APP Group Inc. v. Rudsak USA Inc.

Background

APP Group (Canada) Inc. and A.P.P. Group Inc., collectively called Mackage, alleged that Rudsak copied Mackage’s coat designs. Mackage asserted that Rudsak hired former Mackage employees, purchased Mackage coats, and instructed its employees to copy the coats. Mackage said some of the coats had its alleged trade dress and some did not.

The amended complaint asserted a Lanham Act trade-dress-infringement claim and a New York common-law unfair-competition claim concerning coats both with and without the alleged trade dress. Rudsak moved to dismiss only the unfair-competition claim concerning coats without the alleged trade dress.

Earlier Proceedings

The court had previously dismissed Mackage’s claims after finding that Mackage had not adequately alleged a protectable trade dress. The Second Circuit affirmed that conclusion but sent the unfair-competition issue back for further consideration because the earlier ruling had not addressed whether the claim was based on misappropriation of proprietary interests other than trade dress. The Second Circuit also allowed Mackage to amend its complaint to clarify the trade dress and the basis for its state-law unfair-competition claim.

Mackage then filed an amended complaint. Rudsak challenged the portion of the unfair-competition claim involving coats without Mackage’s alleged trade dress.

Legal Standard

The court applied the standard for a motion to dismiss for failure to state a claim. Under that standard, the complaint must allege enough facts to make relief legally plausible, not merely possible. The court treated factual allegations as true for purposes of the motion but did not have to accept legal conclusions presented as facts.

Analysis

New York recognizes unfair competition based on either passing off products as someone else’s or misappropriating another party’s property or commercial advantage. Mackage proceeded under the misappropriation theory. To state that type of claim, Mackage had to allege that Rudsak took Mackage’s labor, skills, expenditures, or goodwill, acted in bad faith, and took a commercial advantage belonging exclusively to Mackage. Mackage also had to identify the specific innovation or development allegedly misappropriated.

The court found that Mackage’s definition of “Proprietary Information”—including designs, patterns, styles, fits, templates, models, manufacturers, and production-chain information—was too broad and did not identify which specific item Rudsak allegedly took. The court also found that Mackage’s allegations about confidentiality agreements did not explain what information those agreements protected.

The court further concluded that Mackage had not connected Rudsak’s alleged conduct to the products at issue. The complaint did not allege that former Mackage employees designed the coats Rudsak allegedly copied or otherwise show that Rudsak relied on confidential information when designing or manufacturing them. The allegations that Rudsak bought publicly available Mackage coats and copied them supported, at most, an inference of intentional copying and bad faith. They did not plausibly show that Rudsak misappropriated something belonging exclusively to Mackage.

Disposition

The court concluded that Mackage failed to state a claim. Because Mackage had already been directed to clarify the basis for its state-law claim and had not done so, the court found another amendment unlikely to fix the problems. The court therefore denied Mackage leave to amend.

Rudsak’s motion to dismiss was granted. Mackage’s New York common-law unfair-competition claim concerning coats without Mackage’s alleged trade dress was dismissed with prejudice. The order stated that the remaining claims continued and set deadlines for Rudsak’s response, fact discovery, and the next pretrial conference.