Engine Capital Management, LP v. Engine No. 1 GP LLC

Background

Engine Capital Management, LP alleged that it had used the “Engine Capital” and “Engine” marks for investment-management and investment-advisory services since at least July 2013. It sued Engine No. 1 GP LLC, Engine No. 1 NY LLC, Engine No. 1 LLC, Engine No. 1 LP, Christopher James, and Charles Penner under the Lanham Act, New York common law, and New York General Business Law § 360-1.

The First Amended Complaint asserted four counts: federal trademark infringement, cybersquatting, common-law trademark infringement, and injury to business reputation or trademark dilution under New York law. Engine Capital alleged that defendants’ use of “Engine No. 1” and “Engine” in connection with investment services and shareholder activism was likely to confuse investors and others about whether the businesses were connected.

Two motions were before the court. Engine Capital sought a preliminary injunction barring defendants from using “Engine,” “Engine Capital,” or confusingly similar marks in connection with public-market investments. Defendants opposed that request and moved to dismiss the First Amended Complaint under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. The court treated defendants’ letter requesting a premotion conference and permission to file a dismissal motion as a motion to dismiss.

Preliminary Injunction

The court denied Engine Capital’s motion for a preliminary injunction. A preliminary injunction is temporary relief issued before the case is finally decided. To obtain one, Engine Capital had to show irreparable harm, a likelihood of success on the merits or sufficiently serious questions combined with a favorable balance of hardships, and that the injunction would serve the public interest.

The court concluded that Engine Capital had not shown a likelihood of success on its Lanham Act trademark-infringement claim. Applying the factors used to assess likely consumer confusion, the court found that “Engine Capital” and “Engine No. 1” were sufficiently different as used in the marketplace. The court reasoned that “No. 1” evoked a firehouse or firetruck, while “Capital” suggested a finance-related entity, and it also found meaningful differences in the parties’ logos, including their colors, fonts, and layouts.

The court also found that Engine Capital’s evidence of actual confusion was insufficient. The evidence consisted mainly of five affidavits, only two from investors, and a possible sixth instance that the court gave little weight. The court found no evidence that the reported confusion affected investment decisions or caused missed opportunities. It also noted that the people who initially wondered about a connection later learned through inquiries or research that there was no connection.

The court found that the evidence supported defendants on bad faith. Engine Capital had not provided definitive evidence that defendants knew of Engine Capital when selecting their mark. The court found defendants’ explanation that “Engine No. 1” referred to a historic San Francisco firehouse, along with evidence that James conducted a trademark search, consistent with good faith. The sophistication of the relevant investors also weighed against likely confusion. The court therefore concluded that Engine Capital had not shown likely success on its trademark-infringement or cybersquatting claims.

The court separately held that Engine Capital had not shown irreparable harm. Because Engine Capital had not shown likely success on its Lanham Act claims, the statutory presumption of irreparable harm did not apply. The court also found that the affidavits showed confusion but not harm to reputation or goodwill, particularly because there was no evidence that defendants’ services were inferior or that investors changed their behavior.

Motion to Dismiss

The court granted in part and denied in part defendants’ motion to dismiss. It dismissed the claims against Penner because the complaint did not adequately allege facts supporting his personal liability. Alleging that Penner was a principal and a “moving, acting and conscious force” behind the alleged wrongdoing was not enough without nonconclusory facts showing that he authorized, approved, or controlled the allegedly infringing conduct.

The court also dismissed Count Two, the cybersquatting claim, because the complaint did not plausibly allege that defendants registered the websites with a bad-faith intent to profit from Engine Capital’s marks. The complaint did not allege, even conclusorily, that defendants actually knew of Engine Capital’s marks, and it did not provide details about when or under what circumstances defendants registered the websites. The court stated that awareness of the marks and competition in the same market, without more, would not establish bad faith.

The court allowed Counts One, Three, and Four to remain. Those counts concerned federal trademark infringement, common-law trademark infringement, and New York trademark dilution. Although the court found the complaint’s allegations sparse, it held that, at the dismissal stage, the allegations had to be accepted as true and reasonable inferences had to be drawn in Engine Capital’s favor. The court concluded that it could not say that no reasonable factfinder could find a likelihood of confusion on any set of provable facts. The court also explained that actual confusion and actual injury were not required at this stage to plead the trademark claims.

Order

The court denied Engine Capital’s motion for a preliminary injunction. It denied in part and granted in part defendants’ motion to dismiss. Count Two and the claims against Penner were dismissed without prejudice. Counts One, Three, and Four remained. Engine Capital was ordered either to file an amended complaint or notify the court that it wished to rely on the complaint as filed within 20 days of the order.