Kule, LLC v. Alfwear, Inc.

Background

Kule, LLC brought a declaratory-judgment action seeking declarations that the United States Patent and Trademark Office could re-register Kule’s pending KULE trademark application and that the mark did not infringe or dilute Alfwear, Inc.’s trademark rights. Kule alleged that it had used the KULE mark for apparel for many years and that the parties’ marks had coexisted in the clothing market.

Kule’s earlier trademark registration had been cancelled after Kule missed the renewal deadline. Kule then filed a new application. Alfwear sent Kule a notice letter demanding that it change its brand name and abandon the application, warning that Alfwear would oppose registration and pursue legal action if Kule did not do so. Alfwear later opposed Kule’s application before the Trademark Trial and Appeal Board and filed a separate federal lawsuit against Kule in the United States District Court for the District of Utah. That Utah case asserts federal trademark infringement, federal unfair competition, and common-law unfair competition.

Kule filed this case after receiving Alfwear’s notice and after Alfwear opposed the trademark application. Alfwear moved to dismiss, arguing that Kule’s case was an improper anticipatory declaratory-judgment action. Alfwear alternatively sought transfer to Utah or a stay of this case.

Legal standard

The first-filed rule generally gives priority to the lawsuit filed first when two courts are handling competing cases. But the rule has exceptions. One exception applies when the first-filed case is an improper anticipatory declaratory-judgment action—meaning a party filed a lawsuit in response to a direct threat of litigation in an effort to choose the forum before the expected plaintiff could sue.

The court explained that determining whether a case is improperly anticipatory requires looking at the totality of the circumstances. Relevant considerations can include the contents of the notice letter, the time between the threat and the declaratory-judgment complaint, and whether the initial complaint was unusually brief or incomplete. The Declaratory Judgment Act gives federal courts discretion to decide whether to hear a declaratory case when there is an actual dispute.

Court’s analysis

The court found that Alfwear’s notice letter was a specific and direct threat of litigation. Although the letter did not identify a filing date or forum, it demanded that Kule abandon its application and stated that Alfwear would oppose registration and pursue all possible legal action if Kule did not comply.

The court gave particular weight to Kule’s own allegations. Kule stated that it filed this case in response to Alfwear’s opposition and because it believed Alfwear would follow through on its threats to bring a federal trademark-infringement action. The court concluded that these statements showed Kule understood Alfwear’s threat as genuine and filed this action in anticipation of coercive litigation.

The court also rejected Kule’s argument that its five-month delay after the notice letter disproved an anticipatory motive. The parties’ settlement discussions and the passage of time were only factors in the overall analysis. Considered together with Alfwear’s notice letter and Kule’s admissions, the court concluded that Kule waited while settlement efforts occurred and then filed after those efforts appeared unsuccessful.

Finally, the court found that Kule’s original seven-page complaint supported Alfwear’s position. The complaint gave only a cursory account of the dispute, omitted the notice letter from its timeline, and sought cancellation of some Alfwear trademark registrations without explaining their scope or history. The court viewed the complaint as a placeholder filed to secure Kule’s preferred forum before the expected coercive lawsuit.

Ruling

The court concluded that Kule’s action was an improper anticipatory suit for declaratory relief and declined to exercise jurisdiction over Kule’s claims. The court did not decide whether Kule’s mark was likely to confuse consumers, whether Alfwear’s claims were barred by delay, or whether Alfwear had acquiesced to Kule’s use of the mark.

The court granted Alfwear’s motion to dismiss the amended complaint, without prejudice to litigation of the claims in the already-pending Utah action. The clerk was directed to enter judgment dismissing the amended complaint and close this case.