Lin's Waha International Corp. v. Tingyi (Cayman Islands) Holding Corp.

Filing 80

MEMORANDUM DECISION AND ORDER. Lin's Waha's 58 motion to dismiss Count VII of Tingyi's counterclaims is denied in its entirety. Ordered by Judge Ann M. Donnelly on 12/13/2018. (Greene, Donna)

FILED
IN CLERK'S OFFICE

US DISTRICT COURT E.D.N.Y.

5 DEC 13 2018 6

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
X

BROOKLYN OFFICE
LIN'S WAHA INTERNATIONAL CORP.,

Plaintiff,
MEMORANDUM
DECISION AND ORDER

- against-

17-CV-00773(AMD)
(ST)

TINGYI(CAYMAN ISLANDS)HOLDING
CORP.,
Defendant.

TINGYI(CAYMAN ISLANDS)HOLDING
CORP.,
Counterclaim-Plaintiff,

- against LIN'S WAHA INTERNATIONAL CORP.,
KANG SHI FU USA INC.,IZGU HOLDINGS
GROUP LIMITED,LIN'S GROUP HOLDING
CORP.,LIN'S USA GROUP HOLDING LLC,
JACKY LIN, XIU QING LIN,MEI QIN LIN
and DOES 1-50,
Counterclaim-Defendants.
X

ANN M,DONNELLY,United States District Judge:

On February 10, 2017, the plaintiff, Lin's Waha International Corp., filed this action
seeking a declaration that its use of certain marks "do[es] not infringe, dilute, or otherwise

interfere with any asserted rights" of the defendant, Tingyi(Cayman Islands) Holding Corp.
(ECF No. 1 at 1-2.) The plaintiff also seeks cancellation of Tingyi's trademark registrations
based on abandonment and non-use. {Id. at 2.) On February 26, 2018, Tingyi asserted 11
counterclaims, including a claim for declaratory judgment that Lin's Waha's copyrights are

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invalid (Count VII). (EOF No.45 at 23-44.) On March 30,2018, Lin's Waha moved to dismiss
Count VII pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6), claiming lack of subject matter

jurisdiction, failure to state a claim for relief, and failure to state a claim for attorneys' fees.
(ECF No. 59.) For the reasons that follow, Lin's Waha's motion to dismiss Count VII of
Tingyi's counterclaims is denied.
BACKGROUND*

This dispute arises from the parties' use of similar images—a chefand the words"Kang
Shi Fu"—on food and beverage packaging. The counterclaim plaintiff, Tingyi(Cayman Islands)
Holding Corp., is a food and beverage company,and specializes in the production and
distribution of baked goods, beverages, and instant noodles. (ECF No.45 at 12.) Tingyi markets

and distributes goods in the United States and around the world under trademarks including the

following logos: Kang Shi Fu in Chinese characters, a cartoon "chef man" design, and an image
ofthe words"Mr. Kron." (Id at 12-13.) Tingyi also claims "extensive common law rights" in
these images based on its continuous use ofthem in the United States and New York. (Id at 14.)
Tingyi claims to be the "exclusive cop3night owner" ofthe "chef man" design, which was
registered with the National Copyright Administration ofthe People's Republic of China(PRC
Reg. No.00108588, effective date January 2, 2014). (Id at 16.) Tingyi also owns trademark
registrations ofits Kang Shi Fu marks issued by the United States Patent and Trademark Office

in 1996,1999,and 2008; the trademarks are for instant noodles, rice porridge, and tea-.

'For purposes of this motion, I assume as true all factual allegations that Tingyi asserts in its
counterclaims, and construe all inferences and ambiguities in Tingyi's favor. See Olagues v. Perceptive
Advisors LLC^ 902 F.3d 121, 123(2d Cir. 2018); Trodale Holdings LLC v. Bristol Healthcare Inv 'rs L.P.y
No. 16-CV-4254,2018 WL 2980325, at *3(S.D.N.Y. June 14,2018)
("When reviewing the sufficiency
ofcounterclaims, the Court is required to 'draw all reasonable inferences in [the non-moving party's]
favor, assume all well-pleaded factual allegations to be true, and determine whether they plausibly give
rise to an entitlement to relief.'"(alteration in original)).

chocolate-, and cocoa-based beverages, as well as cookies, pastries and crackers. (ECF No. 1 at
4-6; see also ECF No,45 at 14-15.)
The counterclaim defendant, Lin's Waha Intemational Corp., also manufactures and sells

food products, including instant noodles, beverages, baked goods, and jarred vegetables. (ECF
No. 1 at 2.) Lin's Waha obtained copyright registrations with the United States Copyright Office
for 11 images of"a cartoon version of a smiling, vsdde-eyed, potbellied chef wearing a chefs hat,

neckerchief, cuffed short-sleeve shirt, apron, and sneakers." (ECF No.45 at 19-20.) Lin's Waha
also owns two trademark registrations issued by the United States Patent and Trademark Office

in July of2014, which contain the same cartoon chef next to the phrase "Kang Shi Fu;" the
trademarks are for tea-based beverages and instant noodle soups. {Id. at 17-18.) Lin's Waha has
one open trademark registration application for using the same mark on cakes, cookies, and
pastries. (Id. at 17.)

In March of2016, Tingyi initiated a proceeding before the Trademark Trial and Appeal
Board("TTAB")to cancel Lin's Waha's Kang Shi Fu trademarks. (ECF No.45 at 20.) The
TTAB suspended the proceeding pending the outcome ofthis action. (Id.) On January 19,2017,

Tingyi sent Lin's Waha a cease-and-desist letter charging that "Lin's Waha's use ofthe [Kang
Shi Fu] Mark for instant noodles and tea beverages is a direct infringement of Tingyi's identical
KANG SHI FU Marks" £uid "constitutes, inter alia, federal registered trademark infringement

and unfair competition ...." (ECF No. 1-4 at 4(emphasis in original); ECF No.45 at 21.)
Tingyi demanded that Lin's Waha cease using the Kang Shi Fu marks, (ECF No. 1-4 at 4-5;
ECF No.45 at 21.)

On February 10, 2017, Lin's Waha commenced this action against Tingyi under the
Declaratory Judgment Act,28 U.S.C. §§ 2201,2202,federal trademark laws, 15 U.S.C. § 1051

et seq., and corresponding state law,seeking a declaration that Lin's Waha's use of marks

covered by its trademark registrations does not infnnge or interfere with any of Tingyi's asserted
rights. (See ECF No. 1 at 1-2.) Lin's Waha also requested cancellation of Tingyi's trademark
registrations for abandonment and non-use. (Id at 2.)

On February 26,2018, Tingyi filed an Amended Complaint and Counterclaims, asserting
11 counterclaims: federal trademark infringement(Count I), federal unfair competition(Count

II), indirect/vicarious trademark infringement(Count III), contributory trademark infringement

(Count IV), direct and indirect copyright infringement of Tingyi's copyrights(Counts V,VI), a
declaratory judgment of invalidity of Lin's Waha's copyrights(Count VII), common law unfair
competition(Count VIII), common law trademark infringement(Count IX), cancellation of Lin's
Waha's trademark registration (Count X), and opposing Lin's Waha's federal trademark
application. (ECF No.45.)

On March 30,2018, Lin's Waha moved to dismiss Count VII of Tingyi's counterclaims

for lack of subject matter jurisdiction and failure to state a claim. (ECF No. 59.) Tingyi
responded on April 30, 2018,and Lin's Waha replied on May 18, 2018. (ECF Nos.60,61.)
DISCUSSION

Lin's Waha argues that I do not have subject matter jurisdiction over Count VII of
Tingyi's counterclaims because it does not present an actual case or controversy. Lin's Waha
also argues that Count VII fails to state a claim for relief under the Copyright Act because a
declaratory judgment claim for copyright invalidity can only be brought as a defense to a claim
for infringement, a claim Lin's Waha did not make. For the reasons that follow, I conclude that

there is ajusticiable case or controversy, and that Tingyi has stated a claim for relief under the

Copyright Act. Accordingly, I deny Lin's Waha's motion to dismiss Count VII.^
I.

Fed. R,Civ. P. 12(b)(1)
A. Standard of Review

"A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1)
when the district court lacks the statutory or constitutional power to adjudicate it." Makarova v.

United States, 201 F.3d 110,113(2d Cir. 2000); see also Aurecchione v. Schoolman Transp.
Sys., Inc., 426 F.3d 635,638(2d Cir. 2005)("After construing all ambiguities and drawing all

inferences in a plaintiffs favor, a district court may properly dismiss a case for lack of subject
matter jurisdiction under Rule 12(b)(1)if it lacks the statutory or constitutional power to
adjudicate it."(internal citations and quotation marks omitted)). "In resolving a motion to
dismiss imder Rule 12(b)(1), the district court must take all imcontroverted facts in the

[pleading]... as true, and draw all reasonable inferences in favor ofthe party asserting
jurisdiction." Tandon v. Captain's Cove Marina ofBridgeport, Inc., 752 F.3d 239,243(2d Cir.

^ Lin's Waha argues that Tingyi cannot recover attorneys' fees under Count VII because the claim "is not
one for copyright infringement and does not purport to be based on any specific cause of action under the
Copyright Act," and an award of attorneys' fees "would run afoul of 17 U.S.C. § 412." (ECF No. 59 at
14.) Tingyi's ability to seek attorneys' fees is not a basis to dismiss the counterclaim. Moreover, a claim
for a declaration ofcopyright invalidity arises under the Copyright Act because it requires construction of
the Act. See Bassett v. Mashantucket Pequot Tribe, 2014 F.3d 343,349(2d Cir. 2000)("[A] suit 'arises
under' the Copyright Act" ifthe pleading "asserts a claim requiring construction ofthe Act."(internal
quotation marks and citation omitted).) Count Vll asserts that Lin's Waha's "Infringing Chef Design
constitutes an unauthorized derivative work ... in violation of 17 U.S.C. §§101 and 103" ofthe
Copyright Act. (ECF No.45 at 35.) Section 412 forecloses attorneys' fee awards only for copyright
infringement claims, which Lin's Waha agrees Count VII is not. See 17 U.S.C. § 412("In any action
under this title,... no award of statutory damages or attorney's fees...shall be made for...(1)any
infringement ofcopyright in an unpublished work commenced before the effective date of its registration;
or(2)any infringement ofcopyright commenced after first publication ofthe work and before the
effective date of its registration, unless such registration is made within three months after the first
publication ofthe work."(emphasis added)); cf. 16 Casa Duse, LLC v. Merkin, 791 F.3d 247,263(2d
Cir. 2015)
("There is nothing in the statute that prohibits fee awards in cases... of non infringement."
(intemal quotation marks and alterations omitted)(emphasis in original)).

2014); see also Amidax Trading Grp. v. S.W.I.F.T SCRL,671 F.3d 140,145(2d Cir. 2011)("In

reviewing a facial attack to the court's jurisdiction,[courts] draw all facts—^which [are]
assume[d]to be true unless contradicted by more specific allegations or documentary evidence—
from the complaint and from the exhibits attached thereto.")
B. Actual Case or Controversy

Lin's Waha argues that I should dismiss Count VII for lack of subject matter jiuisdiction
because there is no "actual controversy." (ECF No. 59 at 7-12.) Specifically, Lin's Waha
contends that it has not asserted its copyrights in the dispute with Tingyi, and has not made or

threatened a claim against Tingyi based on its copyrights. (Id. at 10.) According to Lin's Waha,
the "fact that Tingyi disputes the validity of Lin's Waha's copyright in and of itself is not a basis

upon which to find an actual case or controversy." (Id.) Tingyi responds that "[cjourts have
explicitly rejected this sort of intellectual property hair-splitting and have allowed litigants to

pursue declaratory judgment claims involving one form ofintellectual property, even if the
underlying dispute involved an entirely different species of intellectual property protection."

(ECF No.60 at 13.) Tingyi argues that there is an actual controversy because Lin's Waha's

copyright registration and use of the chef design constitute "actual interference with Tingyi's
legal interests." (Id. at 13-15.)

"In a case of actual controversy within its jurisdiction," a court"may declare the rights
and other legal relations of any interested party seeking such declaration" pursuant to the
Declaratory Judgment Act. 28 U.S.C. § 2201(a). "The Declaratory Judgment Act confers on
federal courts 'unique and substantial discretion in deciding whether to declare the rights of

litigants,"' but it does not extend the courts' subject matter jurisdiction. Peconic Baykeeper, Inc.

V. Suffolk County, 600 F.3d 180,187(2d Cir. 2010)(citation omitted); Medtronic, Inc. v.
Mirowski Family Ventures, LLC,571 U.S. 191,197(2014).

To satisfy the "actual controversy" standard, the dispute "must be definite and concrete,
touching the legal relations of parties having adverse legal interests;" it must be "real and

substantial and admit ofspecific reliefthrough a decree of a conclusive character, as
distinguished from an opinion advising what the law would be upon a hypothetical state of
facts." Medlmmune,Inc. v. Genentech, Inc., 549 U.S. 118, 126-27(2007){(yiXQi\mg Aetna Life
Ins. Co. V. Haworth,300 U.S. 227, 240-41 (1937))(internal quotation marks and alterations

omitted). There must be'"a substantial controversy, between parties having adverse legal
interests, of sufficient immediacy and reality to warrant the issuance of a declaratory
judgment.'" Id. (quoting Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273
(2d Cir. 1941)). Because "[djeclaratory judgment actions are particularly useful in resolving
trademark disputes...the finding of an actual controversy should be determined with some

liberality." Starter Corp. v. Converse, Inc., 84 F.3d 592,596(2d Cir. 1996).
Counterclaim Count VII presents an actual controversy. The crux ofthe instant litigation
is the parties' rights to use the image ofthe chef and the Kang Shi Fu logo. Lin's Waha owns
copyright and trademark registrations ofthe images, and Tingyi owns trademark registrations of

similar images, and claims to own copyrights in the marks. Both parties use the images on
products that they manufacture and distribute. Count VII of Tingyi's counterclaims seeks a

declaratory judgment that Lin's Waha's copyrights are invalid. "The factual and legal
dimensions ofthe dispute are well defined," and "nothing about the dispute would render it unfit
forjudicial resolution." Medlmmune,549 U.S. at 128.

The fact that Lin's Waha has not yet brought a specific claim for copyright infnngement
does not nullify the controversy. "[E]ven when a defendant does not pursue an available
copyright claim the court has subject-matter jurisdiction over a declaratory-judgment plaintiffs
claim for copyright non-infringement as long as there is an actual controversy between the
parties over intellectual property." See BHL Boresight, Inc. v. Geo-Steering Sols., Inc., No. 4:15CV-00627,2017 WL 1177966, at *3(S.D. Tex. Mar. 29,2017)(citing Touchpoint
Communications, LLC v. Dentalfone, LLC,3:15-CV-05240-JRC,2016 WL 524260, at *4(W.D.
Wash. Feb. 10,2016)).

The cases that Lin's Waha cites for the proposition that "a determination ofthe validity

of a party's intellectual property rights generally is unripe when such rights have not been
asserted against the party seeking a declaratory judgment" are distinguishable. (ECF No. 59 at
8.) The parties in Nike, Inc. v. Already, LLC and Velvet Underground v. Andy Warhol Found,for
the Visual Arts, Inc. entered into a covenant not to sue,thus "vitiate[ing] any coercive force" that

the copyrights would otherwise have. Velvet Underground,890 F. Supp. 2d 398,405-07
(S.D.N.Y. 2012)(covenant not to sue "divests [the] Court of declaratory judgmentjurisdiction");
Already,663 F.3d 89,97(2d Cir. 2011)(there was no actual case or controversy where the nonmoving party had executed a covenant not to sue). Lin's Waha has made no such promise.
Thus, Lin's Waha's active copyright registrations place it in a position to remain "capable of

taking some action that threatens to damage" Tingyi or "impair [TingyiJ's ability to exercise its
rights." Velvet Underground, 890 F. Supp. 2d at 406.

I also reject the argument that there is no controversy because "there is no imminent risk
of suit." (ECF No. 59 at 8.) Medlmmune abrogated the "reasonable apprehension ofimminent

suit" standard in favor of a lowered standard in intellectual property-related declaratory judgment

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cases. Gelmart Indus, v. Eveready Battery Co., 120 F. Supp. 3d 327, 331 (S.D.N.Y. 2014).
"After Medlmmune, so long as the factual and legal dimensions ofthe dispute are well defined

and nothing about the dispute would render it unfit for judicial resolution,jurisdiction is not
defeated by a party's decision to refrain from taking some action and thus make what would
otherwise be an imminent threat of suit at least remote, if not nonexistent." Id. (quoting
Medlmmune,549 U.S. at 128)(internal quotation marks and alterations omitted). As discussed
above,that test has been met here.

Accordingly, Lin's Waha's motion to dismiss Count VII of Tingyi's counterclaims for
lack of subject matter jurisdiction is denied.
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Fed. R. Civ. P. 12(bI(6I

A. Standard of Review

A complaint must allege sufficient facts which, taken as true, state a plausible claim for
relief, see Bell Atlantic Corp. v. Twombly,550 U.S. 544,555-56(2007), but a court is not
required to credit "mere conclusory statements" or "threadbare recitals ofthe elements of a cause

of action." Ashcroft v. Iqbal, 556 U.S. 662,678(2009)(citing Twombly,550 U.S. at 555). A
claim has facial plausibility when it "pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged;" the plausibility
standard requires more than "a sheer possibility that a defendant has acted unlawfully." Id.
(citing Twombly,550 U.S. at 556, 570).

A court considering a motion to dismiss for failure to state a claim pursuant to Rule
12(b)(6) is limited to the factual allegations in the pleading, the documents attached to the
pleading as exhibits or incorporated in it by reference, matters of which judicial notice may be

taken, and documents either in the plaintiffs' possession or of which the plaintiffs had knowledge

and relied on in bringing suit. Faconti v. Potter, 242 Fed, Appx. 775, 777(2d Cir, 2007); Staehr
V. Hartford Fin. Servs. Grp., Inc., 547 F.3d406,425(2d Cir. 2008).
B. Claim for Relief Under the Copyright Act

Lin's Waha seeks dismissal of Count VII because "there is no support for Tingyi's claim
that it may seek a declaration of copyright invalidity absent an affirmative copyright
infringement claim by Lin's Waha or a dispute over the authorship or ownership ofa single
work." (ECF No. 59 at 12-13.) The cases upon which Lin's Waha relies, however, do not

support its argument. See VaadL'Hafotzas Sichos, Inc. v. Krinsky, 133 F. Supp. 3d 527
(E.D.N.Y.2015)(federal courts have no authority to cancel copyright registration because "there
is no precedent supporting the use ofa claim for fraud on the Copyright Office as an affirmative
cause of action"); Kwan v. Schlein, 2008 U.S. Dist. LEXIS 87441 (S.D.N.Y. Oct. 30,2008)

("there is no precedent supporting the use ofa claim for fraud on the Copyright Office as an
affirmative cause of action, rather than as a defense to a copyright certificate's validity"). The
plaintiffs in Vaad and Kwan sought cancellation ofa copyright for fraud on the Copyright
Office; Tingyi seeks a declaration that Lin's Waha's copyrights are invalid.

Although the bulk ofcases involving claims of declaratory judgment for copyright
invalidity also involve claims ofcopyright infringement, Lin's Waha cites no authority to
support its argument that a claim of copyright infringement is a pre-requisite to a claim for
declaratory judgment for copyright invalidity. See, e.g., 16 Casa Duse, LLC v. Merkin, No. 12-

CV-3492,2013 WL 5510770, at *11-12(S.D.N.Y. Sept. 27, 20U),affd in part, rev'd inpart on
other grounds and remanded, 791 F.3d 247(2d Cir. 2015)(granting summary judgment for
declaratory judgment of copyright invalidity in absence of copyright infringement action); 784
8th St. Corp. V. Ruggiero,2018 U.S. Dist. LEXIS 51234, at *14(E.D.N.Y. Feb. 28,2018)

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(adopting report and recommendation granting summary judgment invalidating copyright
registration); Pastime LLC v. Schreiber, No. 16-CV-8706, 2017 WL 6033434, at M (S.D.N.Y.

Dec. 5, 2017)(distinguishing copyright cancellation from copyright invalidity and citing with
approval federal court's authority to invalidate copyrights); Duncanson v. Wathen, 2016 U.S.

Dist. LEXIS 183674, at *5(M.D. Fla. Apr. 14, 2016)(noting correctness of plaintiffs assertion
that "courts have allowed claims for a declaratory judgment that a copyright is invalid premised
on fraud").
Accordingly, Lin's Waha's motion to dismiss Count VII of Tingyi's counterclaims for

failure to state a claim under the Copyright Act is denied.
CONCLUSION

Lin's Waha's motion to dismiss Count VII of Tingyi's counterclaims is denied in its
entirety.

SO ORDERED.

s/Ann M. Donnelly
TheTfphorable Ann M. Donnel
United States District Judge

Dated: Brooklyn, New York
December 13, 2018

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