Videri, Inc. v. ONAWHIM Inc.

Background

Videri designs and sells very thin digital flatscreens that it has marketed as “Canvases” since at least 2014. ONAWHIM (OAW) was formed as a Videri spinoff and took with it a flatscreen line called “WHIM.” The parties intended to operate in separate markets: Videri would sell to commercial enterprises, while OAW would sell to end-user consumers.

In August 2021, the parties signed a Cross-License Agreement and a Mutual Transitional Services Agreement. The license agreement gave OAW rights to certain Videri intellectual property for use in OAW’s consumer market, while barring OAW from entering specified business-to-business, digital-signage, out-of-home, and corporate-communications markets. The parties also agreed to share technical information about their products. Under the Services Agreement, OAW was to manage and provide technical services for developing its next-generation WHIM platform, which would serve as the basis for Videri’s lower-cost NEXT-Enterprise products.

Videri alleged that OAW failed to provide the required development services and eventually abandoned the WHIM NEXT platform. Videri also alleged that OAW used “Canvas” in advertisements, social-media promotions, and a physical gallery in markets reserved for Videri. Videri sent OAW a letter purporting to terminate the License Agreement for material breach.

Videri further alleged that OAW’s subsidiary took laptops and other equipment from an office leased by Videri’s Canadian affiliate. Videri also claimed ownership of tooling used to develop the next-generation products, although it had not demanded that OAW return the tooling and OAW had not refused such a demand.

Claims and motion

Videri’s First Amended Complaint asserted six causes of action: (1) trademark infringement under Section 1125(a) of the federal Lanham Act; (2) breach of the License Agreement; (3) breach of the Services Agreement; (4) breach of the implied covenant of good faith and fair dealing; (5) conversion of office equipment and tooling; and (6) a request for a declaration that Videri validly terminated the License Agreement.

OAW moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not adequately state a legal claim. OAW challenged Counts I, IV, V, and VI. It did not move to dismiss the two breach-of-contract claims in Counts II and III.

At this stage, the court treated the complaint’s factual allegations as true and drew reasonable inferences for Videri. The court considered the agreements attached to the complaint and one webpage that the complaint specifically referenced. It did not consider other webpages from the same website that the complaint did not mention or rely on.

Trademark claim

The court held that Videri adequately pleaded a claim for infringement of its unregistered “Canvas” trademark. OAW conceded, for purposes of the motion, that Videri adequately alleged ownership and validity of the mark. The court found that Videri also adequately alleged that OAW used the mark in commerce by advertising “WHIM canvases” on its website and social media and by promoting a gallery with WHIM canvases.

The court rejected OAW’s argument that Videri had not shown a likelihood of confusion. Videri alleged that the marks and products were highly similar and that OAW used “Canvas” in markets where Videri operated. The court also rejected the argument that OAW’s assignment of the “onyourcanvas.com” domain name authorized all of OAW’s uses of “Canvas.” Any permission to use the term did not extend to uses outside the license’s scope or to uses likely to confuse the public about the source of the products.

The court also rejected dismissal based on OAW’s fair-use defense. Fair use is an affirmative defense, and the facts needed to establish it were not clear from the face of the complaint. The court further held that Videri adequately alleged harm because likely confusion can threaten the value and reputation associated with a trademark; Videri did not need to plead a separate economic-injury allegation for this trademark-infringement claim. The motion to dismiss Count I was therefore denied.

Implied covenant claim

The court dismissed Count IV, Videri’s claim for breach of the implied covenant of good faith and fair dealing. Under New York law, that covenant generally does not create a separate claim when the alleged conduct is the same conduct supporting a breach-of-contract claim.

Videri based this claim on OAW’s alleged abandonment of the WHIM NEXT platform and its failure to develop Videri’s NEXT-Enterprise products. Those allegations directly concerned OAW’s express obligations under the Services Agreement and did not create a separate duty or separate damages theory. The court also rejected Videri’s argument that the implied covenant required OAW to complete WHIM NEXT within the Services Agreement’s one-year term, because that would add a substantive term that the parties had not included.

Conversion claims

The court dismissed Count V, which asserted conversion under New York law. A conversion claim generally requires unauthorized control over another’s property, a demand for its return, and refusal of that demand.

The tooling theory failed because Videri did not allege that it demanded the tooling from OAW or that OAW refused the demand. Videri instead alleged only that the third-party manufacturer possessing the tooling was confused about whether Videri or OAW owned it and that refusal might occur in the future.

The office-equipment theory failed because Videri alleged that OAW’s subsidiary, rather than OAW itself, took the equipment. A parent company’s ownership of or relationship with a subsidiary is not enough to impose liability for the subsidiary’s conduct. Videri’s allegation that OAW gave the subsidiary “permission” to take the equipment did not adequately allege the level of control required for a conversion claim against OAW.

Declaratory-judgment claim

The court declined to dismiss Count VI, Videri’s request for a declaration that it validly terminated the License Agreement after OAW’s material breach. The License Agreement listed several events that would or could end the agreement, but it did not state that those were the only possible grounds for termination.

Applying New York contract law, the court held that the agreement did not clearly eliminate the general rule allowing a party to terminate after the other party’s material breach. Videri therefore plausibly alleged that it could terminate the License Agreement on that basis. The motion to dismiss Count VI was denied.

Disposition

The court’s conclusion states that OAW’s motion to dismiss was granted as to Count IV, for breach of the implied covenant of good faith and fair dealing, and Count V, for conversion. The motion was denied as to Count I, for trademark infringement, and Count VI, for declaratory judgment. The two breach-of-contract claims were not challenged by OAW’s motion. The Clerk of Court was directed to terminate the pending motion.