Castro v. Entrepreneur Media, Inc.

Filing 54

Response in Opposition to Motion, filed by Entrepreneur Media, Inc., re 45 Opposed MOTION to Dismiss Under Rule 12(b)(1) For Lack of Subject Matter Jurisdiction filed by Plaintiff Daniel R. Castro, 43 Opposed MOTION to Dismiss Based On Rule 12(b)(6) For Failure to State a Claim filed by Plaintiff Daniel R. Castro (Attachments: # 1 Proposed Order)(Barber, William)

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
DANIEL R. CASTRO,
Plaintiff,

)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)

v.
ENTREPRENEUR MEDIA, INC.,
Defendant.

ENTREPRENEUR MEDIA, INC.,
Counterclaimant,
v.
DANIEL R. CASTRO,
Counterdefendant.

Cause No. 1-10-CV-000695-LY
Hon. Lee Yeakel

DEFENDANT ENTREPRENEUR MEDIA, INC.’S COMBINED OPPOSITION
TO PLAINTIFF’S MOTIONS TO DISMISS
I.

INTRODUCTION
Plaintiff and counterdefendant Daniel Castro (“Castro”) has filed a Rule 12(b)(6) Motion

to Dismiss (the “12(b)(6) Motion”) seeking to dismiss Counterclaims One through Seven of
defendant and counterclaimant Entrepreneur Media, Inc.’s (“EMI”) Counterclaims, and a Rule
12(b)(1) Motion to Dismiss (the “12(b)(1) Motion”) seeking to dismiss EMI’s Counterclaim
Eight for declaratory relief. In his 12(b)(6) Motion, Castro ignores the multitude of factual
allegations contained in EMI’s Counterclaims (which are to be accepted as true), and instead
attempts to improperly argue the merits of this lawsuit. Castro also mistakes the law to be
applied to EMI’s Counterclaims, and thus makes irrelevant arguments which are inapplicable
and should be disregarded.
In his 12(b)(1) Motion, Castro concedes that EMI’s counterclaim for declaratory relief is
otherwise appropriate, and limits his argument to whether the Court should exercise its discretion
1
SD\792546.1

not to hear that counterclaim (which it should not). Castro misstates the law by citing to a nonbinding Fourth Circuit case as the controlling law, and then ignores the substance of EMI’s claim
to argue that it is “duplicitous” (presumably meaning “duplicative”) of EMI’s other seven
counterclaims. A brief reading of Counterclaim Eight, however, establishes that EMI is seeking
relief that extends beyond its other counterclaims, in that it seeks a declaration that provides clear
instruction to the U.S. Patent and Trademark Office (“PTO”) that will expedite EMI’s relief
should it prevail and eliminate the need for multiple parallel actions in front of the PTO.
For these reasons, both of Castro’s motions should be denied in their entirety.
I.

ARGUMENT

A.

Castro’s Rule 12(b)(1) Motion to Dismiss EMI’s Declaratory Judgment Act
Counterclaim Should Be Denied as That Claim is Necessary and Appropriate

1.

Legal Standard
Under the Declaratory Judgment Act, a district court “may declare the rights and other

legal relations of any interested party.” 28 U.S.C. § 2201. The Act “has been understood to
confer on federal courts unique and substantial discretion in deciding whether to declare the
rights of litigants.” Wilton v. Sevel Falls Co., 515 U.S. 277, 286 (1995). To determine whether it
has jurisdiction over a declaratory relief claim, a district court should consider “(1) whether the
declaratory action is justiciable; (2) whether the court has the authority to grant declaratory
relief; and (3) whether to exercise its discretion to decide or dismiss the action.” SherwinWilliams Co. v. Holmes County, 343 F.3d 383, 387 (5th Cir. 2003).
In not addressing these issues, Castro effectively concedes that Counterclaim Eight is
justiciable, and that the Court has authority to grant such declaratory relief.1 The only issue

1

The counterclaims are undoubtedly justiciable, as they “can presently be litigated and decided
and [are] not hypothetical, conjectural, conditional or based upon the possibility of a factual
situation that may never develop,” Rowan Cos. v. Griffin, 876 F.2d 26, 28 (5th Cir. 1989), and
the court undoubtedly has the authority to grant declaratory relief as federal question
2

SD\792546.1

raised by Castro’s motion is whether this Court should exercise its discretion in electing to
decide EMI’s counterclaim for declaratory relief.
2.

The Court Should Exercise its Discretion to Decide EMI’s Declaratory
Judgment Counterclaim

Whether to decide a claim for declaratory relief is within the discretion of the district
court. Rowan, 876 F.2d at 28. This discretion is broad, though not unfettered. Am. States Ins.
Co. v. Bailey, 133 F.3d 363, 368 (5th Cir. 1998). The Court should consider judicial efficiency
in determining whether to decide declaratory relief claims.

However, “[w]ise judicial

administration, giving regard to conservation of judicial resources and comprehensive
disposition of litigation, does not counsel rigid mechanical solution of such problems. The
factors relevant to wise administration here are equitable in nature. Necessarily, an ample
degree of discretion, appropriate for disciplined and experienced judges, must be left to the
lower courts.” Amerada Petroleum Corp. v. Marshall, 381 F.2d 661, 663 (5th Cir. 1967)
(emphasis in original) (quoting Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180,
183–84 (1951)).
“[T]here is ample support within [the Fifth C]ircuit for granting a declaratory judgment
claim” where such a claim overlaps with the claimant’s other causes of action. See Gatt Trading,
Inc. v. Sears, Roebuck, and Co., No. 3:02-CV-1573-B, 2004 U.S. Dist. LEXIS 22550, at *51
(N.D. Tex. 2004) (rejecting argument that claim for declaratory relief should “fail[ ] as a matter
of law” because it is redundant to other causes of action); see also 6A James W. Moore et al.,
Moore’s Federal Practice § 57.24 (3d ed. 1997) (“The existence of another adequate remedy does
not preclude declaratory relief in appropriate cases.”).

jurisdiction is present. See Holmes County, 343 F.3d at 387 (district court properly found
authority to decide suit for declaratory relief where jurisdiction was otherwise present and
there was no pending state action on the same matter).
3
SD\792546.1

As primary support for his argument, Castro miscites the Quarles case, which is a Fourth
Circuit case, and thus is not binding on this Court. See 12(b)(1) Motion at 1. Castro relies on
that case in concluding that “the Fifth Circuit has admonished lower courts to dismiss declaratory
judgment claims that are duplicitous [sic] of statutory and common law claims that are already
pending before the court . . . on the basis that such declaration would serve ‘no useful purpose’
or because ‘another remedy will be more effective.’” Id. While this holding is non-binding, it is
also inapplicable here, as EMI’s counterclaim for declaratory relief serves a useful purpose, and
there are no other remedies which could be more effective.
EMI’s counterclaim for declaratory relief serves a very useful purpose. Counterclaim
Eight goes beyond Counterclaims One through Seven by requesting additional specific relief,
namely: (i) an order to the PTO to cancel Castro’s registration and sustain EMI’s oppositions
against Castro’s pending applications; and (ii) an order prohibiting Castro from filing future
applications for the same marks or other marks likely to cause confusion with or dilution of
EMI’s marks. Counterclaims at 28. Should EMI prevail in this lawsuit and in particular on this
counterclaim, it will thus be able to present the PTO with a clear directive regarding Castro’s
pending and future applications, beyond that which would be possible under EMI’s other
counterclaims.

Inclusion of EMI’s counterclaim for declaratory relief would thus prevent

parallel and duplicative proceedings before the PTO, and would similarly increase judicial
efficiency by preventing this matter from coming before this Court again should Castro attempt
to file trademark applications with the PTO in the future. Finally, while several of the provisions
contained in EMI’s counterclaim for declaratory relief overlap with EMI’s other legal arguments,
this overlap is not problematic in the Fifth Circuit, see Gatt Trading, 2004 U.S. Dist. LEXIS
22550 at *51, and are necessary for an order to the PTO to be clear, coherent and complete.

4
SD\792546.1

B.

Castro’s Rule 12(b)(6) Motion to Dismiss EMI’s Counterclaims Should Be
Denied
1.

Legal Standard

Motions to dismiss for failure to state a claim are viewed with disfavor and are seldom
granted. See Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir. 2000). Claims
asserted are liberally construed in favor of the claimant and all facts pleaded are taken as true.
See Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit, 507 U.S. 163,
164 (1993). The court must indulge all inferences in favor of the claimant. Collins, 224 F.3d at
498. “Factual allegations must be enough to raise a right to relief above the speculation level, on
the assumption that all allegations in the [pleading] are true (even if doubtful in fact).” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 556 (2007) (internal citations and quotations omitted).
A pleading need only have enough facts to state a claim for relief that is “plausible on its
face.” Twombly, 550 U.S. at 556, 570. However, the pleading must offer more than an
“unadorned, the-defendant-unlawfully-harmed-me accusation,” and must “permit the court to
infer more than the mere possibility of misconduct[.]” Ashcroft v. Iqbal, ___ U.S. ___; 129 S.
Ct. 1937, 1949–50 (2009). Otherwise, “the complaint has alleged—but it has not ‘show[n]’—
that the pleader is entitled to relief.” Id. (quoting Fed. R. Civ. P. 8(a)(2)). In ruling on a 12(b)(6)
motion, the court cannot decide disputed fact issues; rather, the court must assume that all
material facts contained in the pleading are true. Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
551 U.S. 308, 322–23 (2007).
Here, Castro ignores these standards and improperly argues the merits of the case. For
example, he makes numerous unsupported statements about his purported trademark rights, and
repeats his accusations about EMI taking advantage of a “loophole” in securing its registration (a
specious argument that is both baseless and inaccurate). 12(b)(6) Motion at 1-4. Since this is a

5
SD\792546.1

motion to dismiss, the allegations in the Counterclaims should be accepted as true, and Castro’s
attempts to include “facts” and arguments unsupported by evidence should be rejected.
2.

EMI’s Lanham Act Trademark Infringement Claim (15 U.S.C. § 1114)

To prevail on a trademark infringement claim, a plaintiff must have ownership in a
legally protectable mark, and “show infringement by demonstrating a likelihood of confusion.”
Amazing Spaces, Inc. v. Metro Mini Storage, 608 F.3d 225, 235 (5th Cir. 2010).
There is no question that EMI has adequately pled that its marks (the “EMI Marks”) are
“legally protectable.”

EMI’s Counterclaims include extensive references to its trademark

registrations, its common law rights in those marks, and federal court opinions finding that its
ENTREPRENEUR mark is “strong,” “distinctive,” and “deserving of significant protection.”
Counterclaims ¶¶ 21-28 (citing to Entrepreneur Media, Inc. v. Smith, 2004 U.S. Dist. LEXIS
24078 at *9–10 (C.D. Cal. 2004), aff’d Entrepreneur Media, Inc. v. Smith, 101 Fed. Appx. 212
(9th Cir. 2004)).
In evaluating a likelihood of confusion, courts in the Fifth Circuit consider eight “digits
of confusion.” Xtreme Lashes, LLC v. Xtended Beauty, Inc., 576 F.3d 221, 227 (5th Cir. 2009).
The digits are “nonexhaustive,” “[n]o digit is dispositive, and the digits may weigh differently
from case to case.” Id.

“A finding of a likelihood of confusion does not require a positive

finding on a majority of these ‘digits of confusion.’” Westchester Media v. PRL USA Holdings,
Inc., 214 F.3d 658, 664 (5th Cir. 2000). The “digits of confusion” are: “(1) type of trademark;
(2) mark similarity; (3) product similarity; (4) outlet and purchaser identity; (5) advertising
media identity; (6) defendant’s intent; (7) actual confusion; and (8) care exercised by potential
purchasers.” Xtreme Lashes, 576 F.3d at 227.
Castro argues that EMI’s trademark infringement claim should be dismissed for failure to
“set forth specific facts,” repeatedly charging EMI with an obligation to “set forth facts” to
6
SD\792546.1

explain intended purchasers, advertising media, Castro’s intent, and actual confusion. 12(b)(6)
Motion at 12–15. Castro’s arguments are premature—at the pleading stage, EMI’s only burden
is to allege facts sufficient “to raise a right to relief above the speculation level, on the
assumption that all allegations in the [pleading] are true (even if doubtful in fact).” Twombly,
550 U.S. at 556.2 As shown below, EMI’s pleadings go well beyond “unadorned, the-defendantunlawfully-harmed-me accusation[s],” and are therefore sufficient to state a claim upon which
relief can be granted. Iqbal, 129 S. Ct. at 1949–50; see also Healthpoint, Ltd. v. River’s Edge
Pharms., L.L.C., 2005 U.S. Dist. LEXIS 3646 at *28 (W.D. Tex. 2005) (in motion to dismiss on
Lanham Act claims, question is not whether plaintiff can prove the elements of the claim, such as
whether “the alleged infringement creates a likelihood of confusion”; rather, the question is
whether plaintiffs have “state[d] a cause of action.”). EMI has amply met this burden.
The first digit (i.e., type of trademark) concerns a determination of the strength of the
mark at issue, on a continuum from generic to arbitrary/fanciful. Xtreme Lashes, 576 F.3d at
227. EMI’s counterclaims contain ample allegations concerning the strength of the EMI Marks,
which has been fully litigated in other federal courts. See Counterclaims ¶¶ 27–28; Smith, 2004
U.S. Dist. LEXIS 24078 at *9-10 (ENTREPRENEUR® mark is strong and has acquired
secondary meaning).

2

It is revealing that, except for Iqbal and Twombly, all of the cases cited by Castro in this
section of his motion arose at summary judgment, trial, or post-trial, and not at the
pleading stage in response to a motion to dismiss. See Amazing Spaces, 608 F.3d at 230
(appeal of dismissal of claims “on summary judgment”); Elvis Presley Enterprises v. Capece,
141 F.3d 188, 192–93 (5th Cir. 1998) (post-trial appeal); Armstrong Cork Company v. World
Carpets, Inc., 597 F.2d 496, 499–500 (5th Cir. 1979) (appealing verdict); Association of CoOp Members, Inc. v. Farmland Industries, Inc., 684 F.2d 1134, 1135 (5th Cir. 1982) (appeal
from “partial summary judgment” order); Exxon Corp. v. Tex. Motor Exch. of Houston, Inc.,
628 F.2d 500, (5th Cir. 1980) (appeal of denial of injunction after hearing); Texas Dairy Queen
Operators Council v. The Feed Store, 1986 U.S. Dist. LEXIS 19341 at *1 (N.D. Tex. 1986)
(district court’s decision after fact-finding); Ironclad, L.P. v. Poly-America, Inc., 2000 U.S.
Dist. LEXIS 10728 at *2 (N.D. Tex. 2000) (motion for directed verdict and post-trial motions).
7

SD\792546.1

The second digit (i.e., mark similarity) concerns a determination of whether “under the
circumstances of use, the marks are similar enough that a reasonable person could believe the
two products have a common origin or association.” Xtreme Lashes, 576 F.3d at 228. EMI’s
complaint sets forth specific allegations concerning the similarity between the parties’ marks.
Counterclaims ¶¶ 35, 44 (addressing the extent of similarity between Castro’s marks and the
ENTREPRENEUR® mark), 59, 70, 71, 78; ¶¶ 14, 20 (EMI’s use of marks consisting of
Entrepreneur________,

such

as

EntrepreneurEnEspanol.com,

Entrepreneur

Press

and

Entrepreneur Connect); ¶¶ 30–32 (addressing the fact that each of Castro’s marks consists of the
word “Entrepreneur” followed by “ology”).
The third digit addresses the extent of similarity between the products and services
offered, with the result that “[t]he greater the similarity between the products and services, the
greater the likelihood of confusion.” Exxon, 627 F.2d at 504 (5th Cir. 1980). In this case, EMI
has alleged sufficient facts to raise this portion of the claim beyond the plausibility threshold.
Counterclaims ¶¶ 21, 30–32 (addressing the fact that all of Castro’s marks are either registered or
seeking registration in the same class of services (Class 41) as the ENTREPRENEUR® mark),
¶ 35 (EMI and Castro both offer educational services, workshops and seminars), ¶ 44 (products
and services marketed, offered for sale and sold are closely related).
With regard to the fourth digit (i.e., the identity and similarity of targeted consumers),
where companies are “direct competitors” in a certain market, and may therefore lose business to
one another, this factor is implicated. Source, Inc. v. SourceOne, Inc., 2006 U.S. Dist. LEXIS
62401 at *18 (N.D. Tex. 2006). Here, as alleged in connection with the previous factor, both
Castro and EMI offer or seek to offer educational services to individuals interested in starting,
owning and operating a business. Therefore, EMI has sufficiently alleged that the potential
consumers for goods and services under the EMI Marks and Castro’s marks are the same.
8
SD\792546.1

As to the fifth digit (i.e., identity and similarity of advertising and media outlets), where
parties advertise in the same or similar media, consumer confusion is more likely. Xtreme
Lashes, 576 F.3d at 229.

For example, where “both parties advertise on their respective

websites,” this factor may weigh in favor of a finding of likelihood of confusion. SourceOne,
2006 U.S. Dist. LEXIS 62401 at *18–19. EMI alleges that both parties promote their marks, and
the goods and services offered in connection therewith, on their respective websites.
Counterclaims ¶¶ 14–15, 20, 34.
As to the digit involving Castro’s intent in adopting his marks, EMI alleges that Castro’s
adoption and use of his marks are willful. Counterclaims ¶ 46 (“On information and belief,
Castro’s use . . . was intended to confuse consumers into believing that Castro’s Services were
authentic and authorized EMI products and services”).
While EMI does not specifically allege, nor have information at this point in time,
concerning evidence of actual confusion or the level of care exercised by potential purchasers
(the remaining digits), EMI does more generally allege a likelihood of confusion between the
EMI Marks and Castro’s marks, based on the other digits, including that that there is a likelihood
of confusion between the marks, given their similarity and the similarity in goods/services,
which should be accepted as true for purposes of this motion. Counterclaims ¶¶ 35, 44, 47;
Tellabs, 551 U.S. 322–23.
EMI’s Counterclaims consist of detailed allegations regarding protectability and
likelihood of confusion, and state a claim for relief that is “plausible on its face.” Therefore, this
Court should deny Castro’s motion to dismiss EMI’s Lanham Act trademark infringement claim.
3.

EMI’s Lanham Act False Designation of Origin/Unfair Competition Claim

The Lanham Act generally addresses “the registration, use, and infringement of
trademarks and related marks.” Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23,
9
SD\792546.1

29 (2003). However, portions of the Act “go[ ] beyond trademark protection.” Id.
a.

EMI Has Stated a Claim for False Designation of Origin

To state a claim for false designation of origin, a party must plead that another “has made
a false designation of origin, false or misleading description of fact, or false or misleading
representation of fact, which . . . is likely to cause confusion . . . as to the origin . . . of his or her
goods.” Id. at 31; 15 U.S.C. § 1125(a)(1)(A). EMI has sufficiently met this pleading standard in
its Counterclaim for false designation or origin. Counterclaims ¶¶ 55-63.
In his motion, Castro has confused the false designation of origin claim found in
subsection (A) of § 1125(a)(1) with the false advertising claim found in subsection (B) of that
statute section, and cites the wrong elements that are required to state a claim (e.g., advertising
statements about its own or the defendant’s products). 12(b)(6) Motion at 7. Accordingly, his
argument is inapplicable and should be denied, as EMI has sufficiently pled a claim under
subsection (A), and Castro has not provided any argument that EMI has failed to do so.
Based on Chevron Chemical Company v. Voluntary Purchasing Groups, Inc., 659 F.2d
695 (5th Cir. 1981), Castro additionally argues that the “false or misleading representation”
portion of the Lanham Act’s Section 1125 “constitute[s] the common-law tort of ‘unfair
competition,’ or, as it is otherwise known, ‘passing off.’” Id. at 701. However, the Chevron
court’s conclusions were based on the assumption that the reference to “origin” in
§ 1125(a)(1)(A) was limited in meaning to geographic origin. Id. at 700. This view has been
explicitly repudiated by an amendment of the Lanham Act and by the Supreme Court. See
Dastar, 539 U.S. at 30 (“The Trademark Law Revision Act of 1988 made clear that § 43(a)
covers origin of production as well as geographic origin.”); see also Two Pesos v. Taco Cabana,
505 U.S. 763, 779 (courts have “expanded the categor[y] of ‘false designation of origin’ . . . to
include ‘origin of source or manufacture’ in addition to geographic origin.”) (1992).
10
SD\792546.1

The Supreme Court has also explicitly rejected the idea that false designation of origin is
limited to false advertising and “passing-off” claims. Two Pesos at 778–79. Rather, “the
ultimate test is whether the public is likely to be deceived or confused by the similarity of the
marks.” Id. at 780.3 “The test for false designation of origin under § 1125(a) is essentially the
same as that for trademark infringement,” although the inquiry is more broad, “looking to
similarity in the overall trade dress of the products.” Petro Franchise Sys. v. All Am. Props.,
Inc., 607 F. Supp. 2d 781, 788 (W.D. Tex. 2009) (internal quotes omitted).
Here, EMI has sufficiently pled its false designation of origin claim.

There are

voluminous facts in EMI’s Counterclaims that raise EMI’s right to relief above a speculative
level with respect to the allegation that Castro’s use is likely to cause confusion regarding the
origin of his goods and services. See Counterclaims ¶¶ 35 (“EMI is very concerned that
consumers will be confused into believing that the services offered under [Castro’s] confusingly
similar [marks] are related to the educational services, workshops and seminars offered by
EMI”), 40, 44 (marks and services are similar), 46 (“On information and belief, Castro’s use . . .
was intended to confuse consumers into believing that Castro’s Services were authentic and
authorized EMI products and services”), 47, 55–67.
b.

EMI Has Stated a Claim for Unfair Competition

The considerations underlying an unfair competition claim under 15 U.S.C. § 1125(a) are
“essentially the same” as those underlying a Lanham Act trademark infringement claim, “but the

3

Castro cites to The York Group, Inc. v. Horizon Casket Group, Inc., 456 F. Supp. 2d 567, 576
(S.D. Tex. 2006) for the proposition that EMI must show either (1) that Castro made a literally
false statement about its own products or (2) that Castro made a misleading statement about its
products and a “substantial number” of consumers were “actually deceived.” 12(b)(6) Motion
at 7. Castro’s reliance on York is misplaced. First, York concerned a motion for summary
judgment, not a motion to dismiss. York, 456 F. Supp. 2d at 570–71. Second, the York court
mistakenly conflated false designation of origin with false advertising, a view which was
repudiated by the Supreme Court in Two Pesos, as previously discussed.
11

SD\792546.1

scope of inquiry into similarity of design is considerably broader,” and goes to overall similarity.
Sun-Fun Products, Inc. v. Suntan Research & Development, Inc., 656 F.2d 186, 192 (5th Cir.
1981).

Therefore, the facts alleged by EMI in support of its Lanham Act trademark

infringement claim, as discussed above, are more than sufficient to sustain EMI’s allegations
concerning Lanham Act unfair competition at the pleading stage.
4.

EMI’s Common Law Trademark Infringement Claim

“A determination of a likelihood of confusion under federal law is the same as the
determination of a likelihood of confusion under Texas law for a trademark infringement claim.”
Elvis Presley Enters. v. Capece, 141 F.3d 188, 193 (5th Cir. 1998). Therefore, for the same
reasons that EMI’s allegations are sufficient to sustain its claim for Lanham Act trademark
infringement, this Court should deny Castro’s motion to dismiss with respect to EMI’s common
law trademark infringement claim.
5.

EMI’s Common Law Unfair Competition Claim

“The analysis with respect to . . . claims under the Lanham Act will be dispositive of . . .
corresponding claims under Texas law . . . A[n] . . . unfair competition action under Texas
common law presents essentially no difference in issues than those under federal trademark
infringement actions.” Amazing Spaces, Inc. v. Metro Mini Storage, 608 F.3d 225, 235 n.7 (5th
Cir. 2010) (internal quotes omitted). Therefore, for the same reasons this Court should deny
Castro’s motion to dismiss as to EMI’s Lanham Act trademark infringement claim, this Court
should deny Castro’s motion to dismiss EMI’s Texas common law unfair competition claim.
6.

EMI’s Common Law Misappropriation Claim

“Misappropriation is a branch of the tort of unfair competition which involves [1] the
appropriation and use by the defendant, [2] in competition with the plaintiff, [3] of a unique
pecuniary interest created by the plaintiff through the expenditure of labor, skill and money.”
12
SD\792546.1

Seatrax, Inc. v. Sonbeck Int’l, Inc., 200 F.3d 358, 368 (5th Cir. 2000).
Here, EMI has alleged numerous facts regarding each of the elements of its common law
misappropriation claim, namely: it has Castro’s appropriation and use, Counterclaims ¶¶ 30–39,
44, 46, 47, 51, 58, 59, 61, 64, 70–73, 75–82, 88, 91, 93; in competition with EMI, ¶¶ 35 (both
parties offer educational services, workshops and seminars), 44 (Castro’s services “marketed,
offered for sale and sold under” his marks “are closely related to the particular products and
services” associated with the ENTREPRENEUR® mark), 77 (Castro’s use of his mark intended
“to market and sell his products and services in competition with EMI”); of a unique pecuniary
interest created by EMI through labor, skill and money, ¶¶ 6–7 (EMI’s efforts to establish the
ENTREPRENEUR® mark), 18–19 (EMI has established goodwill in the industry), 26, 51 (value
of the ENTREPRENEUR® mark), 56, 64, 69, 75–82.
Castro argues that EMI has failed to “allege that it created anything of value at great time
and expense,” and that any “goodwill” created by EMI “already existed in the word
‘entrepreneur.’” 12(b)(6) Motion at 10. This argument is factually inaccurate and contrary to
the standard to be applied in a motion to dismiss. As noted above, EMI has extensively alleged
its efforts and success in creating a strong brand with substantial goodwill.

These facts,

moreover, should be accepted as true in determining a 12(b)(6) motion to dismiss.

See

Leatherman, 507 U.S. at 164; Tellabs, 551 U.S. 322–23. Accordingly, EMI has adequately pled
its common law misappropriation claim, and Castro’s motion on this claim should be denied.
7.

EMI’s State Law Dilution Claim

Under the Texas Anti-Dilution Statute, “[a] person may bring an action to enjoin an act
likely to injure a business reputation or to dilute the distinctive quality of a [federal or Texas
state registered mark] or a mark or trade name valid at common law, regardless of whether there
is competition between the parties or confusion as to the source of goods or services.” Tex. Bus.
13
SD\792546.1

& Com. Code § 16.29. To prevail under the Texas Anti-Dilution Statute, a plaintiff “must show
that it owns a distinctive mark and that there is a likelihood of dilution.” E. & J. Gallo Winery v.
Spider Webs, Ltd., 129 F. Supp. 2d 1033, 1037 (S.D. Tex 2001). Dilution can either occur by
blurring, “where there has been a diminution in the uniqueness and individuality of the mark,” or
by tarnishment, which “requires an injury resulting from another’s use of the mark in a manner
that tarnishes or appropriates the goodwill and reputation associated with the plaintiff’s mark.”
Id. at 1038. Unlike Lanham Act dilution claims, a plaintiff under Texas state law need not show
that its mark is famous to prove distinctiveness. Id.
Here, Castro has not challenged the substance of EMI’s dilution claim, i.e., that EMI’s
marks are distinctive and that there is a likelihood of dilution. Rather, Castro’s only argument is
that, under the Lanham Act, dilution claims based on state law are completely barred from being
brought against owners of federally-registered marks. See 15 U.S.C. § 1125(c)(6); 12(b)(6)
Motion at 4–5. Notably, however, only one of Castro’s marks is registered. FAC ¶ 5.7.
Castro’s other two marks at issue in this case are each the subject of pending applications before
the PTO. Counterclaims ¶¶ 31–32.
EMI, moreover, has alleged sufficient facts as to the distinctiveness of the EMI Marks
and the likelihood that Castro’s use of his unregistered marks will dilute the EMI Marks by
blurring and tarnishment. Counterclaims ¶¶ 19, 20, 26–28, 42, 56, 69 (the EMI Marks are strong
and distinctive and have acquired secondary meaning, including the California federal court’s
findings to that effect); ¶¶ 39, 51, 64, 83–85, 92 (Castro’s conduct will “dilute the substantial
value of EMI’s name and trademarks”); ¶¶ 35, 39, 51, 64, 71, 83–85 (poor quality of Castro’s
website and services likely to “tarnish[ ] EMI’s reputation and adversely affect[ ] its goodwill”).
EMI has therefore stated a claim for relief that is “plausible on its face,” showing that it is

14
SD\792546.1

entitled to relief under the Texas Anti-Dilution Statute as to Castro’s two unregistered marks.4
8.

EMI’s Unjust Enrichment Claim

Castro also moves to dismiss EMI’s unjust enrichment claim, asserting that it is “unclear”
whether unjust enrichment constitutes an independent claim or merely a “remedy.” 12(b)(6)
Motion at 8. Castro is mistaken. The Texas Supreme Court has, in fact, previously recognized
unjust enrichment as an independent claim. See Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d
671, 683-85 (Tex. 2000) (remanding unjust enrichment claim to trial court); see also HECI
Exploration Co. v. Neel, 982 S.W.2d 881, 885 (Tex. 1998) (recognizing two-year statute of
limitations for unjust enrichment claims). Further, at least one recent federal district court in
Texas relied on the Texas Supreme Court’s recognition of unjust enrichment as an independent
claim to deny a 12(b)(6) motion. See Newington Ltd. v. Forrester, No. 3:08-CV-0864-G, 2008
U.S. Dist. LEXIS 92601 at *11-12 (N.D. Tex. 2008) (“[g]iven that the [Texas] Supreme Court
has stated that unjust enrichment is a cause of action, and that Texas courts seem willing to
award recovery based on unjust enrichment, even if it is nothing more than a theory, the court
concludes that Newington’s claim for unjust enrichment should proceed”).
A party can prove unjust enrichment in Texas by showing that the defendant has
benefited from having taken unfair advantage of a plaintiff. See, e.g., Heldenfels Bros., Inc. v.
City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992). Here, contrary to Castro’s argument,
EMI’s Counterclaims clearly assert “specific facts” sufficient to state a claim under this cause of
action. For example, after outlining EMI’s long-established rights in the EMI Marks (¶¶ 6-28),
EMI states that “Castro has taken undue advantage of EMI by trading on, and profiting from, the
goodwill associated with the EMI Marks, and in particular the ENTREPRENEUR® Mark, as
4

EMI acknowledges that its Counterclaims, as currently written, do not clearly differentiate
between Castro’s registered and unregistered marks in its dilution claim, and would be happy
to amend to make that distinction more clear if the Court would prefer.
15

SD\792546.1

developed and owned by EMI, resulting in Castro wrongfully obtaining a monetary and
reputational benefit for his own business and services.” Counterclaims ¶ 88. These allegations
plainly state a claim for unjust enrichment. Consequently, Castro’s motion to dismiss EMI’s
unjust enrichment claim must fail.
9.

EMI’s Cancellation Claim

District courts have authority “[i]n any action involving a registered mark . . . [to] order
the cancellation of registrations, in whole or in part.” 15 U.S.C. § 1119. This broad discretion
should be exercised to further the policies motivating the enactment of the Lanham Act. Park ‘N
Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 213 (1985). When a mark is less than five
years old, courts may cancel the mark on any grounds on which the PTO should have refused
registration under 15 U.S.C. § 1052(d), including likelihood of confusion. RE/MAX Int’l, Inc. v.
Trendsetter Realty, LLC, 665 F. Supp. 2d 679, 712 (S.D. Tex. 2009). The test for a cancellation
claim is the same likelihood of confusion test used in Lanham Act trademark infringement
claims. Id. (citing Shen Mfg. Co., Inc. v. Ritz Hotel, Ltd., 393 F.3d 1238 (Fed. Cir. 2004);
3 McCarthy on Trademarks and Unfair Competition, § 20:15, 20:53 (2009)).
As detailed above, EMI has alleged extensive facts regarding Castro’s registration, the
likelihood of confusion between the parties’ marks, and EMI’s trademark rights. EMI has thus
adequately pled its counterclaim for cancellation, and for that reason this Court should deny
Castro’s motion to dismiss that counterclaim.
II.

CONCLUSION
Castro’s motions to dismiss misstate and misapply the law, and improperly argue the

merits of the case. EMI has sufficiently pled its counterclaims, and Castro’s motions should
therefore be denied.
Respectfully submitted,
16
SD\792546.1

Dated: June 23, 2011

By: /s/ William G. Barber
William G. Barber
PIRKEY BARBER LLP
Texas State Bar No. 01713050
600 Congress Avenue, Suite 2120
Austin, TX 78701
[phone] / [phone] Fax
Perry J. Viscounty (Admitted Pro Hac Vice)
LATHAM & WATKINS LLP
650 Town Center Drive, 20th Floor
Costa Mesa, CA 92626
[phone] / [phone] Fax
Jennifer L. Barry (Admitted Pro Hac Vice)
LATHAM & WATKINS LLP
600 West Broadway, Suite 1800
San Diego, CA 92101
[phone] / [phone] Fax
Attorneys for Defendant/Counterclaimant
ENTREPRENEUR MEDIA, INC.

17
SD\792546.1

CERTIFICATE OF SERVICE
I hereby certify that on June 23, 2011, I electronically filed the foregoing with the Clerk
of Court using the CM/ECF system which will send notification of such filing to the following:
Daniel R. Castro
CASTRO & BAKER, LLP
7800 Shoal Creek Blvd., Suite 100N
Austin, TX 78757
/s/ William G. Barber
William G. Barber

SD\792546.1