Memjet Technology Limited v. Vanguard Graphics International, LLC

• Court: District Court, S.D. California
• Decided: August 13, 2024
• Docket: 3:23-cv-01810
• Status: Unknown

Opinion

1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 SOUTHERN DISTRICT OF CALIFORNIA 8 MEMJET TECHNOLOGY LIMITED, an Case No.: 3:23-cv-01810-BEN-AHG Ireland limited liability company; 9 MEMJET US SERVICES, INC., a ORDER GRANTING-IN-PART AND 10 Delaware Corporation, DENYING-IN-PART DEFENDANTS’ MOTION TO DISMISS 11 Plaintiff,

12 v.

13 VANGUARD GRAPHICS

INTERNATIONAL, LLC, a Minnesota 14 limited liability company; PRINTWARE,

15 LLC, a Minnesota limited liability

company, 16 [ECF No. 6] Defendants. 17

18 Plaintiffs Memjet Technology Limited and Memjet U.S. Services, Inc. 19 (“Plaintiffs”) bring their complaint for false advertising, trade libel, unfair business 20 practices and interference with prospective economic relations against Defendants 21 Vanguard Graphics International, LLC (“Vanguard”) and Printware, LLC (“Printware”) 22 (collectively, “Defendants”). ECF No. 1 (“Compl.”). Before the Court is Defendants’ 23 motion to dismiss. ECF No. 6. Plaintiffs opposed the motion. ECF No. 7 (“Oppo.”). 24 Defendants submitted a reply. ECF No. 8 (“Reply”). The motion was submitted on the 25 papers without oral argument pursuant to Civil Local Rule 7.1(d)(1) and Rule 78(b) of 26 the Federal Rules of Civil Procedure. ECF No. 9. 27 28 1 For the reasons set forth below, the Court GRANTS-IN-PART and DENIES-IN- 2 PART Defendants’ motion to dismiss. 3 I. BACKGROUND1 4 Plaintiff Memjet Technology describes itself as a limited liability company based 5 in Ireland and the “registered owner of the trademarks at issue in this case.” ECF No. 1, 6 Compl. ¶ 2. Plaintiff Memjet U.S. is described as handling “all customer and supplier 7 relation services.” Id. ¶ 3. The complaint does not delineate the nature of Plaintiffs’ 8 businesses, though from later allegations and references made in the briefing, the Court 9 infers at least one of the Plaintiffs is a manufacturer of certain printer components. See 10 id. ¶¶ 9-11; Mot. at 1; Oppo. at 1, 12. Similarly, Defendant Vanguard is alleged to be a 11 holding company that “specializes in acquiring and managing companies in the graphic 12 arts industry.” Id. ¶ 4. Defendant Printware is alleged to be a wholly owned subsidiary 13 of Vanguard that “continuously supplies and services customers throughout the State of 14 California.” Id. ¶ 5. Again, the Court infers from later allegations and the briefing that at 15 least one Defendant manufactures printers. See id. ¶¶ 9-11; Mot. at 1. 16 Plaintiffs allege that on March 24, 2023, the Defendants sent a communication to 17 approximately twenty (20) business and individuals (the “Communication”). Id. ¶ 9. 18 This Communication contained a false statement that Memjet would no longer be 19 producing a “Duraflex print head…effective immediately.” Id. ¶ 10.2 The 20 Communication also included a comment that Defendants were “disappointed in 21 Memjet’s decision[,]” and would “provide even better options[,]” moving forward. 22 Compl. ¶ 10. The complaint alleges as a result of the Communication, Plaintiffs’ 23

24 25 1 For purposes of these motions, the Court assumes the facts pled in the complaint are true. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). 26 27 2 Although the complaint does not contain a description of the DuraFlex printer head, the parties describe it in the briefing as a “printer engine” which Defendants planned to use 28 1 customers have stopped ordering DuraFlex units and their associated components. Id. ¶ 2 11. 3 II. LEGAL STANDARD 4 Federal Rule of Civil Procedure 12(b)(6) permits dismissal for “failure to state a 5 claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). Dismissal under Rule 6 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or sufficient 7 facts to support a cognizable, plausible claim. See Balistreri v. Pacific Police Dep’t., 901 8 F.2d 696, 699 (9th Cir. 1990). A complaint may survive a motion to dismiss only if, 9 taking all well pled factual allegations as true, it contains enough facts to “state a claim to 10 relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A 11 motion to dismiss tests the “legal sufficiency” of the complaint. Ileto v. Glock Inc., 349 12 F.3d 1191, 1199-200 (9th Cir. 2003). Where a motion to dismiss is granted, leave to 13 amend should be liberally allowed “unless the court determines that the allegation of 14 other facts consistent with the challenged pleading could not possibly cure the 15 deficiency.” Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th 16 Cir. 1986). 17 III. DISCUSSION 18 Defendants challenge the factual sufficiency of all Plaintiffs’ claims. The parties’ 19 arguments are outlined below. 20 A. Lanham Act Claim 21 Plaintiffs’ first cause of action is for violation of the federal false advertising law, 22 15 U.S.C. § 1125(a) et seq (“Lanham Act”).3 Compl. ¶¶ 15-28. Section 1125(a) of the 23 Lanham Act “prohibits the use of false designations of origin, false descriptions, and 24

25 3 Although the Lanham Act is now codified under Section 1125(a), many courts still refer 26 to these claims as “Section 43(a)” claims. See, e.g., Dastar Corp. v. Twentieth Century 27 Fox Film Corp., 539 U.S. 23, 25 (2003); ALPO Petfoods, Inc. v. Ralston Purina Co., 913 F.2d 958, 960 (D.C. Cir. 1990) (“…have sued each other under section 43(a) of the 28 1 false representations in the advertising and sale of goods and services.” Seoul Laser 2 Dieboard System Co., Ltd. v. Serviform, S.r.l., 957 F.Supp.2d 1189, 1199 (S.D. Cal. 3 2013) (citation omitted). 4 A false association claim under section 1125(a)(1)(A) “makes actionable any 5 commercial representation that is likely to cause confusion as to the origin of goods.” 6 Seoul Laser, 957 F.Supp.2d at 1199 (quoting Baden Sports, Inc. v. Molten USA, Inc., 556 7 F.3d 1300, 1306 (Fed. Cir. 2009)). “Origin in this context refers to the producer of the 8 tangible goods that are offered for sale[.]” Seoul Laser, at 1199 (quoting Dastar Corp, 9 539 U.S. at 37). A false advertising claim under section 1125(a)(1)(B) requires the 10 plaintiff to plead: (1) defendant made a false statement either about the plaintiff’s or its 11 own product; (2) the statement was made in commercial advertisement or promotion; (3) 12 the statement actually deceived or had a tendency to deceive a substantial segment of its 13 audience; (4) the deception is material; (5) the defendant caused its false statement to 14 enter interstate commerce; and (6) the plaintiff has been or is likely to be injured as a 15 result, either by direct diversion of sales or by lessening of goodwill. Seoul Laser, at 16 1200 (quoting Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 829 (9th Cir. 17 2002)). 18 Here, the complaint’s allegations are too sparse for the Court to determine whether 19 the Plaintiff sufficiently pleads a cause of action under the Lanham Act. First, the 20 complaint does not set forth whether it seeks to make a false association claim under 21 section 1125(a)(1)(A) or a false advertisement claim under 1125(a)(1)(B). At least one 22 district court has found this ambiguity alone is grounds for dismissal. Seoul Laser, at 23 1199 (“It is not clear from the Complaint whether Plaintiff is asserting a ‘false 24 association’ claim under § 43(a)(1)(A) or a ‘false advertising’ claim under § 43(a)(1)(B). 25 This ambiguity alone raises fair notice concerns.”). 26 Second, the complaint wholly fails to allege the nature of either Plaintiffs’ or 27 Defendants’ businesses or provide sufficient detail regarding the Communication. 28 Without more, it cannot be determined whether the Communication appeared in a 1 commercial advertisement or promotion, or if the Communication commented on the 2 “nature, characteristics, qualities” of Plaintiffs’ goods or services.4 Because it appears 3 this claim could be cured by inclusion of additional information in the complaint, the 4 Court dismisses this claim without prejudice. 5 B. Trade Libel Claim 6 Plaintiffs’ second cause of action is for trade libel. See Compl. ¶¶ 29-37. 7 Although the definition of trade libel is somewhat amorphous under common law, the 8 California Supreme Court has described it as containing three important elements: (1) a 9 false or misleading statement; (2) which specifically refers to the plaintiff’s product or 10 business; and (3) clearly derogates that product or business. See Hartford Cas. Ins. Co. 11 v. Swift Distrib., Inc., 59 Cal.4th 277, 291-295 (2014). This can be achieved directly or 12 through “clear implication.” Hartford, 59 Cal.4th at 294. The court went on to explain 13 that, “[d]isparagement by reasonable implication required more than a statement that may 14 conceivably or plausibly be construed as derogatory to a specific product or business. A 15 reasonable implication in this context means a clear or necessary inference.” Id. at 295. 16 Defendants argue Plaintiffs fail to state a claim for trade libel because the 17 Communication does not disparage Plaintiffs’ product or services, either directly or by 18 “clear implication.” Mot. at 4-5. Plaintiffs argue that the Communication was 19 disparaging to its services and character as a business because, “[t]he implication of 20 Plaintiffs discontinuing a product in the print industry ‘effective immediately,’ without 21 providing adequate notice, alternative options, or strategic advice is that Plaintiffs are 22 23

24 25 4 Defendants attach a letter to their motion which appears to be the basis of Plaintiffs’ complaint. See ECF No. 6-2. Defendants did not make a request for judicial notice of 26 this document, and Plaintiffs did not object to (or even acknowledge) the letter in their 27 opposition. Given the parties’ silence, and the complaint’s bare bones allegations, the Court need not incorporate the letter into analysis of Plaintiffs’ claims at this time. 28 1 unreliable, non-transparent, and incapable of maintaining a product in the marketplace.” 2 Oppo. at 13. 3 In Hartford Casualty Ins. Co. v. Swift Distrib., Inc., the California Supreme Court 4 weighed in regarding disparagement by implication. 59 Cal.4th 277, 295 (2014). The 5 Hartford court noted, 6 “There is no question that Charlotte Russe’s discounted prices on People Liberation’s clothing specifically referred to People Liberation’s product. 7 But a mere reduction of price may suggest any number of business 8 motivations; it does not clearly indicate that the seller believes the product is of poor quality. Disparagement by ‘reasonable implication’ requires more 9 than a statement that may conceivably or plausibly be construed as 10 derogatory to a specific product or business. A ‘reasonable implication’ in this context means a clear or necessary inference.” 11

12 Hartford, 59 Cal.4th at 295 (internal citations omitted) (discussing Travelers Property 13 Casualty Co. of Am. v. Charlotte Russe Holding, Inc., 207 Cal.App.4th 969 (2012)). In 14 this case, the Court cannot find that Defendants’ statement about a product’s 15 discontinuance amounts to a “clear or necessary” inference derogating the Plaintiffs’ 16 businesses. The Court concludes this claim could also potentially be cured, and 17 dismisses this claim without prejudice. 18 C. Interference with Prospective Economic Relations 19 Plaintiffs’ third and fourth causes of action are for intentional and negligent 20 interference with prospective economic relations. See Compl. ¶¶ 38-54. To state a 21 claim for interference with prospective economic relations, a plaintiff must allege: 22 (1) existence of economic relationship between plaintiff and some third party with 23 a probability of future economic benefit; (2) defendant had knowledge of 24 relationship; (3) intentional or negligent acts on the part of the defendant designed 25 to disrupt the relationship; (4) actual disruption of the relationship; (5) economic 26 harm to plaintiff proximately caused by the acts of the defendant. Pardi v. Kaiser 27 Found. Hosp., 389 F.3d 840, 852 (9th Cir. 2005) (quoting Korea Supply Co. v. 28 Lockheed Martin Corp., 29 Cal.4th 1134, 1153 (2003)). 1 Defendants argue the complaint does not sufficiently describe the 2 relationships that were allegedly disrupted by the Communication. Mot. at 9. 3 Plaintiffs argue they are not required, at the pleading stage, to “identify the third 4 party (customers) by first name or otherwise.” Oppo. at 14. Defendants are 5 correct that failure to identify a prospective economic relationship with a specific 6 third party is grounds for dismissal. See Seoul Laser, 957 F.Supp.2d at 1201 7 (“Plaintiff fails to allege that it was likely to receive an economic benefit from a 8 specific third party, and it fails to identify a specific opportunity lost.”); see also 9 Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137, 1151 (9th Cir. 2008) 10 (dismissing similar allegation of disruption of relationship with “customers” as 11 conclusory in the absence of facts relating to any actual disruption). 12 However, the concern in Seoul Laser and Sybersound was focused on the 13 principle that this claim cannot rest on a mere allegation that a plaintiff lost 14 customers with whom it yet did not have any contracts or relationships. In those 15 contexts, “lost customers” referred to the marketplace of potential, hypothetical 16 customers. Here, however, the complaint alleges a specific relationship with at 17 least one customer which was disrupted: “At least one customer ordered 18 approximately 50 less DuraFlex units…” Compl. ¶ 14. Additionally, the 19 complaint alleges more than one of Plaintiffs’ customers “stopped order[ing] 20 DuraFlex units and their associated components.” Id. ¶ 11. The Court finds at the 21 pleading stage, this is sufficient. 22 D. California’s Unfair Competition Law (“UCL”) 23 Plaintiffs’ fifth cause of action is for violation of California’s UCL. See id. ¶¶ 55- 24 57. California’s Unfair Competition Law (“UCL”) prohibits any unlawful, unfair, or 25 fraudulent business acts that are deceptive, untrue, or misleading. See Cal. Bus. & Prof. 26 Code § 17200. Unfair competition is defined very broadly to include “anything that can 27 properly be called a business practice and that at the same time is forbidden by law.” 28 Chabner v. United of Omaha Life Ins. Co., 225 F.3d 1042, 1048 (9th Cir. 2000). Each 1 prong of the UCL provides a separate and distinct theory of liability and independent 2 basis for relief. Kearns v. Ford Motor Co., 567 F.3d 1120, 1127 (9th Cir. 2009). 3 Defendants argue Plaintiffs’ UCL claim fails because they would not be 4 entitled to any of the relief available under the statute (restitution or injunctive 5 relief). Mot. at 6. Defendants argue Plaintiffs’ have failed to state a claim because 6 they do not allege Defendants have obtained any money from Plaintiffs which 7 would qualify for restitution, nor do they allege any of the type of on-going 8 behavior that would warrant injunctive relief. Mot. at 6. 9 Plaintiffs first argue they have adequately alleged a need for restitution 10 because they “had a vested ownership interest in the money they provided to third 11 parties for corrective advertising.” Oppo. at 17 (emphasis added). However, while 12 this statement implies Plaintiffs have already paid for corrective advertising, this 13 does not match allegations in the complaint. The complaint states, “Memjet 14 estimates that corrective advertising will cost approximately $100,000.” Compl. ¶ 15 14 (emphasis added). According to the complaint, Plaintiffs have not yet spent this 16 money. 17 Second, Plaintiffs argue they have adequately alleged entitlement to an injunction 18 because the complaint sufficiently alleges that, “unless enjoined, Plaintiffs will continue 19 to be harmed by Defendants’ unlawful conduct.” Oppo. at 18 (citing Compl. ¶ 57). The 20 cited paragraph in the complaint states, “Plaintiff is entitled to an injunction prohibiting 21 Defendants from continuing the practices described above…” Compl. ¶ 57. Yet, the 22 basis of the complaint is a single incident occurring in March of 2023, and it is unclear 23 how this conduct would be “on-going” or how an injunction would “prevent future 24 harms[.]” Aside from Plaintiffs’ dubious entitlement to the statute’s sole remedies, the 25 Court notes the complaint’s averments related to the UCL claim are terminally vague. 26 They do not identify which prong of the UCL the Plaintiffs seek to invoke, or identify 27 what conduct would align with any of the three distinct prongs. Accordingly, the Court 28 dismisses this claim without prejudice. I IV. CONCLUSION 2 For the reasons set forth above, the Court GRANTS-IN-PART Defendants’ 3 || motion to dismiss as follows: 4 1. Defendants’ motion to dismiss Plaintiffs’ first cause of action for violation of 5 ||the Lanham Act is GRATNED without prejudice. 6 2. Defendants’ motion to dismiss Plaintiffs’ second cause of action for trade libel is 7 || GRANTED without prejudice. 8 3. Defendants’ motion to dismiss Plaintiffs’ third cause of action for intentional 9 || interference with prospective economic relations is DENIED. 10 4. Defendants’ motion to dismiss Plaintiffs’ fourth cause of action for negligent 11 |/interference with prospective economic relations is DENIED. 12 5. Defendants’ motion to dismiss Plaintiffs’ fifth cause of action for violation of 13 || California’s UCL is GRANTED without prejudice. 14 6. Defendants’ motion to dismiss Plaintiffs’ sixth cause of action for Accounting 15 |}is GRANTED without prejudice. 16 Plaintiff shall have twenty-one (21) days from the date of this order to file an 17 ||amended complaint curing the deficiencies noted herein. 18 IT IS SO ORDERED. . 19 Dated: August 12, 2024 20 (gjatiet T. SENT, EZ United States District Judge

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