Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_10-cv-00455/USCOURTS-cand-3_10-cv-00455-1/pdf.json

Parties Involved:
Hocean, Inc.
Defendant
Kam Lee Yuen Trading Co., Inc.
Plaintiff

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United States District Court

For the Northern District of California 

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF CALIFORNIA 

KAM LEE YUEN TRADING CO., INC., 

a California corporation, 

Plaintiff, 

v. 

HOCEAN, INC., a California 

corporation, 

Defendant. 

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Case No. 10-0455 SC 

ORDER GRANTING DEFENDANT'S 

MOTION TO DISMISS

I. INTRODUCTION

 Plaintiff Kam Lee Yuen Trading Company, Inc. ("KLY") brought 

this action against Defendant Hocean, Inc. ("Hocean"), alleging 

violation of Section 43(a)(1) of the Lanham Act, 15 U.S.C. § 

1125(a)(1), and three state-law causes of action. ECF No. 1 

("Compl.") ¶¶ 11-24. The sole basis for the subject matter 

jurisdiction of this Court is KLY's Section 43(a)(1) claim. Id.

¶ 3. Now Hocean brings a Motion to Dismiss this claim. ECF No. 

11. This Motion is fully briefed. ECF Nos. 13, 14. Pursuant to 

Civil Local Rule 7-1(b), the Court finds the Motion suitable for 

determination without oral argument. For the reasons stated below, 

the Court GRANTS Hocean's Motion, dismissing the Section 43(a)(1) 

claim WITH PREJUDICE. 

/// 

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II. BACKGROUND

 KLY and Hocean are wholesalers specializing in Asian foods. 

Compl. ¶¶ 1, 2. In 2009, Aik Cheong Neo ("Neo") brought an action 

against KLY, Hocean, supermarket chain Welcome Market, Inc. 

("Welcome Market"), and nineteen other wholesalers, distributors, 

and retailers. See Neo v. Marina Brothers, Inc., No. C-09-0739 

(N.D. Cal. Feb 19, 2009). Neo, a citizen of Singapore, claimed he 

owned intellectual property rights in the design and packaging of a 

mushroom seasoning, including a trademark registered with the U.S. 

Patent and Trademark Office. Id. Neo alleged that the defendants 

had sold products that infringed these rights. Compl. ¶¶ 6-7. 

 Allegedly, Hocean sold KLY mushroom seasoning that infringed 

on Neo's mark, which KLY sold to Welcome Market, which Welcome 

Market then sold to supermarket customers. Id. ¶ 8. When Neo 

brought his action, Welcome Market demanded that KLY reimburse it 

for the market's cost of defending itself in the action, 

threatening to terminate its ongoing relationship with KLY if it 

did not. Id. ¶ 10. Because Welcome Market was KLY's largest 

customer, KLY agreed. Id. Welcome Market hired Latham and Watkins 

LLP and brought a counterclaim against Neo seeking termination of 

Neo's trademark registration. Neo, No. C-09-0739, ECF No. 31 

("Welcome Market's Answer and Countercl."). Welcome Market claimed 

that Neo's mark was invalid because it was functional and/or 

generic. Id. Welcome Market also sought an award of attorneys' 

fees from Neo under 15 U.S.C. § 1117(a), arguing that because Neo's 

claims were "groundless and contrary to settled law," such an award 

was appropriate. Id. ¶ 52. 

 Neo ultimately agreed to dismiss with prejudice the claims 

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against all defendants, and the case was terminated on December 31, 

2009. See Neo, No. C-09-0739, ECF Nos. 93 ("Order and Stip. 

Dismissal of Welcome Market"), 147 ("Order and Stip. Dismissal of 

Hocean"). KLY subsequently reimbursed Welcome Market for $153,000 

in litigation expenses. Compl. ¶ 10. 

 KLY then brought the present action against Hocean to recover 

the amount KLY had paid to Welcome Market. KLY does not claim to 

possess any intellectual property rights in Neo's mushroom 

seasoning packaging and design; rather, it claims that Hocean's 

sale of the allegedly infringing product caused injury to KLY in 

the form of its reimbursement to Welcome Market. Id. ¶¶ 5, 10. 

KLY claims Hocean's mushroom seasoning had packaging and labeling 

that infringed "and/or constituted false designation of origin of 

[Neo's] mushroom seasoning," in violation of Section 43(a)(1) of 

the Lanham Act. Id. ¶ 5. 

 Now Hocean moves to dismiss the case, arguing that KLY lacks 

standing to bring its Lanham Act cause of action. Mot. at 6-8. 

III. LEGAL STANDARD

A motion to dismiss under Federal Rule of Civil Procedure 

12(b)(6) "tests the legal sufficiency of a claim." Navarro v. 

Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal can be based 

on the lack of a cognizable legal theory or the absence of 

sufficient facts alleged under a cognizable legal theory. 

Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 

1990). Allegations of material fact are taken as true and 

construed in the light most favorable to the nonmoving party. 

Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 

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1996). "[T]he tenet that a court must accept as true all of the 

allegations contained in a complaint is inapplicable to legal 

conclusions. Threadbare recitals of the elements of a cause of 

action, supported by mere conclusory statements, do not suffice." 

Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (citing Bell Atl. 

Corp. v. Twombly, 550 U.S. 544, 555 (2007)). "When there are wellpleaded factual allegations, a court should assume their veracity 

and then determine whether they plausibly give rise to an 

entitlement to relief." Iqbal, 129 S.Ct. at 1950. A motion to 

dismiss should be granted if the plaintiff fails to proffer "enough 

facts to . . . nudge[] their claims across the line from 

conceivable to plausible." Twombly, 550 U.S. at 570. 

 

IV. DISCUSSION

 Hocean argues that KLY's Section 43(a)(1) claim should be 

dismissed because it is necessarily premised on Neo's infringement 

cause of action against Hocean, which KLY lacks standing to bring. 

Mot. at 6-9. Hocean also argues that Neo's infringement claims 

were dismissed with prejudice through a stipulated order, and so no 

one, including KLY, should be permitted to re-argue them here. Id.

 "To establish standing to sue for trademark infringement under 

the Lanham Act, a plaintiff must show that he or she is either (1) 

the owner of a federal mark registration, (2) the owner of an 

unregistered mark, or (3) a nonowner with a cognizable interest in 

the allegedly infringed trademark." Halicki Films, LLC v. 

Sanderson Sales and Mktg., 547 F.3d 1213, 1225 (9th Cir. 2008); see

15 U.S.C. § 1114(a). KLY does not claim to have any interest in 

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Neo's mark. Therefore, KLY cannot bring a trademark infringement 

action premised on Hocean's infringement of Neo's mark. 

 KLY admits that it lacks standing to bring a trademark 

infringement action, but argues it has standing to bring the action 

under Section 43(a)(1), which provides: 

Any person who, on or in connection with any 

goods or services, or any container for goods, 

uses in commerce any word, term, name, symbol, 

or device, or any combination thereof, or any 

false designation of origin, false or 

misleading description of fact, or false or 

misleading representation of fact, which-- 

(A) is likely to cause confusion, or to 

cause mistake, or to deceive as to the 

affiliation, connection, or association of 

such person with another person, or as to 

the origin, sponsorship, or approval of 

his or her goods, services, or commercial 

activities by another person, or 

(B) in commercial advertising or 

promotion, misrepresents the nature, 

characteristics, qualities, or geographic 

origin of his or her or another person's 

goods, services, or commercial activities, 

shall be liable in a civil action by any person 

who believes that he or she is or is likely to 

be damaged by such act. 

 Despite the statute's broad language providing a cause of 

action to "any person who believes that he or she is likely to be 

damaged," each circuit court has placed prudential standing 

limitations on Section 43(a)(1) to ensure the Lanham Act serves its 

stated purpose: "to regulate commerce . . . [and] to protect 

persons engaged in such commerce against unfair competition." 

Halicki v. United Artists Commc'ns, Inc., 812 F.2d 1213, 1214 (9th 

Cir. 1987). In the Ninth Circuit, Subsection (A) and (B) of 

Section 43(a)(1) have separate standing requirements. For "false 

association" claims under Subsection (A), the plaintiff must allege 

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a "commercial injury based upon the deceptive use of a trademark or 

its equivalent to satisfy standing requirements," Jack Russell 

Terrier Network of Northern Cal. v. American Kennel Club, 407 F.3d 

1027, 1037 (9th Cir. 2005), and a "commercial interest in the 

product wrongfully identified," Waits v. Frito-Lay, Inc., 978 F.2d 

1093, 1109 (9th Cir. 1992). For "false advertising" claims under 

Subsection (B), a plaintiff must also claim a "discernibly 

competitive injury." Id.

 In addition, courts have not permitted plaintiffs to bring 

Section 43(a)(1) claims if they would indirectly eviscerate the 

standing requirements of other causes of action. For example, in 

PhotoMedex, Inc. v. Irwin, 601 F.3d 919, 926-27 (9th Cir. 2010) a 

manufacturer of a dermatological laser brought a Lanham Act false 

advertising cause of action against its competitor, claiming it 

made misrepresentations that violated the Food, Drug, and Cosmetic 

Act ("FDCA"). The Ninth Circuit held that the plaintiff lacked 

standing to bring the Section 43(a)(1) claim because the plaintiff 

lacked standing to argue the underlying FDCA violation, as the Food 

and Drug Administration has exclusive authority to enforce FDCA 

violations. Id. Similarly, in Sybersound Records, Inc. v. UAV 

Corporation, the Ninth Circuit held that "a party lacking standing 

to bring a copyright infringement suit under the Copyright Act, but 

who complains of competitive injury, may [not] bring a Lanham Act 

claim . . . whose successful prosecution would require the 

litigation of the underlying infringement claim." 517 F.3d 1137, 

1141 (9th Cir. 2008). 

 KLY argues that it satisfies the false association standing 

requirements: it claims that its commercial injury is KLY's payment 

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of Welcome Market's litigation expenses in the Neo action, and 

claims its past possessory interest in the allegedly infringing 

product (which it purchased from Hocean and sold to Welcome Market) 

is a sufficient commercial interest. Opp'n at 4. Hocean argues 

that KLY should not be permitted to bring a false association claim 

solely premised on trademark infringement when it admittedly lacks 

standing to bring the underlying trademark infringement action. 

Mot. at 3. 

 The Court is troubled by KLY's argument, because it would 

eviscerate the standing limitations Congress established for 

bringing a Lanham Act trademark infringement action. KLY has not 

cited to case law that supports this conclusion. While KLY cites 

Jack Russell Terrier and Waits, in neither of these cases did the 

Ninth Circuit permit a plaintiff to bring a false association claim 

premised on the infringement of a third party's mark. Jack Russell 

Terrier involved a false advertising action, not a false 

association action, and the Ninth Circuit found that the plaintiff 

lacked standing because it lacked the requisite competitive injury. 

407 F.3d at 1037. In Waits, the Ninth Circuit found that musician 

Tom Waits had standing to bring a Section 43(a)(1) claim against 

Frito-Lay for producing a radio advertisement that featured the 

likeness of Waits' singing voice. 978 F.2d at 1108-10. Waits' 

action was premised on the exploitation of his own mark -- his 

distinctive "raspy, gravelly singing voice" -- not the mark of a 

third party. Id. at 1097, 1108-10. KLY does not cite to a single 

case, in the Ninth Circuit or elsewhere, in which a court permitted 

a Section 43(a)(1) claim premised on the infringement of a thirdparty mark. 

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 While Sybersound involved a Section 43(a)(1) claim premised on 

third-party copyright infringement rather than third-party 

trademark infringement, 517 F.3d at 1141, the Court finds it to be 

instructive. In that case, plaintiff and defendants were 

competitors that produced and sold karaoke records to distributors. 

Id. Plaintiff claimed that defendants produced karaoke records 

without purchasing the necessary licenses from copyright holders. 

Id. This, argued plaintiff, put plaintiff at an economic 

disadvantage, because it could not compete on price with 

defendants. Id. The Ninth Circuit held that because plaintiff did 

not have standing to sue for the copyright infringement claim, it 

lacked standing to bring a Lanham Act claim predicated on the 

copyright infringement. Id. at 1144. It wrote: "Construing the 

Lanham Act to cover misrepresentations about copyright licensing 

status . . . would allow competitors engaged in the distribution of 

copyrightable materials to litigate the underlying copyright 

infringement when they have no standing to do so." Id. 

 Such is the case here. While KLY may have standing to bring a 

Section 43(a)(1) false association claim against Hocean, it cannot 

bring one solely premised on Hocean's alleged infringement of Neo's 

mark. If, for example, Hocean had injured KLY by selling it 

product that falsely indicated a particular geographic region as 

its origin, KLY would have standing to bring a Section 43(a)(1) 

false association claim. However, this claim would be wholly 

unrelated to the only injury KLY claims in the present action -- 

payment of Welcome Market's Neo litigation expenses. This alleged 

injury cannot be severed from the underlying trademark infringement 

action: to prove Hocean's conduct caused KLY's injury, KLY must 

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prove Neo's case. This requires proof that Hocean infringed Neo's 

mark, and would ultimately and necessarily lead to a dispute over 

the validity of Neo's mark, the strength of Neo's mark, and the 

likelihood of confusion between Hocean's product and Neo's product. 

KLY clearly does not have standing to bring the underlying 

trademark infringement action, and Section 43(a) should not provide 

a back door to bring such a claim. 

 The Court's conclusion would be the same if the law of another 

circuit applied. The Third, Fifth, and Eleventh Circuits use the 

five-factor standing test the U.S. Supreme Court established for 

Clayton Act antitrust actions in determining standing for Section 

43(a) actions. See Conte Bros. Automotive, Inc. v. Quaker StateSlick 50, Inc., 165 F.3d 221, 225-27 (3rd Cir. 1998), Procter & 

Gamble Co. v. Amway Corp., 242 F.3d 539, 562-63 (5th Cir. 2001), 

Phoenix of Broward, Inc. v. McDonald's Corp., 489 F.3d 1156, 1167 

(11th Cir. 2007). The first factor asks whether plaintiff's injury 

is "the type that Congress sought to redress in providing a private 

remedy for violations of the Lanham Act." Phoenix of Broward, 489 

F.3d at 1167-68. A competitive injury caused by the action of a 

direct competitor will not necessarily satisfy this factor; the 

injury must be the sort of injury the Lanham Act is designed to 

remedy, such as loss of sales or increased promotional costs. 

Natural Answers, Inc. v. SmithKlineBeecham Corp., 529 F.3d 1325, 

1332-33 (11th Cir. 2008). KLY's injury is not of this sort; this 

is not a dispute between two competitors in which one party's 

competitive behavior caused the other to lose sales or increase 

promotional costs. This is a dispute between a buyer and seller 

over the quality of a good; as such, it is wholly redressable 

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through state commercial law, and there is no need for a separate 

remedy under the Lanham Act. 

V. CONCLUSION

 For the foregoing reasons, the Court DISMISSES Plaintiff Kam 

Lee Yuen Trading Co., Inc.'s cause of action under 15 U.S.C. § 

1125(a)(1) against Defendant Hocean, Inc. WITH PREJUDICE. The 

remaining causes of action are dismissed WITHOUT PREJUDICE, as the 

Court declines to exercise supplemental jurisdiction over such 

state-law claims. 

 

 IT IS SO ORDERED. 

Dated: August 9, 2010 

UNITED STATES DISTRICT JUDGE

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