The opinion of the court was delivered by: WILLIAMS
Plaintiff Ultrapure Systems, Inc. ("Ultrapure") brought this action against Defendants HAM-LET Group, Ltd. ("HAM-LET"), HTC Ltd. ("HTC"), Hi-Tech Components, Inc., Kinetic Systems, Inc. ("Kinetic"), High Purity Supplies, Inc. ("High Purity"), and Components Gaz Microelectronique Internationale ("CGMI") for trademark infringement, false designation of origin, unfair competition, breach of contract, and interference with business relations. In its motion, Ultrapure applies for a preliminary injunction to prohibit Defendants from using the mark GAZLINE or selling GAZLINE fittings in the United States. In response, Defendants move to dismiss Ultrapure's claims for trademark infringement and breach of contract. For the reasons set forth below, the Court DENIES Ultrapure's application for a preliminary injunction based on trademark infringement, ORDERS an evidentiary hearing on the unfair competition claim and DENIES Defendants' motion to dismiss counts one and seven of Ultrapure's complaint.
Ultrapure, a U.S. company, manufactures and distributes metal gasket couplings ("fittings") for gas circulation systems used in the microelectronics industry. Ultrapure manufactures and distributes these fittings in the U.S. under an exclusive license from a French company, Components Gaz Microelectronique Internationale (CGMI), who owns the registered trademark "GAZEL." The license with CGMI grants Ultrapure the use of CGMI patents, brands, trademarks and technology in connection with the manufacture and distribution of GAZEL fittings in the U.S. and Asia.
In 1990, Defendant HAM-LET Group, an Israeli company, entered into a similar licensing agreement with CGMI that covered the manufacturing and distribution of GAZEL fittings in Israel and South Africa. The licensing agreement prohibits HAM-LET from using the CGMI designs outside of Israel and South Africa. Utilizing the technology and trademark it acquired in this licensing agreement, HAM-LET entered the fittings market in Israel and South Africa in 1990.
HAM-LET alleges that in July of 1992, it stopped manufacturing the GAZEL fittings. HTC, a company with the same ownership as HAM-LET, then spent two years developing a new line of fittings. About August of 1994, HTC began to sell its fittings in the U.S. under the brand name "GAZLINE" through distributors Kinetic and High Purity.
Ultrapure disputes the assertion that HTC developed its own line of fittings and alleges that the only difference between GAZLINE fittings and GAZEL fittings is the name. Consequently, Ultrapure filed the present action for trademark infringement, false designation of origin, unfair competition, breach of contract, and interference with business relations.
I. ULTRAPURE'S APPLICATION FOR A PRELIMINARY INJUNCTION
Ultrapure alleges that it is entitled to a preliminary injunction on two grounds. First, Ultrapure asserts that Defendants are infringing on the GAZEL trademark by selling identical goods under a confusingly similar mark. Second, Ultrapure contends that Defendants are engaging in unfair competition because they are violating the licensing agreements by selling GAZLINE fittings in the U.S.
A district court may issue a preliminary injunction when the moving party demonstrates either "(1) a combination of probable success on the merits and the possibility of irreparable injury or (2) that serious questions are raised and the balance of hardships tips sharply in its favor." Arcamuzi v. Continental Air Lines, Inc., 819 F.2d 935, 937 (9th Cir. 1987); Los Angeles Memorial Coliseum Comm'n v. National Football League, 634 F.2d 1197, 1201 (9th Cir. 1980). "These formulations are not different tests but represent two points on a sliding scale in which the degree of irreparable harm increases as the probability of success on the merits decreases." Big Country Foods, Inc. v. Board of Educ. of the Anchorage School District, 868 F.2d 1085, 1088 (9th Cir. 1989).
A. Trademark Infringement: Likelihood of Confusion
For Ultrapure to prevail on its application for a preliminary injunction it must establish at least a fair chance of success on the merits. In a trademark infringement claim, a plaintiff is likely to succeed on the merits if the plaintiff can establish that the defendant's use of its mark gives rise to a "likelihood of confusion" in the consuming public. Metro Pub. Ltd. v. San Jose Mercury News, 987 F.2d 637, 640 (9th Cir. 1993); E. & J. Gallo Winery v. Gallo Cattle Co., 967 F.2d 1280, 1290 (9th Cir. 1992). A likelihood of confusion exists when consumers are apt to assume that a product or service is associated with a source other than its actual source due to similarities between the two sources' marks or marketing techniques. Metro, 987 F.2d at 640; Nutri/System, Inc. v. Con-Stan Indus., Inc., 809 F.2d 601, 604 (9th Cir. 1987).
The Ninth Circuit has developed an eight factor test to determine whether a substantial likelihood of confusion exists in a trademark case: 1) strength of the allegedly infringed mark; 2) proximity or relatedness of the goods; 3) similarity of the sight, sound and meaning of the marks; 4) evidence of actual confusion; 5) degree to which marketing channels converge; 6) type of goods and degree of care consumers are likely to exercise in purchasing the products; 7) intent of the defendant in selecting the allegedly infringing mark, and; 8) likelihood that the parties will expand their product lines to compete with each other. Gallo, 967 F.2d at 1290. Each factor is not necessarily relevant to every case and this list of factors is "neither exhaustive nor exclusive." Id.
Trademark law offers greater protection to marks that are strong or distinctive, as opposed to those that are weak or commonplace. The strength or weakness of a mark is determined by its placement on a continuum of marks from "generic", afforded no protection through "descriptive" or "suggestive", given moderate protection, to "arbitrary" or "fanciful", awarded maximum protection. E. & J. Gallo Winery v. Gallo Cattle Co., 967 F.2d 1280, 1291 (9th Cir. 1992); Nutri/System, Inc. v. Con-Stan Industries, Inc., 809 F.2d 601, 605 (9th Cir. 1987). Among the weaker marks, a descriptive mark specifically describes a characteristic or ingredient of an article or service, see e.g., Park ' N Fly, Inc. v. Dollar Park and Fly, Inc., 782 F.2d 1508 (9th Cir. 1986) ("park 'N Fly"), while a suggestive mark merely implies an ingredient, quality or characteristic. See e.g., AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th Cir. 1979) ("Sleekcraft"). In other words, a mark is descriptive if it conveys an immediate ...