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Republic Technologies NA, LLC v. BBK Tobacco & Foods, LLC

United States District Court, N.D. Illinois, Eastern Division

April 18, 2017

REPUBLIC TECHNOLOGIES NA, LLC and REPUBLIC TOBACCO, L.P., Plaintiffs,
v.
BBK TOBACCO & FOODS, LLC d/b/a HBI INTERNATIONAL, Defendant.

          MEMORANDUM OPINION AND ORDER

          Elaine E. Bucklo United States District Judge

         Before me is a motion by defendant BBK Tobacco & Foods LLP, d/b/a HBI International (“HBI”) to dismiss Count VI of the Second Amended Complaint (SAC) filed by plaintiffs Republic Technologies (NA), LLC and Republic Tobacco, L.P. (together, “Republic”). Also before me is Republic's motion to strike certain allegations in the amended counterclaims filed by HBI. For the reasons below, HBI's motion is granted in part and denied in part, and Republic's motion is denied.

         I.

         This is a trademark dispute between two makers of cigarette rolling papers. Republic markets its rolling papers under the trademark “OCB”; HBI markets its papers and other products under the trademark “RAW.” Republic initially sued HBI in this court seeking a declaratory judgment that it had not infringed any trade dress rights that HBI may possess. It subsequently amended its complaint to include causes of action for unfair competition under the Lanham Act, 15 U.S.C. § 1125(a); common law unfair competition; and violation of the Illinois Uniform Deceptive Trade Practices Act (IUDTPA), 815 ILCS 510/1 et seq.

         After unsuccessfully moving to transfer the suit to Arizona, see Republic Techs. (NA), LLC v. BBK Tobacco & Foods, LLC, No. 16 C 3401, 2016 WL 6248187, at *4 (N.D. Ill. Oct. 26, 2016), HBI filed counterclaims against Republic for trademark infringement, 15 U.S.C. § 1114; false designation of origin, unfair competition, and false advertising under 15 U.S.C. § 1125(a); common law trademark infringement and unfair competition; federal copyright infringement; and violation of the IUDTPA.

         Republic later amended its complaint a second time to include a claim for cancelation of HBI's Raw trademarks pursuant to 15 U.S.C. § 1119. The claim alleges that HBI's trademarks must be canceled because they are “used with goods that are marketed, promoted and sold for use with marijuana.” SAC ¶ 81. HBI subsequently amended its counterclaims to include allegations that Republic's OCB papers are marketed for use with marijuana. Unlike Republic, however, HBI stopped short of asserting a claim for cancelation of Republic's mark.

         HBI has moved to dismiss Republic's trademark-cancelation claim. In the alternative, it seeks leave to file an amended counterclaim seeking cancelation of Republic's trademark. Republic has filed a motion to strike the allegations in HBI's amended counterclaims regarding the marketing of its papers for use with marijuana.

         II. Trademark Cancelation

         The Lanham Act provides that “[i]n any action involving a registered mark the court may determine the right to registration, order the cancelation of registrations, in whole or in part, restore canceled registrations, and otherwise rectify the register with respect to the registrations of any party to the action.” 15 U.S.C. § 1119. Republic argues that HBI's trademarks should be canceled on two grounds: (1) because the marks are used in unlawful commerce (i.e., they are used for the consumption of marijuana); and (2) because, by failing to disclose this information to the U.S. Patent and Trademark Office (USPTO) in its trademark applications, HBI obtained the marks through fraud. I consider each of these asserted bases for cancelation separately.

         A. Unlawful Use in Commerce

         Courts have “held that only lawful use in commerce can give rise to trademark priority.” S. California Darts Ass'n v. Zaffina, 762 F.3d 921, 931 (9th Cir. 2014) (quotation marks omitted); United Phosphorus, Ltd. v. Midland Fumigant, Inc., 205 F.3d 1219, 1225 (10th Cir. 2000); see also In Re Morgan Brown, 119 U.S.P.Q.2d 1350 (T.T.A.B. July 14, 2016) (“We have consistently held that, to qualify for a federal service mark registration, the use of a mark in commerce must be lawful.”) (quotation marks omitted). Thus, “any goods for which a mark is used must not be illegal under federal law.” In Re Jj206, LLC, DBA Juju Joints, 120 U.S.P.Q.2d 1568 (T.T.A.B. Oct. 27, 2016) (quotation marks and ellipsis omitted). Where a trademark's use in commerce is not lawful, the mark may be canceled. See, e.g., CreAgri, Inc. v. USANA Health Scis., Inc., 474 F.3d 626, 634 (9th Cir. 2007) (cancelation of trademark was proper where product was mislabeled in violation of federal requirements).

         Republic argues that the RAW marks violate the Controlled Substances Act (CSA), 21 USC § 801 et seq. Specifically, Republic contends that the goods sold under the RAW trademark constitute drug paraphernalia, which the CSA defines as “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance.” 21 U.S.C. § 863(d). The CSA sets forth a number of factors to be considered in determining whether an item constitutes drug paraphernalia, including “national and local advertising concerning its use, ” “the manner in which the item is displayed for sale, ” and “expert testimony concerning its use.” 21 U.S.C. § 863(e). In addition, the Act contains an exemption for “any item that, in the normal lawful course of business, is imported, exported, transported, or sold through the mail or by any other means, and traditionally intended for use with tobacco products, including any pipe, paper, or accessory.” 21 U.S.C. § 863(f)(2).

         As HBI points out, it has registered the RAW trademark for at least fifteen different products.[1] Neither Republic's complaint nor its response brief makes clear which of these products are at issue in Count VI. Some of the products -- such as HBI's rolling papers -- almost certainly fall within § 863(f)(2)'s exemption for products traditionally intended for use with tobacco products. Republic asserts that “many of the RAW products, including papers and other items described and depicted in the Second Amended Complaint, do not fall within the exemption and are illegal under federal law.” See Pl.'s Resp. Br. at 2. In support of this claim, however, the only example Republic cites is of rolling papers that have been made into pre-formed “cones.”[2] This example is inapt because HBI does not have a registered trademark for rolling paper cones. See Def.'s Counterclaims, Ex. B; see also Def.'s Reply Br. at 2.

         Nevertheless, Republic identifies at least one HBI trademarked product -- a vaporizer -- that does not incontrovertibly fall under the exemption. In some contexts, vaporizers have been deemed drug paraphernalia. Cf. In Re Jj206, LLC, DBA Juju Joints, 120 U.S.P.Q.2d 1568 (T.T.A.B. Oct. 27, 2016) (affirming refusal to register trademark for use with marijuana vaporizing devices). Whether HBI's device constitutes drug paraphernalia is a factual question that cannot be resolved at the motion-to-dismiss stage. See, e.g., United States v. Assorted Drug Paraphernalia, 90 F.Supp.3d 1222, 1229 (D.N.M. 2015) (denying summary judgment on forfeiture claim on the ground that genuine dispute of material fact as to whether scales and other items were drug paraphernalia within the meaning of ยง 863(d)). Because I cannot say as a matter of law that none of ...


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