Swig Holdings v. Sodalicious
Filing
185
MEMORANDUM DECISION AND ORDER denying the Findlay Defendants' 139 Motion to Dismiss for Failure to State a Claim; and denying Sodalicious and the Auernigs' 144 Motion to Dismiss for Failure to State a Claim. Signed by Judge Dale A. Kimball on 9/8/2017. (eat)
______________________________________________________________________________
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
SWIG HOLDINGS, LLC,
Plaintiff,
MEMORANDUM DECISION AND
ORDER
vs.
Case No. 2:15CV307DAK
SODALICIOUS, INC., ET AL.,
Judge Dale A. Kimball
Defendants.
This matter is before the court on Defendants Anna K. Findlay and Kent Findlay’s
Motion to Dismiss Plaintiff’s Revised Third Amended Complaint with Prejudice [Docket No.
139] and Defendants Sodalicious, Inc., Anne Auernig, and Kevin Auernig’s 12(b)(6) Motion to
Dismiss Swig’s Corrected Third Amended Complaint with Prejudice [Docket No. 144]. On
August 24, 2017, the court held a hearing on the motions. At the hearing, Plaintiff Swig
Holdings, LLC was represented by Mark M. Bettilyon and Nien-Ping Wang, the Findlay
Defendants were represented by Randall B. Bateman, and Sodalicious and the Auernig
Defendants were represented by Tessa Meyer Santiago and Leah Jordana Aston. The court took
the motions under advisement. After carefully considering the memoranda and other materials
submitted by the parties, as well as the law and facts relating to the motion, the court issues the
following Memorandum Decision and Order.
BACKGROUND
The parties are competing flavored drink/treat stores. Swig opened in 2010 in St. George
and became hugely popular. Swig has opened additional stores since then, and there are
currently 12 locations in Utah. Swig is known for dirty drinks, which refers to adding coconut
flavoring. But it also offers many other flavors and allows the customer to make any
combination they want.
In 2013, Sodalicious opened a similar store in Provo also focusing on flavored drinks and
treats. Alleging that Sodalicious copied its business model, Swig brought the present lawsuit
asserting causes of action for (1) trademark infringement of Swig’s “dirty” trademark; (2)
infringement of Swig’s state registered mark of its oval Swig logo; and (3) federal and state
unfair competition claims alleging trade dress infringement for copying its business model.
Swig’s Third Amended Complaint dropped the trade dress claim because Sodalicious has made
changes to its business and has stopped referring to drinks with flavorings as “dirty.” However,
Sodalicious still refers to drinks with half and half added to them as “extra dirty.”
The Findlay Defendants’ Motion to Dismiss
The Findlay Defendants move to dismiss Swig’s Third Amended Complaint, arguing that
(1) the complaint fails to allege any particular conduct by the Findlays, (2) the common law
infringement claim is facially deficient, and (3) the trademark dilution claim fails because the
mark is not famous. The Findlay Defendants ask the court to grant dismissal with prejudice and
to deny leave to correct any of these alleged deficiencies because Swig has already filed three
amended complaints.
Procedurally, Swig argues that the Findlays cannot assert a Rule 12(b)(6) defense against
2
claims that were previously part of Swig’s Second Amended Complaint because they have
already answered the Second Amended Complaint and, thus, waived their defenses. However,
the motion is not procedurally improper because waiver “does not apply to defenses under Rules
12(b)(1), 12(b)(6), and 12(b)(7), which are exempted by Rule 12(g) from the consolidation
requirement and are protected against waiver by Rules 12(h)(2) and 12(h)(3).” 5C Wright &
Miller, Fed. Practice & Procedure § 1388 (4th ed. 2009). Moreover, a Rule 12(b)(6) motion
brought after an answer can be treated as a Rule 12© motion for judgment on the pleadings.
1. Allegations of the Findlays’ Conduct
The Findlay Defendants contend that there are no specific factual allegations against them
in the Third Amended Complaint. Swig alleges that the individual defendants each have a
financial interest in Sodalicious and its sales, are the sole owners and directors of Sodalicious,
are responsible for Sodalicious’ products and marketing, have the right and ability to supervise
the business activities of Sodalicious, have personally participated in and directed Sodalicious’
infringing activities, and have continued to direct Sodalicious to engage in infringing activity
despite knowledge of Swig’s mark and trade dress.
The Findlays Defendants contend that to satisfy the plausibility standard the complaint
must make clear who is alleged to have done what to whom and to provide each individual
defendant with notice as to the basis of the claims against him or her. Robbins v. Okla. Dep’t of
Human Servs., 519 F.3d 1242, 1249-50 (10th Cir. 2008). However, the Robbins case was a civil
rights case against multiple government actors with vague allegations as to each actor’s
connection to the claims. The court was concerned about whether the defendants had notice of
the claims against them. Such a case is largely irrelevant to the claims and allegations in the
3
present case. The individual defendants in this case have adequate notice of the claims against
them.
The Findlays’ argument that Swig must allege specific wrongful conduct by them to state
a plausible claim also ignores the context of the underlying legal theory for their alleged personal
liability. Courts recognize that “[a] corporate officer or director is, in general, personally liable
for all torts which he [or she] authorizes or directs or in which he [or she] participates,
notwithstanding that he [or she] acted as an agent of the corporation and not on his [or her] own
behalf. Comm. For Idaho’s High Deseret, Inc. v. Yost, 92 F.3d 814, 823 (9th Cir. 1996).
Therefore, to state a plausible claim against the Findlays for trademark infringement, unfair
competition, or dilution, Swig needs only to allege facts leading to a reasonable inference that
they authorized or directed Sodalicious’ tortious conduct. Swig has alleged such facts. The
complaint’s factual allegations explain the context of the alleged tort and the defendants’ role
with regard to the alleged tort. When the factual allegations are viewed in the light most
favorable to Swig and all reasonable inference are drawn in Swig’s favor, the Third Amended
Complaint sufficiently alleges that the Findlays directed and authorized Sodalicious’ alleged
tortious conduct. Accordingly, the court finds no basis for dismissing the complaint on these
grounds.
2. Common Law Infringement Claim
The Findlay Defendants argue that the court should dismiss Swig’s common law
infringement claim because Swig has not pled that the term “dirty” has acquired a secondary
meaning. The elements of common law trademark infringement are that “a plaintiff must
establish a protectable interest in its mark, the defendant’s use of that mark in commerce, and the
4
likelihood of consumer confusion.” Utah Lighthouse Ministry, Inc. v. Discovery Computing,
Inc., 506 F. Supp. 2d 889, 895 (D. Utah Mar. 26, 2007).
The Findlay Defendants’ motion only challenges whether Swig has a protectable interest
in its mark. Their arguments, however, ignore the established fact that Swig has a federally
registered trademark for the Dirty Mark. Under federal law, a registered mark is prima facie
evidence of the mark’s validity and the registrant’s exclusive right to use the mark. 15 U.S.C. §
1115(a). Such prima facie evidence is sufficient to withstand a motion to dismiss at the initial
pleading stage.
Even if the dirty mark was not registered, there is no basis for dismissing the cause of
action based on a failure to plead a secondary meaning. Viewing the facts in a light most
favorable to Swig, Swig’s dirty mark is suggestive rather than descriptive and is protectable
without demonstrating that it has acquired a secondary meaning. Donchez v. Coors Brewing Co.,
392 F.3d 1211, 1216 (10th Cir. 2004). “An unregistered suggestive mark, which has been used in
commerce . . . is afforded protection under the common law similar to that provided to a
registered mark under the Lanham Act.” Sports Imaging Photography of Utah, Inc. v. Utah Sch.
& Sports Imaging, 2007 U.S. Dist. LEXIS 88589, at *8-9 (D. Utah Nov. 1, 2007). “ A mark is
suggestive if it merely suggests the features of the product, requiring the purchaser to use
imagination, thought, and perception to reach a conclusion as to the nature of the goods.”
Donchez, 392 F.3d at 1216. Consumers must use some thought to conclude that “dirty” in the
context of fountain sodas refers to a certain flavor additive. Swig’s term “dirty” is not merely
descriptive, such as flavored coke or coconut coke. As pled and giving all favorable inferences
to Swig, Swig’s dirty mark is suggestive and constitutes a protectable interest.
5
3. Trademark Dilution Claim
Under Utah’s statute, a claim for trademark dilution may be made when the alleged
infringement “begins after the mark has become famous.” Utah Code Ann. § 70-3a-403. A mark
is famous when it is essentially a household name. See Coach Servs. Inc. v. Triumph Learning
LLC, 668 F.3d 1356, 1373 (Fed. Cir. 2012). The Findlay Defendants argue that Swig makes no
allegations adequately supporting that Swig’s mark is famous.
Utah’s trademark dilution statute follows the language of a 1992 model anti-dilution
statute promoted by the then-United States Trademark Association. J. Thomas McCarthy,
McCarthy on Trademarks and Unfair Competition § 24:79 (4th ed. 2011). The language of this
model statute ultimately became part of the 1996 federal anti-dilution law. Id. Under that law,
some courts held that niche fame was possible. See, e.g., Times Mirror Magazines, Inc. v. Las
Vegas Sports News, 212 F.3d 157, 164 (3d Cir. 2000). The federal law, however, was amended
in 2006 to define a famous mark as one widely recognized by the general consuming public of
the United States. See Pub. L. No. 109-312, § 2, 120 State. 1730 (2006). Thus rejecting niche
fame. Luv N’ Care, Ltd. v. Regent Baby Prods. Corp., 841 F. Supp. 2d 753, 758 (N.D.N.Y.
2012). Utah’s Legislature, however, has not adopted the language of the new law. Therefore,
Utah’s anti-dilution law can allow for both limited geographical fame and niche market fame.
In this case, Swig is alleging that the dirty mark is a famous mark in at least St. George,
Utah and its surrounding counties and/or among the target demographic serviced by Swig and its
competitors. Under Utah Code Ann. § 70-3a-403, whether a mark is famous depends on a set of
non-exhaustive factors, including 1) the degree of inherent distinctiveness of the mark, (2) the
duration and extent of use of the mark, (3) the geographical extent of the trading area in which
6
the mark is used, and (4) whether the mark is the subject of a federal registration.
Swig alleges that it opened its first store in 2010, operating for over three years before the
Findlays opened Sodalicious in fall of 2013. The complaint references a blog post crediting Swig
with starting the dirty soda phenomenon and a similar newspaper article detailing its popularity.
The complaint also references Swig’s social media presence. Viewing all facts in a light most
favorable to Swig, these factual allegations are sufficient to state a claim that Swig’s dirty drinks
were famous in at least St. George and the surrounding counties and/or among the target
demographic serviced by Swig and its competitors. The parties can conduct discovery and
address the issue of “fame” more fully on summary judgment. The court finds no grounds for
dismissing the claim as a matter of law at this stage of the litigation. Accordingly, the Findlay
Defendants’ motion to dismiss is denied.
Sodalicious and The Auernigs’ Motion to Dismiss
To the extent that Sodalicious and the Auernigs (collectively “Sodalicious”) assert the
same grounds for dismissal as the Findlay Defendants, the court’s above analysis applies. The
court, therefore, will only address arguments in Sodalicious’ motion that are unique to its motion.
Sodalicious seeks dismissal of Swig’s federal trademark infringement claim under the
doctrine of claim prosecution estoppel, arguing that Swig relinquished all claims to trademark
protection for uses of the word dirty that reference coconut, fruits, syrups and any other food
ingredients that are added to soda to flavor it. Swig admits that, in response to the USPTO’s
initial denial of Swig’s intent to use application, Swig amended its application. However, the
parties significantly dispute the effect of Swig’s amendment. While Sodalicious claims that
Swig’s application essentially disclaimed the products Swig currently sells, Swig argues that the
7
application was narrowed to apply more appropriately to soda pop and carbonated beverages.
The parties’ dispute over the amendment raises a fact issue that cannot be resolved by the court
on a motion to dismiss.
Moreover, Sodalicious has not cited a case expanding the application
of prosecution history estoppel beyond arguments made to the USPTO to include amendments
made to the goods and services covered by the application and this court is unwilling to do so.
Therefore, the court finds no grounds for dismissing Swig’s federal trademark infringement
claim based on the doctrine of claim prosecution estoppel
Next, Sodalicious seeks dismissal of Swig’s federal trademark infringement claim and
Lanham Act unfair competition claim for failing to plead the interstate commerce jurisdictional
requirement. A defendant is liable under the Lanham Act when it uses without authority a
plaintiff’s mark “in commerce” in connection with the sales, advertising, or distribution of goods
or services. 15 U.S.C. §§ 1114(a), 1125(a). The Lanham Act defines commerce as “all
commerce which may be lawfully regulated by Congress.” Id. § 1127. The Tenth Circuit has not
interpreted “in commerce” under the Lanham Act, but other courts have held that infringing
conduct can be intrastate as long as it has a substantial economic effect on interstate commerce.
Coca-Cola Co. v. Stewart, 621 F.2d 287, 290 (8th Cir. 1980); World Carpets, Inc. v. Dick
Litrell’s New World Carpets, 438 F.2d 482, 488-89 (5th Cir. 1971). Courts have also held that a
defendant’s use of a mark in a single location may be deemed to have had a substantial effect on
interstate commerce. Coca-Cola, 621 F.2d at 291.
Sodalicious argues that Swig did not allege or plead any facts that indicate that Swig
placed its dirty mark in interstate commerce and that Sodalicious used allegedly infringing marks
in interstate commerce. However, in the Third Amended Complaint, Swig alleges that
8
Sodalicious has numerous store locations throughout Utah and Arizona and Sodalicious uses the
infringing marks at the stores in both states. In addition, Swig alleges in the Third Amended
Complaint that Swig was founded in St. George near the Utah/Arizona border, Swig’s popularity
resulted in it becoming a destination for many visitors to Utah, and Swig has a customer base
spread throughout Utah and much of the Western United States. These allegations, when viewed
in the light most favorable to Swig and drawing all inferences in its favor, are sufficient to show
a plausible use of the infringing mark in interstate commerce. Therefore, the court concludes
there are no grounds for dismissing Swig’s federal trademark claim on interstate commerce
grounds.
In addition, Sodalicious argues that Swig’s unfair competition claim should be dismissed.
Under Utah’s Unfair Competition Act, “[u]nfair competition is defined . . . as ‘an intentional
business act or practice that . . . is unlawful, unfair, or fraudulent; and . . . leads to a material
diminution in value of intellectual property.” Rich Media Club LLC v. Mentchoukov, 2012 U.S.
Dist. LEXIS 48498, at *11 (D. Utah Apr. 3, 2012) (unpublished) (quoting Utah Code Ann. § 135a-102(4)(a)). Sodalicious first argues that Swig did not plead fraudulent activities, which is
true. But that is irrelevant because Swig pled unlawful and unfair acts relating to trademark
infringement. Sodalicious also argues that Swig failed to plead diminution in value of Swig’s
mark. However, Swig alleged that Sodalicious’ use of the dirty caused confusion as to the
meaning of dirty in the soda flavor market. Swig also pleaded that Sodalicious’ use of “extra
dirty” to describe the addition of half & half has lessened the ability of the consumers to identify
and distinguish the flavor shot used in Swig’s dirty sodas. These are sufficient allegations at the
pleading stage to maintain an unfair competition claim.
9
Furthermore, Sodalicious also argues that Swig’s trade dress claims and allegations
should be stricken. However, Swig has dropped the trade dress claim and the issue is largely
moot. To the extent that the Third Amended Complaint has allegations that Sodalicious copied
Swig’s business model and trade dress in the past, Sodalicious has failed to establish that the
allegations are redundant, immaterial, impertinent, or scandalous. These allegations provide
relevant context for Swig’s trademark infringement and unfair competition claims and could be
relevant to the issue of willful infringement. Sodalicious similarly fails to establish how the
Third Amendment Complaint’s descriptions of Swig’s products, social media presence, and the
distinctiveness of the dirty mark are redundant, immaterial, impertinent, or scandalous. Because
these allegations are relevant to Swig’s claims in this case, the court concludes that there are no
grounds to strike these allegations. Accordingly, the court denies Sodalicious’ motion to strike.
CONCLUSION
Based on the above reasoning, the Findlay Defendants’ motion to dismiss [Docket No.
139] is DENIED and Sodalicious and the Auernig’s motion to dismiss [Docket No. 144] is
DENIED.
DATED this 8th day of September, 2017.
BY THE COURT:
________________________________________
DALE A. KIMBALL,
UNITED STATES DISTRICT JUDGE
10
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?