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- 33 95 Really Good Stuff, LLC v. BAP Investors, L.C. UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT SUMMARY ORDER RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT ’ S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRO NIC DATABASE (WITH THE NO TATION “ SUMMARY ORDER ” ). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL. At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courth ouse, 40 Foley Square, in the City of New York, on the 1 st day of June , two thousand twenty

. PRESENT: JOHN M. WALKER, JR., GERARD E. LYNCH, RICHARD J. SULLIVAN, Circuit Judges

.

------------------------------------------------------------------ REALLY GOOD STUFF, LLC, Plaintiff

- Counter

- Defendant

- Appellee ,

v. No. 19

- 3395

- cv BAP INVESTORS, L.C., CREATIVE KIDS FAR EAST INC., Defendant s - Counter

- Claimants

- Appellant s , CREATIVE KIDS, INC., Defendant

.2 ------------------------------------------------------------------ FOR APPELLANT S : BRIAN A. COMACK (Douglas A. Miro, on the brief ), Amster, Rothstein & Ebenstein LLP, New York, NY.
FOR APPELLEE : EDWARD F. MALUF ( Katherine E. Perrelli, Jeremy A. Schachter, on the brief ), Seyfarth Shaw LLP, New York, NY. Appeal from a judgment of the United States District Court for the Southern
District of New York ( Louis L. Stanton , J

. ).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment of the district court is
AFFIRMED in part and VACATED in part , and the case is REMANDED with respect to the scope of the preliminary injunction

. Plaintiff

- Counter

- Defendant

- Appellee Really Good Stuff, LLC (“RGS”) brought suit against Defendants

- Counter

- Claimants

- Appellants BAP Investors, L.C. (“BAP”) a nd Creative Kids Far East Inc. (t ogether, “Appellants”) , alleging claims including (1) trademark i nfringement and unfair competition under the Lanham Act, 15 U.S.C. § 1114 and § 1125, and New York common law, (2) patent infringement under 35 U.S.C. § 271(a), and (3) breach of contract under Colorado
law related to the sale and distribution of various s cience

- based educational toys.3 The district court (Stanton, J

. ) granted in part and denied in part RGS’s motions for a preliminary injunction and to dismiss BAP’s counterclaims, and denied
BAP’s cross

- motion for a preliminary injunction, determining that RGS and BAP
each owned some of the marks at issue. On appeal, Appellants contend that the
district court abused its discretion in ruling on the cross

- motions for preliminary injunction s and erred in dismissing BAP’ s counterclaims. We agr ee that the
district court abused its discretion only with respect to the scope of the injunction,
which barred Appellants “ from selling any unit of any prod uct that RGS sought to purchase

. . . regardless of whether RGS sought to purchase some or all unit s from BAP’s remaining inventory of that product .” Special App’x at 34. We therefore vacate the preliminary injunct ion solely to the extent that it enjoins the sale of units (beyond the numbers RGS sought to purchase) of any product lines
from which RGS sought to purchase less than all of the inventory , and remand for a reexamination of the proper scope of the injunction . We affirm the district court’s judgment in all other respects. We assume the parties’ familiarity with the underlying facts, procedural history, and issues on appeal, to which we refer only as necessary to explain our decision.4 I. The District Court Properly Granted RGS’s Motion for a Preliminary Injunction, But t he Injunction Is Overly Broad “[A] party seeking a preliminar y injunction must establish (1) irreparable harm and (2) either (a) a likelihood o f success on the merits, or (b) sufficiently serious questions going to the merits of its claims to make them fair ground for litigation, plus a balance of the hardships tipping decidedly in favor of the moving party.” Oneida Nation of N.Y. v. Cuomo , 645 F.3d 154, 164 (2d Cir. 2011) (in ternal quotation marks omitted ). The moving party must also “show that a preliminary injunction is in the public interest.” Id. “We review the grant of a preliminary injunction by a district court for abuse of discretion.” Alleyne v. N.Y. State Educ.
D ep’t , 516 F.3d 96, 100 (2d Cir. 2008).
A. RGS Is Likely to Succeed on the Merits of its Claims
Under the Lanham Act and New York common law, a plaintiff demonstrates a likelihood of success on the merits of a trademark infringement or unfair competition c laim “ by showing both [(1)] a legal, exclusive right to the mark, and [(2)] a likelihood that customers will be confused as to the source of the infringing product.” 1 Otokoyama Co. v. Wine of Japan Import, Inc. , 175 F.3d 266, 270

1 An unfair competition claim under New York common law also r equires a showing of bad faith.5 (2d Cir. 1999) ; see also Standard & Poor’s Corp. v. Commodity Exch., Inc. , 683 F.2d 704, 708 (2d Cir. 1982)

. Under Colorado law, 2 a plaintiff asserting a claim of breach of contract must prove “(1) the existence of a contract; (2) performance by the plaintiff or some justifi cation for nonperformance; (3) failure to perform the contract by the defendant; and (4) resulting damages to the plaintiff.” W. Distrib. Co. v. Diodosio , 841 P.2d 1053, 1058 (Colo. 1992) ( internal citations omitted).
The district court did not abuse its discretion by concluding that RGS is likely to succeed on the merits of its trademark infringement, unfair competition, and breach of contract claims. First, RGS is likely to succeed on its trademark infringement and unfair competition claims because it h as a legal, exclusive right
to the marks at issue and there is a likelihood of consumer confusion from BAP’s
continued unauthorized use of the marks. Appellants primarily contend that BAP , not RGS, owns the “Insta

- Snow” design mark

. However, the district court did not err in concluding that RGS owns
the “Insta

- Snow” word and design marks based on the language of the Second Amended Exclusive Licensing Agreement and its Addendum ( together, the

See Jeffrey Milstein, Inc. v. Greger, Lawlor, Roth, Inc. , 58 F.3d 27, 35 (2d Cir. 1995).

2 The parties agree that Co lorado contract law governs the parties’ contr act claims.6 “ License Agreement ”) and Request for Consent to Assignme nt Letter ( the

“ Consent Letter ”)

. Having carefully reviewed both documents, we agree with the
district court that nothing in the Consent Letter altered the definition of S teve Spangler Inc. (“SSI”) Trademarks in the License Agreement or otherwise
transfer red ownership of the “Insta

- Snow” design mark to BAP. The district court’s determination was based on the plain language of the relevant contracts
betw e en the parties and appropriat ely construed those documents.
Nor did t he district court abuse its discretion when it conclud ed that BAP’s
continued unauthorized use of the marks in question w as likely to cause consumer confusion . Where an ex

- licensee continues to use a mark after its license expires, a strong likelihood of consumer confusion arises

. See Church of Scientology Int’l v. Elmira Mission of the Church of Scientology , 794 F.2d 38, 44 (2d Cir. 1986). Therefore , because BAP is a previous licensee that continued to use RGS’s marks after the expiration of the License Agreement, the district court properly concluded that
there was a likelihood of consumer confusion f or the identical marks

– “Insta

Snow,” “Steve Spangler Science,” “Sick Science,” “Energy Stick,” and “Geyser
Tube.”
If marks are not exactly the same, howe ver, such as RGS’s “Insta

- Snow”7 mark and BAP’s “Instant Amazing Snow” mark, the determination of likelihood of confusion is based on the multifactor balancing test established by Polaroid Corp. v. Polarad Electronics Corp. , 287 F.2d 492 (2d Cir. 1961). In Polaroid , we e xplained
that: Where the products are different, the prior owner’s chance of success is a function of many variables: the strength of his mark, the degree of similarity between the two marks, the proximity of the products, the likelihood that the prior owner will bridge the gap, actual confusion, and the reciprocal of defendant’s good faith in adopting its own mark, the quality of defendant’s product, and the sophistication of the buyers. Id. at 495. Here, the district court de termined that these factors, on balance, weighed in favor of finding a likelihood of consumer confusion between the
“Insta

- Snow” and “Instant Amazing Snow” marks. Once again, this conclusion
was not an abuse of discretion. The district court identified t he correct law, carefully applied it to the facts, and rea sonably balanced the relevant factors to
find a likelihood of confusion. Second, the district court did not abuse its discretion in determining that RGS is likely to succeed on its breach of contrac t claims because the License Agreement is a valid contract, RGS performed under it, BAP breached it by refusing to sell to RGS any fewer than all of the remaining copies of the SSI8 products at issue that RGS sought to purchase, and RGS was harmed by BAP’s
breach. Appellants’ assertion that BAP did not breach the License Agreement because the plain language required RGS to purchase all or none of the remaining copies of the SSI products in BAP’s invento ry, but not some number in between, is unpersuasive. T he district court began with the text of the License Agreement, reasonably concluded that it was ambiguous, a nd therefore turned to the parties ’ course of conduct to clarify it , as allowed under Colorado law . The district court
noted that on four occasions when an SSI product was discontinued during the
term of the License Agreement, SSI exercised its right and purchased some units of the discontinued product remaining in BAP’s inventory, but not all of them. The
district court therefore reasonabl y concluded that RGS had established a
likelihood of success on the merits of its breach of contract claims because BAP breached the contract by refusing to sell the products at issue to RGS.

B. RGS Will Be Irreparabl y Harmed in the Absence of a Preliminary Injunction Irreparable harm is “harm that (a) occurs to the parties’ legal interest s and (b) cannot be remedied after a final adjudication, whether by damages or a permanent injunction.” Salinger v. Colting , 6 07 F.3d 68, 81 (2d Cir. 2010). The loss of reputation and goodwill constitutes irreparable harm. See Register.com, Inc. v.9 Verio, Inc. , 356 F.3d 393, 404 (2d Cir. 2004). As we have explained, “[w]hen in the licensing context unlawful use and consumer confusion have been demonstrated, a finding of irreparable harm is automatic.” Church of Scientology , 79 4 F.2d at 42. The district court found that “SSI invested time and effort into developing its products and marks,” and that “[a] s the current owner of those trademarks, RGS will suffer the irreparable harm of losing control over the reputation and goodwill that Steve Spangler Science products have gained if BAP is not enjoined from using those marks, or confusingly similar imitations of the marks, when selling and advertising products.” Special App’x at 20

– 21. It further determined that the “loss of goodw ill is not calculable and cannot be remedied by royalty payments or other monetary damages.” Id. at 21. These findings are fully supported by the proper case law, and the district court did not abuse its discretion in finding that BAP’s unauthorized use of the marks at issue will cause irreparable
harm.

C. The Balance of the Ha rdships and the Public Interest Weigh in Favor of RGS T he district court first concluded that RGS’s hardships outweighed those of Appellants. The court explained that whereas RGS fa ced the continued irreparable harm of loss of goodwill and control over its reputation absent10 injunctive relief, Appellants would merely be prevented from using RGS’s marks and confusingly similar imitations of those marks and from selling the SSI products that RGS sought to purchase from BAP at the expiration of the License Agreement. Id. at 22. The court also determined that Appellants’ businesses would not be severely impacted because they could still sell other products that did not bear the infringin g marks and SSI products that RGS did not offer to purchase at the expiration of the License Agreement. Id. at 22

– 23. The district court’s determination that RGS would suffer the greater hardship is a quintessential exercise of discretion , and BAP does not establish that the court abused that discretion.
The district court also found that the public interest favored RGS because “the public has an interest in not being deceived

– in being assured that the mark it associates with a product is not attached to good s of unknown origin and quality.” Id. at 23 ( internal quotation marks omitted). BAP proffers no persuasive reasoning that this conclusion was an abuse of discretion.
D. The Pre liminary Injunction’s Scope is Overbroad Appellants furthe r contend that the district court abused its d iscretion when
it (1) prohibited BAP from selling any of its remaining inventory in specified11 product line s that RGS sought to purchase; and (2) “inexplicably enjoined BAP from using the ‘Energy Stick’ and ‘Geyser Tube’ design marks, even though it found that BAP owns these designs

. ” Appellants’ Br. at 46.
W e agree with BAP that the district court ’s injunctio n – which prohibited
BAP from selli ng any of its remaining inventory from 22 different SSI product line s

– is overly broad

. 3 Upon expiration of the License Agreement, BAP had the right
to sell to third parties the units of leftover SSI products that RGS did not seek to purchase. RGS sought to purchase the entire remaining inventory for six different
SSI product line s ; it also requested a smaller portion of the remaining inventory
for 16 other SSI product line s. T hough the district court properly enjoined BAP from selling any unit s from the former category

– after all, R GS was entitled to the
entire inventory of such products

– it abused its discretion by enjoin ing BAP from selling any unit s from the latter group of products , since the License Agreement provided that BAP w ould be permitted to sell the units that RGS did not elect to purchase. Accordingly, we vacate the preliminary injunction solely to the extent that it enjoins the sale of units (beyond the numbers RGS sough t to purchase) of

3 We note that, to the extent that any of these product lines contained only products that bore the “Super Slime” mark and did not contain products bearing marks owned by RGS, the district court did not enjoin BAP from selling these product lin es.12 any product lines from which RGS sought to purchase less than all of the inventory , and remand to the district court for a reexamination of the particular product lines covered by the injunction

. Appellants also insist that the d istrict court issued a self

- contradictory order
when it determine d , on the one hand , that BAP owns the “Energy Stick” a nd “Geyser Tube” design marks, only to then enjoin BAP from using those very marks. We reject this characterizatio n of the district court’s decision. Instead, the
district court found that BAP “owns all rights pertaining to the packaging of the Energy Stick and Geyser Tube products , ” which is not inconsistent w ith the court’s
conclusion that RGS retained ownership of those products’ word and design
marks. Special App’x at 26 (emphasis added)

. The language of the Consent Letter explicitly provides that BAP exclusively owns all rights pertaining to packagi ng “[o]ther than the SSI IP,” Ap p’x at 337, and the district court correctly determined
that the SSI IP included both word and design marks.
II. T he District Court Did Not Abuse its Discretion b y Denying BAP’s Cross

- Motion for a Preliminary Injunction BAP maintains that the district court’s finding that RGS owns the “Insta

Snow” design mark was error, and therefore that the district court abused its discretion by relying on that finding to deny BAP’s cross

- motion for a preliminary13 injunction premised on its purported ownershi p of that design mark. As explained above, the district court did not abuse its discretion in determining that
RGS owns the “Insta

- Snow” design mark. Therefore, BAP is unable to demonstrate a likelihood of success on the merits of its unfair competition and
breach of contract counter claims with respect to that mark. Accordingly, the district court did not abuse its discretion in denying BAP’s cross

- motion for a preliminary injunction.
III. T he District Court Did Not Err in Dismissing BAP’s Counterclaims

Fin ally, Appellants assert that the district court erred in dismissing BAP’s
counterclaims for unfair competition (Counts I and V) and breach of contract (Count XIII) based on the “Insta

- Snow” design mark , and its counterclaim for
cancellation of RGS’s “Insta

- Snow” word mark registration ( U.S. Registration No. 2,928,946) on the basis of genericness (Count XV)

. “We review de novo a district court’s dismissal of a complaint pursuant to Rule 12(b)(6), construing the complaint liberally, accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff’s favor.” Chambers v. Time
Warne r, Inc. , 28 2 F.3d 147, 152 (2d Cir. 2002). BAP’s counterclaims for unfair competition and breach of contract rely14 solely on BAP’s purported ownership of the “Insta

- Snow” design mark . But as explained above , the License Agreement clear ly provides that RGS owns “any design incorporating” the “Insta

- Snow” word mark , and there is nothing in the
Consent Letter that alter ed that arrangement

. See A pp’x at 323. Therefore, b ecause BAP cannot establish that it owns the “Insta

- Snow” design mark

– a necessary element of its unfair competition and breach of contract counterclaims

– t he district
court properly dismiss ed those claims. As for BAP’s registration cancellation counterclaim, we agree with the
district court that the “Insta

- Snow” word mark is not generic. Because “Insta

Snow” is registered with the U.S. Patent and Trademark O ffice, BAP bears the burden of overcoming the presumption that the mark is not generic. See Reese Publ’g Co. v. Hampton Int’l Commc’ns, Inc. , 620 F.2d 7, 11 (2d Cir. 1980 ). “Generic marks are those consisting of words identifying the relevant category of goods or
services.” Star Indus., Inc. v. Bacardi & Co., Ltd. , 412 F.3d 373, 385 (2d Cir. 2005). BAP relies on evidence that the phrase “Instant Snow” has been used by “at least
nine” third

- party “fake plastic snow toy products” to prove that “Insta

- Snow” is a generic word mark. Appellants’ Br. at 52. But even viewing this evidence in the light most favorable to Appellants, we fail to see how competit ors’ use of a15 different term proves anything about the genericness of the distinct phrase “Insta

Snow.” BAP fails to satisfy its burden , and we therefore conclude that the district court properly dismissed BAP’s cancellation claim.

* * *
We have consider ed Appellants’ remaining arguments and conclude that they are without merit. For the foregoing reasons , the judgment of the district
court is AFFIRMED in part and VACATED in part, and the case is REMANDED for further proceedings consistent with this order in connection with the scope of the injunction

. FOR THE COURT: Catherine O ’ Hagan Wolfe, Clerk of Court