background of the litigation in the Trademark Action is set forth in prior
orders and will not be repeated extensively here. In summary, Sleep Number brought
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various claims against Dires and other individuals, including claims for trademark
infringement, false advertising, and unfair competition. With respect to the phrase
NUMBER BED, Sleep Number asserted that Dires’s use of the phrase was confusingly
similar to its SLEEP NUMBER trademark. Dires brought a counterclaim seeking a
declaration that Sleep Number did not possess any trademark rights in the phrase
NUMBER BED. (Trademark Action, Doc. No. 60 at Am. Countercls. ¶¶ 9-19.)
The Court issued an order on summary judgment, concluding that Sleep Number
was required to prove a likelihood of confusion at the time of purchase and finding that
fact issues precluded summary judgment for either party on Sleep Number’s claim for
trademark infringement. (Trademark Action, Doc. No. 270.) At trial, the Court
instructed the jury, among other things, that Sleep Number was required to prove a
likelihood of confusion at the time of purchase in order to prevail on its trademark-related
claims. The jury found that Dires’s advertisements using the phrase NUMBER BED did
not infringe Sleep Number’s trademarks or constitute unfair competition or false
advertising. (Trademark Action, Doc. No. 575 (“Special Verdict”) at 2-3, 8, 60.)1 With
respect to Dires’s counterclaim, the jury found that Sleep Number does not have
trademark rights in NUMBER BED. (Id. at 66).
Following trial and the Court’s orders on various post-trial motions, the parties
each appealed issues to the Eighth Circuit Court of Appeals. The Eighth Circuit reversed
and remanded the judgment as to the infringement and false advertising claims but
1
The jury did determine that Dires made other false statements to potential
customers. (See generally id. at 10-60.)
2
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affirmed the portions of the judgment dealing with dilution claims and the alleged
NUMBER BED trademark. Select Comfort v. Baxter, 996 F.3d 925, 942 (8th Cir. 2021)
(“We leave undisturbed those portions of the judgment dealing with the dilution claims
and the alleged ‘NUMBER BED’ trademark.”). Specifically with respect to the issue of
trademark infringement, the Eighth Circuit reversed the Court’s summary judgment
ruling and jury instructions on the theory of pre-sale, initial interest confusion, remanding
for additional findings on infringement and other issues:
At the end of the day, this mix of authority regarding consumer confusion
in the context of internet shopping and mattress purchases demonstrates
well why a jury rather than a judge should assess the level of consumer
sophistication. This point is particularly strong in a case which, like the
present case, enjoys a full record including highly detailed descriptions of
Plaintiffs’ and Defendants’ customers’ experience and ample evidence of
(1) actual confusion . . . and (2) statements by Defendants’ principals
describing the actual confusion as evidence that their own advertising was
working . . . . Against this backdrop, we conclude a jury question existed as
to the issue of consumer sophistication and summary judgment on the
theory of initial-interest confusion was error. For the same reasons, . . . we
conclude that limiting the infringement instruction to require confusion at
the time of purchase was error. . . . In so ruling, we make no comment as to
how a finding of confusion at times other than the moment of purchase
might affect the analysis of remedies and the determination of damages.
Id. at 937-38.
The Court then considered the parties’ post-remand motions for summary
judgment and Dires’s motion for a permanent injunction. (Trademark Action, Doc.
Nos. 742, 748, 754, 775.) In light of the Eighth Circuit’s decision regarding the initial
interest doctrine, Sleep Number moved for summary judgment on its claim for trademark
infringement of the SLEEP NUMBER mark based in part on Dires’s use of the phrase
NUMBER BED in its online advertising. Dires moved for summary judgment on Sleep
3
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Number’s trademark infringement and unfair competition claims, arguing that the Court
should accept the jury’s verdict or dismiss Sleep Number’s claims that relate to
NUMBER BED. In addition, Dires moved for a permanent injunction to stop Sleep
Number’s trademark enforcement efforts related to any advertising using NUMBER
BED. The Court denied both parties’ motions for summary judgment and Dires’s motion
for a permanent injunction. (Trademark Action, Doc. No. 775.) In denying the motions
for summary judgment, the Court found that fact issues for the jury remained. With
respect to the trademark infringement claim, the Court explained:
[Sleep Number has] asserted an affirmative trademark infringement claim based
on [its] rights in the SLEEP NUMBER trademark. [Dires’s] use of phrases found
to be confusingly similar to the SLEEP NUMBER trademark, including words
used in Number Bed Advertising, is a remaining question in this case. The issue
resolved with respect to [Dires’s] counterclaim was whether [Sleep Number] had
trademark rights in NUMBER BED, not whether any use of the words NUMBER
BED in advertising infringed other trademarks, namely the SLEEP NUMBER
trademark.
...
[T]he Court again notes that the issue of [Dires’s] use of the phrase NUMBER
BED is separate and distinct from whether [Sleep Number has] trademark rights in
NUMBER BED. While it has been determined that [Sleep Number does] not have
trademark rights in NUMBER BED, whether [Dires’s] use of the phrase in a way
that is confusingly similar to [Sleep Number’s] marks and advertisements remains
an open question. This is consistent with the Eighth Circuit leaving undisturbed
the portion of the judgment dealing with the alleged NUMBER BED trademark—
namely, the portion relating to [Dires’s] counterclaim seeking a declaration that
[Sleep Number does] not have trademark rights in the phrase NUMBER BED.
Conversely, [Sleep Number’s] trademark infringement claim has been remanded
and will again be put before the jury. That claim encompasses allegations that
[Dires] used advertisements with phrases that are confusingly similar to its SLEEP
NUMBER mark, including phrases containing the words NUMBER BED. The
fact that [Sleep Number does] not have trademark rights in the phrase NUMBER
BED does not preclude a finding that [Dires’s] use of that term is confusingly
similar to the SLEEP NUMBER MARK.
4
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(Id. at 15-16, 18-19.) The Court further explained:
[Dires] assert[s] that after the jury’s verdict, [Sleep Number has] made
representations that [it owns] trademark rights in NUMBER BED. However, it
appears that most of the cited examples of such representations show instances
where [Sleep Number has] alleged that the use of NUMBER BED is confusingly
similar to the SLEEP NUMBER mark.
(Id. at 21.)
In 2016, Dires brought an antitrust action against Sleep Number in California
federal court (the “California Antitrust Action”), asserting similar claims to those asserted
in the present action. See Am. Nat’l Mfg. v. Select Comfort Corp., Civ. No. 16-582, 2016
WL 9450472 (C.D. Cal. 2016). The court in California dismissed Dires’s claims, ruling
that Sleep Number’s conduct was protected under the Noerr-Pennington doctrine. Id.
On November 5, 2019, Dires filed this Antitrust Action in Minnesota state court.
(Civ. No. 22-1550 at Doc. No. 1-1.) The Antitrust Action was subsequently removed to
this Court on June 10, 2022. (Id.) The single claim remaining in this case is centered on
Sleep Number’s alleged illegal conduct after the verdict in the Trademark Action.2
Specifically, Dires alleges that following the jury verdict, Sleep Number violated antitrust
laws by continuing to assert rights in NUMBER BED, preventing Dires from advertising
2
Before removal, the state court dismissed four claims with prejudice. (Doc.
No. 1-3.) With respect to Dires’s antitrust claim, the state court held that the claim was
barred by the Noerr-Pennington doctrine for any activities that occurred before
October 23, 2017, the date of the jury verdict in the Trademark Action. (Id. at 20-21.)
With respect to Dires’s antitrust claim for activities that occurred post-verdict, the state
court denied the motion to dismiss. In a subsequent order staying the action, the state
court explained that the issue of whether Sleep Number’s post-verdict activities were
protected under the Noerr-Pennington doctrine could be impacted by the then-pending
appeal in the Trademark Action. (Doc. No. 1-4 at 4-7.)
5
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using that phrase through various search engines, and sending cease-and-desist letters to
Dires and other competitors relating to Sleep Number’s trademark rights. (Id. ¶¶ 88-106,
108-18, 122.) This case was stayed pending the appeal. (Doc. No. 16.)
Sleep Number now moves to dismiss this action. Dires opposes Sleep Number’s
motion to dismiss and moves to amend the complaint.
DISCUSSION
I.
Motion to Dismiss
In deciding a motion to dismiss pursuant to Federal Rule of Civil
Procedure 12(b)(6), a court assumes all facts in the complaint to be true and construes all
reasonable inferences from those facts in the light most favorable to the complainant.
Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986).3 In doing so, however, a court need
not accept as true wholly conclusory allegations, Hanten v. Sch. Dist. of Riverview
Gardens, 183 F.3d 799, 805 (8th Cir. 1999), or legal conclusions drawn by the pleader
from the facts alleged, Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990).
A court may consider the complaint, matters of public record, orders, materials embraced
by the complaint, and exhibits attached to the complaint in deciding a motion to dismiss
under Rule 12(b)(6). Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir.
1999).
3
The same standard applies to motions for judgment on the pleadings under Federal
Rule of Civil Procedure 12(c). See Ashley Cty., Ark. v. Pfizer, Inc., 552 F.3d 659, 665
(8th Cir. 2009).
6
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To survive a motion to dismiss, a complaint must contain “enough facts to state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007). Although a complaint need not contain “detailed factual allegations,” it must
contain facts with enough specificity “to raise a right to relief above the speculative
level.” Id. at 555. As the United States Supreme Court reiterated, “[t]hreadbare recitals
of the elements of a cause of action, supported by mere conclusory statements,” will not
pass muster under Twombly. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing
Twombly, 550 U.S. at 555). In sum, this standard “calls for enough fact[s] to raise a
reasonable expectation that discovery will reveal evidence of [the claim].” Twombly, 550
U.S. at 556.4
Sleep Number moves to dismiss the single, remaining claim in this case based on
the Noerr-Pennington doctrine. The Noerr-Pennington doctrine arose in the context of
antitrust claims and provides immunity from claims that are based on the filing of
lawsuits. In Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365
U.S. 127 (1961), and United Mine Workers of America v. Pennington, 381 U.S. 657
(1965), the Supreme Court established that the First Amendment right to petition includes
a litigant’s right to bring suit in state or federal court. Under the Noerr-Pennington
doctrine, the act of filing a lawsuit is immune from antitrust or tort liability unless it is
4
Courts have emphasized the high cost and burden of discovery in antitrust cases
when considering motions to dismiss. See, e.g., Twombly, 550 U.S. at 558. Dires argues
that Sleep Number is arguing for a heightened pleading standard under such cases. The
Court reads those cases, however, as simply recognizing the burdens of antitrust cases
while applying the pleading standard under Twombly. This Court does the same and
applies the plausibility standard as articulated in Twombly.
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found to be a mere sham intended to disguise tortious or anti-competitive liability.
Noerr, 365 U.S. at 144. The doctrine extends to pre-suit communications including
trademark cease-and-desist letters sent to third parties. See Select Comfort Corp. v. Sleep
Better Store, LLC, 838 F. Supp.2d 889, 898-99 (D. Minn. 2012).
The filing of a suit will fall within the sham exception only if it is so “‘objectively
baseless in the sense that no reasonable litigant could realistically expect success on the
merits’” or if accompanied by “‘illegal and reprehensible practices such as perjury, fraud,
conspiracy with or bribery . . . or misrepresentation.’” See id. at 899-900 (citing Pro.
Real Estate Invs., Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 59 (1993) and
Razorback Ready Mix Concrete Co., Inc. v. Weaver, 761 F.3d 484 (8th Cir. 1985)). If a
court finds a lawsuit to be objectively meritless, then the court looks to the subjective
motivation of the party to determine whether liability should attach. See Pro. Real Estate
Invs., 508 U.S. at 61.
Here, Dires’s only remaining claim is based on Sleep Number’s purported
representations that it owns trademark rights in NUMBER BED and related actions after
the verdict in the Trademark Action. While the Eighth Circuit affirmed the jury’s verdict
finding that Sleep Number does not have trademark rights in NUMBER BED, the
separate issue of whether Dires’s advertising that uses the phrase NUMBER BED
infringes Sleep Number’s trademark rights in SLEEP NUMBER remains in the case and
will be determined by a jury. Sleep Number’s post-verdict actions in enforcing its
trademark rights are not objectively baseless, as there is a reasonable belief that there is a
chance that its trademark claims will be found to be valid after adjudication. See, e.g.,
8
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Porous Media Corp., 186 F.3d at 1080 n.4 (“A lawsuit lacking in probable cause and
pursued without a reasonable belief of possible success is simply an objectively baseless
or ‘sham’ lawsuit.”). The Court finds that Dires has failed to state a claim for relief
related to Sleep Number’s post-verdict conduct. Thus, this action is appropriately
dismissed with prejudice.
The Court acknowledges Dires’s argument that Sleep Number claims trademark
rights in the phrase NUMBER BED. However, this argument conflates two separate
issues—whether Sleep Number claims rights in the phrase NUMBER BED and whether
Dires’s advertisements using the phrase NUMBER BED infringe, or are confusingly
similar to, Sleep Number’s protected trademark SLEEP NUMBER. Arguing that Dires’s
use of the phrase NUMBER BED infringes the SLEEP NUMBER trademark is not the
same as claiming trademark rights in NUMBER BED. Indeed, “[t]he fact that [Sleep
Number] does not have trademark rights in the phrase NUMBER BED does not preclude
a finding that [Dires’s] use of that term is confusingly similar to the SLEEP NUMBER
mark.” (Trademark Action, Doc. No. 775 at 18-19.) Because fact issues remain as to the
latter issue, Sleep Number’s actions to enforce its trademark rights do not, as a matter of
law, give rise to an antitrust claim.5
5
The Court also notes that while Dires alleges that Sleep Number has made
repeated representations that it owns rights in NUMBER BED, the cited examples instead
show that Sleep Number has maintained that the way in which Dires uses the phrase
NUMBER BED is confusingly similar to Sleep Number’s SLEEP NUMBER mark. It
does not assert that it owns rights in NUMBER BED.
9
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B.
Motion to Amend Complaint
Separately, Dires moves to amend its Complaint to plead Lanham Act violations, a
claim for common law business disparagement, and an antitrust claim under the Sherman
Act. (Doc. No. 36-1 (proposed Amended Complaint).) This motion is based on
allegations that Sleep Number continues to attempt to claim trademark rights in the
phrase NUMBER BED. Specifically, Dires cites to Sleep Number’s communications
with the United States Patent & Trademark Office, Google, and third-party competitors.
However, these communications demonstrate that Sleep Number continued to assert that
certain uses of the phrase NUMBER BED cause confusion with Sleep Number’s
trademarks. (See Doc. No. 29-1, Ex. B ¶¶ 18-19, 23-25) (seeking to cancel Dires’s
registered trademark in “The Original Number Bed,” because it causes confusion with
Sleep Number’s SLEEP NUMBER trademark); Doc. No. 29-1, Ex. C (a cease-and-desist
letter claiming that the use of NUMBER BED is confusingly similar to SLEEP
NUMBER); Doc. No. 29-1, Ex. D at 3 (a cease-and-desist letter to a third party
explaining that the use of the term NUMBER BED is confusingly similar to SLEEP
NUMBER).) Dires also points to Sleep Number’s communications with Google, wherein
Dires alleges that Sleep Number maintained rights in NUMBER BED based on its
allegations that its ads were disallowed. However, the Court notes that while Dires
alleges that it was unable to place an advertisement with Google after Sleep Number
complained, the allegations in its Complaint show that the advertisement was disallowed
because it contained the trademarked term “sleep number.” (Doc. No. 36-1 ¶ 132.)
10
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The Court has discretion to grant a plaintiff leave to amend a complaint and
“should freely give leave when justice so requires.” Fed. R. Civ. P. 15(a)(2). However,
there is no absolute right to amend, and the Court may deny leave to amend where there
is “undue delay, bad faith on the part of the moving party, futility of the amendment or
unfair prejudice to the opposing party.” Sanders v. Clemco Indus., 823 F.2d 214, 216
(8th Cir. 1987) (citation omitted). An amendment is considered futile if “the amended
complaint could not withstand a motion to dismiss under Rule 12(b)(6) of the Federal
Rules of Civil Procedure.” Cornelia I. Crowell GST Tr. v. Possis Med., Inc., 519
F.3d 778, 782 (8th Cir. 2008).
Here, as explained above, the examples cited to support the claims that Sleep
Number is asserting affirmative rights in the phrase NUMBER BED actually reflect
Sleep Number’s efforts to protect its rights in its registered SLEEP NUMBER trademark.
Again, after the Eighth Circuit’s decision and the Court’s subsequent denial of the
parties’ summary judgment motions, the issue of whether Dires’s use of the phrase
NUMBER BED in its advertising is likely to cause confusion with the SLEEP NUMBER
mark is an open question that will be put before a jury. Also as explained above, these
claims are immune from liability under the Noerr-Pennington doctrine. By extension, the
statements in the proposed amended complaint are, likewise, protected and the proposed
amended claims are futile. Therefore, the Court denies Dires’s motion to amend.
ORDER
Based upon the foregoing, and the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
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1.
Sleep Number’s motion to dismiss (Doc. No. [17]) is GRANTED.
2.
Dires’s motion to amend (Doc. No. [32]) is DENIED.
3.
This action (Doc. No. [1-1]) is DISMISSED WITH PREJUDICE.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: January 18, 2023
s/Donovan W. Frank
DONOVAN W. FRANK
United States District Judge
12
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