IP Law Daily, TRADEMARK—S.D. Tex.: Life raft maker’s trademark infringement claims against former dealer survive dismissal, (Apr 7, 2023)

By E. Darius Sturmer, J.D.

The claims were not insufficiently detailed, barred as compulsory counterclaims to dealer’s earlier-filed suit, or precluded by non-registration of the trademarks in the relevant states.

Claims by a life raft manufacturer that a formerly affiliated dealer in Texas violated its trademark rights under Texas common law, Louisiana statutory law, and the federal Lanham Act by continuing to use its marks without authorization after their business relationship had ended were adequately stated to survive dismissal, the federal district court in Houston, Texas, has ruled. Arguments by the dealer that the claims were barred by the first-sale rule and by res judicata were rejected. The motion to dismiss was denied (Survitec Survival Products, Inc. v. Fire Protection Service, Inc., March 24, 2023, Rosenthal, L.).

Survitec Survival Products, Inc., entered an oral agreement with eventual defendant Fire Protection Services, Inc. (FPS) in or before 2010, allowing FPS to serve as a dealer of Survitec’s products and to use Survitec’s trademarks, trade names, and brand names. The parties had allegedly agreed that either party could terminate their pact at any time for any reason, stated or not. Survitec did so in 2017, after it acquired a Houston company that serviced life rafts and would compete with FPS in the Houston area.

Litigation history. In 2019, FPS filed an action against Survitec asserting claims under the Texas Dealer Protection Act. With the Texas Supreme Court ruling last year that the Act, enacted in 2011, could be applied retroactively to the case, that action remains pending before the court. In the meantime, Survitec fired back with the present lawsuit, alleging in its 2021 complaint that FPS has continued to use Survitec’s marks without authorization.

FPS moved to dismiss Survitec’s amended complaint for failure to state a claim. FPS contended that Survitec could not assert state-law causes of action because it failed to comply with the trademark registration requirements of the applicable states. It further maintained that Survitec’s claims were barred by res judicata and the first-sale rule. The court addressed each argument in turn.

Adequacy of claims. The court disagreed with FPS’s position that Survitec’s failure to register its trademarks in Texas and Louisiana prevented it from pursuing claims under those states’ laws. Texas common law permits holders of unregistered trademarks to bring infringement actions, and the Louisiana statute explicitly permits holders of unregistered marks to bring infringement actions for dilution and damage to business reputation, the court explained.

Noting that federal district courts have held that the requirements for pleading trademark infringement under Texas and Louisiana law are the same as those for pleading a Lanham Act violation, the court found Survitec’s allegations of consumer confusion sufficient to state a claim that could not properly be resolved on a motion to dismiss. The court was unmoved by FPS’s argument that the mere display of Survitec’s marks on its website could not create a likelihood of confusion because FPS was not, in displaying the marks, “holding itself out as an authorized service station.” FPS provided no authority suggesting that displays of marks of through other media could not create marketplace confusion, the court noted.

Res judicata. Survitec’s trademark claims were not so related to those made by FPS in its 2019 lawsuit that they should be barred by the compulsory counterclaim rule, the court next held. In the earlier-filed action, FPS alleged that Survitec had failed to repurchase FPS’s inventory of its products as required after terminating their relationship. Whereas that TDPA suit involves the relationship of Survitec and FPS surrounding the 2017 termination, the court observed, the instant case concerns FPS’s “post-termination use of Survitec’s trademarks in dealing with [FPS’s] own customers from 2018 onward.”

Moreover, the earlier-filed action is still pending, since a final judgment issued by a different judge was reversed on appeal, and the parties have not addressed the effect of that reversal on the present motion to dismiss. The court in the earlier action has not reached Survitec’s affirmative defenses, and Survitec has renewed its motion for partial judgment in that case. Thus, given that there has been no judgment in that action, it would be inappropriate to bar this action because of res judicata[.]” Though FPS disputed the validity of Survitec’s claims, and the district judge assigned to FPS’s earlier-filed action “clearly expressed doubts” as well, “neither Survitec’s claims nor the affirmative defenses have been resolved.”

First sale rule. The court found no merit in FPS’s argument that its purchases of Survitec products precluded Survitec’s claims for trademark violations and unfair competition based on the sales of those products. The first-sale rule was not so broad as to capture the conduct Survitec alleges, the court determined. Survitec avers that FPS’s use of its marks has confused consumers into thinking that it is an authorized Survitec dealer or servicer. It claims damages not simply for unauthorized sales, but also for dilution and business goodwill. Thus, the court concluded, Survitec’s allegations go beyond merely the resale of its goods.

The case is No. H-21-312.

Attorneys: David Charles McLauchlan (The McLauchlan Law Group LLC) and Jeremy Jason Gaston (Hawash Cicack & Gaston LLP) for Survitec Survival Products, Inc. William Scott Matney (Kelly, Smith & Schmidt) for Fire Protection Service, Inc.

Companies: Survitec Survival Products, Inc.; Fire Protection Service, Inc.

Cases: Trademark TexasNews