IP Law Daily, TRADEMARK—W.D. Wis.: Trademark infringement claims fail when based on unauthorized sale, (Apr 17, 2023)

By Patricia K. Ruiz, J.D.

The court dismissed the claims over Quincy’s motion for default judgment for lack of personal jurisdiction and failure to state a claim.

Quincy Bioscience, LLC, failed to allege facts to support a theory of trademark infringement based on the unauthorized sale of products bearing the PREVAGEN trademark, held the U.S. District Court for the Western District of Wisconsin. The court dismissed Quincy’s trademark infringement and unfair competition claims for failure to state a claim upon which relief may be granted and dismissed its other claims for lack of personal jurisdiction ( Quincy Bioscience, LLC v. BRYK Enterprises, LLC, April 13, 2023, Peterson, J.).

Alleged infringement, personal jurisdiction. Quincy sued BRYK Enterprises, LLC, under multiple legal theories for making unauthorized sales of products branded with Quincy’s PREVAGEN trademark. Because BRYK did not answer the complaint, Quincy moved for default judgment. Before scheduling a hearing on Quincy’s motion, the court directed Quincy to provide more information about its basis for exercising personal jurisdiction over BRYK in Wisconsin.

Quincy originally asserted four claims under the Lanham Act: (1) counterfeiting; (2) trademark infringement; (3) false designation of origin and unfair competition; and (4) false advertising. It also asserted state-law claims for trademark infringement and counterfeiting and sought statutory damages, injunctive relief, and attorney’s fees. All five claims were based on two theories of harm. First, it alleged some of the products sold by BRYK under Quincy’s mark were not true PREVAGEN supplements and didn’t contain the supplement’s active ingredients, so the fake supplements would divert sales away from Quincy and harm the brand’s reputation. Second, Quincy alleged the other products sold by BRYK under Quincy’s mark were sold in defective condition, including with outer box packaging completely missing, damaged, or compromised. In a supplemental declaration, Quincy’s vice president of sales clarified that Quincy had identified at least sixteen PREVAGEN products sold by BRYK in defective condition, including six products that arrived with no outer packaging, four products with packaging significantly damaged, and six that did not include an accessory pill-minder shown and described in the Amazon listings from which the test orders were placed.

Minimum contacts with Wisconsin. A court may exercise personal jurisdiction if a plaintiff shows two things: (1) the defendant purposefully availed itself of the privilege of conducting business in the forum state or purposefully directed its activities at the state; and (2) the plaintiff’s alleged injury arose out of the defendant’s forum-related activities. Defects in personal jurisdiction are not waived by a failure to answer the complaint. The court observed that Quincy’s complaint alleged generally BRYK made internet sales directed to Wisconsin, but the complaint did not identify any specific Wisconsin sales or other activities by BRYK that would establish the necessary minimum contacts with Wisconsin to authorize an exercise of personal jurisdiction over BRYK. In response to the court’s opportunity to supplement its personal jurisdiction allegations, Quincy submitted a declaration saying it submitted 29 test orders to BRYK between May and August 2022. It asked BRYK to ship orders to states other than Wisconsin, even though Quincy is located in the state. However, Quincy argued the billing addresses on the invoices was Wisconsin. The court determined that fulfilling an order from a customer that identifies itself as based in the forum state is enough to show purposeful forum-directed contact.

However, the court pointed to an admission by Quincy in a supplemental declaration that the test orders it received from BRYK did not include counterfeit supplements. Rather, Quincy alleged it is aware of a single counterfeit order sold by BRYK but that the order was sent to a different customer, who then sent it to Quincy. Quincy did not allege that customer had any contacts with Wisconsin, which creates a problem, as the plaintiff must show there is a connection between its injury and the defendant’s contacts with the state. Because the alleged counterfeit product was neither purchased by a Wisconsin resident nor shipped to the state, the product cannot serve as the basis for an exercise of personal jurisdiction. The court granted Quincy’s request to dismiss the counterfeiting claims without prejudice and addressed claims relating to the counterfeiting theory.

Counterfeiting claims. The court found it could properly exercise personal jurisdiction over BRYK on the counterfeiting claims, as Quincy satisfied the two requirements for jurisdiction for its trademark infringement and false advertising claims based on products sold in defective condition. A claim for false advertisement has five elements (1) false statement of fact by the defendant in a commercial advertisement about its own or another’s products; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material in that it is likely to influence the purchasing decision; (4) the defendant caused its false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a loss of goodwill associated with its products. The court found Quincy alleged each of these elements.

Trademark infringement claim. However, as to Quincy’s trademark infringement claim, the court noted the keystone of trademark infringement is the use of a protectable trademark in a manner that would cause consumer confusion as to the product’s source, sponsorship, or affiliation. While Quincy alleged a protectable interest in the PREVAGEN mark, it failed to allege a likelihood of confusion. Quincy alleged that BRYK’s sales are unauthorized, but the unauthorized sale of a genuine product does not violate trademark law. The court found that Quincy’s theory seems to be that BRYK is not selling genuine PREVAGEN supplements because the packaging in some of the products sold by BRYK is damaged or missing, and that is the source of confusion. While some courts have held that products that don’t meet the trademark holder’s quality control standards are not really a genuine product, so they may confuse consumers and erode consumer goodwill. However, to prevail under this theory, the plaintiff must show that it has quality control standards so that there is a material difference between the products it sells and the products the defendant sells. Specifically, the plaintiff must show: (1) it has established legitimate, substantial, and non-pretextual quality control procedures; (2) it abides by these procedures; and (3) the non-conforming sales will diminish the value of the mark. The court found that Quincy failed to allege any of these facts to support such a theory. Thus, the court dismissed Quincy’s trademark infringement claims.

The case is No. 22-cv-658-jdp.

Attorneys: Sanjay Satish Karnik (Amin Talati Wasserman LLP) for Quincy Bioscience, LLC.

Companies: Quincy Bioscience, LLC; BRYK Enterprises LLC

Cases: Trademark WisconsinNews