19-3395
Really Good Stuff, LLC v. BAP Investors, L.C.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT.
CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS
PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A
SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE
(WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A
SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT
REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit,
held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the
City of New York, on the 1st day of June, two thousand twenty.
PRESENT: JOHN M. WALKER, JR.,
GERARD E. LYNCH,
RICHARD J. SULLIVAN,
Circuit Judges.
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REALLY GOOD STUFF, LLC,
Plaintiff-Counter-Defendant-Appellee,
v. No. 19-3395-cv
BAP INVESTORS, L.C., CREATIVE KIDS FAR
EAST INC.,
Defendants-Counter-Claimants-Appellants,
CREATIVE KIDS, INC.,
Defendant.
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FOR APPELLANTS: BRIAN A. COMACK (Douglas A.
Miro, on the brief), Amster, Rothstein
& Ebenstein LLP, New York, NY.
FOR APPELLEE: EDWARD F. MALUF (Katherine E.
Perrelli, Jeremy A. Schachter, on the
brief), Seyfarth Shaw LLP, New York,
NY.
Appeal from a judgment of the United States District Court for the Southern
District of New York (Louis L. Stanton, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the district court is
AFFIRMED in part and VACATED in part, and the case is REMANDED with
respect to the scope of the preliminary injunction.
Plaintiff-Counter-Defendant-Appellee Really Good Stuff, LLC (“RGS”)
brought suit against Defendants-Counter-Claimants-Appellants BAP Investors,
L.C. (“BAP”) and Creative Kids Far East Inc. (together, “Appellants”), alleging
claims including (1) trademark infringement and unfair competition under the
Lanham Act, 15 U.S.C. § 1114 and § 1125, and New York common law, (2) patent
infringement under 35 U.S.C. § 271(a), and (3) breach of contract under Colorado
law related to the sale and distribution of various science-based educational toys.
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The district court (Stanton, J.) granted in part and denied in part RGS’s motions
for a preliminary injunction and to dismiss BAP’s counterclaims, and denied
BAP’s cross-motion for a preliminary injunction, determining that RGS and BAP
each owned some of the marks at issue. On appeal, Appellants contend that the
district court abused its discretion in ruling on the cross-motions for preliminary
injunctions and erred in dismissing BAP’s counterclaims. We agree that the
district court abused its discretion only with respect to the scope of the injunction,
which barred Appellants “from selling any unit of any product that RGS sought
to purchase . . . regardless of whether RGS sought to purchase some or all units
from BAP’s remaining inventory of that product.” Special App’x at 34. We
therefore vacate the preliminary injunction solely to the extent that it enjoins the
sale of units (beyond the numbers RGS sought to purchase) of any product lines
from which RGS sought to purchase less than all of the inventory, and remand for
a reexamination of the proper scope of the injunction. We affirm the district court’s
judgment in all other respects. We assume the parties’ familiarity with the
underlying facts, procedural history, and issues on appeal, to which we refer only
as necessary to explain our decision.
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I. The District Court Properly Granted RGS’s Motion for a Preliminary
Injunction, But the Injunction Is Overly Broad
“[A] party seeking a preliminary injunction must establish (1) irreparable
harm and (2) either (a) a likelihood of success on the merits, or (b) sufficiently
serious questions going to the merits of its claims to make them fair ground for
litigation, plus a balance of the hardships tipping decidedly in favor of the moving
party.” Oneida Nation of N.Y. v. Cuomo, 645 F.3d 154, 164 (2d Cir. 2011) (internal
quotation marks omitted). The moving party must also “show that a preliminary
injunction is in the public interest.” Id. “We review the grant of a preliminary
injunction by a district court for abuse of discretion.” Alleyne v. N.Y. State Educ.
Dep’t, 516 F.3d 96, 100 (2d Cir. 2008).
A. RGS Is Likely to Succeed on the Merits of its Claims
Under the Lanham Act and New York common law, a plaintiff
demonstrates a likelihood of success on the merits of a trademark infringement or
unfair competition claim “by showing both [(1)] a legal, exclusive right to the
mark, and [(2)] a likelihood that customers will be confused as to the source of the
infringing product.” 1 Otokoyama Co. v. Wine of Japan Import, Inc., 175 F.3d 266, 270
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An unfair competition claim under New York common law also requires a showing of bad faith.
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(2d Cir. 1999); see also Standard & Poor’s Corp. v. Commodity Exch., Inc., 683 F.2d 704,
708 (2d Cir. 1982). Under Colorado law, 2 a plaintiff asserting a claim of breach of
contract must prove “(1) the existence of a contract; (2) performance by the plaintiff
or some justification for nonperformance; (3) failure to perform the contract by the
defendant; and (4) resulting damages to the plaintiff.” W. Distrib. Co. v. Diodosio,
841 P.2d 1053, 1058 (Colo. 1992) (internal citations omitted).
The district court did not abuse its discretion by concluding that RGS is
likely to succeed on the merits of its trademark infringement, unfair competition,
and breach of contract claims. First, RGS is likely to succeed on its trademark
infringement and unfair competition claims because it has a legal, exclusive right
to the marks at issue and there is a likelihood of consumer confusion from BAP’s
continued unauthorized use of the marks.
Appellants primarily contend that BAP, not RGS, owns the “Insta-Snow”
design mark. However, the district court did not err in concluding that RGS owns
the “Insta-Snow” word and design marks based on the language of the Second
Amended Exclusive Licensing Agreement and its Addendum (together, the
See Jeffrey Milstein, Inc. v. Greger, Lawlor, Roth, Inc., 58 F.3d 27, 35 (2d Cir. 1995).
2 The parties agree that Colorado contract law governs the parties’ contract claims.
5
“License Agreement”) and Request for Consent to Assignment Letter (the
“Consent Letter”). Having carefully reviewed both documents, we agree with the
district court that nothing in the Consent Letter altered the definition of Steve
Spangler Inc. (“SSI”) Trademarks in the License Agreement or otherwise
transferred ownership of the “Insta-Snow” design mark to BAP. The district
court’s determination was based on the plain language of the relevant contracts
between the parties and appropriately construed those documents.
Nor did the district court abuse its discretion when it concluded that BAP’s
continued unauthorized use of the marks in question was likely to cause consumer
confusion. Where an ex-licensee continues to use a mark after its license expires,
a strong likelihood of consumer confusion arises. See Church of Scientology Int’l v.
Elmira Mission of the Church of Scientology, 794 F.2d 38, 44 (2d Cir. 1986). Therefore,
because BAP is a previous licensee that continued to use RGS’s marks after the
expiration of the License Agreement, the district court properly concluded that
there was a likelihood of consumer confusion for the identical marks – “Insta-
Snow,” “Steve Spangler Science,” “Sick Science,” “Energy Stick,” and “Geyser
Tube.”
If marks are not exactly the same, however, such as RGS’s “Insta-Snow”
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mark and BAP’s “Instant Amazing Snow” mark, the determination of likelihood
of confusion is based on the multifactor balancing test established by Polaroid Corp.
v. Polarad Electronics Corp., 287 F.2d 492 (2d Cir. 1961). In Polaroid, we explained
that:
Where the products are different, the prior owner’s chance of success
is a function of many variables: the strength of his mark, the degree
of similarity between the two marks, the proximity of the products,
the likelihood that the prior owner will bridge the gap, actual
confusion, and the reciprocal of defendant’s good faith in adopting its
own mark, the quality of defendant’s product, and the sophistication
of the buyers.
Id. at 495. Here, the district court determined that these factors, on balance,
weighed in favor of finding a likelihood of consumer confusion between the
“Insta-Snow” and “Instant Amazing Snow” marks. Once again, this conclusion
was not an abuse of discretion. The district court identified the correct law,
carefully applied it to the facts, and reasonably balanced the relevant factors to
find a likelihood of confusion.
Second, the district court did not abuse its discretion in determining that
RGS is likely to succeed on its breach of contract claims because the License
Agreement is a valid contract, RGS performed under it, BAP breached it by
refusing to sell to RGS any fewer than all of the remaining copies of the SSI
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products at issue that RGS sought to purchase, and RGS was harmed by BAP’s
breach. Appellants’ assertion that BAP did not breach the License Agreement
because the plain language required RGS to purchase all or none of the remaining
copies of the SSI products in BAP’s inventory, but not some number in between,
is unpersuasive. The district court began with the text of the License Agreement,
reasonably concluded that it was ambiguous, and therefore turned to the parties’
course of conduct to clarify it, as allowed under Colorado law. The district court
noted that on four occasions when an SSI product was discontinued during the
term of the License Agreement, SSI exercised its right and purchased some units of
the discontinued product remaining in BAP’s inventory, but not all of them. The
district court therefore reasonably concluded that RGS had established a
likelihood of success on the merits of its breach of contract claims because BAP
breached the contract by refusing to sell the products at issue to RGS.
B. RGS Will Be Irreparably Harmed in the Absence of a Preliminary Injunction
Irreparable harm is “harm that (a) occurs to the parties’ legal interests and
(b) cannot be remedied after a final adjudication, whether by damages or a
permanent injunction.” Salinger v. Colting, 607 F.3d 68, 81 (2d Cir. 2010). The loss
of reputation and goodwill constitutes irreparable harm. See Register.com, Inc. v.
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Verio, Inc., 356 F.3d 393, 404 (2d Cir. 2004). As we have explained, “[w]hen in the
licensing context unlawful use and consumer confusion have been demonstrated,
a finding of irreparable harm is automatic.” Church of Scientology, 794 F.2d at 42.
The district court found that “SSI invested time and effort into developing
its products and marks,” and that “[a]s the current owner of those trademarks,
RGS will suffer the irreparable harm of losing control over the reputation and
goodwill that Steve Spangler Science products have gained if BAP is not enjoined
from using those marks, or confusingly similar imitations of the marks, when
selling and advertising products.” Special App’x at 20–21. It further determined
that the “loss of goodwill is not calculable and cannot be remedied by royalty
payments or other monetary damages.” Id. at 21. These findings are fully
supported by the proper case law, and the district court did not abuse its discretion
in finding that BAP’s unauthorized use of the marks at issue will cause irreparable
harm.
C. The Balance of the Hardships and the Public Interest Weigh in Favor of RGS
The district court first concluded that RGS’s hardships outweighed those of
Appellants. The court explained that whereas RGS faced the continued
irreparable harm of loss of goodwill and control over its reputation absent
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injunctive relief, Appellants would merely be prevented from using RGS’s marks
and confusingly similar imitations of those marks and from selling the SSI
products that RGS sought to purchase from BAP at the expiration of the License
Agreement. Id. at 22. The court also determined that Appellants’ businesses
would not be severely impacted because they could still sell other products that
did not bear the infringing marks and SSI products that RGS did not offer to
purchase at the expiration of the License Agreement. Id. at 22–23. The district
court’s determination that RGS would suffer the greater hardship is a
quintessential exercise of discretion, and BAP does not establish that the court
abused that discretion.
The district court also found that the public interest favored RGS because
“the public has an interest in not being deceived – in being assured that the mark
it associates with a product is not attached to goods of unknown origin and
quality.” Id. at 23 (internal quotation marks omitted). BAP proffers no persuasive
reasoning that this conclusion was an abuse of discretion.
D. The Preliminary Injunction’s Scope is Overbroad
Appellants further contend that the district court abused its discretion when
it (1) prohibited BAP from selling any of its remaining inventory in specified
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product lines that RGS sought to purchase; and (2) “inexplicably enjoined BAP
from using the ‘Energy Stick’ and ‘Geyser Tube’ design marks, even though it
found that BAP owns these designs.” Appellants’ Br. at 46.
We agree with BAP that the district court’s injunction – which prohibited
BAP from selling any of its remaining inventory from 22 different SSI product lines
– is overly broad. 3 Upon expiration of the License Agreement, BAP had the right
to sell to third parties the units of leftover SSI products that RGS did not seek to
purchase. RGS sought to purchase the entire remaining inventory for six different
SSI product lines; it also requested a smaller portion of the remaining inventory
for 16 other SSI product lines. Though the district court properly enjoined BAP
from selling any units from the former category – after all, RGS was entitled to the
entire inventory of such products – it abused its discretion by enjoining BAP from
selling any units from the latter group of products, since the License Agreement
provided that BAP would be permitted to sell the units that RGS did not elect to
purchase. Accordingly, we vacate the preliminary injunction solely to the extent
that it enjoins the sale of units (beyond the numbers RGS sought to purchase) of
3We note that, to the extent that any of these product lines contained only products that bore the
“Super Slime” mark and did not contain products bearing marks owned by RGS, the district court
did not enjoin BAP from selling these product lines.
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any product lines from which RGS sought to purchase less than all of the
inventory, and remand to the district court for a reexamination of the particular
product lines covered by the injunction.
Appellants also insist that the district court issued a self-contradictory order
when it determined, on the one hand, that BAP owns the “Energy Stick” and
“Geyser Tube” design marks, only to then enjoin BAP from using those very
marks. We reject this characterization of the district court’s decision. Instead, the
district court found that BAP “owns all rights pertaining to the packaging of the
Energy Stick and Geyser Tube products,” which is not inconsistent with the court’s
conclusion that RGS retained ownership of those products’ word and design
marks. Special App’x at 26 (emphasis added). The language of the Consent Letter
explicitly provides that BAP exclusively owns all rights pertaining to packaging
“[o]ther than the SSI IP,” App’x at 337, and the district court correctly determined
that the SSI IP included both word and design marks.
II. The District Court Did Not Abuse its Discretion by Denying
BAP’s Cross-Motion for a Preliminary Injunction
BAP maintains that the district court’s finding that RGS owns the “Insta-
Snow” design mark was error, and therefore that the district court abused its
discretion by relying on that finding to deny BAP’s cross-motion for a preliminary
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injunction premised on its purported ownership of that design mark. As
explained above, the district court did not abuse its discretion in determining that
RGS owns the “Insta-Snow” design mark. Therefore, BAP is unable to
demonstrate a likelihood of success on the merits of its unfair competition and
breach of contract counterclaims with respect to that mark. Accordingly, the
district court did not abuse its discretion in denying BAP’s cross-motion for a
preliminary injunction.
III. The District Court Did Not Err in Dismissing BAP’s Counterclaims
Finally, Appellants assert that the district court erred in dismissing BAP’s
counterclaims for unfair competition (Counts I and V) and breach of contract
(Count XIII) based on the “Insta-Snow” design mark, and its counterclaim for
cancellation of RGS’s “Insta-Snow” word mark registration (U.S. Registration No.
2,928,946) on the basis of genericness (Count XV). “We review de novo a district
court’s dismissal of a complaint pursuant to Rule 12(b)(6), construing the
complaint liberally, accepting all factual allegations in the complaint as true, and
drawing all reasonable inferences in the plaintiff’s favor.” Chambers v. Time
Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002).
BAP’s counterclaims for unfair competition and breach of contract rely
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solely on BAP’s purported ownership of the “Insta-Snow” design mark. But as
explained above, the License Agreement clearly provides that RGS owns “any
design incorporating” the “Insta-Snow” word mark, and there is nothing in the
Consent Letter that altered that arrangement. See App’x at 323. Therefore, because
BAP cannot establish that it owns the “Insta-Snow” design mark – a necessary
element of its unfair competition and breach of contract counterclaims – the district
court properly dismissed those claims.
As for BAP’s registration cancellation counterclaim, we agree with the
district court that the “Insta-Snow” word mark is not generic. Because “Insta-
Snow” is registered with the U.S. Patent and Trademark Office, BAP bears the
burden of overcoming the presumption that the mark is not generic. See Reese
Publ’g Co. v. Hampton Int’l Commc’ns, Inc., 620 F.2d 7, 11 (2d Cir. 1980). “Generic
marks are those consisting of words identifying the relevant category of goods or
services.” Star Indus., Inc. v. Bacardi & Co., Ltd., 412 F.3d 373, 385 (2d Cir. 2005).
BAP relies on evidence that the phrase “Instant Snow” has been used by “at least
nine” third-party “fake plastic snow toy products” to prove that “Insta-Snow” is a
generic word mark. Appellants’ Br. at 52. But even viewing this evidence in the
light most favorable to Appellants, we fail to see how competitors’ use of a
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different term proves anything about the genericness of the distinct phrase “Insta-
Snow.” BAP fails to satisfy its burden, and we therefore conclude that the district
court properly dismissed BAP’s cancellation claim.
* * *
We have considered Appellants’ remaining arguments and conclude that
they are without merit. For the foregoing reasons, the judgment of the district
court is AFFIRMED in part and VACATED in part, and the case is REMANDED
for further proceedings consistent with this order in connection with the scope of
the injunction.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk of Court
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