Threshold Enterprises Ltd. v. Lifeforce Digital Inc.

Background

Threshold alleged that Lifeforce infringed Threshold’s LIFE FORCE trademark through the online marketing and sale of dietary and nutritional supplements using the mark. Lifeforce asserted a counterclaim and Affirmative Defense 3 based on alleged abandonment of the trademark. Lifeforce alleged that Threshold abandoned the mark in 2009 by entering into a consent agreement with Doctors Signature Sales & Marketing International Corp., doing business as Lifeforce International (LFI). Lifeforce also asserted Affirmative Defense 2, alleging fraud and unclean hands based on Threshold’s assertion of exclusive trademark rights despite the alleged shared use and abandonment of the mark.

Threshold moved to dismiss the counterclaim under Federal Rule of Civil Procedure 12(b)(6) and to strike both affirmative defenses under Rule 12(f).

Abandonment Counterclaim and Affirmative Defense 3

The court held that Lifeforce had not adequately pleaded abandonment. Lifeforce argued that the consent agreement was a “naked license,” meaning a trademark license in which the trademark owner fails to exercise adequate quality control over the licensee. The court noted that the agreement described itself as a consent agreement, not a license, and expressly stated that it did not grant either party a license to trademark rights. The court nevertheless examined the agreement’s terms and surrounding circumstances rather than relying only on the agreement’s label.

The court found that the agreement did not plausibly suggest that Threshold authorized LFI to use the mark without restrictions. The agreement involved no payment and described the parties’ “mutual, peaceful coexistence.” It also identified different channels of trade for Threshold and LFI. The court further noted that, when the agreement was signed, only LFI had obtained a trademark registration; Threshold obtained its separate registration one year later. Under those circumstances, the court stated that LFI, rather than Threshold, would arguably have been the party engaging in naked licensing.

Lifeforce alternatively argued that the agreement was a “naked consent.” The court rejected that theory as a basis for alleging abandonment. It explained that naked consent is a trademark-prosecution principle used to evaluate the likelihood of marketplace confusion, and Lifeforce had not cited precedent applying it to trademark abandonment. The court also concluded that the agreement and surrounding circumstances did not plausibly support public confusion. The agreement identified separate marketing channels and stated that there had been no actual confusion during the parties’ long coexistence. Lifeforce’s allegation that consumer confusion was likely was conclusory and identified no specific supporting facts.

The court therefore granted Threshold’s motion to dismiss the counterclaim and strike Affirmative Defense 3. Because the agreement itself did not support Lifeforce’s abandonment theory, the court dismissed the counterclaim without leave to amend.

Fraud and Unclean Hands Defense

The court also granted Threshold’s motion to strike Affirmative Defense 2. The court explained that affirmative defenses generally require only enough detail to give fair notice, and that a bare assertion of fraud and unclean hands could have satisfied that standard. But Lifeforce included a specific theory: Threshold allegedly committed fraud and acted with unclean hands by asserting exclusive rights despite having abandoned the mark in 2009. Because the court had already found that Lifeforce’s abandonment theory lacked merit, the court concluded that Lifeforce had pleaded itself out of the defense.

The court stated that it had already given Lifeforce one opportunity to amend its answer and ordered that this defense also be dismissed without leave to amend.

Disposition

The court granted without leave to amend Threshold’s motion to dismiss Lifeforce’s counterclaim and to strike Affirmative Defenses 2 and 3.