• How to Write a Well-Pleaded Complaint

    by  • August 17, 2015 • trademark • 1 Comment

    The Lanham Act provides a federal cause of action for trademark registration and infringement, including for infringement of unregistered (so-called “common law”) trademarks. It is well-accepted, though, that the Lanham Act doesn’t preempt state law on the subject; all states* have laws providing for registration at the state level and an infringement cause of action. State courts have concurrent jurisdiction with federal courts for Lanham Act claims, 3-11 Gilson on Trademarks § 11.03, but since it is a federal cause of action the defendant may elect to remove the case to the federal district court for that state rather than have it remain in state court. All of this means that most trademark infringement cases end up in federal court, the “overwhelming majority,” according to Gilson on Trademarks. 3-11 Gilson on Trademarks § 11.01.

    But not all. For a plaintiff to avoid ending up in federal court, it has to plead state law-only claims, a task that SSG Baseball, LLC successfully achieved. In SSG Baseball, LLC v. Select Sports Group, LLC, a majority of the owners of defendant Select formed SSG Baseball, L.P. (“SSG LP”). Select had a partial ownership interest in SSG LP. According to the complaint, Select was a sports agency representing football players and SSG LP was an agency representing baseball players.

    SSG LP was allowed to use the SELECT SPORTS GROUP trademark and when one of the SSG LP employees left to join Access Sports, LLC, Access was also allowed to use the name “SSG Baseball” (and perhaps the name “Select Sports Group,” the opinion isn’t clear) to ease the employee’s transition. Select later withdrew its permission. Access then changed its name to “SSG Baseball, LLC,” the plaintiff in the case.** SSG LLC claims that Select assigned the mark SELECT SPORTS GROUP BASEBALL to Access but, needless to say, the validity of the document is disputed.

    Select was the first to the registration office, with applications for SELECT SPORTS GROUP and the SSG logo. SSG LLC was second, with applications for SELECT SPORTS GROUP BASEBALL and SSG BASEBALL. The SSG LLC applications were refused registration based on a likelihood of confusion with the pending Select applications so SSG LLC opposed the Select applications.

    SSG LLC then filed a declaratory judgment action in Texas state court praying for a declaration of ownership of the common law SELECT SPORTS GROUP BASEBALL and SSG BASEBALL trademarks. Thereafter it sought suspension of the pending opposition, maintaining that the resolution of the state court action “will have a bearing on the Opposition.” (Emphasis in original.) In response Select removed the state lawsuit to federal court on the theory that it stated a cause of action under federal law. SSG LLC moved to remand the case back to state court.

    SSG LLC had the better side. The theory is the “well-pleaded complaint,” that is, “removal is not possible unless the plaintiff’s ‘well pleaded complaint’ raises issues of federal law sufficient to support federal question jurisdiction.” It makes the plaintiff “master of the claim; he or she may avoid federal jurisdiction by exclusive reliance on state law. Therefore, even if federal claims are available, a plaintiff may remain in state court by relying exclusively on state law.” However, under the “artful pleading doctrine,” even though a plaintiff may have strategically omitted federal law claims, if it is in an area where federal law completely preempts the purported state law claim, the case can be removed. Rivet v. Regions Bank, 522 U.S. 470, 118 S.Ct. 921 (1998).

    As noted above trademark infringement can be a state law claim, so what part of the SSG LLC claim was exclusively federal? Although conceding that not all Lanham Act claims are preempted, Select claimed that the registration of trademarks with the PTO and the scope of the registrations is exclusively federal.†

    The court disagreed.

    Select has not demonstrated that Congress has completely preempted the entire area of trademark law such that any claim asserting ownership of, and the right to use, a state common law trademark, and seeking a declaration that the claimant is not infringing another party’s common law trademark rights, is necessarily federal in character. Select does not cite a single case that holds that such state claims are completely preempted. And the federal statutes that it cites deal with federal trademark registration. But SSG is not seeking trademark registration, and, as the court explains below, registration is not even required to bring a common law trademark claim under Texas law.

    Courts have held, however, that state-law trademark claims are not completely preempted.

    ***

    Although the decision in this lawsuit could affect (perhaps even determine) who is entitled to register the Marks, SSG is not suing for registration of the Marks or for a declaration that it, rather than Select, is entitled to register the Marks. At most, SSG is bringing a declaratory judgment action that could impact who is entitled to federal trademark registration. Select is therefore incorrect in asserting that “[b]ecause [SSG] is seeking a determination regarding the federal registration of its marks and [Select’s] marks and the scope of such registrations, its claims arise under federal law and were properly removed, notwithstanding [SSG’s] efforts at artful pleading to avoid revealing the true federal nature of its claims.” SSG is seeking no such determination.

    In fact, Select’s emphasis on the premise that SSG is asserting a registration-related remedy overlooks that SSG is asserting only a Texas common law trademark right. Although the elements of common law trademark infringement under Texas law are the same as those under federal trademark law, a Texas common law trademark infringement action does not even require that the trademark be registered.

    (Italics in original.)

    Select also argued that SSG LLC’s statement in the Opposition proceeding, that the state court case would affect the outcome of the opposition proceeding, judicially estopped SSG LLC from arguing that its claim did not arise under federal law. But

    The position that SSG took before the TTAB is not plainly inconsistent with any position that SSG is taking in this court in support of its remand motion, or vice versa. Before the TTAB, SSG asserted that this lawsuit could affect the trademark proceedings pending in the PTO. In particular, SSG represented that this lawsuit would likely have a direct bearing on the rights of the parties to register their respective trademarks, and in the appropriate description of services that each party should receive on their respective federal registrations. That position, however, is entirely consistent with an assertion that state law would determine who had the rights to the marks and was entitled to trademark protection. SSG did not represent that anything about this lawsuit arose under federal law. In fact, the TTAB’s conclusion that this case involves a dispute over the parties’ respective rights in the marks—while undoubtedly correct—says nothing about the nature (federal or state, statutory or common law) of the dispute.

    Indeed, ownership of a trademark (patents and copyrights too) is very often a matter of state law, whether it be contract, divorce or estate law. This is the right outcome. Something the court didn’t much doubt, awarding SSG LLC its attorneys’ fees because “Select did not have an objectively reasonable basis to remove this case.”

    SSG Baseball, LLC v. Select Sports Group, LLC, No. 3:15-CV-0966-D (Aug. 13, 2015).

    * I’m assuming all states do. If there is a state that doesn’t, please share.
    ** The Texas complaint claims that SSG LLC is a successor to SSG LP and doesn’t mention Access, but it doesn’t matter for purposes of the legal analysis.
    † Courts can “determine the right to registration, order the cancellation of registrations, in whole or in part, restore cancelled registrations, and otherwise rectify the register,” Lanham Act § 37, 15 U.S.C. § 1119, but the federal statute defines the conditions for registration.

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