IP Law Daily, TRADEMARK—D. Del.: Unfair competition, antitrust claims dismissed under Noerr-Pennington doctrine, (Feb 12, 2024)

By Linda Panszczyk, J.D.

The plaintiff jumped the gun by focusing on the defendant's subjective intent without first establishing that the company's action was objectively baseless.

Unfair competition and antitrust claims by the owner of the .WALLET top-level domain (TLD) on the Handshake blockchain against a defendant who owns several TLDs, including . WALLET, on at least one other blockchain and who has sold second level domains (SLDs) ending in .WALLET since June 2021 were dismissed by the federal district court in Wilmington, Delaware, under the Noerr-Pennington doctrine. Another count, in which the plaintiff sought a declaration that he does not infringe the defendant's purported trademark rights, was not before the court (Florcsk v. Unstoppable Domains Inc. , February 8, 2024, Connolly, C.).

Background. Plaintiff Scott Florcsk filed a three-count Amended Complaint against Defendant Unstoppable Domains Inc. In Count I, Florcsk sought a declaration that he does not infringe Unstoppable's purported trademark rights. In Count II, Florcsk alleges that Unstoppable has engaged in unfair competition under the Lanham Act. In Count III, Florcsk accuses Unstoppable of violating Section 2 of the Sherman Antitrust Act. Pending before the court was the Defendant's motion to dismiss Counts II and III for failure to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6).

Plaintiff Scott Florcsk is the sole owner of Wallet Inc. and owns the .WALLET top-level domain (TLD) on the Handshake blockchain and allows users to register second-level domains (SLDs) (webpage addresses ending in .WALLET) on Handshake. In 2022, .WALLET opened for public registrations for SLDs on Handshake. Wallet Inc. used a different company, Gateway Registry, Inc., to register SLDs on Handshake. Gateway Registry, Inc. handled the reservation of domain names and the assignment of IP addresses for those domain names. It also maintained a database of all domain names and the associated registrant information for the .WALLET TLD on Handshake. Unstoppable owns several TLDs, including .WALLET, on at least one other blockchain. It has sold SLDs ending in .WALLET since June 2021. Unstoppable has tried and failed for years to convince the USPTO to grant its trademark applications for .WALLET and WALLET. As of the filing of the Amended Complaint, it had no federally registered trademark for either .WALLET or WALLET.

In July 2022, Unstoppable filed a complaint against Gateway and its founder, alleging claims of common law trademark infringement, unfair competition, intentional interference with contractual relations, and intentional interference with prospective business relationships. In response to this lawsuit, Gateway closed its registry business and did not respond or otherwise appear to defend the suit, resulting in an entry of default. Unstoppable then moved for a default judgment and permanent injunction and Florcsk filed a motion to intervene, which the court granted, and, days later, Unstoppable dismissed the Gateway Registry case without prejudice.

Noerr-Pennington doctrine. Florcsk based both of his claims on Unstoppable's decision to file its prior lawsuit against Gateway. However, Unstoppable argued, and the court agreed, that these claims are barred by the Noerr-Pennington doctrine, which provides broad immunity from liability to those who petition the government, including administrative agencies and courts, for redress of their grievances. A good-faith effort to enforce intellectual property rights, including trademark rights, through the courts falls within the protection of Noerr-Pennington.

Even so, said the court, the Noerr-Pennington doctrine has its limits. It does not extend to any activity "ostensibly directed toward influencing governmental action" if that activity "is a mere sham to cover ... an attempt to interfere directly with the business relationships of a competitor." As a result, said the court, the dispositive question in this case is whether Unstoppable's litigation against Gateway was a "sham."

Courts apply a two-part test to determine whether a lawsuit qualifies as "sham" litigation under the Noerr-Pennington doctrine. First, the lawsuit must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. Only if challenged litigation is objectively meritless may a court examine the litigant's subjective motivation. As a result, this two-tiered process requires the plaintiff to disprove the challenged lawsuit's legal viability before the court will entertain evidence of the suit's economic viability.

Impact of Noerr-Pennington doctrine on the case. Here, even accepting all of Florcsk's allegations in the Amended Complaint as true, those allegations do not establish that Unstoppable's lawsuit against Gateway was objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits, according to the district court.

Florcsk alleged that, at the time Unstoppable filed suit against Gateway, "Unstoppable knew that it did not have an enforceable trademark or any rights thereto in WALLET or .WALLET" because "its WALLET and . WALLET trademark applications had been denied by the USPTO for reasons that [Unstoppable] could not cure, and notably, did not attempt to cure." But he did not make any nonconclusory allegation, said the court, that Unstoppable's claims against Gateway for intentional interference with contractual relations or intentional interference with prospective relationships were objectively baseless.

Reading Florcsk's argument in the light most favorable to him, the district court assumed that Florcsk meant to argue that the USPTO's refusal to grant Unstoppable's WALLET and .WALLET trademark applications rendered Unstoppable' s claims against Gateway for common law trademark infringement and unfair competition objectively baseless. Although federal registration grants the owner of a mark certain benefits, "[ e ]ven without federal registration, a mark may be eligible for protection against infringement under both the Lanham Act and other sources of law." The case law is replete with instances in which courts have recognized that marks warrant protection even after the USPTO has declined to register them, the court said.

As a result, even assuming that the USPTO's rejection of Unstoppable' s trademark applications made it unlikely that Unstoppable would succeed on the merits in the Gateway suit, the court could not conclude "that no reasonable litigant could realistically expect success on the merits."

Florcsk argues that he "is not suggesting that filing a lawsuit for trademark infringement in and of itself is a sham, but rather that filing a lawsuit against Gateway and Stevens in order to avoid an adjudication on the merits was the sham." His brief and the Amended Complaint are filled with allegations of what Unstoppable "believed," "knew," and "intended."

But Florcsk jumped the gun by focusing on Unstoppable's subjective intent without first establishing that the Gateway action was objectively baseless. Because "the alleged sham [litigation] is not objectively baseless, [Unstoppable] [is] immune end of story" and because Unstoppable's lawsuit and associated actions form the only basis that Florcsk articulated for his unfair competition and antitrust claims, Florcsk failed to "state a claim to relief that is plausible on its face."

Therefore, the district court granted Unstoppable's motion to dismiss Florcsk' s unfair competition and antitrust claims.

The Case is No. 1:22-cv-01230-CFC.

Attorneys: David E. Moore (Potter Anderson & Corroon, LLP) for Scott Florcsk. Michael J. Flynn (Morris, Nichols, Arsht & Tunnell LLP) for Unstoppable Domains Inc.

Companies: Unstoppable Domains Inc.

Cases: Blockchain TechnologyInternet Trademark DelawareNews