Trademark Infringement Suit Against Former Licensee of Dietary Supplements Proceeds

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By Tamlin H. Bason  

 

A former licensee of a company that manufactures dietary supplements is not entitled to summary judgment on claims that it allegedly shipped counterfeit supplements to the Islamic Republic of Iran, the U.S. District Court for the Central District of California ruled May 30 (Zosma Ventures Inc. v. Nazari, C.D. Cal., No. 2:12-cv-01404-RSWL-FFM, 5/30/13).

There are genuine issues of material fact as to whether the former licensee continued to use in commerce marks that were confusingly similar to the plaintiff's registered marks even after it stopped making payments under the licensing agreement, the court said.

There are also genuine issues of material fact as to the contributory liability of the other defendants, the court said. One of those defendants allegedly labeled the products “Made in the USA” despite having itself manufactured the products in Canada.

The court also declined to grant an international shipping service summary judgment. That refusal, however, was due to a technical error in that defendant's affidavit in support of its motion.

Allegedly Counterfeit Supplements Sold in Iran

Zosma Ventures Inc. sells, through its California subsidiary Formulated Sciences Inc., dietary and nutritional supplements. A variety of products, including fish oil supplements, are sold under a number of Formulated Sciences trademarks.

Between 2003 and 2008, Mojdeh Nazari d/b/a Parsmed Trading had an exclusive license to use the Formulated Sciences marks to sell dietary supplements in the Middle East. However, Nazari stopped communicating with Formulated Sciences in 2008. She subsequently discontinued her right to use the subject marks.

Zosma claims that in 2010 it learned that counterfeit fish oil products were being sold in Iran. The products were allegedly branded “FormAlated Sciences.”

Zosma filed a lawsuit against Nazari. The complaint included claims of trademark infringement, counterfeiting, and unfair competition and false designation under the Lanham Trademark Act of 1946. The complaint also asserted equivalent state law claims.

Also named as defendants were Viva Pharmaceutical Inc., the Canadian firm alleged to have manufactured the supplements, and America Exports Lines Inc., the company that allegedly shipped the supplements to Iran. The defendants moved for summary judgment.

Sufficient Evidence for Lanham Act Claims

The defendants argued Zosma lacked sufficient evidence to support its Lanham Act claims. Specifically, the defendants argued that Zosma failed to show that the allegedly infringing marks were used in commerce--a threshold showing for a claim of trademark infringement under Section 32 of the Lanham Act, 15 U.S.C. §1114.

Zosma alleged that the supplements were manufactured and labeled in Canada, not the United States, the defendants noted. Moreover, the allegedly counterfeit products were sold in Iran, and thus the defendants argued that there is insufficient domestic commercial activity to satisfy the use in commerce requirement.

The court, however, said the record supported an inference that the marks were used in commerce, at least at this stage in the litigation. Judge Ronald S. W. Lew noted there were factual disputes with regards “to whether Defendant Nazari (1) used Plaintiff's marks to advertise Defendants' goods online, (2) used Plaintiff's marks on the packaging of fish oils, and (3) shipped counterfeiting fish oils to Iran from the United States.”

There is also evidence that Viva may have applied “Made in the USA” labels to the product. As the manufacturer of the products, Viva would have known that they were in fact manufactured in Canada, and thus such allegations raise a genuine issue of direct infringement against Viva, the court said. Viva's alleged mislabeling of the source of the products also raises genuine issues of material fact as to its contributory liability, the court said.

Moreover, the shipping company, AEL, is also not entitled to summary judgment on the current record, the court said. In its motion for summary judgment, AEL included an affidavit by an employee who stated that it was company policy to not check the name of the product being shipped. However, the affidavit failed to explain the affiant's position within the company, and thus the court said it was unable to determine if he was competent to testify on the matters contained in the affidavit.

Extraterritorial Argument Fails

The defendants also objected to the court's extraterritorial application of the Lanham Act. The court noted, however, that the complaint alleges that some of the infringing activities took place in the United States. Accordingly, the court said it had jurisdiction over those domestic activities.

Furthermore, jurisdiction is also appropriate under the three-part test used to determine the extraterritorial reach of the Lanham Act, the court said. Quoting Love v. Sanctuary Records Group Ltd., 611 F.3d 601, 95 U.S.P.Q.2d 1855 (9th Cir. 2010), the court said that for the Lanham Act to apply extraterritorially:  

(1) the alleged violations must create some effect on American foreign commerce; (2) the effect must be sufficiently great to present a cognizable injury; and (3) the interest of and links to American foreign commerce must be sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.  

 

 

In this case, even if the goods were manufactured abroad they still potentially had a detrimental effect on a U.S. business, the court said. Moreover, Nazari allegedly lives in California, and Zosma alleges that the other two defendants “direct their activities at the United States by transporting infringing goods to and from the United States,” the court said.

The second element is met by Zosma's allegations that prior to Nazari's sale of counterfeit products she sold legitimate Zosma products. Thus, the alleged infringement constituted a direct loss of sales for Zosma, the court said.

The third element requires a court to balance seven separate factors to assess whether another county has a strong interest in the proceeding. In this case, two of the three defendants are located in the United States and the third defendant, Viva, does business in the United States. Thus, the third element weighs in favor of extraterritorial application of the Lanham Act, the court said. It accordingly denied the defendants' motion for summary judgment.

Zosma was represented by Khodadad Darius Sharif, San Diego. The defendants were represented by Reza Sina, Los Angeles.

 


Text is available at http://www.bloomberglaw.com/public/document/Zosma_Ventures_Inc_v_Mojdeh_Amini_Nazari_et_al_Docket_No_212cv014/1.