October 2024 Arizona IP Update

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Arizona IP Law Report—from our Counsel Matthew Hersh

Here is the latest in a periodic look at what’s going on in the Arizona courts in the area of trademark, copyright, trade secrets, and cybersquatting law, from our counsel Matthew Hersh. Our last report, which you can find here, covered cases from January through March of this year. This one covers cases from May through August.

HIGHLIGHTED DECISIONS—

NextGen Builders LLC v. Platinum Builders Group LLC, CV-24-00202-PHX-JJT, 2024 WL 2977661 (D. Ariz. June 13, 2024): This is one for fans of civil procedure. An Arizona homebuilder accused another of purloining its construction plans. The defendant homebuilder filed counterclaims seeking two declaratory judgments: one saying that the plaintiff’s copyrights were invalid, and another saying that the defendant did not infringe. The plaintiff moved to dismiss the two counterclaims, claiming that they were simply repetitive of issues that would inevitably come up in the lawsuit. But were they indeed repetitive? The court found that they were not.

The counterclaims were not repetitive, the court found, because they sought a form of affirmative relief that might well go beyond the issues decided in the underlying lawsuit. To be sure, the court noted, the defendant might well fend off the lawsuit. But that could happen for any number of reasons—failure on the merits, a procedural misstep by the plaintiff, a tactical dismissal, or the like. But the defendant wanted more than merely to prevail, the court noted. The defendant wanted an affirmative declaration that it did not infringe and that the plaintiff’s copyright was invalid—two things that would ensure not only that it won this lawsuit but that it wouldn’t have to face other lawsuits over the same copyright in the future.

In refusing to dismiss the counterclaims in this case, the court treaded into an issue where there was a split of authority. Some Ninth Circuit district courts would not allow counterclaims for declaratory relief if such claims are repetitious of issues already raised in the complaint or affirmative defenses, the court noted. But the better course was to deny the motion to dismiss, the court found. “If there is any doubt about whether the challenged material is redundant,” the court noted, “it should be resolved in favor of the non-moving party.”

The court’s analysis, it should be noted, follows that of Wright & Miller, the leading civil procedure treatise. As the treatise notes:

“[S]ome courts have concluded that Rule 41(a) now contains sufficient protection for defendant against plaintiff’s withdrawal and therefore a counterclaim for a declaratory judgment involving the same transaction as plaintiff’s claim is wholly redundant and does not serve any useful purpose. This conclusion has not been widely accepted, however, because it ignores the possibility that it is very difficult to determine whether the declaratory-judgment counterclaim really is redundant prior to trial. … Thus, the safer course for the court to follow is to deny a request to dismiss a counterclaim for declaratory relief unless there is no doubt that it will be rendered moot by the adjudication of the main action.

§ 1406 Counterclaims and Crossclaims for Declaratory Judgment, 6 Fed. Prac. & Proc. Civ. § 1406 (3d ed.)

Expect more caselaw on this split of authority to come.

JFXD TRX ACQ LLC v. trx.com, CV-23-02330-PHX-ROS, 2024 WL 2844420 (D. Ariz. May 8, 2024): This case doesn’t make a lot of new law, but it’s a fun read. In the early 2000s, Randal Hetrick invented the famous gym product called TRX and marketed it through a company called Fitness America. Fitness America went bankrupt in 2022 and its assets fell into the hands of an acquisition company with the ungainly name of JFXD TRX ACQ LLC.

The acquisition company then began a quixotic effort to get hold of the website domain trx.com. It claimed that current owner of the website, an Arizona resident named Loo Yze Ming, was cybersquatting on the domain name in violation of federal law. But there was a problem: the website had been created by a third party years before the gym product even existed. So the acquisition company had no cybersquatting claim against Ming at all. But that did not stop the company from pursuing Ming relentlessly through the domain name registrar, the Virginia courts, and then finally the Arizona court.

The Arizona court finally brought down the hammer on the acquisition company. It not only lost the case, but would have to pay attorney fees as well. Under the Lanham Act, the loser of a cybersquatting claim like this has to pay attorney fees in “exceptional” cases. This case was certainly exceptional, the court found. The acquisition company brought a claim against the Arizona citizen in Virginia there even though it had no plausible basis for personal jurisdiction there; it refused on multiple occasions to address the relevant caselaw; and it made a series of other frivolous argument. “Many cases involve one or two bad arguments or positions,” the court noted, “but this case was unique in the number of unintelligible assertions made by JFXD and its counsel.” Litigants beware.

OTHER CASES—

Whaleco Inc. v. Temureviewer.com, CV-23-02451-PHX-MTL, 2024 WL 1533489 (D. Ariz. Apr. 9, 2024) and Whaleco Inc. v. Temuapp.me, CV-23-02615-PHX-MTL, 2024 WL 2804064 (D. Ariz. May 31, 2024). This is another set of decisions in the long battle between TEMU, the massive Chinese online marketplace, and a series of websites that have purloined the logo and created domain names with the word TEMU in them. (We covered some of the earlier decision here.) In these two cases, the person or entity who ran the websites didn’t appear, so the court was asked to grant default judgment based on the facts in the complaint. It easily did so. The court had personal jurisdiction over the websites, the court observed, because they consented to litigation in Arizona in their agreement with their domain name registrars. The trademark infringement claim had merit, the court found, because there was a likelihood of confusion between the various “TEMU” marks. The cybersquatting and trademark dilution claims also had merit, the court found.

Solar Optimum Inc. v. Elevation Solar LLC, CV-23-00135-PHX-SMB, 2024 WL 1961858 (D. Ariz. May 3, 2024). The lawsuit is a dispute between Peoria-based Solar Optimum and Chandler-based Evolution Solar. The Peoria company alleged that the Chandler company engaged in a concerted effort to misappropriate its trade secrets by hiring away key employees and persuading them to download information from the company’s servers before they left. The court denied the Chandler company’s motion to dismiss the trade secrets claim, finding that the Peoria company adequately alleged that its competitor had downloaded customer, financial and marketing information, and a host of other confidential data. The court also found that the company’s tortious interference, breach of fiduciary duty, and unfair competition claims were not preempted by the Arizona Uniform Trade Secrets Act because they alleged additional elements beyond the misappropriation of confidential information.

ICU Indus. Inc. v. Copper State Glass & Screen LLC, CV-23-00298-TUC-AMM, 2024 WL 2350138 (D. Ariz. May 23, 2024): The is a trademark infringement by Phoenix-based Copperstate Glass and Mirror against a Tucson competitor named Copper State Glass and Screen. The Tucson company did not show up to defend that lawsuit, so a magistrate judge recommended granting default judgment to the Phoenix company on grounds of trademark infringement, false designation of origin, and unfair competition. The court adopted the magistrate’s recommendation shortly thereafter.

United Biomedical Inc. v. ubi-group.global, CV-23-01088-PHX-JAT, 2024 WL 2923721 (D. Ariz. June 10, 2024): This is a cybersquatting default judgment case. United Biomedical owns and operates the website at “unitedbiomedical.com.” Someone unknown registered “ubi-group.global” that prominently displayed the company’s logo. The domain was registered by GoDaddy but the underlying registrant was kept anonymous by Domains By Proxy, an Arizona company. Neither GoDaddy nor Domains By Proxy would cough up the identity of the domain owner, so the court took in rem jurisdiction of the domain (after proper publication by the plaintiff) under the federal cybersquatting law. When the owner of the website still did not appear, the court granted default judgment and othered the website to be transferred to the plaintiff.

Benedict v. Google LLC, CV-23-02392-PHX-JJT, 2024 WL 3427161 (D. Ariz. July 16, 2024): This is a case where unfortunate facts met the reality of the law. The plaintiff is a musician who sells his works through online streaming services. He claims that some unknown stalker posted a series of doctored photos purporting to show him behind bars and labeling him “an international thief.” Worse, those posts showed up at the top of Google searches about him, leading him to emotional distress and bankruptcy. He sued Google over this—but there was nothing the courts could do. His main allegation was that by displaying these disparaging results along with his trademarked name, Google was engaging in trademark dilution. But “[p]laintiff has not alleged that Defendant did anything more than provide a search engine service that allows third parties to search using Plaintiff’s mark,” the court noted. There would be no relief here.

Conventus Orthopaedics Inc. v. Fusion Orthopedics USA LLC, CV-24-01773-PHX-DJH, 2024 WL 3618422 (D. Ariz. Aug. 1, 2024): This is a dispute between two companies in the orthotics market. Coventus alleged that two of its former employees violated noncompete agreements and misappropriated trade secrets when they went to work for competitor Fusion. Coventus sought a TRO but with no success. The noncompetes were unenforceable under the FTC’s new rule barring noncompetes as of September 4, 2024 and there was also little evidence they were actually breached in any event. (As a sidenote, the FTC rule has since been enjoined by a federal court in Texas and will likely never come into effect, but that has no bearing here.) As to the trade secrets claim, the court held, much of the information at issue had already been disclosed in a patent—and the mere evidence that one of the former employees forwarded information from his work email to his personal email, without more, was not enough to support the claim.

Colwell Consulting LLC v. Papageorge, 2:24-CV-01824-JCG, 2024 WL 3811677 (D. Ariz. Aug. 14, 2024) and Colwell Consulting v. Michael Papageorge et al., 2:24-CV-01824-JCG, 2024 WL 4249249 (D. Ariz. Sept. 20, 2024): This is a dispute between a thermal science consulting firm and one of its former employees. When the employee left, he set up a competing consulting company. The former employer sought a TRO and the court obliged. Not only did the former employer appear to have breached a non-solicitation agreement and a confidentiality agreement, the court noted, but he also misappropriated trade secrets—including “highly confidential client information, including work that had been done on specific matters, billing information, and client contact information.” But the court was not done with the former employee. A month later, he was back in court facing charges of civil contempt. The former employee argued that he had needed to continue servicing his current clients in order to not prejudice their interests. But the TRO had no carveout for such conduct, the court found. The former employee was held in contempt.

Xfinity Mobile v. Globalgurutech LLC, CV-22-01950-PHX-SMB, 2024 WL 3992707 (D. Ariz. Aug. 29, 2024): This is a long-running case between Xfinity and a company that it accuses of obtaining its phones unlawfully to be resold. Among the many claims that Xfinity brought was a trademark infringement claim. The claim alleged that in advertising the phones on its website and reselling them, the company unlawfully used Xfinity’s trademarked logo. In a 2023 opinion, the court found that this conduct was protected by the nominal fair use doctrine because the company used Xfinity’s logos next to those of other carriers such as AT&T, Verizon, and T-Mobile merely “to differentiate the carrier of origin” for the phones that the company would resell—not to suggest an endorsement. But now, a year later, the court admitted that it made a mistake. Under Ninth Circuit doctrine, the court noted, this kind of use could qualify as nominal fair use if only the name of the product was used—but not if the logo itself was used. To the extent that Xfinity alleged the unauthorized use of its mark on the company website, it would be allowed to proceed with this claim.

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