Shake Shack Enterprises, LLC v. Brand Design Company, Inc.

Background

Shake Shack Enterprises, LLC and SSE IP, LLC sued Brand Design Company, Inc. d/b/a House Industries, seeking declarations that Shake Shack’s lettering did not infringe House Industries’ intellectual-property rights and that House Industries had misused copyright law. House Industries filed a counterclaim alleging that Shake Shack breached a license agreement concerning House Industries’ Neutraface font software.

House Industries alleged that its standard Desktop end-user license agreement prohibited using the Neutraface software or the glyphs it generated in logos, advertising, or products for sale without a separate license. It claimed that Shake Shack used the software to create various signs, including “innovation kitchen,” “drive thru,” “APP+ONLINE PICK-UP,” “SHACK bar,” and “SHAKE SHACK bar” signage.

Rule 12(b)(6) standard

Shake Shack moved to dismiss the counterclaim under Federal Rule of Civil Procedure 12(b)(6), which tests whether the pleading states a legally viable claim. On such a motion, the court generally accepts well-pleaded factual allegations as true but does not accept unsupported conclusions or speculation.

Contract claim

Under New York law, a breach-of-contract claim requires allegations showing an agreement, the claimant’s performance, the defendant’s breach, and damages. The court ruled that House Industries had not adequately pleaded the existence of an agreement with Shake Shack.

The counterclaim did not identify when the agreement was formed, which version of the license applied, the license’s actual language and major terms, who agreed to it for Shake Shack, or why that person had authority to bind Shake Shack. House Industries also acknowledged that it had not located a license specifically identifying Shake Shack as the licensee.

The court rejected House Industries’ request to infer that a Shake Shack employee or agent must have downloaded the software and accepted the license merely because Shake Shack’s lettering resembled Neutraface. The court noted that the Neutraface typeface was in the public domain and that people could replicate or recreate similar glyphs without using House Industries’ software. The alleged facts therefore showed only a possibility, not a plausible basis, for finding that Shake Shack entered into the license agreement.

Copyright Act preemption

The court also held that the counterclaim was preempted by Section 301 of the Copyright Act. Copyright preemption prevents a state-law claim from controlling rights equivalent to the federal copyright owner’s rights in works within the general subject matter of copyright.

The court treated the Neutraface glyphs as pictorial or graphic works within copyright’s broad subject matter, even though typeface designs cannot be registered as copyright and are in the public domain when used as typeface. It concluded that House Industries’ claim focused on Shake Shack’s alleged reproduction and public display of the glyphs in logos and signs.

The court further held that the contract claim did not contain a qualitatively different requirement that would avoid preemption. The alleged restrictions on using the glyphs in logos, signage, advertising, and products for sale were equivalent to controlling reproduction and public display. The alleged use of House Industries’ software, an implied promise to pay, and the commercial purpose of the uses did not provide a sufficient additional element.

Disposition

The court granted Shake Shack’s motion to dismiss House Industries’ counterclaim with prejudice. The opinion addresses the counterclaim and does not state the disposition of Shake Shack’s declaratory claims.