Free Response - District Court of Arizona - Arizona

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MATHEW & ASSOCIATES IVAN K. MATHEW (SBN: 011610) 3300 N. Central Avenue, Suite 1730 Phoenix, Arizona 85012 Tel: (602) 254-8088 / Fax: (602) 254-2204 E-mail: [email protected] Attorneys for Defendants RICKY LEE HANCOCK, BRENDA HANCOCK, RICK HANCOCK HOMES, L.L.C. and RLH DEVELOPMENT, L.L.C. IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Meritage Homes Corporation, et al., Plaintiffs, v. Ricky Lee Hancock, et al., Defendants. _________________________________________ AND RELATED COUNTERCLAIMS AND THIRD PARTY CLAIMS CASE NO. CV-04-0384-PHX-ROS DEFENDANTS' RESPONSE TO PLAINTIFFS' SUPPLEMENTAL BRIEF PER THE COURT'S APRIL 20, 2007 ORDER

(Assigned to the Hon. Roslyn O. Silver)

The court has tentatively identified Counts One and Two as being subject to dismissal, as there can be no confusion as to the origin of the mark as a matter of law. The state claim should be dismissed as they are subsumed by the Lanham Act. The Ninth Circuit has held trademark law generally does not reach a sale of genuine goods bearing a true mark. American Circuit Breaker Corp. v. Oregon Breakers Inc., 406 F.3d 577, 585 (9th Cir. 2005.) The Ninth Circuit held trademark law is designed to prevent sellers from confusing or deceiving consumers about the origin or make of a product, which confusion ordinarily does not exist when a genuine article bearing a true mark is sold. Id. Meritage brought this lawsuit under the Lanham Act prohibiting unfair competition and the use of infringing and confusing trade names. (Second Amended Complaint, ¶ 72.)

Meritage claimed its actions were likely to cause confusion or mistake or will deceive
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customers in interstate commerce as to the affiliation, connection, or association between Defendants' mark and Meritage's Hancock trademarks. (Second Amended Complaint, ¶ 76.) Meritage claims the Hancock mark in connection with home building and related activities creates a likelihood of confusion or deception of the consuming public as to the source of the retail services provided by Defendants, creates a risk that suppliers and credit sources will confuse the Defendants with Meritage and creates a false impression of an affiliation or endorsement by or other connection with Meritage's Hancock mark. (Second Amended Complaint, ¶ 84.) (Emphasis added.) There has been an utter failure to identify false advertising or disparagement of Meritage products. Misrepresentation as to `source' is different than misrepresentation as to quality of product. Chevron Chem. Co. v. Voluntary Purchasing Groups, Inc., 659 F.2d 695, 701-02 (5th Cir. 1981). Nor is there a claim that there is a palming off of inferior quality homes. Meritage acknowledges Defendants' products are quality homes. (Second Amended Complaint, ¶ 83.) (Emphasis added.)
I.

MERITAGE'S CLAIM THAT MICHAEL JORDAN AND TWENTIETH CENTURY FOX CASES ARE AN OVERSTATEMENT OF THE LAW, IS, IN AND OF ITSELF, PROBLEMATIC. Meritage's claim that MJ & Partners Restaurant Ltd., P'ship v. Zadikoff, 10 F. Supp.

2d 922, 928 (N.D. Ill. 1998) (hereinafter "Michael Jordan") and Twentieth Century Fox Film Corp. v. Marvel Enters., Inc., 277 F.3d 253 (2d Cir. 2002), (hereinafter "Fox") cases are an overstatement of the law, is, in and of itself, problematic. Published decisions are the law. It is Meritage's realization of a fatal hurdle. The Michael Jordan case is important as it analyzes the body of case law regarding a trademark and how there cannot be any confusion as a matter of law when that trademark is associated with the licensor or to someone who has the permission to use the mark from the licensor. Id. at 927-928. The Michael Jordan case relied heavily on the case of Ballet Makers, Inc. v. The United States Shoe Corporation, 633 F.Supp. 1328 (S.D.N.Y. 1986) which the court identified as the "seminal" case on this issue. Michael Jordan at 927-929.
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In Ballet Makers, the court held that there is no cause of action against a subsequent licensee as to confusion or to source of goods as the origin in the original. Michael Jordan at 928. It is well established that in order to succeed on a claim under § 1125(a), a plaintiff must prove a "likelihood" of confusion, not a mere "possibility" of confusion. Id. at 927. Because a trademark is an identifier rather than a property "right," the use of a competitor's mark that does not cause confusion as to source is permissible. Id. The Michael Jordan court noted that other courts hold that a licensee of the right to distribute goods and services bearing a certain trademark cannot bring an action under § 1125(a) against the trademark owner and/or its affiliates for using the trademark in violation of the licensing agreement. Id. at 927.

Confusion of source cannot exist when the disputed goods bear a label which has been authorized by the owner of the mark in issue, who has also licensed another manufacturer to use the same label. Id. The court held as a matter of law it could not. Id. In reviewing Ballet Makers, the Michael Jordan court held "confusion exists only where the public believes that a product is sponsored by the mark's owner when in fact it is not" (emphasis added). Michael Jordan at 928. This rule, the court concluded, "reflects the purpose underlying federal trademark law which the `confusion' standard is designed to effectuate, namely, protecting the public's ability to rely on a trademark as indicative of the source of the goods, which in turn, is indicative of the goods' quality." Id. Applying this framework, the court noted that in Ballet Makers, since the subsequent licensee was authorized by U.S. Shoe to produce and distribute goods bearing the Capezio mark, those goods accurately designated the correct source of the goods and therefore did not create a likelihood of confusion as a matter of law. Id. There is no dispute that Rick Hancock was authorized by Greg Hancock to use the mark. There can be no confusion of the "source" of the goods even where a separate licensee has been authorized to actually produce the trademark-holder's product. Id. The relevant inquiry under § 1125(a) is whether the public is likely to be confused about whether a product (in this case homes) is sponsored by the mark's owner (in this case Greg Hancock). Id.
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Following Ballet Makers and Michael Jordan, Meritage cannot establish the likelihood of such confusion as "a matter of law." Id. The court noted there need not be a written agreement between Rick Hancock and Greg Hancock. Id. There is no likelihood of confusion since Greg Hancock is the source of the product. This fact, like that in Michael Jordan, is fatal to plaintiffs' Lanham Act claim. Id. The Michael Jordan court noted a claim under § 1125(a) does not lie where there is no confusion about the ultimate source of the goods (interpreted to mean the owner of the mark), even though an exclusive licensee of the mark has a legitimate claim that its licensing agreement has been violated. Id. The court held that licensee had no claim of trademark infringement where the owner of the mark had subsequently authorized a different company to manufacture identical goods. Id. at 928; L.G.B. Inc. v. Gitano Group Inc., 769 F.Supp. 1243, 1250 (S.D.N.Y. 1991) (dismissing plaintiff licensee's claim for trademark infringement where owner of mark sold product in violation of plaintiff's exclusive licensing agreements); The court noted this makes sense since the Lanham Act is designed to protect the public, not licensees. Michael Jordan at 928. Greg Hancock retained ultimate control over the quality of the manufactured goods produced by the defendant licensee. (License Agreement, ¶ ¶ 3.2, 3.3, 3.4, 3.6 and 4 attached as Exhibit "1".) See, Michael Jordan at 929. Therefore, Greg Hancock, like Michael Jordan, reserved the requisite degree of control to establish Hancock as the "source" of the goods. Id. In Fox, 277 F.3d 253, Fox sued for violation of the Lanham Act and state unfair competition. The District Court dismissed the Lanham Act claim on the ground that a trademark licensee has no goodwill in the licensed trademark, and therefore has no standing to sue. The unfair competition claim was also dismissed. Id. at 256-257. As a matter of law, Meritage has no goodwill. The goodwill belongs to Greg Hancock not Meritage. Fox at 259. Meritage claims it has goodwill of $50,000,000 in the Hancock name. "It is clear that use of a mark by a person while such person was a licensee builds up no rights in the mark as against the licensor." Id. Thus, Meritage had no rights against Hancock
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or his assignees or licensees. Meritage has no goodwill. Indeed, Hancock, like Marvel, as the licensor of the "X-Men" property, was obliged to maintain some control over the quality of the licensed property as an incident of valid licensing or risk abandonment of its mark - which he did. In Fox, the Second Circuit also ruled that the licensee had failed to state a claim as to either false designation or false description, "falsely designated to the general public the nature, origin, and source" of the TV series against the licensor. The court noted that for there to be false advertising, there must be (1) false claims to promote a competing product or (2) false disparagement of the licensee's product. Id. at 260. There have been no allegations of false advertising or designations. In Fox, the Second Circuit unanimously held that as a matter of law there can be no confusion when the trademark relates back to an actual owner of the mark or to someone who has the permission of the owner to utilize the mark. Id. at 259. In this particular case, Meritage acknowledges that Rick Hancock obtained the permission of Greg Hancock, the licensor, to use the mark. (Plaintiffs' Response in Opposition to Motion for Summary

Judgment, Document #436, p. 10, ll. 1-3.) Although it was not necessary for Rick Hancock to obtain permission from Greg Hancock, the fact of the matter is that he did obtain permission. This is fatal to Meritage. Greg Hancock owns the mark. He is the origin of the mark. Meritage's bald assertion that the Ninth Circuit would not follow Michael Jordan is extraordinary. See also, p. 1, ll. 24-27 of this document. Michael Jordan identifies Ballet Makers as a seminal case. Ballet Makers relied heavily upon the Ninth Circuit case of Monte Carlo Shirt, Inc., v. Daewoo International (America) Corporation, 707 F.2d 1054 (9th Cir. 1983). Ballet Makers at 1333-1336.
II.

THE CASES CITED BY PLAINTIFFS ARE EASILY DISTINGUISHABLE AND ARE NOT HELPFUL TO THE ANALYSIS OF THIS CASE. Almost all cases cited by Plaintiffs are readily distinguishable; namely, they do not

involve the source of the mark as being the licensor. In addition, the case at bar does not involve gray market goods imported into the United States to compete with the same goods in
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the United States. The court need not be distracted by plaintiffs last ditch efforts to salvage what cannot be salvaged. In Walker & Zanger, Inc. v. Paragon Industries, Inc., 465 F.Supp. 2d 956, the court addressed similar arguments and granted summary judgment to the defendants on the issues of trade dress, false advertising, and state unfair competition claims all based on Ninth Circuit law. Finally, the case of Burma-Bibas, Inc., v. Excelled Leather Coat Corp., 584 F.Supp. 1214, 1216-17, S.D.N.Y. 1984, was not decided on the basis of "association" versus "source" origin. It was distinguished and limited to the fact that the fashion industry has a single source manufacturing. Michael Jordan at 929. Id. In addition, none of the cases cited by Meritage involve the use of disclaimers. a. Trade Dress.

Trade dress is defined as a product's total image including features such as size, shape, color or color combinations, texture, graphics, or even particular sales techniques. See, Vision Sports, Inc. v. Melville Corp., 888 F.2d 609, 613 (9th Cir. 1989); John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966, 980 (11th Cir.1983). In Walker & Zanger, Inc. v.

Paragon Industries, Inc., 465 F.Supp. 2d 956, the court granted summary judgment to defendants noting that "plaintiff's resorts to empty generalities" regarding trade dress was insufficient as a matter of law. Id. at 963. A trade dress allegation cannot be generic. Id. at 964. The concept of trade dress is not so pliable that it can be stretched to give exclusive rights to abstract images or marketing themes. Id. The court noted "if" the law protected style at such a level of abstraction, Braque might have prevented Picasso from selling Cubist paintings in the "United States". Id. Meritage claims are woefully insufficient and

insignificant. Neither, Meritage's Second Amended Complaint nor the Motion for Summary Judgment sets forth any reference to trade dress. There is no reference to packaging. There is no allegation of a similar type of model homes, brick, floor plan, or waitress uniform. Nor can there be. The functionality of a house is an affirmative defense anyway. Walker & Zanger, Inc. at 964. Moreover, none of the cases involve large dollar items such as a house. It is presumed when a large dollar purchase is involved, that the consumer will use large amounts
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of care and confusion is not presumed. Official Airline Guide v. Goss, 6 F.3d 1385, 1393 (9th Cir. 1993). When consumers exercise heightened care in evaluating the relevant products before making purchasing decisions, courts have found there is not a strong likelihood of confusion. Id.; Checkpoint Systems, Inc. v. Checkpoint Software Technologies, Inc., 269 F.3d 270, 284-85 (3rd Cir. 2001.) Where the relevant products are expensive, or the buyer class consists of sophisticated or professional purchasers, courts have generally not found Lanham Act violations. ("Inexpensive goods require consumers to exercise less care in their selection than expensive ones. The more important the use of the product, the more care that must be exercised in its selection.") Id. As a leading treatise notes, obviously, the price level of the goods or services is an important factor in determining the amount of care the reasonably prudent buyer will use. If the goods or services are relatively expensive, more care is taken and buyers are less likely to be confused as to source or affiliation. Id. McCarthy on Trademarks, § 23:95; See also, Astra Pharm. Prods., Inc. v. Beckman Instruments, Inc., 718 F.2d 1201, 1206-07 (1st Cir.1983) (expensive health care equipment elevated concern of purchasers). A house is a large, not often occurring purchase, and a large dollar purchase. It is different than buying a taco. See, Two Peso v. Taco Cabana, 505 U.S. 763, 765 (1991). b. False Advertising.

Similarly, in Walker & Zanger, Inc., the court granted summary judgment rejecting a claim for false advertising under § 43(a) of the Lanham Act. Id. at 968-970. The court noted that for there to be a false advertising claim, there first needed to be a false statement of fact. Id. at 968, 969. If the advertisement is not false on its face, plaintiff must produce evidence

usually in the form of market research or consumer surveys showing "exactly" what message ordinary consumers perceive which is purportedly false. Id. This requires a statistically significant part of the audience to hold the false belief allegedly communicated by the challenged advertisement. Id. at 970. (Emphasis added.) There is no market research or survey before this court. In Walker & Zanger, Inc., the court granted summary judgment
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noting that the advertisements were not false on its face. Meritage has not come forth with any false advertising. In Walker & Zanger, Inc., the court also dismissed the state causes of action of unfair competition. The court noted, "in the Ninth Circuit claims of unfair

competition and false advertising under a state's statutory and common law are substantially congruent to claims made under the Lanham Act." Section V below.
III.

Id. at 970. See further discussion in

MERITAGE FAILED TO COMPLY WITH THIS COURT'S ORDER DIRECTING MERITAGE TO ADDRESS AND SHOW HOW THE PUBLIC HAS BEEN CONFUSED AS TO THE ORIGIN OF THE MARK AND ITS ASSOCIATION WITH GREG HANCOCK. Meritage failed to comply with this court's Order directing Meritage to address and

show how the public has been confused as to the origin of the mark and its association with Greg Hancock. As mentioned earlier, there is no survey. Meritage merely submitted a selfserving declaration by Mario Atkins who has signed a disclaimer stating that he did not realize that Rick Homes is not associated with Meritage. However, see acknowledgment of

disclosure signed by Mario Atkins attached as Exhibit "2". This specific issue was addressed in the Michael Jordan case, wherein the court reiterated that bringing one episode of alleged confusion is not germane to the analysis in this case. Michael Jordan at 927. As Ballet Makers makes clear, any feigned confusion is irrelevant anyway for the purposes of § 1125(a). Michael Jordan at 928. The relevant inquiry is simply whether the public is confused as to whether the mark's owner has approved the use of the mark. Id. at 928. It is undisputed that Greg Hancock has approved the use of the mark in connection with Rick Hancock's business and, therefore, no such likelihood of confusion exists. First, Meritage used the word

"consumers" (plural) in their brief. Where are the masses of confused consumers? A plaintiff must prove that a likelihood of confusion would occur to a significant number of consumers and not merely in an isolated situation. Door Systems, Inc. v. Pro-Line Door Systems, Inc., 83 F.3d 169, 173 (7th Cir.1996); Power Beverages, Inc. v. Perrier Group of America, Inc., 269 F.3d 114, 124 (2nd Cir. 2001); Columbia University v. Columbia/HCA Healthcare, 964 F.Supp. 733, 746 (S.D.N.Y. 1977) (holding that momentary confusion with a small number of
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non-purchasers constituted de minimus showing of actual confusion.) One anecdotal act is not evidence of confusion is not sufficient to show likelihood of confusion. Id. Furthermore, the declaration, if taken as true, shows that Mario Atkins was confused between Rick Hancock Homes and Hancock Communities, i.e., Greg Hancock. This does not state a claim for relief, as there is no misrepresentation as to origin. Michael Jordan at 928. In addition, unlike the cases of Michael Jordan, Ballet Makers and Fox, there are disclaimers which had to be signed by potential buyers of Rick Hancock Homes. Again, there is no allegation of confusion. The declaration of Mario Atkins is irrelevant as to the issue of confusion of origin and will not preclude summary judgment as a matter of law. See, Murray v. Cable National Broadcasting Co., 86 F.3d 858, 860 (9th Cir. 1996); Door Systems, Inc. v. Pro-Line Door Systems, Inc., 83 F.3d 169, 173 (7th Cir.1996). (Affirming summary judgment finding no infringement of mark "door systems".)
IV.

MERITAGE IS NOT EVEN A LICENSEE. Meritage is not even a licensee at this point in time. Unlike the unsuccessful plaintiffs

in Michael Jordan, Ballet Makers and Fox, they cannot point to a contract that has not been terminated. Meritage acknowledged the contract was terminated. (See Meritage's MSJ, Document #411, p. 2, l. 23.) In this case, Meritage has acknowledged that the License Agreement has been terminated. Meritage has no standing to contest Rick Hancock's

contemplated use of his own name. S&R Corp. v. Jiffy Lube International, Inc., 968 F.2d 371 (3d Cir. 1992); McDonald's Corp. v. Robertson, 147 F.3d 1301 (11th Cir. 1998) (holding that termination of the License Agreement precludes enforcement of trademark by licensee, i.e., holdover licensee). In Fox, the court noted that lack of standing to sue a licensee under the Lanham Act. Fox at 259, fn 3.
V.

MERITAGE FAILS TO ADDRESS THIS COURT'S SPECIFIC DIRECTION AS TO THE EFFECT OF A FEDERAL COURTS DISMISSAL OF A LANHAM ACT CLAIM ON A STATE COURT UNFAIR COMPETITION CLAIM. Again, Meritage fails to address this court's specific direction as to the effect of a

Federal courts dismissal of a Lanham Act Claim on a state court unfair competition claim. Rather, Meritage argues the converse: i.e., if there is no dismissal of the federal claim there
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can be no dismissal of the state claims. Meritage cites Fairway Constructors, Inc. v. Ahern, 193 Ariz. 122, 124, 970 P.2d 954, 956 (App. 1998) in support of this proposition. However, Fairway Constructors held just the opposite. In Fairway Constructors, the court held that since the Lanham Act claim was dismissed, the state claim of unfair competition also had to be dismissed. Id. at 954. Indeed, Fairway Constructors went even further and held that dismissal was required as it was preempted by federal law. Id. In the Ninth Circuit, dismissal of the Lanham Act claim will also preclude a claim of unfair competition based upon state law. Antelecom, Inc. v. Japan Telecom America, Inc., 287 F.3d 866, 875 (9th Cir. 2002.) (Plaintiff's California unfair competition claim failed because "its related Lanham Act claim failed"); Cleary v. News Corp. 30 F.3d 1255, 1262-1263 (9th Cir. 1994) (Cited by Walker & Zanger, Inc. at 970 to dismiss state unfair competition claim.) Furthermore, in Michael Jordan, a case to which the court directed Meritage's attention, that court also held that a dismissal of the Lanham Act would result in dismissal of the unfair competition claims. Michael Jordan at 929. The unfair competition must rise or fall based on the Lanham Act claim. Michael Jordan at 929.
VI.

CONCLUSION Under the facts in this case, there is no confusion as to the origin and therefore does not

create a likelihood of confusion within the meaning of § 1125(a). Therefore, based upon the above authorities and analysis, it is respectfully requested that Count 1, Lanham Act, and Count 2, Unfair Competition, claims be dismissed. RESPECTFULLY SUBMITTED this 2nd day of May, 2007. MATHEW & ASSOCIATES By: /s/Ivan K. Mathew Ivan K. Mathew, Attorneys for Ricky Lee Hancock, Brenda Hancock, Rick Hancock Homes, L.L.C. and RLH Development, L.L.C.

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CERTIFICATE OF SERVICE Meritage v. Hancock, et al. Case No. CV 04 00384 ROS

I hereby certify that on May 2, 2007, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Dan W. Goldfine Richard G. Erickson Adam Lang Snell & Wilmer, LLP One Arizona Center 400 E. Van Buren Phoenix, AZ 85004-2202 e-mail: [email protected] Attorneys for Plaintiffs and Counterdefendants and Third Party Defendants Steve Hilton and John Landon Timothy J. Burke Fennemore & Craig, P.C. 3003 N. Central Avenue, Suite 2600 Phoenix, AZ 85012 e-mail: [email protected] Attorneys for Third Party Defendant, Snell & Wilmer, LLP Robert M. Frisbee Frisbee & Bostock 1747 E. Morten Avenue, Suite 108 Phoenix, AZ 85020 e-mail: [email protected] Attorneys for Defendant Gregory Hancock

Grant Woods Grant Woods, P.C. 1726 N. Seventh Street Phoenix, AZ 85006 e-mail: [email protected] Attorneys for Plaintiffs and Counterdefendants and Third Party Defendants Steve Hilton and John Landon

s/Karen Gawel