Airwair International LTD. v. Zoetop Business Co.

Background

Airwair previously sued Zoetop over alleged trademark infringement and dilution. The parties settled that lawsuit in January 2022. The settlement required Zoetop to acknowledge the validity of specified trademarks and the asserted Jadon Trade Dress, and to agree not to contest their validity or ownership rights. The agreement also stated that Zoetop’s acknowledgment and promise did not cover the validity of any individual element of those registrations or trade dress. The parties then stipulated to dismissal of the earlier claims and counterclaims with prejudice.

Airwair later filed this lawsuit, alleging that Zoetop breached the settlement agreement and committed additional trademark-related violations. Airwair’s second amended complaint named Zoetop Business Co., Limited d/b/a Shein, Shein Distribution Corp., and Shein US Services, LLC. Zoetop and Shein Distribution Corporation asserted counterclaims IV, V, and VI seeking to limit the marks in two trademark registrations and the Jadon Trade Dress. All three defendants asserted affirmative defenses.

Counterclaims

Airwair moved under Federal Rule of Civil Procedure 12(b)(6), which addresses whether a pleading states a legally sufficient claim, to dismiss counterclaims IV, V, and VI. Airwair argued that claim preclusion, also called res judicata, and the settlement agreement barred the counterclaims. The court rejected the argument that the earlier stipulated dismissal automatically barred the counterclaims because a settlement may define the preclusive effect of a dismissal with prejudice.

The court also held that the settlement agreement’s language was reasonably susceptible to more than one interpretation. Airwair read the agreement as broadly preventing any challenge to the trademarks and trade dress. The defendants relied on the provision preserving the ability to challenge individual elements. Because that disagreement could not be resolved on a motion to dismiss, the court denied Airwair’s motion to dismiss the counterclaims.

Affirmative defenses

Airwair moved under Rule 12(f) to strike the Eighth, Eleventh, Twelfth, Fifteenth, and Seventeenth affirmative defenses. An affirmative defense seeks to avoid liability even if the plaintiff proves the elements of its claim. The court applied the heightened pleading standard associated with Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal, requiring sufficient factual and legal support to provide fair notice. The court noted that the Ninth Circuit had not ruled on whether that standard applies to affirmative defenses, but agreed with the majority of district courts that it does.

The court found the Eighth defense, concerning due process; the Eleventh defense, concerning laches, waiver, estoppel, and acquiescence; the Twelfth defense, concerning failure to mitigate damages; and the Seventeenth defense, concerning prosecution-history estoppel or disclaimer, to be boilerplate and insufficiently tied to facts. It found the Fifteenth defense, challenging the validity and scope of Design Patent No. D1,053,529, sufficiently supported.

Disposition

The court granted in part Airwair’s motion to strike, with leave to amend, as to the Eighth, Eleventh, Twelfth, and Seventeenth affirmative defenses. It denied the motion as to the Fifteenth affirmative defense. The court also denied Airwair’s motion to dismiss defendants’ counterclaims. Judge Susan Illston’s order addressed the adequacy and interpretation of the pleadings; it did not resolve the ultimate merits of the parties’ trademark, trade-dress, patent, or settlement-agreement disputes.