Rubik's Brand Limited v. Flambeau, Inc.

Background

Rubik’s Brand Limited alleged that Flambeau, Inc., through its Duncan Toys Company division, manufactured and sold the “Quick Cube,” a twist-cube puzzle that copied or imitated the distinctive appearance of the Rubik’s Cube. The complaint asserted claims under the federal trademark statute, known as the Lanham Act, and under New York law, including trademark infringement, false designation of origin, trademark dilution, and related state-law claims.

The motion at issue was not a motion deciding those existing claims. Rubik’s Brand asked for permission to file an amended complaint adding a claim under New York General Business Law § 349, which prohibits deceptive acts and practices directed at consumers. Rubik’s Brand alleged that Flambeau sold Quick Cubes containing excessive levels of phthalates, a toxic chemical, after receiving test results concerning products from January 2016 shipments.

The case’s scheduling order set April 13, 2018, as the deadline for motions to amend, absent good cause. Rubik’s Brand filed its motion on January 24, 2019, after fact and expert discovery had closed. Magistrate Judge Katharine H. Parker recommended denying the motion based on futility, lack of diligence, and prejudice. Rubik’s Brand objected.

Good Cause and Diligence

Under Federal Rule of Civil Procedure 16(b), a party seeking to amend a pleading after the scheduling deadline must show good cause. The main consideration is whether the party acted diligently. Judge Gardephe disagreed with Judge Parker’s finding that Rubik’s Brand lacked diligence. The record showed that Rubik’s Brand knew of a failed test report by September 2018 but did not obtain the report’s contents until October 24, 2018. It also pursued additional discovery and learned on December 21, 2018, that the January 2016 shipments had not been tested for safety compliance.

The court concluded that Rubik’s Brand’s proposed claim was not based on information it knew, or should have known, before the amendment deadline. It therefore found that Rubik’s Brand acted with reasonable diligence and considered the proposed amended complaint under Rule 15, which generally permits amendments when justice requires.

Futility Analysis

Because discovery had closed, the court applied a summary-judgment standard to the futility question. An amendment is futile when the proposed claim could not survive that standard. For a claim under New York General Business Law § 349, the plaintiff must show that the defendant’s deceptive acts were directed at consumers, materially misleading, and caused injury. Although competing businesses may sue under the statute, the alleged harm must involve consumer injury or harm to the public interest rather than only competitive disadvantage.

The court rejected the conclusion that there was no evidence Flambeau had shipped toxic Quick Cubes. The record showed that Flambeau received approximately 9,200 Quick Cubes in January 2016, that samples from those shipments tested positive for toxic levels of phthalates on March 16, 2016, and that compliant replacement-sticker products did not arrive from China until May 2016. Records showed that 392 cases were shipped to U.S. retailers in March 2016 and 181 cases in April 2016, and testimony indicated those shipments consisted of the 3901QC version. The court held that this evidence created a material factual dispute about whether toxic 3901QC Quick Cubes were shipped during that period and whether the alleged conduct was directed at consumers and materially misleading.

The court nevertheless found the proposed claim futile because Rubik’s Brand had no evidence of actual and direct harm to the Rubik’s Cube’s reputation or associated goodwill. There was no evidence that a consumer purchased a toxic Quick Cube, suffered an injury from one, or associated such an injury with Rubik’s Brand’s product. There was also no evidence that a distributor, retailer, or consumer learned that Flambeau’s Quick Cubes had failed a safety test. Based on the full discovery record, the court concluded that no reasonable jury could find the required injury to Rubik’s Brand’s reputation and goodwill.

Disposition

Judge Paul G. Gardephe adopted the Report and Recommendation to the extent stated in the order and denied Rubik’s Brand’s motion for leave to file an amended complaint. The order did not decide the underlying trademark-infringement claims. It also set briefing dates for Defendants’ proposed summary-judgment motion and directed the Clerk of Court to terminate the relevant motions.