Airs Aromatics, LLC v. Opinion Victoria's Secret Stores Brand Management, Inc.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
AIRS AROMATICS, LLC, a Delaware No. 12-55276
Limited Liability Company with its
principal place of business in D.C. No.
Wilmington, DE, 2:11-cv-04718-
Plaintiff-Appellant, R-JC
v.
OPINION
VICTORIA’S SECRET STORES BRAND
MANAGEMENT, INC., a Delaware
Corporation with its principal place
of business in Reynoldsburg, OH,
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Manuel L. Real, District Judge, Presiding
Submitted February 11, 2014*
Pasadena, California
Filed February 28, 2014
Before: Jerome Farris, N. Randy Smith,
and Paul J. Watford, Circuit Judges.
Opinion by Judge Farris
*
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
2 AIRS AROMATICS V. VICTORIA’S SECRET
SUMMARY**
Lanham Act
The panel affirmed the district court’s dismissal of a
trademark cancellation claim under § 37 of the Lanham Act.
The panel held that the trademark cancellation claim
would not provide an independent basis for subject matter
jurisdiction standing alone. The panel also held that the
plaintiff failed to state a claim for trademark infringement
because it failed sufficiently to allege continuous usage of the
mark.
COUNSEL
John Derrick, Law Office of John Derrick, Santa Barbara,
California, for Plaintiff-Appellant.
Diana Torres, Michael Shipley, and David Klein, Kirkland &
Ellis LLP, Los Angeles, California, for Defendant-Appellee.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
AIRS AROMATICS V. VICTORIA’S SECRET 3
OPINION
FARRIS, Circuit Judge:
I
Airs Aromatics, a purported owner of an ANGEL
DREAMS trademark, filed a lawsuit against Victoria’s
Secret alleging breach of contract claims and requesting
cancellation of Victoria’s Secret’s registered DREAM
ANGELS trademark. The district court entered an order
dismissing the complaint for failure to allege actual breaches
of the contract and lack of standing for the cancellation claim.
Airs Aromatics appealed only the dismissal of the
cancellation claim.
Airs International began using the trademark ANGEL
DREAMS in connection with the sale of perfume and
personal care products in 1991. In 1999, Airs International
entered into a mutual consent-to-use agreement with
Victoria’s Secret. The agreement allowed Victoria’s Secret to
use the trademark DREAM ANGELS in connection with the
marketing of various personal care products. As part of that
agreement, Victoria’s Secret paid Airs International $25,000
per year. The agreement was renewable yearly, at the election
of Victoria’s Secret.
In 2000, while the consent-to-use agreement with
Victoria’s Secret was still in effect, Stephen Marcus, the
principal of Airs International, assigned the Airs family of
4 AIRS AROMATICS V. VICTORIA’S SECRET
trademarks, which included ANGEL DREAMS,1 to Mine
Hakim. In May 2002, the California Secretary of State’s
office suspended Airs International’s corporate status.
Litigation over the ownership of these marks ensued between
Marcus, Hakim, and their agents and purported transferees of
the family of marks. Airs International was not a party to that
litigation. Because the district court determined the transfers
were made to defraud creditors, it enjoined all parties to the
litigation, including Marcus and Hakim, from asserting any
rights superior to any other parties’ use of rights in the Airs
family of trademarks. The court also ordered cancellation of
any registered marks covering the Airs family of marks in any
of the parties’ names. This court affirmed the district court’s
order and stated that Airs International had a senior claim to
the marks. Airs Fragrance Products, Inc. v. Clover Gifts, Inc.,
395 F. App’x 482, 485 (9th Cir. 2010).
During the litigation, Victoria’s Secret made its
contractual payments into an escrow account. In 2008,
Victoria’s Secret ceased making payments and withdrew the
funds from the escrow account. In late 2007, Victoria’s Secret
applied for trademark registration for eight DREAM
ANGELS marks; the trademark office granted the
registrations.
In 2011, Marcus revived Airs International and attempted
to transfer all of its common law rights in the ANGEL
DREAMS mark to the newly formed Airs Aromatics, LLC.
1
The Airs family of trademarks included ANGEL DREAMS, AIRS,
AIRSWORLD, AFRICAN WIND, ATMOSPHERE, DRAGON CLOUD,
OCEAN, RAIN MUSK, WHITE LACE, RUSSIAN AMBER, STAR
SANDLEWOOD, JASMINE ITALIAN, BLACK OPIUM, KASHMIR,
PATCHOULI, FRENCH VANILLA, CHINA MOON, and RAIN.
AIRS AROMATICS V. VICTORIA’S SECRET 5
Marcus is the sole member of Airs Aromatics. On June 2,
2011, Airs Aromatics filed a complaint against Victoria’s
Secret that alleged Victoria’s Secret had breached the
consent-to-use agreement and the associated implied
covenant of good faith and fair dealing. Airs Aromatics
sought a declaratory judgment, finding that Victoria’s Secret
had breached the consent-to-use agreement and cancelling the
trademark registrations based on a likelihood of confusion.
Victoria’s Secret moved to dismiss the first amended
complaint on a variety of grounds, including Airs Aromatics’
failure to sufficiently plead the continuous usage of the
ANGEL DREAMS mark that would establish its common
law ownership.
On November 28, 2011, the district court granted the
motion orally on the record after a hearing. The district court
held that Airs Aromatics lacked standing to pursue its
trademark cancellation claim as it had not adequately alleged
non-abandonment of its ANGEL DREAMS trademark. The
district court also dismissed the claims based on the consent-
to-use agreement after determining that the alleged breaches
of the consent-to-use agreement did not breach the actual
terms. The district court subsequently entered a written order
dismissing the case with prejudice. Airs Aromatics appealed
the dismissal of its claim for cancellation of trademarks or,
alternatively, that it was dismissed with prejudice.
We review de novo a district court’s dismissal of a
complaint. Wood v. City of San Diego, 678 F.3d 1075, 1080
(9th Cir. 2012). We review for abuse of discretion the district
court’s denial of leave to amend a complaint. Gordon v. City
of Oakland, 627 F.3d 1092, 1094 (9th Cir. 2010).
6 AIRS AROMATICS V. VICTORIA’S SECRET
II
Because Airs Aromatics has appealed only the dismissal
of its trademark cancellation claim, the first question we must
decide is whether that claim would provide an independent
basis for subject-matter jurisdiction on remand standing
alone. We conclude that it would not.
Section 37 of the Lanham Act, 15 U.S.C. § 1119, gives
district courts the power to order the cancellation of a
trademark registration “in any action involving a registered
mark.” In dictum, we have previously given contrasting
interpretations of whether this section provides an
independent basis of jurisdiction for cancellation claims. In
Bancroft & Masters, Inc. v. Augusta National Inc., we did not
dismiss a declaratory relief claim of non-infringement as
moot based on the defendant’s offer of a covenant not to sue.
223 F.3d 1082, 1085 (9th Cir. 2000). We noted that even
dismissal of the declaratory relief claim would “not have
mooted [the] separate request for cancellation of [the
trademarks] [as] [t]he trademark cancellation count is
separate from the declaratory judgment count in the
complaint and does not appear to be obviously meritless.” Id.This interpretation was criticized by the Second Circuit,
which stated that “the Ninth Circuit in Bancroft failed to
consider the language in § 1119 that renders that section
remedial, not jurisdictional. Accordingly, we find its opinion
unpersuasive.” Nike, Inc. v. Already, LLC, 663 F.3d 89, 99
(2d Cir. 2011) cert. granted on other grounds, 133 S. Ct. 24(2012) and aff’d, 133 S. Ct. 721 (2013).
In a subsequent case, Tillamook Country Smoker, Inc. v.
Tillamook Cnty. Creamery Ass’n, we denied a counterclaim
for trademark infringement due to laches. 465 F.3d 1102,
AIRS AROMATICS V. VICTORIA’S SECRET 7
1111 (9th Cir. 2006). Cancellation of a trademark registration
was sought as part of the counterclaim. Id. As a prelude to
evaluating the claim, we stated that “Section 37 of the
Lanham Act, 15 U.S.C. § 1119, permits district courts to
resolve these subsidiary registration disputes when joined
with an infringement claim.” Id.The plain language of Section 37 states that cancellation
is available in “any action involving a registered mark.”
15 U.S.C. § 1119. This language specifies that cancellation
may only be sought if there is already an ongoing action that
involves a registered mark; it does not indicate that a
cancellation claim is available as an independent cause of
action. Furthermore, each circuit to directly address this
statutory language has held that it “creates a remedy for
trademark infringement rather than an independent basis for
federal jurisdiction.” Nike, 663 F.3d at 98; see also Ditri v.
Coldwell Banker Residential Affiliates, Inc., 954 F.2d 869,
873 (3d Cir. 1992); Windsurfing Int’l Inc. v. AMF Inc.,
828 F.2d 755, 758 (Fed. Cir. 1987). This interpretation also
helps preserve the use of actions before the USPTO
Trademark Board as the primary vehicle for cancellation. See
McCarthy on Trademarks and Unfair Competition § 30:110
(4th ed.).
We therefore hold that Section 37 of the Lanham Act does
not provide an independent basis for federal jurisdiction.
Because Airs Aromatics has not appealed the dismissal of the
only claims it brought that could support jurisdiction, the
district court’s judgment dismissing this action with prejudice
must be affirmed.
8 AIRS AROMATICS V. VICTORIA’S SECRET
III
In its reply brief, Airs Aromatics argues that its
cancellation claim was actually a poorly pleaded claim of
trademark infringement. On its face, the original claim was
titled as “Cancellation of Registered Trademarks” in the First
Amended Complaint and its various allegations focus on the
elements necessary for a cancellation claim. However, even
if the original claim was a poorly pleaded trademark
infringement claim, Airs Aromatics must still allege
sufficient facts to support the legal claim in order to survive
dismissal under Rule 12(b)(6). See Shroyer v. New Cingular
Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010). To
establish a claim for trademark infringement, Airs Aromatics
must allege facts to show “(1) that it has a protectible
ownership interest in the mark; and (2) that the defendant’s
use of the mark is likely to cause consumer confusion,
thereby infringing upon [Airs Aromatics’] rights to the
mark.” Dep’t of Parks & Recreation for State of California v.
Bazaar Del Mundo Inc., 448 F.3d 1118, 1124 (9th Cir. 2006).
To establish a protectible ownership interest in a common
law trademark, the owner must “establish not only that he or
she used the mark before the mark was registered, but also
that such use has continued to the present.” Watec Co., Ltd.
v. Liu, 403 F.3d 645, 654 (9th Cir. 2005). Continuous usage
requires sufficiently public usage as “to identify or
distinguish the marked goods in an appropriate segment of
the public mind as those of the adopter of the mark.”
Brookfield Commc’ns, Inc. v. West Coast Entm’t Corp.,
174 F.3d 1036, 1052 (9th Cir. 1999).
Therefore, Airs Aromatics must allege facts showing
continuous usage of the ANGEL DREAMS mark. In its
AIRS AROMATICS V. VICTORIA’S SECRET 9
complaint, Airs Aromatics neither alleged continuous usage
by Airs International throughout the relevant period nor any
attempt by Airs Aromatics to use the mark in commerce
before it commenced the suit against Victoria’s Secret. In its
opening brief, Airs Aromatics acknowledges that Airs
International was not actively using the marks from 2004 to
2011 but argues that the ongoing litigation constitutes
sufficient attempts to continue usage.
There is no case law to support the contention. Airs
Aromatics has not adequately alleged that the litigation here
is the kind of continuous, public usage of a trademark that
serves to identify the marked goods to the public as those of
the mark’s owner. See id. at 1052 (mention of mark in
correspondence with lawyers was insufficient to constitute
use). Airs Aromatics has not alleged sufficient facts to
support a claim for trademark infringement.
IV
Airs Aromatics argues that the district court erred in not
giving it leave to amend its complaint. A district court may
dismiss a complaint without leave to amend if “amendment
would be futile.” Carrico v. City & Cnty. of San Francisco,
656 F.3d 1002, 1008 (9th Cir. 2011). Airs Aromatics argues
that leave to amend should be granted in order for it to more
thoroughly allege facts that establish continuous usage of the
ANGEL DREAMS trademark. Airs Aromatics, however, in
its briefing before this court has stated that Airs International
“was not actively using the marks” between 2004 and 2011
and that its activity was “effectively on hold” during the
period of litigation. Airs Aromatics has established that its
allegations for continuous usage rest on the theory that
litigation, rather than business activity, is sufficient. This
10 AIRS AROMATICS V. VICTORIA’S SECRET
type of non-public, non-commercial activity does not meet
the established standard for continuous usage.
A party cannot amend pleadings to “directly contradic[t]
an earlier assertion made in the same proceeding.” Russell v.
Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990). Given leave to
amend, Airs Aromatics could not advance an alternative set
of allegations about activities by Airs International during the
period in dispute that would constitute continuous usage.
Consequently, leave to amend would be futile.
AFFIRMED.