Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_11-cv-01895/USCOURTS-azd-2_11-cv-01895-0/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 28:1338 Trademark Infringement

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WO

 

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

MARKET STUDIES, LLC, 

Plaintiff, 

v.

TECHNICAL ANALYSIS, INC., 

Defendant.

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CV-11-1895-PHX-JAT

ORDER

Pending before the Court are Defendant’s Motion for Judgment on the Pleadings

(Doc. 18) and Plaintiff’s Motion for Leave to File Amended Complaint (Doc. 28). The Court

now rules on both Motions.

I. BACKGROUND

Plaintiff Market Studies, LLC (“MS”) provides financial research, information,

education, and consulting services based on its analysis and compilation of data to measure

the performance of certain financial markets. MS also provides subscription services, both

directly and through licensees, and publishes and distributes materials pertaining to the

DeMark Indicators, a suite of tools created by Thomas Demark, the founder and CEO of MS.

MS’s customers, which include traders and investors, rely on the Indicators to help them

make predictions about the markets and identify market trends. Additionally, MS owns

federal trademark rights in the trademarks DEMARK INDICATORS, SEQUENTIAL,

SETUP, and COUNTDOWN with respect to the relevant classes for financial services,

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publication, and education. MS also owns the copyright to DeMark on Day Trading Options,

a book about the Indicators and market timing.

Defendant Technical Analysis, Inc. (“TA”) publishes Technical Analysis of Stocks &

Commodities, a monthly magazine, in print and on its website. TA’s publications include

both written articles and computer software code related to financial market analysis. In the

September 2011 issue of Technical Analysis of Stocks & Commodities, TA published an

article entitled “TD Sequential and Ermanometry for Intraday Traders.” The article included

multiple references to Mr. DeMark and the Demark Indicators and multiple uses of terms and

phrases that are similar or identical to MS’s registered trademarks. TA also published

downloadable software code related to the DeMark Indicators that also used such terms and

phrases. TA has no licenses to the Indicators or to MS’s trademarks. 

 In response to the published article and code, MS filed a complaint on September 26,

2011, alleging copyright infringement, trademark infringement, unfair competition, and

unjust enrichment. TA filed a motion for judgment on the pleadings on December 9, 2011.

Subsequently, MS filed a motion for leave to amend its complaint on January 12, 2012. In

amending its complaint, MS has dropped its copyright claims and added a claim for

intentional interference with a business relationship, among other amendments. The Court

will first consider Plaintiff MS’s motion for leave to file its amended complaint.

II. ANALYSIS

Rule 15(a) provides in pertinent part:

A party may amend its pleading once as a matter of course within: 21 days

after serving it, or if the pleading is one to which a responsive pleading is

required, 21 days after service of a responsive pleading or 21 days after service

of a motion under Rule 12(b), (e), or (f), whichever is earlier. In all other

cases, a party may amend its pleading only with the opposing party’s written

consent or the court’s leave. The court should freely give leave when justice

so requires.

Fed. R. Civ. P. 15(a) (emphasis added). Although the decision to grant or deny a motion to

amend is within the discretion of the district court, “Rule 15(a) declares that leave to amend

‘shall be freely given when justice so requires’; this mandate is to be heeded.” Foman v.

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Davis, 371 U.S. 178, 182 (1962) (citation omitted). “In exercising its discretion[,] . . .

‘a court must be guided by the underlying purpose of Rule 15—to facilitate decision on the

merits rather than on the pleadings or technicalities.’ . . . Thus, ‘Rule 15’s policy of favoring

amendments to pleadings should be applied with extreme liberality.’” Eldridge v. Block,

832 F.2d 1132, 1135 (9th Cir. 1987) (citations omitted). “This liberality . . . is not dependent

on whether the amendment will add causes of action or parties.” DCD Programs, Ltd. v.

Leighton, 833 F.2d 183, 186 (9th Cir. 1987).

However, the liberal policy in favor of amendments is subject to limitations. After

the defendant files a responsive pleading, leave to amend may be denied if the “amendment

would cause prejudice to the opposing party, is sought in bad faith, is futile, or creates undue

delay.” Madeja v. Olympic Packers, LLC, 310 F.3d 628, 636 (9th Cir. 2002) (quoting

Yakama Indian Nation v. Wash. Dep’t of Revenue, 176 F.3d 1241, 1246 (9th Cir. 1999)).

“Generally, this determination should be performed with all inferences in favor of granting

the motion.” Griggs v. Pace Am. Grp., Inc., 170 F.3d 877, 880 (9th Cir. 1999) (citing DCD

Programs, 833 F.2d at 186). Significantly, “[t]he party opposing amendment bears the

burden of showing prejudice,” futility, or one of the other permissible reasons for denying

a motion to amend. DCD Programs, 833 F.2d at 187; see Richardson v. United States,

841 F.2d 993, 999 (9th Cir. 1988) (stating that leave to amend should be freely given unless

opposing party makes “an affirmative showing of either prejudice or bad faith”).

Regarding the futility of amendments to add claims, “[a] district court does not err in

denying leave to amend where the amendment would be futile . . . or would be subject to

dismissal.” Saul v. United States, 928 F.2d 829, 843 (9th Cir. 1991) (citations omitted);

see Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988) (“A motion for leave to

amend may be denied if it appears to be futile or legally insufficient.”) (citation omitted).

A motion for leave to amend is futile if it can be defeated on a motion for summary

judgment. Gabrielson v. Montgomery Ward & Co., 785 F.2d 762, 766 (9th Cir. 1986).

“However, a proposed amendment is futile only if no set of facts can be proved under the

amendment to the pleadings that would constitute a valid and sufficient claim or defense.”

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 1Defendant also argues that estoppel bars Plaintiff from asserting that Defendant’s

published code represents incomplete and inaccurate versions of Plaintiff’s Indicator

formulas because, in its opposition to Defendant’s motion, Plaintiff stated that “TA

infringed MS’s copyright by publishing software code that recites the exact steps of the

DeMark Indicator compilations.” (Doc. 29, at 14) (emphasis added). The Court finds

that Plaintiff’s assertions are not sufficiently contradictory to rise to the level of estoppel,

and further, Plaintiff’s original statement related to its copyright claims, which Plaintiff

has removed from its amended complaint. Thus, Defendant’s argument is unavailing.

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Miller, 845 F.2d at 214; see Foman, 371 U.S. at 182 (stating that “[i]f the underlying facts

or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be

afforded an opportunity to test his claim on the merits”); DCD Programs, 833 F.2d at 186

(stating that “a motion to make an ‘[a]mendment is to be liberally granted where from the

underlying facts or circumstances, the plaintiff may be able to state a claim’”)

(quoting McCartin v. Norton, 674 F.2d 1317, 1321 (9th Cir. 1982)).

 Here, Defendant has opposed Plaintiff’s motion to amend only on the grounds that

Plaintiff’s amendments to its complaint are futile. Particularly, Defendant argues that, even

with the new amendments, Plaintiff’s complaint fails to state a claim because the nominative

fair use doctrine applies and protects any use by Defendant of Plaintiff’s marks. With respect

to Plaintiff’s state law unfair competition, unjust enrichment, and intentional interference

with a business relationship claims, Defendant again argues that nominative fair use bars all

three claims, in addition to arguing that federal patent law preempts Plaintiff’s unjust

enrichment claim and that Plaintiff has not sufficiently alleged the required element of

improper motive with respect to its intentional interference claim.1

 Thus, in Defendant’s

view, Plaintiff’s amendments are futile because all of its amended claims are subject to

dismissal.

To successfully raise a nominative fair use defense to a trademark infringement claim,

the alleged infringer of a mark must establish (1) the product or service in question is not

readily identifiable without use of the trademark; (2) only so much of the mark or marks as

is reasonably necessary to identify the product or service is used; and (3) the user does

nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the

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trademark holder. New Kids on the Block v. News Am. Publ’g, Inc., 971 F.2d 302, 308 (9th

Cir. 1991). Further, this test replaces the traditional test for likelihood of confusion only

when a defendant’s use of the mark refers to the trademarked good itself. Toyota Motor

Sales, USA, Inc. v. Tabari, 610 F.3d 1171, 1175 (9th Cir. 2010). Moreover, because of its

factual nature, fair use analysis is generally considered to be premature at the pleadings stage.

See, e.g., Autodesk, Inc. v. Dassault Systemes Solidworks Corp., No. C 08-04397 WHA, 2008

WL 6742224, at *4-5 (N.D. Cal. Dec. 18, 2008); powerlineman.com, LLC v. Kackson, No.

CIV. S-07-879 LKK/EFB, 2007 WL 3479562, at *4 (E.D. Cal. Nov. 15, 2007).

Here, Defendant has not established that Defendant’s use of Plaintiff’s marks

constitutes nominative fair use as a matter of law. Significantly, the Court finds that a

question of fact exists as to whether Defendant’s use of the mark referred only to Plaintiff’s

products. Defendant’s article and published code, which Plaintiff attached to its complaint,

use Plaintiff’s marks extensively. Though some of these uses clearly function to identify

Plaintiff’s “Indicators,” questions of fact exist as to whether other uses, particularly with

respect to the published code, do not. Hence, Defendant has not shown that it can

exclusively rely on a nominative fair use defense, and accordingly, several fact issues remain

as to whether Plaintiff can establish infringement under the traditional likelihood of

confusion test. It is clear to the Court, however, that Plaintiff has properly stated its claims

for infringement based on likelihood of confusion. 

Furthermore, even if Defendant’s use of Plaintiff’s marks was solely to identify

Plaintiff’s products, additional issues of material fact exist with respect to application of the

Ninth Circuit’s test from New Kids. In particular, questions of fact exist at least with regard

to whether Defendant’s multiple uses of Plaintiff’s marks were reasonably necessary and

whether Defendant’s use of Plaintiff’s marks suggest any sponsorship or endorsement by

Plaintiff. Thus, Defendant has failed to establish that application of the nominative fair use

doctrine renders Plaintiff’s amended trademark infringement claims futile. Similarly, to the

extent that Defendant relies on nominative fair use to establish the futility of Plaintiff’s

amended state law claims, Defendant has not succeeded.

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Defendant’s additional arguments with respect to the adequacy of Plaintiff’s state law

claims are also unavailing. First, the Court does not find that federal patent law preempts

Plaintiff’s unjust enrichment claim. In its amended complaint, Plaintiff alleges that “[b]y

utilizing [Plaintiff’s] intangible property, including the content of and goodwill associated

with the ‘DeMark Indicators’ tools, [Defendant] has benefitted in the financial services

market at the expense of [Plaintiff] and diverted and will continue to divert substantial profits

from [Plaintiff].” (Doc. 28, Ex. A, at ¶ 46). Defendant is correct that to the extent the

“content” of the tools refers to intellectual property that could be afforded protection under

the federal patent laws, those laws preempt Plaintiff’s claims. See G.S. Rasmussen &

Assocs., Inc. v. Kalitta Flying Serv., Inc., 958 F.2d 896, 904-05 (9th Cir. 1992). However,

Plaintiff also alleges that Defendant utilized Plaintiff’s “goodwill,” which could not be

afforded patent protection, and moreover, questions of material fact exist as to what exactly

is encompassed by the “content and goodwill” of Plaintiff’s tools.

Additionally, the Court finds that Plaintiff has sufficiently pled its claim for

intentional interference with a business relationship. Under Arizona law, the elements of this

claim require “the existence of a valid contractual relationship or business expectancy; the

interferer’s knowledge of the relationship or expectancy; intentional interference inducing

or causing a breach or termination of the relationship or expectancy; and resultant damage

to the party whose relationship or expectancy has been disrupted.” Miller v. Hehlen, 104

P.3d 193, 202 (Ariz. Ct. App. 2005). Furthermore, “[t]he interference must be improper

before liability will attach. And, a competitor does not act improperly if his purpose at least

in part is to advance his own economic interests.” Id. (internal quotations and citations

omitted). Relying on Miller, Defendant argues that Plaintiff has not properly alleged that

Defendant was “motivated solely to injure Plaintiff’s business.” (Doc. 33, at 7). 

In its amended complaint, Plaintiff alleges that Defendant “intentionally interfered

with [Plaintiff’s] business expectancies by publishing the Trader’s Tips knowing the

publication contained inaccurate and misleading representations of the DeMark Indicators.”

(Doc. 28, Ex. A, at ¶ 52). The Court finds that this statement sufficiently alleges that

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Defendant improperly interfered with Plaintiff’s business expectancy. Taking the alleged

facts to be true and construing them in a light most favorable to Plaintiff, it is enough that

Defendant knowingly published inaccurate and misleading representations of the Indicators

to attribute an improper motive to the Defendant, including the absence of any intent to

advance its own economic interests.

In sum, the Court finds that Defendant has failed to show that Plaintiff’s amendments

to its complaint are futile. Therefore, Plaintiff’s motion to amend is GRANTED, and

Defendant’s motion for Judgment on the Pleadings is DENIED as moot.

III. CONCLUSION

Accordingly,

IT IS ORDERED denying Defendant’s Motion for Judgment on the Pleadings (Doc.

18).

IT IS FURTHER ORDERED granting Plaintiff’s Motion For Leave to File

Amended Complaint (Doc. 28). Plaintiff shall file its Amended Complaint within 14 days

of this Order. 

DATED this 28th day of March, 2012.

 

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