s

document that School Book Fairs recorded with the PTO, however, goodwill was in fact
conveyed along with the trademark.’

On September 23, 1997, LeapFrog RBT assigned its rights in this trademark to
defendant, allegedly without goodwill. Defendant subsequently registered several related marks
for electronic educational toys, educational software, school bags and children’s books.
Moreover, defendant also allegedly adopted and used a number of “LEAPFROG” or “LEAP”
formative marks, such as LEAPPAD and LEAPFROG LEARNING POND, in conjunction with
the registered trademarks. Plaintiff alleges that defendant has undertaken an aggressive
advertising campaign involving these marks, which has caused reverse confusion and misled the
trade and consumers into believing that PIL’s LEAP FROG books and products “emanated from,
or were somehow approved or sponsored by defendant.”

Accordingly, in its amended complaint, plaintiff seeks injunctive and monetary relief on
the basis of the following seven counts: (I) use of false marks which are likely to cause confusion
in violation of § 43(a)(1)(A) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(A); (ID fraudulent
maintenance of a federal registration in violation of §§ 14 and 38 of the Lanham Act, 15 U.S.C.
§§ 1064(3) and 1120; (III) abandonment of the ‘993 registration, within the meaning of § 45 of
the Lanham Act, 15 U.S.C. § 1127; (IV) false advertising in violation of § 43(a)(1)(B) of the
Lanham Act, 15 U.S.C. § 1125(a)(1)(B); (V) deceptive trade practices in violation of the Illinois
Consumer Fraud Deceptive Business Practices Act, 815 ILCS 505/2(8); (VI) false advertising

and unfair business practices under §§17200 et seq. of the California Business and Professional

>The court notes that the notice of assignment submitted to the PTO must be
distinguished from the actual deed conveying the trademark to LeapFrog RBT.

4


parties themselves, or their officers, made the misrepresentations in their applications for
registration. See, e.g., Schwinn, 339 F. Supp. at 984 (“Before Schwinn can incur liability under
[§ 38], Murray must present sufficient evidence to support a finding that Schwinn procured
registration by a declaration or representation that is either incorrect or a willful attempt to
mislead the Patent Office.”). (Emphasis added.) As the plain text of the statute suggests, it is the
“procurement” of the fraudulent registration that triggers damages under § 38.

Accordingly, the court concludes that, to the extent Count II purports to state a claim for
damages under § 38 of the Lanham Act, that claim must be dismissed. In so holding, the court
notes that plaintiff's claim for cancellation under § 14(3) is not affected by this ruling.

Count V - Illinois Deceptive Practices Act

In Count V, plaintiff incorporated the preceding paragraphs of the amended complaint,
and asserted that “the aforesaid acts of Defendant, LeapFrog, constitute deceptive trade practices
and acts in the conduct of Defendant’s business in violation of the Illinois Consumer Fraud
Deceptive Practices Act, 815 ILCS 505/2(8).” In its motion to dismiss, defendant maintains that
Count V fails to specify which of two Illinois statutes forms the basis of plaintiff's claim, and
that the supporting allegations lack sufficient particularity. In response, plaintiff asserts that the
Illinois Uniform Deceptive Trade Practices Act, 815 Ill. Comp. Stat. 510/2, has been
incorporated into the Consumer Fraud and Deceptive Practices Act, 815 Ill. Comp. Stat. 505/2.
Plaintiff further asserts that it is “well-settled that the elements of a good § 43(a) Lanham Act
claim overlap with the elements of a claim under the Illinois Uniform Deceptive Trade Practices

Act, provided that conduct within Illinois is involved.”


At the outset, the court notes that allegations of fraudulent procurement must be pled with
particularity, pursuant to Fed. R. Civ. P. 9(b). Oreck Corp, v. Thomson Consumer Elec., Inc.,
796 F. Supp. 1152, 1159 (S.D.Ind. 1992). Hence, a general allegation of fraud without an
accompanying recitation of details is insufficient. Id.

In Count II of its amended complaint, plaintiff seeks cancellation of the ‘993 registration
under § 14(3), as well as damages under § 38. Plaintiff alleges that the false Section 8 affidavit
filed by Willowisp II constituted fraud, and that defendant “knew or should have known by a
cursory examination of the Florida corporate records that the ‘993 registration was invalid and of
no force and effect, and... knew its title to [the ‘993 registration] rested on a series of invalid
assignments-in-gross in which no goodwill or related assets were conveyed with the trademark.”

In response, defendant asserts three distinct grounds for dismissing plaintiff's claim for
damages under § 38. First, defendant maintains that because plaintiff has not alleged that
LeapFrog “procured” the ‘993 registration, or made any false statements to the PTO, LeapFrog
cannot be liable in damages to plaintiff under § 38 of the Lanham Act. Defendant also asserts
that Count II is barred by the applicable statute of limitations. Last, defendant contends that
plaintiff has not alleged its injury with sufficient particularity, as required under Fed. R. Civ. P.
9(b). Because the court concludes that the first ground for dismissal of Count II is dispositive,
the court need not address the potential merits of defendant’s other arguments.*

Plaintiff maintains that Elec. Info. Publ’ns, Inc. v. C-M Periodicals, 163 U.S.P.Q. 624

(N.D.II. 1969), undermines defendant’s argument that its alleged awareness of Willowisp II’s

“The court notes, however, that statute of limitations is an affirmative defense, which
plaintiff is not required to plead around in a complaint. See Leavell v. Kieffer, 189 F.3d 492, 494
(7" Cir. 1999).


Code; and (VII) “trade name and trademark infringement and acts of unfair competition in
violation of the common law of the states of Illinois, California, and of the other states of the
Union.” Pursuant to Fed. R. Civ. P. 12(b)(6), defendant has moved to dismiss Counts II, V, and
VII for failure to state claims. For the reasons stated below, defendant’s motion is granted with
respect to Counts II and VI and denied with respect to Count V.
ANALYSIS

The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to rule
on its merits. See Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In ruling on
the motion, the court considers whether relief is possible under any facts that could be
established consistent with the allegations. Bartholet v. Reishauer A.G., 953 F.2d 1073, 1078 (7"
Cir. 1992). To this end, the court accepts the allegations of the complaint as true and views the

facts in the light most favorable to plaintiffs. Travel All Over the World, Inc. v. Kingdom of

Saudi Arabia, 73 F.3d 1423, 1428 (7th Cir. 1996). With these standards in mind, the court
analyzes Counts II, V, and VII.
Count II - Fraud in Maintaining a Trademark Registration
Section 38 of the Lanham Act, 15 U.S.C. § 1120, provides:
Any person who shall procure registration in the Patent and Trademark Office of a mark
by a false or fraudulent declaration or representation, oral or in writing, or by any false
means, shall be liable in a civil action by any person injured thereby for any damages
sustained in consequence thereof.

Section 14(3), 15 U.S.C. § 1164(3), further provides that, at any time, “any person who believes

that he is or will be damaged,” may file a petition to cancel a fraudulently registered mark.


elsewhere in the complaint that Willowisp II actually filed the allegedly fraudulent affidavits.
Moreover, the fraudulent misstatements were submitted to the PTO in 1990, five years before
LeapFrog RBT, defendant’s predecessor, existed as an entity. Consequently, based on the
allegations in the amended complaint, any insinuation that LeapFrog acted in concert with
Willowisp II when it filed the allegedly fraudulent affidavits is baseless.

Further, the subsequent assignment of the ’993 registration to LeapFrog does not result in
§ 38 liability against LeapFrog. Plaintiff cites to Marshak v. Treadwell, 58 F. Supp. 2d 551, 557
(D.N.J. 1999), aff'd 240 F.3d 184 (3d Cir. 2001), for the proposition that the assignee of a
trademark stands in the shoes of his assignors and can have no greater trademark rights than they
had. In Marshak, the district court cancelled the plaintiffs trademark after the jury determined
that the plaintiffs assignors had invalidly procured a trademark that they subsequently assigned
to the plaintiff. Id. at 561. The court notes, however, that the counterclaim at issue in Marshak
was brought under § 14(3) for cancellation, and did not involve a § 38 claim for damages.
Hence, the court in Marshak expressed no opinion on the appropriateness of levying damages
against an assignee for the alleged fraud of his assignors.

Thus, defendant’s alleged knowledge of the misrepresentations at the time it purchased
the trademark does not support a claim for § 38 liability. Plaintiff cites to Merry Hull & Co. v.

Hi-Line Co., 243 F. Supp. 45 (S.D.N.Y. 1965), and Schwinn Bicycle Co. v. Murray Ohio Mfg.

Co., 339 F. Supp. 973 (M.D.Tenn. 1971), for the proposition that, to state a claim under § 38,
plaintiff need only “allege that LeapFrog had knowledge of any false means or fraudulent or false
representations made with respect to the registration at issue.” Plaintiff's reliance on these cases

is misplaced, however, because both Merry Hull and Schwinn involved allegations that the


Nance
‘Minite Order Form (06/97)

United States District Court, Northern District of Iinois

‘wm Grapatter aa | Robert W. Gettleman | Suis at ace

CASE NUMBER 01 C 3876 DATE Oct. 23, 2002
CASE Publications International v Leapfrog Enterprises, Inc.,
TITLE

[In the following box (a) indicate the party filing the motion, e.g,, plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature
of the motion being presented.)

MOTION:

DOCKET ENTRY:

(1) im Filed motion of [ use listing in “Motion” box above.]

(2) Oo Brief in support of motion due

3) QO Answer brief to motion due. . Reply to answer brief due
(4) o Ruling/Hearingon___—_setfor__—sat__.

(5) ag Status hearing

(6) o Pretrial conference[held/continued to] [set for/re-set for]on_____—sset for at_
(7) oO Trial[set for/re-set for]on_-_at

(8) Q [Bench/Jury trial] [Hearing] held/continuedto| ss at__
(9) o This case is dismissed pursuant to

CFRCP4(m) CLocal Rule 41 OFRCP41(a)\(1) Cl FRCP41(a)(2).

go) [Other docket entry]

Memorandum opinion and order entered. Accordingly, defendant’s
motion to dismiss for failure to state a claim is granted with respect to the
damages claim in count II, granted without prejudice with respect to
count VII, and denied with respect to count V.

al) @ [For further detail! see order attached to the original minute order.]
No notices required, advised in open court.
No notices required. unter otvaives
X | Notices mailed by judge's staff.

OCT 29 mp
Notified counsel by telephone. me soceed
Docketing to mail notices.

Mail AO 450 form. unos ‘on IMP FRM hits
Copy to judge/magistrate judge. vr
courtroom. S 4 t i i iy 22 439 23 date mailed notice
GDS deputy’s
initials —
Dita/titne received in! <} 7
central Clerk’s Office mailing deputy initials



misunderstanding as to the source, sponsorship, approval, or certification of goods or services,”
as well as “any other conduct which similarly creates a likelihood of confusion or
misunderstanding.” Such activity, which apparently is relevant to the instant dispute, does not
necessarily constitute fraud in a manner that would implicate Fed. R. Civ. P. 9(b). See. e.g., Pain

Prevention Lab, Inc. v. Electronic Waveform Labs, Inc., 657 F. Supp. 1486, 1494 (N.D.IIL. 1987).

Therefore, Count V is subject to federal notice pleading, which requires only that the plaintiff
“set out in her complaint a short and plain statement of the claim that will provide the defendant

with fair notice of the claim." Scott v. City of Chicago, 195 F.3d 950, 951 (7" Cir. 1999).
As noted above, in evaluating a motion to dismiss, the court must read the allegations in

the complaint in a light most favorable to the plaintiff, and ask whether relief is possible under
any facts that could be established consistent with the allegations. Although the court would
prefer for plaintiff to specify which subsections were allegedly violated by defendant, plaintiff's
failure to do so is not grounds for dismissal under notice pleading. Indeed, the allegations in the
complaint are sufficient to put defendant on notice with respect to what claims it must defend
against in Count V, notwithstanding plaintiff's typographical errors. Accordingly, the court

denies defendant’s motion to dismiss Count V.‘

5This language is practically identical to the language in § 43(a)(1)(A) of the Lanham Act,
15 U.S.C. § 1125(a)(1)(A), asserted in Count I of the complaint, which provides relief for
misrepresentations that are “likely to cause confusion ... as to the origin, sponsorship, or approval
of his or her goods, services, or commercial activities by another person.” Defendant has not
asserted that plaintiffs Lanham Act claim is subject to the heightened pleading standards
outlined in Fed. R. Civ. P. 9(b).

“In the event that plaintiff does file an amended complaint, the court encourages plaintiff
to correct errors related to its citations to the Illinois Consumer Fraud Act and Illinois Uniform
Deceptive Trade Practices Act.

11


The Illinois Consumer Fraud and Deceptive Business Practices Act (the “Illinois
Consumer Fraud Act”) explicitly incorporates § 2 of the Uniform Deceptive Trade Practices Act
by prohibiting “unfair methods of competition and unfair or deceptive acts or practices, including
but not limited to ... the use or employment of any practice described in § 2 of the ‘Uniform
Deceptive Trade Practices Act.”” 815 Ill. Comp. Stat. § 505/2. Section 2 of the Uniform
Deceptive Trade Practices Act, 815 Ill. Comp. Stat. § 510/2, provides that “A person engages in
a deceptive trade practice when...the person... (2) causes likelihood of confusion or of
misunderstanding as to the source, sponsorship, approval, or certification of goods or services...
(12) engages in any other conduct which similarly creates a likelihood of confusion or

misunderstanding.”

Having established that the Illinois Consumer Fraud Act does in fact incorporate § 2 of
the Uniform Deceptive Trade Practices Act, the next issue becomes the degree of specificity with
which plaintiff must plead its claim. Defendant contends that plaintiff’s claim is subject to the
heightened pleading requirements set forth in Fed. R. Civ. P. 9(b), described above. See
Gallagher Corp. v. Massachusetts Mut. Life Ins. Co., 940 F. Supp. 176, 180 (N.D. Ill. 1996). The

plain text of the Illinois Consumer Fraud Act belies defendant’s contention, however.

On its face, in both its title and the substantive text of the statute, the Illinois Consumer
Fraud Act covers several types of conduct in addition to fraud, including all practices that violate
§ 2 of the Illinois Deceptive Trade Practices Act. See Mitsubishi Elec. Corp. v. IMS
Technology, Inc., 1997 WL 630187, at *10 (N.D.IIL. Sept. 30, 1997); Hoffman v. Szyszko, 1995
WL 519815, at *5 (N.D.III. Aug. 30, 1995). For example, as noted above, § 2 of the Illinois
Deceptive Trade Practices Act provides relief for business activities that create “confusion or

10


fraudulent misrepresentations does not result in liability under § 38. In Elec. Info. Publ’ns, the
court imposed § 38 liability on EIP, which had purchased a mark that was obtained through
fraudulent representations by another company, Ahrens. In finding liability, the court noted that,
at the time of the purchase, EIP knew that Ahrens had not used the mark for several years. Jd. at
630, Moreover, after the purchase, EIP “represented, and continued to represent, to the Patent
Office... that the two former Ahrens registrations were validly continued,” and filed false
affidavits with the PTO to maintain its registrations. Id. at 631. The court therefore concluded
that the federal registrations at issue were “procured and maintained by [EIP’s] purposeful
misrepresentation of the facts to the Patent Office concerning [EIP’s] and [Aherns’] transactions
and use, and thus were falsely and fraudulently registered within the meaning of [§ 38].” Id. at
632,

Notwithstanding the arguable similarities between Elec. Info. Publ’ns and the instant
dispute, and putting aside the appropriateness of awarding § 38 liability for misrepresentations
made in connection with maintenance, rather than procurement, of a registration, the court
concludes that plaintiff has not stated a claim against LeapFrog under § 38. In contrast to Elec.
Info. Publ’ns, plaintiff in the instant case has not alleged that defendant itself made any
fraudulent misrepresentations to the PTO in connection with the maintenance of the registration
at issue.

The amended complaint merely states that the ‘993 registration was “fraudulently
maintained by the filing of a false Section 8 Declaration... by a declarant that was not the owner
of said registration.” This allegation conspicuously fails to identify defendant or its predecessor,

LeapFrog RBT, as the party that allegedly made the misstatements. Indeed, plaintiff concedes


te

corporation bearing the name Willowisp Press, Inc. was incorporated in Florida (“Willowisp II”).
According to public records attached to plaintiff's complaint, Willowisp II and Willowisp I had
identical addresses, as well as the same board of directors and officers.

In August 1990, Willowisp II filed a combined declaration pursuant to Sections 8 and 15
of the Lanham Act, affirming that the ‘993 registration had been in continuous use over the
preceding five years and was still in use in commerce on children’s books, thus preserving the
registration of the trademark on the principal register of the PTO. On April 24, 1992, Willowisp
II merged into SFB Services, Inc. On July 20, 1994, Willowisp II assigned the ‘993 registration
to School Book Fairs.

In 1995, LeapFrog RBT adopted the word LEAPFROG and a designation consisting of a
depiction of a green frog on a block as a trademark for a toy phonics bus. In 1997, LeapFrog
RBT applied to register this design mark as a trademark for children’s educational toys. The
registration was blocked, however, by the ‘993 registration. Plaintiff alleges that after
ascertaining that the ‘993 registration was not being used in commerce in 1997, LeapFrog RBT
sought to purchase the mark and related registration to enable the registration of its own design
mark. This purchase was allegedly consummated in a quitclaim assignment on July 18, 1996, in
which LeapFrog RBT paid School Book Fairs a “nuisance sum” for an assignment in-gross of
bare title to the ‘993 registration. Plaintiff alleges that neither goodwill nor related business

assets was conveyed to LeapFrog RBT with the ‘993 registration. According to the assignment


sells children’s books throughout the United States on topics ranging from baby’s first
vocabulary to favorite bible stories. Since 1990, PIL has used a mark consisting of the words
“LEAP FROG” in white block letters, beneath which is the depiction of a green frog displayed
against a darker green rectangle, along with the “TM” symbol. This designation has been used on
a number of PIL’s book sets, including collections of Christmas stories, Beatrix Potter animal
stories, fairy tales, and nature stories, as well as CD-Roms, plush toys, and flashcards. These
products have been sold in a variety of retail venues, including Target, Wal-Mart, K-Mart,
grocery stores and bookstores.

LeapFrog Enterprises, Inc. (“LeapFrog”) is a Delaware corporation, with its headquarters
and principal place of business located in Emeryville, California. LeapFrog’s predecessor,
LeapFrog RBT, LLC (“LeapFrog RBT”) was founded in 1995. LeapFrog sells educational toys
for infants and toddlers, including interactive children’s books.

In 1984, Willowisp Press, Inc. (“Willowisp I”) registered a trademark for children’s
books consisting of the words LEAPFROG SERIES LIMITED VOCABULARY, arranged in a
circle with the depiction of a sitting cross-eyed frog, which was assigned U.S. Reg. No.
1,306,993 (the “‘993 registration”) by the United States Patent and Trademark Office (PTO).
Plaintiff alleges that only two titles bearing this logo were ever distributed or offered for sale by
Willowisp I or its successors-in-interest, and the entire saleable inventory of these books was
disposed of or sold by July 1988.

On July 29, 1988, Willowisp I merged into School Book Fairs, Inc. (“School Book
Fairs”), a Florida corporation; however, this merger was not recorded in the PTO, As a result,

title to the ‘993 registration remained in the name of Willowisp I. On August 2, 1988, anew


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION D
PUBLICATIONS INTERNATIONAL, LTD., ) OCKETED
an Illinois corporation, ) OCT 2 929 02
)
Plaintiff, )
) No. 01 C 3876
v. )
) Judge Robert W. Gettleman
LEAPFROG ENTERPRISES, INC., a Delaware )
corporation, )
)
Defendant. )

MEMORANDUM OPINION AND ORDER

Publications International, Ltd. filed a seven-count amended complaint seeking injunctive
and monetary relief against LeapFrog Enterprises, Inc., alleging numerous violations of the Lanham
Act, 15 U.S.C. § 1051 et seq., as well as state law claims of unfair competition, deceptive trade
practices, and false advertising.’ Defendant has filed a motion pursuant to Fed. R. Civ. P. 12(b)(6)
to dismiss three of the seven counts of the amended complaint for failure to state claims. For the
reasons stated below, defendant’s motion to dismiss is granted in part and denied in part.

BACKGROUND’
Publications International, Ltd. (“PIL”) is an Illinois corporation, with its headquarters

and principal place of business located in Lincolnwood, Illinois. PIL produces, distributes and

‘Defendant has also filed counterclaims for trademark infringement and unfair
competition, which are unrelated to the instant motion.

"In distilling the factual background of the instant dispute, the court is not limited merely
to the allegations in the complaint and exhibits attached thereto. Documents that a defendant
attaches to a motion to dismiss are considered part of the pleadings if they are both central to the
plaintiff's claim and referenced in the complaint. Venture Associates Corp. v. Zenith Data

Systems Corp., 987 F.2d 429, 431 (7" Cir, 1993).



“

Count VII - Common Law Unfair Competition

In Count VII, plaintiff alleges “trade name and trademark infringement and acts of unfair
competition in violation of the common law of the states of Illinois, California, and of the other
states of the Union.” In its motion to dismiss, defendant contends that plaintiff's incorporation of
91 paragraphs of the complaint fails to notify LeapFrog which paragraphs allegedly support the
claim of unfair competition, and that plaintiffs reliance on the law of every state of the union
“fails to provide LeapFrog ‘fair notice’ of exactly what alleged facts and laws it is supposed to

defend against.”

While the court does not take issue with plaintiff's incorporation of the previous 91
paragraphs of its complaint, the court does conclude that plaintiff must specify which states’
common laws are at issue. Indeed, the damages available for an unfair competition claim, as
well as the specific elements thereof, may vary significantly from state to state. Hence, the court
grants defendant’s motion to dismiss Count VII without prejudice.

CONCLUSION
For the reasons stated herein, defendant’s motion to dismiss for failure to state a claim is

granted with respect to the damages claim in Count II, granted without prejudice with respect to

Biche

v
Robert W. Gettleman
United States District Judge

Count VII, and denied with respect to Count V.

ENTER: October 23, 2002

12