Secret of the Islands, Inc. v. Hymans Seafood Company, Inc.,
2019 WL 917209, No. 2:17-cv-342-BHH (D.S.C. Feb. 25, 2019)
2019 WL 917209, No. 2:17-cv-342-BHH (D.S.C. Feb. 25, 2019)
SOTI sells salt scrubs and other body products; salt scrubs can
be used as hand soap, but also exfoliate and moisturize. Hymans sells salt
scrub and skin care products as Holy City Skin Care. Hymans initially displayed
SOTI restroom samples in its Charleston, South Carolina restaurant and sold
SOTI salt scrubs in its attached gift shop. After two years generating $100,000
in retail revenue from SOTI products, Hymans allegedly started relabeling SOTI
products in its gift shop, and SOTI terminated the relationship. After that, Hymans allegedly “misappropriated
SOTI’s brand-value and goodwill by employing restroom-sample displays materially
indistinguishable from SOTI displays, employing the same distinctive slogans
that SOTI created to market its products to the hospitality industry, and
duplicating SOTI’s distinctive packaging.” In July 2012, a SOTI manager
informed Hyman’s marketing partner that Holy City’s products infringed on its
rights.
be used as hand soap, but also exfoliate and moisturize. Hymans sells salt
scrub and skin care products as Holy City Skin Care. Hymans initially displayed
SOTI restroom samples in its Charleston, South Carolina restaurant and sold
SOTI salt scrubs in its attached gift shop. After two years generating $100,000
in retail revenue from SOTI products, Hymans allegedly started relabeling SOTI
products in its gift shop, and SOTI terminated the relationship. After that, Hymans allegedly “misappropriated
SOTI’s brand-value and goodwill by employing restroom-sample displays materially
indistinguishable from SOTI displays, employing the same distinctive slogans
that SOTI created to market its products to the hospitality industry, and
duplicating SOTI’s distinctive packaging.” In July 2012, a SOTI manager
informed Hyman’s marketing partner that Holy City’s products infringed on its
rights.
The court first found that SOTI pled itself out of court on
laches/statute of limitations issues.
laches/statute of limitations issues.
The complaint clearly indicated that SOTI knew of the
alleged infringement in 2011, when it terminated its relationship with Hymans,
and then again in 2012. But SOTI didn’t file suit until 2017, well outside the
three-year limitations period applicable to the South Carolina claims. The
statutory unfair trade practices claim failed also because it didn’t allege
sufficient facts to show an adverse impact on the public interest, as required.
Claims of public confusion and deception weren’t enough to transform an
“essentially private” business dispute into a matter that could cause
“substantial injury to consumers.” There was no allegation that the Holy City
scrubs were dangerous, or financially more costly to consumers. Diversion of consumers and revenue, along
with misappropriation of goodwill, were mere private wrongs.
alleged infringement in 2011, when it terminated its relationship with Hymans,
and then again in 2012. But SOTI didn’t file suit until 2017, well outside the
three-year limitations period applicable to the South Carolina claims. The
statutory unfair trade practices claim failed also because it didn’t allege
sufficient facts to show an adverse impact on the public interest, as required.
Claims of public confusion and deception weren’t enough to transform an
“essentially private” business dispute into a matter that could cause
“substantial injury to consumers.” There was no allegation that the Holy City
scrubs were dangerous, or financially more costly to consumers. Diversion of consumers and revenue, along
with misappropriation of goodwill, were mere private wrongs.
The Lanham Act borrows state law statutes of limitation for
measuring laches in the first instance.
Laches requires unreasonable delay by the plaintiff plus harm to the
defendant from the delay. Here, there
was a nearly five-year delay between the latest point at which SOTI knew of
Holy City’s allegedly infringing products and marketing practices, and the
filing of suit. Not only was there a
presumption of unreasonable delay given the timing, but the complaint also pled
events that established unjustifiable delay, given the prior relationship
between the parties. Even if it was
reasonable not to sue when the relationship terminated, “it must have set off
alarm bells for SOTI when, in July 2012, it subsequently discovered that a
major corporate entity in the hospitality industry, U.S. Foods, was
distributing Hymans’ now fully-branded competing product line—Holy City Skin
Care—in notably similar mason-jar packaging.” Instead, SOTI waited to sue until
“Holy City’s product line and business were successfully established. The Court
finds that this delay was unreasonable, and would have the perverse effect of
dramatically multiplying the damages to which SOTI might be entitled if the
Lanham Act claims were permitted to proceed, damages which could have been
easily mitigated if SOTI brought its claims when it knew they were ripe.”
measuring laches in the first instance.
Laches requires unreasonable delay by the plaintiff plus harm to the
defendant from the delay. Here, there
was a nearly five-year delay between the latest point at which SOTI knew of
Holy City’s allegedly infringing products and marketing practices, and the
filing of suit. Not only was there a
presumption of unreasonable delay given the timing, but the complaint also pled
events that established unjustifiable delay, given the prior relationship
between the parties. Even if it was
reasonable not to sue when the relationship terminated, “it must have set off
alarm bells for SOTI when, in July 2012, it subsequently discovered that a
major corporate entity in the hospitality industry, U.S. Foods, was
distributing Hymans’ now fully-branded competing product line—Holy City Skin
Care—in notably similar mason-jar packaging.” Instead, SOTI waited to sue until
“Holy City’s product line and business were successfully established. The Court
finds that this delay was unreasonable, and would have the perverse effect of
dramatically multiplying the damages to which SOTI might be entitled if the
Lanham Act claims were permitted to proceed, damages which could have been
easily mitigated if SOTI brought its claims when it knew they were ripe.”
Prejudice to defendants was thus also shown by the
allegations of the complaint: “Plaintiff … avers that by building a business
model dependent upon SOTI’s trade dress and trademarks, Defendants have
successfully supplanted hundreds of sales accounts, and diverted millions of
dollars in revenue. Thus, the amended complaint demonstrates that Defendants,
relying upon SOTI’s inaction, built a valuable business over the course of
approximately six years, a venture that axiomatically required the commitment
of substantial economic resources.” This was the rare case where no factfinding
beyond that alleged in the complaint was required for laches.
allegations of the complaint: “Plaintiff … avers that by building a business
model dependent upon SOTI’s trade dress and trademarks, Defendants have
successfully supplanted hundreds of sales accounts, and diverted millions of
dollars in revenue. Thus, the amended complaint demonstrates that Defendants,
relying upon SOTI’s inaction, built a valuable business over the course of
approximately six years, a venture that axiomatically required the commitment
of substantial economic resources.” This was the rare case where no factfinding
beyond that alleged in the complaint was required for laches.
Regardless, the Lanham Act claims were also substantively deficient. “The closest that SOTI comes to stating a plausible claim to relief
based upon misappropriation of its intellectual property is its reverse passing
off theory, where it alleges that Hymans, in 2011, took some amount of SOTI’s
sample salt scrub product and placed it in jars with a different label for sale
in the Hymans General Store.” But that claim was time-barred.
based upon misappropriation of its intellectual property is its reverse passing
off theory, where it alleges that Hymans, in 2011, took some amount of SOTI’s
sample salt scrub product and placed it in jars with a different label for sale
in the Hymans General Store.” But that claim was time-barred.
Instead, the core of SOTI’s
Lanham Act claims was that its marketing system of “providing salt scrub
samples in hospitality business restrooms with signs encouraging users to
purchase retail product in attached shops, its marketing slogans such as ‘Turn
your restroom into a profit center,’ and its packaging the product in mason
jars with an attached wooden spoon affixed by an elastic tie around the neck of
the jar” was protectable. But beyond
conclusory allegations, SOTI failed to allege that its marketing system,
marketing slogans, and mason-jar packaging “were anything other than generic,
functional sales modalities.”
Lanham Act claims was that its marketing system of “providing salt scrub
samples in hospitality business restrooms with signs encouraging users to
purchase retail product in attached shops, its marketing slogans such as ‘Turn
your restroom into a profit center,’ and its packaging the product in mason
jars with an attached wooden spoon affixed by an elastic tie around the neck of
the jar” was protectable. But beyond
conclusory allegations, SOTI failed to allege that its marketing system,
marketing slogans, and mason-jar packaging “were anything other than generic,
functional sales modalities.”
SOTI argued that Belmora
didn’t require it to possess a protectable mark to proceed under §43(a), but Belmora “does not support the kind of
open-ended unfair competition claims that SOTI suggests are permissible under
Section 43(a).” Instead, Belmora
allowed the owner of a foreign mark to proceed against a US user; it didn’t “open
the door to ‘boundless application [of Section 43(a) ] as a remedy for unfair
trade practices.’”
didn’t require it to possess a protectable mark to proceed under §43(a), but Belmora “does not support the kind of
open-ended unfair competition claims that SOTI suggests are permissible under
Section 43(a).” Instead, Belmora
allowed the owner of a foreign mark to proceed against a US user; it didn’t “open
the door to ‘boundless application [of Section 43(a) ] as a remedy for unfair
trade practices.’”
SOTI’s false advertising claim was premised on the fact that
Holy City labels its salt scrub jars with a gross weight of 780 grams, whereas
SOTI labels its packing using the net weight of the salt scrub itself, which is
455 grams. SOTI alleged that South Carolina’s Uniform Weights and Measures Law and
implementing regulations to the federal Food, Drug, and Cosmetic Act require
that consumer packing must state the net quantity of contents within a
packaging container. But there was no showing that 780 grams was not the gross
weight, and there was no private right of action to enforce the laws SOTI
cited.
Holy City labels its salt scrub jars with a gross weight of 780 grams, whereas
SOTI labels its packing using the net weight of the salt scrub itself, which is
455 grams. SOTI alleged that South Carolina’s Uniform Weights and Measures Law and
implementing regulations to the federal Food, Drug, and Cosmetic Act require
that consumer packing must state the net quantity of contents within a
packaging container. But there was no showing that 780 grams was not the gross
weight, and there was no private right of action to enforce the laws SOTI
cited.
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Rebecca Tushnet 