Wag Hotels, Inc. v. Wag Labs, Inc.

Background

This case concerns alleged breaches of a settlement agreement between Wag Hotels, Inc. and Wag Labs, Inc. The agreement resolved earlier trademark litigation. Section 4 required Wag Labs, by October 31, 2016, to use branding materially consistent with a specified image in the channels it controlled, subject to stated exceptions. It allowed departures where using the image was graphically impractical, required use of “Wag!” for word-format uses, and did not require use of the image for goods or services outside the scope of dog walking. The agreement also required advance notice and an opportunity for Wag Hotels to comment on proposed material branding changes.

Wag Labs registered an image mark and a text mark in 2017. Wag Hotels later sued in this action, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, trademark cancellation, trademark infringement, unfair competition, and declaratory relief. The motions addressed in this order sought partial summary judgment, which is a ruling issued when the evidence shows no genuine dispute about a material fact and the moving party is entitled to judgment as a matter of law.

Wag Hotels’s Motion

The court denied Wag Hotels’s request for summary judgment on its breach-of-contract theory. The court found genuine disputes of material fact about whether Wag Labs’s uses of the text mark fell within the settlement agreement’s exceptions. Wag Hotels’s evidence that Wag Labs used the text mark more often than the image mark, and that certain shirts, billboards, and bandanas used the text mark, did not establish that those uses violated the agreement.

The court also denied Wag Hotels’s request for summary judgment on breach of the implied covenant of good faith and fair dealing. The court explained that this implied duty cannot add substantive terms beyond the parties’ agreement and depends on a specific contractual obligation. Wag Hotels had not identified an agreement provision prohibiting Wag Labs from registering the text mark. The court also found a factual dispute about whether Wag Labs had made a material branding change that triggered the agreement’s notice-and-comment procedure.

The court denied Wag Hotels’s request for specific performance, meaning an order requiring a party to perform the contract. Because Wag Hotels had not established its entitlement to summary judgment on the alleged contract breach, it had not established entitlement to that remedy on summary judgment.

The court denied Wag Hotels’s request to cancel Wag Labs’s text mark under 15 U.S.C. § 1119. Wag Hotels did not identify a requirement that Wag Labs disclose the settlement agreement to the United States Patent and Trademark Office, nor did it identify a misrepresentation arising from that nondisclosure. The court also found disputed facts about whether Wag Labs’s statement that no other person had the right to use the mark was false. In addition, Wag Hotels had not produced evidence of Wag Labs’s knowledge or intent, which the court identified as required elements of fraud on the Patent and Trademark Office.

Wag Labs’s Motion

The court granted Wag Labs’s motion for partial summary judgment on Wag Hotels’s reasonable-royalty damages theory. A reasonable royalty is an amount based on what a hypothetical trademark license would have cost. The court found no competent evidence of prior or anticipated royalty-based licensing by Wag Hotels. The settlement agreement had no royalty provision, Wag Hotels had not entered into a royalty-based license with a third party, and its expert’s analysis using the Georgia-Pacific factors was therefore impermissibly speculative.

The court also granted Wag Labs’s motion for partial summary judgment on corrective-advertising damages. These damages are intended to cover advertising needed to restore value lost from harm to a trademark. The court found that Wag Hotels had provided no evidence that Wag Labs’s conduct diminished the value of Wag Hotels’s mark, goodwill, or reputation. Evidence of possible consumer confusion alone was insufficient without evidence connecting that confusion to damage to the mark’s value.

Disposition

The court granted Wag Hotels’s request for judicial notice. It denied each of Wag Hotels’s four requests for partial summary judgment: breach of the settlement agreement, breach of the implied covenant of good faith and fair dealing, specific performance, and trademark cancellation. It granted both of Wag Labs’s requests for partial summary judgment, ruling that Wag Hotels was not entitled to reasonable-royalty damages or corrective-advertising damages under the evidence presented.