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Small Axe Enterprises, Inc. v. AMSCAN, Inc.

United States District Court, S.D. California

April 24, 2017

SMALL AXE ENTERPRISES, INC., Plaintiff,
v.
AMSCAN, INC; PARTY CITY HOLDCO, INC.; PARTY CITY CORPORATION; PARTY CITY OF SAN DIEGO, INC; and DM MERCHANDISING, Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

          Roger T. Benitez, United States District Judge

         Plaintiff Small Axe Enterprises, Inc. ("Small Axe") has filed a First Amended Complaint, alleging patent infringement, Lanham Act violations, unfair business practices, and unjust enrichment. (First Am. Compl. ("FAC"), ECF No. 19.) Defendants Amscan, Inc., Party City Holdco, Inc., Party City Corporation, and Party City of San Diego, Inc. (collectively, the "Party City Defendants") move to dismiss the First Amended Complaint for failure to state claims upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).[1] (Mot., ECF No. 22.) Small Axe opposes the motion. (Opp'n, ECF No. 25) For the reasons that follow, the Court grants in part and denies in part the motion to dismiss.

         BACKGROUND[2]

         Small Axe designs, manufactures, licenses, and sells accessories for drink vessels, including flexible, removable bases made from materials like neoprene. (FAC ¶ 1, 16.) Its products are designed to collect moisture and display a message or graphic. (Id. ¶ 1.) The products are used as promotional material at special events, such as at bars and sports events. (Id.) To protect its invention of these drink vessels, Small Axe applied for a utility patent on November 3, 2000. (Id. ¶ 3.) The U.S. Patent and Trademark Office issued the utility patent on June 17, 2003 as U.S. Patent No. 6, 578, 809 ('"809 Patent"). (M Ex. A.) The patent is titled "Flex Grip Mimpi Apparatus." (Id.) Small Axe owns all right, title, and interest in the '809 Patent. (Id. ¶ 24.)

         The Party City Defendants are designers, manufacturers, distributors, and retailers of decorated party goods and accessories. (Id. ¶¶ 7-10.) Defendants make, offer to sell and sell, and import exact replicas of Small Axe's patented products without permission. (Id. ¶ 4.) Defendants' infringing products include the Luau Coaster Bottom and Stem Gemz brands of products. (Id. ¶ 4, 26) The Luau Coaster Bottoms are coasters or sleeves made of two pieces of neoprene material with decoration on the outer facing portion of the wall of the sleeve. (Id. ¶ 19.) The following pictures compare an embodiment of the '809 Patent and the Luau Coaster Bottoms:

         As depicted in the '809 Patent Luau Coaster Bottoms

         Image Omitted

         (Id.) The complaint does not provide a description or pictures of the Stem Gemz products.

         On or about May 28, 2009, Peter Gluck, Patent Procurement Counsel for Small Axe, spoke to Joe Zepf, General Counsel at Amscan, regarding the Party City Defendants' infringement of the '809 Patent by selling the Luau Coaster Bottoms. (Id. ¶ 20.) The complaint does not allege the outcome of those talks. Six years later, on or about July 27, 2015, Mr. Gluck wrote a letter to Mr. Zepf, seeking to secure a royalty-bearing licensing agreement. (Id.¶21) Amscan refused to negotiate. (Id.) The Party City Defendants continue to sell, offer for sale, and induce others to sell products that infringe the '809 Patent by selling the Luau Coaster Bottoms. (Id. ¶ 22.)

         Small Axe subsequently filed a complaint in this Court on April 22, 2016. The parties attempted to settle, but negotiations failed. Small Axe thereafter filed its First Amended Complaint on October 3, 2016. The First Amended Complaint alleges four claims. The first claim for relief alleges patent infringement against all Defendants related to their sales of Stem Gemz and Luau Coaster Bottom products. The second claim for relief alleges unjust enrichment against all Defendants. The third claim for relief alleges Lanham Act trade dress violations for the high degree of similarity between Small Axe's product, the 3D Beverage Coaster, and Defendants' Luau Coaster Bottom. The trade dress claims are alleged against Defendants Amscan, Party City Corporation, and Party City Holdco. The fourth claim for relief alleges unlawful business practices under California Business and Professions Code § 17200 et seq. against Defendants Amscan, Party City Corporation, and Party City Holdco. The Party City Defendants now move to dismiss all four claims for relief for failure to state plausible claims pursuant to Federal Rule of Civil Procedure 12(b)(6).

         LEGAL STANDARD

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) must be granted where the pleadings fail to state a claim upon which relief can be granted. When considering a Rule 12(b)(6) motion, the court must "accept as true facts alleged and draw inferences from them in the light most favorable to the plaintiff." Stacy v. Rederite Otto Danielsen, 609 F.3d 1033, 1035 (9th Cir. 2010). A plaintiff must not merely allege conceivably unlawful conduct but must allege "enough facts to state a claim to relief that is plausible on its face." BellAtl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim is facially plausible 'when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" ZixiangLi v. Kerry, 710 F.3d 995, 999 (9th Cir. 2013) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678.

         DISCUSSION

         I. Patent Infringement Claim

         The Party City Defendants seek dismissal of the patent infringement claim on two grounds. First, they argue that the First Amended Complaint fails to plead sufficient facts demonstrating why their products infringe the '809 Patent. Second, they contend that the allegations in the First Amended Complaint affirmatively demonstrate that the Party City ...


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