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NSCO v. Colby_Exon LLC

United States District Court, E.D. Virginia, Richmond Division

March 30, 2018

NSCO d/b/a NEED SUPPLY CO., Plaintiff,
v.
COLBY_EXON, LLC, Defendants.

          MEMORANDUM OPINION

          M. HANNAH LAUCK JUDGE

         This matter comes before the Court on three motions: (1) Defendants ColbyExon, LLC ("CEL") and Ryan Scanlon's (collectively, the "Defendants") Motion to Dismiss for Failure to State a Claim pursuant to Federal Rule of Civil Procedure 12(b)(6)[1] (the "Joint Motion to Dismiss"), (ECF No. 13); (2) Ryan Scanlon's Motion to Dismiss for Lack of Personal Jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2)[2] (the "Scanlon Motion to Dismiss"), (ECF No. 11); and, (3) Plaintiff NSCO, LLC, d/b/a Need Supply Co.'s ("Need") Motion to Stay the Scanlon Motion to Dismiss and to Conduct Jurisdictional Discovery (the "Motion for Jurisdictional Discovery"), (ECF No. 17).

         The Court dispenses with oral argument because the materials before it adequately present the facts and legal contentions, and argument would not aid the decisional process. The Court exercises jurisdiction pursuant to 28 U.S.C. § 1331[3] and 28 U.S.C. § 1367.[4] For the reasons that follow, the Court will grant in part and deny in part the Joint Motion to Dismiss, grant the Motion for Jurisdictional Discovery, and deny without prejudice the Scanlon Motion to Dismiss.

         I. Factual and Procedural Background

         A. Summary of Allegations in the Amended Complaint[5]

         Need promotes and sells women's and men's clothing via a retail store in Richmond, Virginia, and an e-commerce website. Need has registered various trademarks, (the "Need Marks") and alleges that it and the Need Marks "have become well-known through extensive advertising to consumers and designers, commercial success, and unsolicited media coverage." (Compl. ¶ 2, ECF No. 1.) Need contends that Defendants, through "NEEDessentials, " which sells products including clothing via e-commerce websites, are engaging in "continued unauthorized use of [the Need Marks] to promote and sell highly similar products and identical services." (Id. ¶ 32.)

         1. Plaintiffs Product and Trademarks

         In 1999, Need opened a retail clothing store, Need Supply Co., in Richmond, where it sells "well-designed and well-constructed clothing and accessories." (Id. ¶ 8.) In 2008, Need started selling clothing and accessories via an e-commerce website, www.needsupply.com ("Needsupply.com"), "to project its brand to an expanding audience." (Id. ¶ 9.) Need asserts that its brand conveys "style, design, and innovation for those consumers seeking an alternative to products from 'mainstream' clothing and accessories retailers." (Id. ¶ 11.) It avers that the Need brand has "garnered substantial unsolicited publicity and [is] widely-recognized and well-regarded for [its] success." (Id.)

         The Need Marks consist of seven trademarks for which Need has either applied or registered. Need attaches copies of the applications or registrations to the Complaint. Three identify "NEED, " and four identify "NEED SUPPLY CO., " as the protected mark. Both "NEED" and "NEED SUPPLY CO." have trademarks either registered or applied for each of the following categories: (1) men's and women's clothing; (2) men's and women's shoes; (3) computerized on-line ordering featuring men's and women's clothing; and, (4) retail clothing store services. The earliest trademark, registered in 2000, is for "NEED SUPPLY CO." as a retail clothing store. Need applied for or registered the remaining trademarks between October 2014 and January 2016.

         Need alleges that it has a "strong online presence" and uses a variety of mediums to promote its products, including "a vast social media presence, in-store events, and a lifestyle journal." (Id. ¶ 15.) According to Need, the Marks have been connected with "unique and sought-after clothing and accessories" through "numerous, independent[, ] and unsolicited references in print and electronic media." (Id. ¶ 16.) Need declares that many consumers refer to the Marks simply as "Need, " and it provides two examples of such references. Need states that it has invested "substantial time, effort, and resources" in developing its brand, and has consistently used the Marks in marketing and promoting its products since 1999. (Id. ¶ 18.) Given these consistent efforts, "the Marks have become some of the most recognizable brands in the clothing and accessories industry[, ] and the public has come to associate 'Need' as symbolizing the goodwill inherent in the Marks." (Id. ¶ 19.) The Marks, accordingly, "possess enormous value to Need." (Id. ¶ 18.)

         2. Defendants, Their Products, and Their Trademark Applications

         Need states that Scanlon, who lives in Australia, began a business "promot[ing] and market[ing itself] as 'NEEDessentials.'" (Id. ¶ 20.) NEEDessentials operates two websites, www.needessentials.com and www.needessentialsusa.com. Need contends that Scanlon began NEEDessentials in Australia, and that CEL is Scanlon's "licensee in the United States." (Id. ¶ 21.) Need alleges upon information and belief that CEL is a Delaware limited liability company with a principal place of business in California. Need asserts that CEL conducts business in this district "including through the provision of an interactive e-commerce website engaged in the transaction of business in Virginia." (Id. ¶ 4.)

         According to Need, NEEDessentials uses its websites to "promote clothing and accessories, including to consumers in the [United States]." (Id. ¶ 23.) Need maintains that by emphasizing the word "need" in its name, NEEDessentials "contributes] to the risk of consumer confusion." (Id. ¶ 22.) Need points to three main areas of overlap between the Need Marks and NEEDessentials: (1) NEEDessentials "shares the dominant and distinctive element 'NEED' with the [Need] Marks"; (2) both Need and NEEDessentials market similar products, "namely clothing and accessories"; and, (3) both parties "share the same channels of trade-website promotion." (Id. ¶ 24.)

         On January 28, 2016, CEL filed an application with the United States Patent and Trademark Office ("USPTO") seeking to register "NEED ESSENTIALS" for "Belts for clothing; Coats; Dresses; Footwear; Gloves; Headwear; Jackets; Pants; Shirts; Shorts; Skirts; Socks; Sweaters; Swimwear; Undergarments; Wetsuits; [and] Ties." (Ex. B, ECF No. 1-2.) On February 4, 2016, CEL filed an application with the USPTO seeking to register "NEED ESSENTIALS" for "Retail apparel and sporting goods stores; On-line retail store services featuring apparel and sporting goods; [and, ] Wholesale and retail store services featuring apparel and sporting goods." (Id.)

         Sometime around July 20, 2016, Scanlon applied for a design trademark in Australia. The design features a dark square with the word "NEED" in large light capital letters inside the box, and the word "ESSENTIALS" in smaller, dark capital lettering under the square. On March 16, 2016, Scanlon filed an application in the USPTO for the same design trademark.

         Need states that it attempted to resolve its disputes with CEL and Scanlon pre-filing, but the parties were unable to agree on a course of action. Need further alleges that, despite knowing that Need owns the Need Marks, Defendants continue to engage in "unauthorized use of the [Need Marks] to promote and sell highly similar products and identical services." (Id. ¶ 32.) Need contends that this action "demonstrates an intentional, willful, and bad faith intent to trade on the goodwill of the Marks and to cause confusion, deception, and mistake in the minds of the public." (Id.)

         B. Procedural Background

         Need filed a six-count Complaint alleging various trademark violations against Defendants. Defendants filed the Joint Motion to Dismiss, and CEL also filed an Answer and Counterclaims.[6] Scanlon individually filed the Scanlon Motion to Dismiss. Need responded to the Joint Motion to Dismiss, and Defendants replied. Need responded to the Scanlon Motion to Dismiss by filing the Motion for Jurisdictional Discovery. Defendants jointly opposed the Motion for Jurisdictional Discovery, and Need replied.

         Need asserts six claims against both defendants:

Count I: Infringement of a Registered Trademark (the "Trademark Infringement Claim") - Defendants are using "an infringing imitation" of Need's trademark in interstate commerce without Need's authorization. (Id. ¶ 34.)
Count II: Federal Unfair Competition, False Designation of Origin (the "Unfair Competition Claim") - Defendants have intentionally "create[d] confusion in the minds of consumers between themselves and" Need, and consumers "are falsely led to believe that Defendants' websites are associated with" Need's. (Id. ¶ 39.)
Count III: Common Law Trademark Infringement (the "Common Law Infringement Claim") - Defendants are using an infringing mark in advertising, marketing, and promoting their websites and products, and the use of that mark is likely to confuse consumers.
Count IV: Common Law Unfair Competition (the "Common Law Unfair Competition Claim") - Defendants' infringing mark is "bound to cause confusion, mistake, and deception" in the public about whether their products are associated with Need. (Id. ¶ 48.)
Count V: Violation of Virginia Code Section 59.1-92.12 (the "Virginia Infringement Claim") - Defendants are using an infringing imitation of Need's federally registered trademark in promoting and selling clothing and accessories in Virginia.
Count VI: Violation of the AntiCyberSquatting Consumer Protection Act (the "ACPA Claim") - Defendants are using infringing marks with the bad faith intent to cause harm to Need and its brand, and to profit unlawfully by using Need's trademark to increase their own sales and revenue.

         Need seeks a permanent injunction against Defendants' use of the Need Marks, an order that Defendants withdraw their applications with the USPTO, compensatory damages, costs, and attorneys' fees. Defendants move to dismiss only Counts II, III, IV, and VI. [7]

         II. Analysis: The Motion for Jurisdictional Discovery

         Need seek jurisdictional discovery regarding Scanlon's licensing agreement with CEL and the degree of control that licensing agreement permits Scanlon to exercise over CEL. Need contends that information on the needessentialsusa.com website "demonstrates that [Scanlon] is clearly involved in the promotion and sales of products under the [Scanlon] Mark, including in the United States, " and Need seeks discovery to determine the extent of Scanlon's contacts with Virginia. (Mot. Jurisdictional Disc. 3, ECF No. 18.) Defendants oppose Need's motion, arguing that Need's request amounts to an improper fishing expedition. (Def.'s Resp. Mot. Jurisdictional Disc. 8-10, ECF No. 21.)

         Because Need presents more than "speculative or conclusory assertions" about Scanlon's contact with Virginia, the Court will grant the Motion for Jurisdictional Discovery and allow limited discovery as to Scanlon's contacts with Virginia.

         A. Legal Standard: Jurisdictional Discovery

         Discovery under the Federal Rules of Civil Procedure is generous in scope and freely permitted, and district courts "have broad discretion in [their] resolution of discovery problems that arise in cases pending before [them]." Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 64 (4th Cir. 1993) (alterations in original) (quoting In re Multi-Piece Rim Prods. Liab. Litig., 653 F.2d 671, 679 (D.C. Cir. 1981)). A district court does not abuse its discretion by denying jurisdictional discovery "[w]hen a plaintiff offers only speculation or conclusory assertions about contacts with a forum state." Carefirst of Md, Inc. v. Careflrst Pregnancy Ctrs., Inc., 334 F.3d 390, 402 (4th Cir. 2003); see also Base Metal Trading, Ltd v. OJSC "Novokuznetsk); Aluminum Factory", 283 F.3d 208, 216 n.3 (4th Cir. 2002) (finding the district court did not abuse its discretion in denying jurisdictional discovery where "the plaintiff simply want[ed] to conduct a fishing expedition in the hopes of discovering some basis of jurisdiction"); Reynolds & Reynolds Holdings, Inc. v. Data Supplies, Inc., 301 F.Supp.2d 545, 554 (E.D. Va. 2004) ("The court does not abuse its discretion to deny jurisdictional discovery when the plaintiff raises only 'bare allegations' to dispute defendant's affidavits denying jurisdictional acts or contacts.").

         Jurisdictional discovery can be appropriate when a plaintiff files a motion containing "specific and substantive" allegations regarding a defendant's contacts with the forum state, see, e.g., Mamo v. BP P.L.C., No. I:05cvl323, 2006 WL 572327, at *2 (E.D. Va. Mar. 7, 2006), or when '"significant gaps in the record' exist[] regarding 'defendant's traditional... and also defendant's Internet-based contacts, '" Weinstein v. Todd Marine Enters., 115 F.Supp.2d 668. 676 (E.D. Va. 2000) (quoting Coastal Video Commc'ns Corp. v. The Staywell Corp., 59 F.Supp.2d 562, 571 (E.D. Va. 1999)).

         B. Analysis: Jurisdictional Discovery is ...


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