Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_14-cv-01938/USCOURTS-casd-3_14-cv-01938-0/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1125 Trademark Infringement (Lanham Act)

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

GUNNAR OPTIKS, LLC, a

California limited liability

corporation,

 

Plaintiff,

vs.

MAD PANDA, LLC, a North

Carolina limited liability

corporation,

 

 Defendant.

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Case No.: 3:14-cv-1938 BTM (KSC)

ORDER GRANTING IN PART

MOTION TO DISMISS, STAY OR

TRANSFER

On October 14, 2014, Defendant Mad Panda, LLC filed a Motion to

Dismiss, Stay or Transfer Plaintiff Gunnar Optiks, LLC’s Complaint to the

Eastern District of North Carolina, where a parallel action is pending between

these parties. For the reasons outlined below, the motion is GRANTED in

part, and the matter is STAYED pursuant to the first-to-file rule.

I. BACKGROUND

The matter arises out of Gunnar’s allegations that Mad Panda violated its

trademark and patent rights in the “Scope” line of video-gamming and

computer eyewear by marketing and selling a competing product called

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“NoScope.” Gunnar’s counsel sent a three-page cease and desist letter to

Mad Panda on August 6, 2014 (“letter,” Dkt. No. 16-2) outlining the basis of

its potential trademark and patent infringement claims, demanding that Mad

Panda take certain actions necessary to any settlement, and directing it to

respond within 10 days. Instead of responding, Mad Panda filed an action in

the Eastern District of North Carolina, Mad Panda, LLC v. Gunnar Optiks,

LLC, Case No. 5:14-cv-00470-F, on August 18, 2014 (“North Carolina action”)

requesting a declaration of non-infringement under federal and state law for

use of Gunnar’s “NoScope” trademark, the term “Gunnar” in comparative

advertising and for the manufacture and sale of computer glasses, as well as

a declaration of invalidity of three of Gunnar’s patents (Dkt. No. 14-4). On

August 19, 2014, Gunnar filed this matter against Mad Panda (“California

action”), stating causes of action for trademark infringement, unfair

competition, false designation of origin and cancellation of trademark

registration, but not patent infringement. Mad Panda now moves the Court

to dismiss, stay or transfer the California action to the Eastern District of North

Carolina on grounds of the first-to-file rule and matters of forum convenience. 

Mad Panda’s motion is GRANTED in part and the matter is STAYED.

II. DISCUSSION

A. First-to-File Rule

A federal district court has discretion to dismiss, stay, or transfer a case

to another district court under the first-to-file rule. Pacesetter Sys., Inc. v.

Medtronic, Inc., 678 F.2d 93, 94-95 (9th Cir. 1982); Alltrade, Inc. v. Uniweld

Prods. Inc., 946 F.2d 622, 628 (9th Cir. 1991) (“The most basic aspect of

the first-to-file rule is that it is discretionary.”). The first-to-file rule is “a

generally recognized doctrine of federal comity” permitting a district court

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to decline jurisdiction over an action. Inherent.com v. Martindale-Hubbell,

420 F. Supp. 2d 1093, 1097 (N.D. Cal. 2006) (citing Pacesetter, 678 F.2d

at 94-95). The rule is primarily meant to alleviate the burden placed on the

federal judiciary by duplicative litigation and to prevent the possibility of

conflicting judgments. See Church of Scientology of Cal. v. U.S. Dep’t of

Army, 611 F.2d 738, 750 (9th Cir. 1979). As such, the rule should not be

disregarded lightly. See id. Courts analyze three factors in determining

whether to apply the first-to-file rule: (1) chronology of the actions; (2)

similarity of the parties; and (3) similarity of the issues. Schwartz v.

Frito-Lay N. Am., 2012 WL 8147135, at *2 (N.D. Cal. 2012) (citing Alltrade,

946 F.2d at 625).

The chronology of the two actions is undisputed - the North Carolina

action was filed one day before the California action. One day is sufficient

to satisfy the chronology factor. See Martin v. Graybar Elec. Co., 266 F.2d

202, 205 (7th Cir. 1959) (quoting Crosley Corp. v. Westinghouse Elec. &

Mfg. Co., 130 F.2d 474, 475 (3d Cir.1942)). Both actions name the same

two parties, and no other party, satisfying the second factor. The parties

point out that there is some difference as to the issues at stake, since the

California action does not state a claim for patent infringement while the

North Carolina action requests a declaration of Mad Panda’s noninfringement of Gunnar’s patents and a declaration of their invalidity. 

Despite their lack of perfect congruity, the two actions need not be

identical, but only “substantially similar” to satisfy the first-to-file rule.

Dumas v. Major League Baseball Properties, Inc., 52 F. Supp. 2d 1183,

1193 (S.D. Cal. 1999), vacated on other grounds by, 104 F. Supp. 2d 1224

(S.D. Cal. June 21, 2000), aff'd, 300 F.3d 1083 (9th Cir. 2002). 

Consequently, the Court finds that the “sameness” requirement is satisfied

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since the California action completely overlaps with the North Carolina

action, even though the latter asks for declaratory relief for patent

infringement. Thus, all three of the first-to-file rule factors are satisfied.

B. Exceptions to the First-to-File Rule

Gunnar argues that this Court should use its discretion to decline

application of the first-to-file rule in the interest of equity and because the

balance of convenience factor weighs in favor of this later-filed action. See 

Adoma v. Univ. of Phoenix, Inc., 711 F. Supp. 2d 1142, 1149 (E.D. Cal.

2010); Ward v. Follett Corp., 158 F.R.D. 645, 648 (N.D. Cal. 1994). The

Court is aware of an exception allowing it to override the first-to-file rule

under circumstances of bad faith, anticipatory suit, and/or forum shopping.

Alltrade, 946 F.2d at 628. “Generally a suit is anticipatory when the plaintiff

filed its suit upon receipt of specific, concrete indications that a suit by the

defendant was imminent.” Ward, 158 F.R.D. at 648.

Some courts have treated the filing of a declaratory judgment action

after receipt of an intent to sue letter as evidence that the first-filed

declaratory action was filed for anticipatory reasons, and amounted to

impermissible forum shopping justifying deviation from the first-to-file rule.

See e.g., Amerada Petroleum Corp. v. Marshall, 381 F.2d 661, 663 (5th

Cir. 1967); Alaris Med. Sys. Inc. v. Filtertek Inc., 2001 WL 34053241, at *2

(S.D. Cal. 2001); Z-Line Designs, Inc. v. Bell'O Intern., LLC, 218 F.R.D.

663, 666 (N.D. Cal. 2003). Others, while noting the exception, have not

gone so far. Guthy–Renker Fitness, LLC v. Icon Health & Fitness, Inc.,

179 F.R.D. 264, 271 (C.D. Cal. 1998) (finding that the notice-of-suit letter

at issue “neither provided nor intended to provide [the declaratory suit

plaintiff] with a specific, concrete indication of imminent suit within the

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meaning of Amerada and Ward”); Royal Queentex Enterprises v. Sara Lee

Corp., 2000 WL 246599 (N.D. Cal. 2000) (applying the first-to-file rule

because, inter alia, there were no misleading communications by the first

filing party before filing suit).

 Here, Gunnar asserts that Mad Panda’s first-filed declaratory judgment

action was brought pursuant to Gunnar’s letter and in anticipation of

litigation, and that this is bad faith forum shopping. Gunnar argues that

Mad Panda “race[d] to the courthouse” in response to the letter instead of

responding to its good faith effort to settle, because Mad Panda wanted to

deprive Gunnar of its choice of forum (Dkt. No. 16, at 7). Gunnar assets

that it did not intend to file a patent claim at the time it sent the letter to

Mad Panda, or even now, because it first needs to review Mad Panda’s

product to determine whether it incorporates patent-protected features of

the Scope eyewear (Dkt. No. 16, at 5). Mad Panda, on the other hand,

does not contest Gunnar’s assertion that it filed the North Carolina action

in apprehension of Gunnar filing an infringement suit based on the tone

and content of its letter (Dkt. No. 14-1, at 2). However, Mad Panda argues

that its action does not amount to forum shopping in bad faith, because it

was reasonable to affirmatively seek a judicial declaration of its rights to

continue its business practices instead of waiting to eventually defend

those practices in a patent and trademark infringement lawsuit threatened

by Gunnar (Dkt. No. 14-1, at 7). 

The Declaratory Judgment Act permits a federal court to “declare the

rights and other legal relations” of parties to “a case of actual controversy.” 

28 U.S.C. § 2201; see also Wickland Oil Terminals v. Asarco, Inc., 792

F.2d 887, 893 (9th Cir. 1986). Actions brought under of § 2201 are

justiciable if “there is a substantial controversy between parties having

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adverse legal interests, of sufficient immediacy and reality to warrant the

issuance of a declaratory judgment.” Maryland Casualty Co. v. Pacific

Coal & Oil Co., 312 U.S. 270, 273 (1941); see also National Basketball

Association v. SDC Basketball Club, 815 F.2d 562, 565 (9th Cir. 1987). 

Filing a declaratory judgment action in anticipation of litigation has been

found to be bad faith when done solely to forum shop. See e.g., 24 Hour

Fitness USA, Inc. v. Apex Stores, LLC, 2008 WL 4155598, at *1 (N.D. Cal.

2008). 

The Court finds that under the circumstances, Mad Panda’s action in

filing the North Carolina action, where it resides, before responding to

Gunnar’s settlement proposal, was reasonable and does not amount to

bad faith forum shopping. The record suggests that Mad Panda brought its

declaratory action in good faith for the purpose of securing the relief prayed

for, namely to remove the threat of uncertainty about violating Gunnar’s

intellectual property rights. See Alltrade, 946 F.2d at 628 (citing Crosley

Corp. v. Westinghouse Elec. & Mfg. Co., 130 F.2d 474, 476 (3d Cir.

1942)). Gunnar’s letter could reasonably be read by Mad Panda to

suggest that it faced imminent threat of litigation and liability under

trademark and patent infringement law. While prefacing the letter with the

statement that “GUNNAR would prefer to resolve the matter amicably,” the

point is that Gunnar unequivocally threatened that it would “proceed to file

a lawsuit” if Mad Panda failed to respond to the letter within 10 days (Dkt.

No. 14-3). The letter’s threatening tone was amplified by Gunnar’s

assurance that it had “favorable results in all matters it has needed to

litigate” in protecting its intellectual property (Id. at p. 1). Additionally,

Gunnar demanded that Mad Panda take eight specific steps “in hopes of

resolving” the matter, including, inter alia, ceasing all sales of the NoScope

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eyewear, delivering its remaining stock to Gunnar for destruction,

abandoning its pending trademark application in connection with the

potentially infringing product, providing an accounting of sales to Gunnar,

and compensating Gunnar for the sales (Id. at p. 2). Even without

litigation, the severity of those conditions aimed to destroy Mad Panda’s

sales. As such, the letter could have led Mad Panda to reasonably

interpret it as a warning of impending litigation, instead of an overture to

engage in good faith settlement negotiations. The Court is therefore

satisfied that based on the letter, there exists an unresolved and

substantial controversy between the parties, resolution of which Mad

Panda was warranted in seeking through a declaration of its rights with

respect to the sale of its NoScope eyewear.

Additionally, Gunnar’s argument that filing a declaratory action upon

receipt of a patent-holder’s intent-to-sue letter warrants disregard of the

first-to-file rule for equity reasons distorts the purpose of the Declaratory

Judgment Act. See Royal Queentex Enterprises, 2000 WL 246599, * 4. 

While an alleged infringer cannot use the Declaratory Judgment Act to give

it “a paramount right to choose the forum for trying out questions of

infringement and validity,” Kerotest Mfg. Co. v. C–O–Two Fire Equipment

Co., 342 U.S. 180, 185 (1952), alleged patent infringers may freely seek

declaratory relief as a “shield” to threats of infringement lawsuits. 

Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d 93, 97 (9th Cir. 1982). 

The record suggests that this was Mad Panda’s intent in filing the North

Carolina action. Consequently, there are insufficient facts to disregard the

first-to-file rule on the basis that Mad Panda filed the North Carolina action

seeking declaratory relief as a bad faith measure motivated solely by forum

shopping.

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While there are grounds to dismiss the action based on the first-to-file

rule, the Court finds that a stay is more appropriate for the reasons below. 

C. Forum Convenience

Mad Panda also argues that the California action should be transferred

to North Carolina because San Diego is a less convenient forum for

resolving this suit. See SAES Gatters S.p.A. v. Aeronex, Inc., 219 F.

Supp. 2d 1081, 1089 (S.D. Cal. 2002). Gunnar makes the opposite

argument in favor of San Diego. The Court believes that relaxing the

first-to-file rule on the basis of convenience is a determination best left to

the court in the first-filed action. See Ward, 158 F.R.D. at 648 (citing

Alltrade, 946 F.2d at 628). In light of the Court’s application of the first-tofile rule to this matter, determining the merits of the parties’ respective

convenience arguments is unnecessary. 

D. Motion to Stay

As an alternative to dismissal or transfer, Mad Panda requests a stay of

this action. Gunnar also argues that the action should be stayed pending

the outcome of the North Carolina court’s ruling on its parallel Motion to

Dismiss or Transfer the North Carolina action in favor of this forum (Dkt

No. 16, at 12). In cases where the first-filed action presents a likelihood of 1

dismissal, the second-filed suit should be stayed, rather than dismissed.

See Alltrade, 946 F.2d at 628 (citing Asset Allocation & Mgt. v. Western

Employers Ins., 892 F.2d 566, 571 (7th Cir. 1989) (“Granted, the statute of

limitations problems may not be serious.... But why take chances? It is

A parallel Motion to Dismiss or Transfer was filed by Gunnar in the North Carolina 1

action on October 10, 2014, and is fully briefed and pending decision as of March 2, 2015.

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simpler just to stay the second suit”.). Gunnar believes that the North

Carolina court “is very likely” to grant its parallel motion on the same

exception to the first-to-file rule advocated in Gunnar’s opposition to this

motion. While declining to speculate on the prospective outcome of

Gunnar’s parallel motion, the Court finds that it is appropriate to stay this

matter pending its resolution. 

 III. CONCLUSION

For the foregoing reasons, the Court finds that this action should be

stayed pending resolution of Gunnar’s parallel Motion to Dismiss or

Transfer by the Honorable Senior Judge James C. Fox of the U.S. District

Court for the Eastern District of North Carolina. Accordingly, Mad Panda’s

Motion to Stay is GRANTED. Having determined that dismissal or transfer

are inappropriate at this time, the Court DENIES Mad Panda’s pending

Motion to Dismiss or Transfer. However, if the litigation proceeds in the

Eastern District of North Carolina, Mad Panda may move for dismissal of

this action based on this Order. Counsel for the parties shall appear for a

status conference on August 4, 2015, at 4:00 p.m. in Courtroom 15B of the

James M. Carter-Judith N. Keep United States Courthouse, 333 Broadway,

San Diego, CA 92101. Counsel may apply to appear telephonically. 

IT IS SO ORDERED.

DATED: March 9, 2015

BARRY TED MOSKOWITZ, Chief Judge

United States District Court

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