Free Brief in Support of Motion - District Court of Colorado - Colorado

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 1 of 21

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 04-B-0617LTB-BNB POLYROCK TECHNOLOGIES, LLC, a Colorado limited liability company, Plaintiff, v. GENERAL STEEL DOMESTIC SALES, LLC, a Colorado limited liability company, d//b/a General Steel Corporation; GENSTONE ENTERPRISES, LLC, a Colorado limited liability company; JEFF KNIGHT; KEVIN KISSIRE and CHARLES DEMAREST, Defendants. ________________________________________________________________________ REPLY IN SUPPORT OF MOTION TO DISMISS DEFENDANT DEMAREST ________________________________________________________________________ Defendant Charles Demarest ("Demarest"), by and through his attorneys, Pendleton, Friedberg, Wilson & Hennessey, P.C., hereby submits his reply in support of his motion to dismiss plaintiff's second amended complaint. I. SUMMARY A. Motion to Dismiss. Demarest's August 11, 2005, Motion to Dismiss (the "Motion"), asked this Court to dismiss plaintiff's Lanham Act claim because plaintiff's Second Amended Complaint failed to state a claim against Demarest under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). The grounds for the Motion were that the Second Amended Complaint does not allege any facts with regard to Demarest which establish the elements necessary to state a claim under either of the two bases of liability available under section 1125. Those two bases are that the defendant must have made: (1) false representations in advertising concerning the qualities of goods (false
00231420.WPD3 00231420.WPD1

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 2 of 21

advertising claims);1 or (2) false representations concerning the origin or endorsement of goods (false association or product infringement claims)."2 Cottrell, Ltd. v. Biotrol Int'l, Inc., 191 F.3d 1248, 1252 n.3 (10th Cir. Colo. 1999); Phillip W. Stanfield v. Osborne Industries, Inc., 52 F.3d 867, 873 (10th Cir. Kan. 1995) (emphasis added); Lori Madrid v. Chronicle Books, Pixar, 209 F. Supp. 2d 1227, 1245 (D. Wyo. 2002). A review of all of the allegations in plaintiff's Second Amended Complaint related to Demarest3 shows that the Second Amended Complaint does not allege that Demarest ever made any false representations in advertising concerning the product he manufactured for defendant GenStone, and does not allege that Demarest made any "false designation of origin, false or misleading description of fact, or false or misleading representation of fact" about the product. As such, plaintiff's Second Amended Complaint fails to state a Lanham Act claim against Demarest. The Motion also asked this Court to decline to exercise supplemental jurisdiction over plaintiff's other state law claims if the Court granted the motion to dismiss plaintiff's sole federal claim.4 B. Plaintiff's Response. Plaintiff's September 9, 2005, response brief (the "Response"), makes the following arguments:
1

Arguments and authorities related to this prong are at pages 9-11 of the Motion. Arguments and authorities related to this prong are at pages 12-13 of the Motion.

2

The relevant allegations from plaintiff's Second Amended Complaint related to defendant Demarest are identified at pages 4-8 of the Motion.
4

3

Motion, pp. 14-15. -2-

00231420.WPD3 00231420.WPD1

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 3 of 21

1.

Plaintiff contends that the Lanham Act is not limited to the two prongs identified

in the authorities cited in the Motion. Plaintiff argues that the Lanham Act is much broader, pointing to the legislative history of the Lanham Act and section 44 of the Lanham Act, 15 U.S.C. § 1126, which plaintiff claims demonstrate that the Act was intended to provide a federal cause of action and remedy for trade secret misappropriation as a form of unfair competition. 2. Plaintiff contends that the Second Amended Complaint states a claim against

Demarest under the Lanham Act regardless whether the Act is construed narrowly or broadly to provide for a federal claim for unfair competition, because "[i]n essence, PolyRock contends that defendants engaged in passing off by misappropriating PolyRock's manufacturing process to create and sell replicas of PolyRock's products, rather than by merely misbranding PolyRock's goods. Demarest, who manufactured goods for General Steel and GenStone or assisted them to set up their own manufacturing, was integral to these activities and is therefore responsible under subsection 43(a)(1)(A)." 3. Plaintiff contends that the Lanham Act provides for contributory liability. The

Response argues that it has plead a claim for contributory liability, because it contends that Demarest "provided the means for the other defendants to falsely advertise their products using PolyRock's materials" and "Demarest thus participated directly in defendants' false advertising violations or, at a minimum, contributed to [them] knowing or having reason to know that the products would be misrepresented as the defendants' own."5 Plaintiff's Response does not direct the Court to any specific paragraphs in the Second Amended Complaint which in fact allege these contentions. Instead, at page 9, n. 3 of its Response, plaintiff asks for leave to amend "[i]f

5

Response at p. 9. -3-

00231420.WPD3 00231420.WPD1

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 4 of 21

the Court were to conclude that PolyRock has not adequately pled its claim against Demarest for contributory liability under section 43(a). . . ." 4. With regard to plaintiff's state law claims, the Response contends that this Court

has original jurisdiction pursuant to § 1338(b) because any claim arising under § 43(a) of the Lanham Act is a claim arising under the copyright, patent or trademark laws, regardless whether it involves a patent, copyright or trademark claim. The Response also contends that even if plaintiff's Lanham Act claim against Demarest is dismissed, this Court should exercise supplemental jurisdiction over plaintiff's state law claims because they are related to the state law claims plaintiff has plead against the other defendants. Each of plaintiff's contentions is addressed below. II. ARGUMENT AND AUTHORITIES A. Section 43(a) of the Lanham Act Does Not Provide for a Federal Claim for Misappropriation of Trade Secrets. Plaintiff cites Procter & Gamble Co. v. Haugen, 222 F.3d 1262, 1272 (10th Cir. Utah 2000), for the broad proposition that the legislative history of the Lanham Act confirms that Congress "`sought to create a general federal law of unfair competition to protect competing companies in the wake of the Supreme Court's decision in Erie R. R. v. Tompkins, 304 U.S. 64 (1938), which was thought to have eliminated the existing body of federal unfair competition law.'" Response, p. 4 (emphasis in Response). The Response then argues that the Lanham Act includes a federal claim for trade secret misappropriation, because such claims were part of the common law scope of an unfair competition claim at the time of the enactment of the Lanham

00231420.WPD3 00231420.WPD1

-4-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 5 of 21

Act.6 The quoted language from Procter & Gamble is correct, but it is not a holding in the case, and taken out of context overstates the limits on unfair competition claims under section 43(a). As held in Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 28-9, 123 S.Ct. 2041, 2045, 156 L.Ed.2d 18, 26-7 (2003), the entire law of unfair competition is not included within § 43(a): The Lanham Act was intended to make "actionable the deceptive and misleading use of marks," and "to protect persons engaged in . . . commerce against unfair competition." 15 U.S.C. § 1127. . . . While much of the Lanham Act addresses the registration, use, and infringement of trademarks and related marks, § 43(a), 15 U.S.C. § 1125(a) . . . is one of the few provisions that goes beyond trademark protection. As originally enacted, § 43(a) created a federal remedy against a person who used in commerce either "a false designation of origin, or any false description or representation" in connection with "any goods or services." 60 Stat. 441. As the Second Circuit accurately observed with regard to the original enactment, however ­ and as remains true after the 1988 revision ­ § 43(a) "does not have boundless application as a remedy for unfair trade practices [citation omitted]. "Because of its inherently limited wording, § 43(a) can never be a federal `codification' of the overall law of `unfair competition,'" 4 J McCarthy Trademarks and

The Response cites two cases in support of the proposition that trade secret misappropriation was part of the common law of unfair competition. Julius Hyman & Co. v. Velsicol Corp., 123 Colo. 563, 606, 233 P.2d 977, 1000 (1951) (state law claim for theft of trade secrets) and Schulman v. Huck Finn, Inc., 350 F.Supp. 853 (D. Minn. 1972), aff'd 472 F.2d 864 (8th Cir. Minn. 1973) (state law claim for misappropriation of trade secrets/unfair competition brought in patent case). Neither of these cases support the proposition that section 43(a) Lanham Act includes a federal claim for trade secret misappropriation.
00231420.WPD3 00231420.WPD1

6

-5-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 6 of 21

Unfair Competition § 27.:7, p 27-14 (4th ed. 2002) (McCarthy), but can apply only to certain unfair trade practices prohibited by its text. Id., emphasis added. Dastar makes it clear that the scope of section 43(a) of the Lanham Act is limited. Every Lanham Act claim must allege the required elements of false representations in advertising concerning the qualities of goods or false representations concerning the origin or endorsement of goods or commercial activities. Allegations of trade secret misappropriation may be part of the factual background, but that alleged act of wrongdoing will not rise to the level of a federal Lanham Act claim unless it also includes allegations pleading the specific statutory elements. The two cases plaintiff cited in support of its contention that the Lanham Act includes a remedy for trade secret misappropriation exemplify this point, because in those cases the statutory elements were plead.7 In this case the required allegations spelling out the statutory elements of a section 43(a) Lanham Act claim against Demarest are totally missing from the Second Amended Complaint, as is evident from the fact that plaintiff's entire 15 page Response cites to only three specific paragraphs which it claims include the relevant allegations.8 Specifically, the Response asserts

Repap Enterprises, Inc. v. Kamyr, Inc., 27 U.S.P.Q.2d (BNA) 1685 (E.D. Pa. 1993) (Lanham Act claim based on allegations that defendant make false representations in patent applications in commerce that it was the inventor of the processes disclosed in the patent applications, separate state law claim for misappropriation); Healthpoint, Ltd. v. River's Edge Pharms., L.L.C., 2005 WL 356839 at *3 (W.D. Tex. Feb. 14, 2005) (Lanham Act claim for unfair competition allowed as a "piggy-back" claim based on allegations supporting primary Lanham Act claim for false advertising, subject to later dismissal if the false advertising claim did not survive). Both opinions are unpublished and are attached as Exhibits A and B to plaintiff's Response. The Response at p. 3 does also reference ¶28 of the Second Amended Complaint, but admits that ¶28 alleges only that defendants GenStone and General Steel engaged in false advertising.
00231420.WPD3 00231420.WPD1
8

7

-6-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 7 of 21

at pages 2-3 that ¶¶ 25-26 and ¶33 of the Second Amended Complaint allege the statutory elements with regard to Demarest. The Response contends that these paragraphs allege that "Demarest . . . unlawfully provided and exploited PolyRock's Proprietary Information as part of defendants' scheme to manufacture and sell illicitly produced copies of PolyRock's artificial stone building products as their own. [¶¶25-26]. Through these manufacturing and sales activities, defendants, including Demarest, falsely designated the origin of their products and misrepresented the nature of their commercial activities. [ ¶33]" A review of the actual language in ¶¶ 25-26, and 33 would suggest that this contention is overstated.9 In fact those three paragraphs do not allege a scheme, they do not allege that Demarest made any misrepresentations constituting false advertising, false designation of origin, or mis-stating the nature of anyone's commercial activities. Most importantly, the Response

9

For the Court's convenience, the actual relevant language from ¶¶25-26 and 33 is:

"With the assistance of Demarest, General Steel, GenStone and/or Demarest began to manufacture and General Steel and/or GenStone began to sell artificial stone building products. The defendants had confidence that they were producing a commercially viable product and were entering an economically attractive business based on the confidential technology and financial information received in confidence from PolyRock's predecessors." Second Amended Complaint, ¶ 25. "For at least some period of time, Demarest commercially produced artificial stone building products for General Steel or GenStone and his own economic benefit. On information and belief, Demarest utilized confidential information, including Proprietary Technology received from PolyRock's predecessors, to manufacture these products." Second Amended Complaint, ¶ 26. "On information and belief, defendants have misappropriated, used and disclosed PolyRock's trade secrets, including aspects of the Proprietary Technology and confidential financial information, in manufacturing and selling artificial stone building products. Such activities constitute unfair competition under Section 43(a) of the Lanham Act, 11 [sic] U.S.C. § 1125(a)." Second Amended Complaint, ¶ 33.
00231420.WPD3 00231420.WPD1

-7-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 8 of 21

concedes that Demarest sold the product "as his own." In that case, for the reasons set forth in Section C below, Demarest did nothing which section 43(a) makes actionable, which is exactly the reason this claim should be dismissed. The Second Amended Complaint does not allege that Demarest ever engaged in passing off or reverse passing off or that he ever made any misrepresentation concerning the product he manufactured. Therefore plaintiff has not alleged a claim against Demarest under section 43(a) of the Lanham Act. B. The Paris Convention And Section 44(i) of the Lanham Act Do Not Provide for a Federal Claim for Misappropriation of Trade Secrets. At pages 5-7 of its Response, plaintiff makes a lengthy and attenuated argument to the effect that claims for trade secret misappropriation are available to foreign nationals under section 44(h) of the Lanham Act, and that section 44(i) of the Act therefore extends the right to bring a federal Lanham Act claims for trade secret misappropriation to U.S. citizens. Plaintiff cites BP Chemicals Ltd. v. Baloun, 183 F.Supp.2d 1158, 1161 (E.D. Mo. 2000) in support of this proposition. Plaintiff's response overstates BP Chemicals. That case does not hold that a U.S. citizen has a federal Lanham Act claim for trade secret misappropriation against another U.S. citizen.10 Rather, the case merely held that "the Lanham Act does provide at a minimum a federal forum for state law claims of misappropriation of trade secrets to foreign nationals." Id. at 1159 (emphasis added). Granting a plaintiff a federal forum in which to bring a state law claim does not convert the claim to a federal claim. There are two lines of analysis on this issue,11 but the result is seemingly the same. It is

10

In fact the plaintiff in BP Chemicals was a British corporation. Id. at 1161.

According to BP Chemicals, one line of authorities holds that the Lanham Act confers the substantive rights of the subject treaty, such as the Paris Convention, respecting unfair
00231420.WPD3 00231420.WPD1

11

-8-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 9 of 21

generally held that subsection 44(h) does not create a general federal law of unfair competition. See, e.g., Mattel, Inc. v. MCA Records, Inc., 296 F.3d 894, 907 (9th Cir. Cal. 2002). "Rather, `the grant in subsection (h) of effective protection against unfair competition is tailored to the provisions of the unfair competition treaties by subsection (b), which extends the benefits of section 44 only to the extent necessary to give effect to the treaties. Id., citing Toho Co. v. Sears, Roebuck & Co., 645 F.2d 788, 792 (9th Cir. Cal. 1981). Likewise, section 44(i) "does not create a federal cause of action where subsection 44(h) would not, because it provides only that U.S. citizens `shall have the same benefits as are granted by this section to persons described in subsection (b) of this section.'" And so far as concerns "unfair competition," those benefits are limited to such as may be found in some "convention or treaty relating to . . . the repression of unfair competition." Id. See also, Am. Auto. Ass'n v. Spiegel, 205 F.2d 771, 775 (2d Cir. 1953). In the Mattel case, the Ninth Circuit specifically applied this analysis to the issue raised by plaintiff in its Response, i.e., do the substantive provisions of the Paris Convention give rise to a federal unfair competition claim. The answer was no. The Ninth Circuit reiterated its previous holding that the "Paris Convention was not intended to define the substantive law in the area of `unfair competition' of the signatory countries." Mattel, at 908, citing Kemart Corp. v. Printing Arts Research Labs, Inc. 269 F.2d 375, 389 (9th Cir. Cal. 1959). Based on these rulings, the Ninth Circuit held: Section 44 and the Paris Convention therefore interact as follows: A foreign national is

competition. See, Toho Co. v. Sears, Roebuck & Co., 645 F.2d 788, 792 (9th Cir. Cal. 1981) (the federal rights approach). The other line holds that the Lanham Act does nothing more than give to foreign nationals the same rights respecting unfair competition available to U.S. citizens under their own domestic laws, See, Vanity Fair Mills v. T. Eaton Co., 234 F.2d 633, 644 (2d Cir. N.Y. 1956) (the national treatment approach). BP Chemicals, 183 F. Supp.2d at 1162.
00231420.WPD3 00231420.WPD1

-9-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 10 of 21

entitled to the same "effective protection against unfair competition" to which an American is entitled, Paris Convention, art. 10bis, and in turn, the American gets the same right that the foreign national gets. We treat Mattel like a foreign national, who is treated like an American under the Paris Convention. Accordingly, Mattel is entitled to assert a cause of action under the Lanham Act for trademark infringement, 15 U.S.C. § 1114, or for false designation of origin, 15 U.S.C. § 1125, or it may assert state law claims for unfair competition, as it did. See n.1 supra. But Mattel has no claim to a nonexistent federal cause of action for unfair competition. As said, the Paris Convention provides for national treatment, and does not define the substantive law of unfair competition. We therefore reject Mattel's argument that a treaty provision providing for "national treatment" gives it more protections against foreign nationals than it has against U.S. nationals. Id., (emphasis added). Based on these authorities, Demarest submits that plaintiff in this case cannot assert a federal Lanham Act claim under section 43(a) for alleged misappropriation of its alleged trade secrets, and that plaintiff's first claim for relief should be dismissed against Demarest. C. There is No Legal Basis to Support Plaintiff's Argument that a Lanham Act Claim for Passing Off Can Be Based on the Manufacturing of Products Which Were "Replicas" of Plaintiff's Product. At page 8 of its Response, plaintiff argues that "[i]n essence, PolyRock contends that defendants engaged in passing off by misappropriating PolyRock's manufacturing process to create and sell replicas of PolyRock's products, rather than by merely misbranding PolyRock's

00231420.WPD3 00231420.WPD1

-10-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 11 of 21

goods." (Emphasis added).12 This argument cannot withstand scrutiny. Passing off occurs when a person represents his or her goods or services as someone else's. Plaintiff appears to be arguing that it was wrong of Demarest not to represent that the product he manufactured was really plaintiff's product. That is illogical and legally incorrect. If Demarest had made representions that the product he manufactured for GenStone was in fact the product of PolyRock, he would be subject to a Lanham Act claim for misbranding.13 Plaintiff's "replica" argument is premised upon the fallacy that plaintiff had some proprietary or protectable interest in how its products looked. That is inconsistent with the allegations of the Second Amended Complaint. Plaintiff's alleged "Proprietary Technology" was not alleged to be related to its products or the look of those products. According to plaintiff's Second Amended Complaint, its Proprietary Technology was specifically limited to the manufacturing process plaintiff allegedly developed, and to certain undefined "confidential financial information." (¶¶1 and 39, Second Amended Complaint). Plaintiff's Second Amended Complaint at ¶1 specifically alleges that its product "realistically replicate[d]" the appearance, color and texture of "stone, brick and other natural building materials." Moreover, plaintiff's

Similarly, at page 9 of its Response, plaintiff states that it is its contention that "Demarest, through his use of the Proprietary Information to replicate PolyRock's products, provided the means for the other defendants to falsely advertise their products using PolyRock's materials." (Emphasis added). See, e.g., Dastar, 539 U.S. 23, 36 (if the Court were to adopt the theory that the phrase "origin of goods" refers to the author of any idea, concept, or communication embodied in those goods, manufacturers of products would face Lanham Act liability for failing to credit the creator of a work on which their lawful copies were based, and on the other hand they could face Lanham Act liability for crediting the creator if that should be regarded as implying the creator's sponsorship or approval of the copy.
00231420.WPD3 00231420.WPD1
13

12

-11-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 12 of 21

Second Amended Complaint does not allege (nor could it) that its wall panels looked different from any other of the thousands of actual or imitation rock and brick wall treatments available in the marketplace. The design of plaintiff's product was intended to be functional and generic, a knock-off of nature, without any secondary meaning identifying plaintiff as the source of the product. There can be no misbranding or passing off by virtue of the production of a "knockoff" when the product being knocked off has no secondary meaning. Wal-Mart Stores, Inc. v. Samara Brothers, Inc. 529 U.S. 205, 120 S. Ct. 1339, 146 L.Ed.2d 182 (2000) (in an action for infringement of unregistered trade dress under §43(a), a product's design is distinctive and therefore protectible, only upon a showing of secondary meaning). Id. at 216, 146 L.Ed2d 192, 120 S.Ct. 1346.14 It would appear that Plaintiff's argument about passing off is an attempt to bootstrap into its Second Amended Complaint the element of false designation of origin, by arguing that Demarest engaged in passing off by manufacturing product which replicated plaintiff's product. This argument would fail even if the Second Amended Complaint included an allegation that Demarest's manufacturing of product constituted a "false designation of origin, false or misleading description of fact, or false or misleading representation of fact . . . likely to cause confusion . . . as to the origin . . . of his or her goods [or] services," which it does not.15 This is

14

Plaintiff has not alleged any trade dress claim with regard to this product.

As discussed in greater detail in Section D, infra, the only allegations in the Second Amended Complaint which relate to the potential for product confusion are those in ¶¶ 28 and 34, which are specifically limited to the other defendants' alleged use of advertising materials that did not depict the products that defendants were making and selling, but rather depicted the products manufactured by plaintiff's predecessor. However, even that claim fails if, as plaintiff argues in its Response, the two products in fact looked just the same. The Lanham Act does not impose liability for using a photograph of another's product to sell one's own product, so long as
00231420.WPD3 00231420.WPD1

15

-12-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 13 of 21

because the phrase "origin of goods" in §43(a) "refers to the producer of the tangible goods that are offered for sale, and not to the author of any idea, concept, or communication embodied in those goods." Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 37, 156 L. Ed. 2d 18, 32, S. Ct. 2041, 2049 (2003). This definition of "origin of goods" is "in accordance with the [Lanham] Act's common-law foundations (which were not designed to protect originality and creativity), and . . . the copyright and patent laws (which were)." Id. (emphasis in original). As such, even if they were "replicas," there can be no misrepresentation as to the origin of Demarest's products by virtue of the fact that he failed to attribute any aspect of them to plaintiff or its predecessors. D. Plaintiff's Second Amended Complaint Does Not State a Claim for Contributory Infringement and Does Not Plead the Elements of That Claim. At pages 7-9 of its Response, plaintiff argues that its Second Amended Complaint has stated a claim against Demarest for contributory liability under the Lanham Act. Plaintiff cites Inwood Laboratories Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 72 L. Ed. 2d 606, 102 S. Ct. 2182 (1982) for the proposition that the elements of such a claim are (a) if a manufacturer or distributor intentionally induces another to infringe a trademark, or (b) if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorily responsible for any harm done as a result of the

the product to be delivered in fact looks like the photograph and the features pictured in the photograph are functional and have not acquired secondary meaning. See, e.g., Atlantis Silverworks, Inc. v. 7th Sense, Inc., 42 U.S.P.Q.2d (BNA) 1904 (S.D.N.Y. Mar. 20, 1997), citing Vibrant Sales, Inc. v. New Body Boutique, Inc., 652 F.2d 299, 305 (2d Cir. N.Y. 1981) cert. denied, 455 U.S. 909, 71 L.Ed2d 448, 102 S.Ct. 1257 (1982).
00231420.WPD3 00231420.WPD1

-13-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 14 of 21

deceit. Id. at 853-54.16 Cf., The Proctor & Gamble Company v. Haugen, 317 F.3d 1121 (10th Cir. Utah 2003) (the elements of a contributory liability claim under section 43(a) are (a) supply of a product and (b) knowledge of direct infringement). Although plaintiff's Response is vague on how these standards would apply given the fact that it is not prosecuting an infringement claim, Demarest will assume that the elements would require that either induced the other defendants to make false statements or origin or false advertising, or he continue to supply product to them knowing or having reason to know that they were doing so. The allegations of plaintiff's Second Amended Complaint cannot be construed to include any allegations which would show these elements and provide notice to Demarest of a claim for contributory liability. This may explain why plaintiff's Response does not refer this Court to any specific allegations in the Second Amended Complaint which it contends plead the elements of such a claim. In the absence of specific allegations, plaintiff argues in its Response that Demarest is contributorily liable for two reasons. First, because the defendants allegedly sought to manufacture products identical or confusingly similar to those of Poly Rock, which they deceptively offered as their own, thereby falsely representing the origin of the defendants' products and the nature of their or PolyRock's commercial activities in violation of section 43(a)(1). The Response argues that "Demarest, who manufactured goods for General Steel and GenStone or assisted them to set up their own manufacturing, was integral to these activities and is therefore responsible under subsection 43(a)(1)." Response at p. 8. Second, plaintiff argues that "Demarest, through his use of the Proprietary Information to replicate PolyRock's products, provided the means for the other defendants to falsely advertise their products using PolyRock's

16

The other cases cited by plaintiff are also trademark or copyright infringement cases. -14-

00231420.WPD3 00231420.WPD1

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 15 of 21

materials. Demarest thus participated directly in defendants' false advertising violations or, at a minimum, contributed to defendants' false advertising knowing or having reason to know that the products would be misrepresented as the defendants' own." Response at p. 9. With regard to plaintiff's first contention related to the manufacture of "identical or confusingly similar" products "falsely representing the origin" of defendants' products, Demarest incorporates the arguments and authorities set forth in Section C, supra, which explain that there is no Lanham Act liability for any of the defendants based on these contentions because (a) the "origin" of the product was not misrepresented, because that phrase refers to the person who manufactured the product (Demarest), not to someone such as plaintiff who claims that it created the manufacturing process used; and (b) the alleged similarity of the products manufactured by defendants to the products manufactured by plaintiff does not create any danger of confusion because the products' design is not distinctive and does not have any secondary meaning. Since the Second Amended Complaint fails to state a claim for direct liability for false representations as to origin, plaintiff cannot assert contributory liability. The other contention argued for by plaintiff is that Demarest is contributorily liable for the other defendants' alleged false advertising of the product. This merits a review of the specific allegations in the Second Amended Complaint related to marketing or advertising. The references to paragraph numbers are to the numbered paragraphs of the Second Amended Complaint: ¶ 2. ". . . . In 2001 . . . General Steel began purchasing products manufactured using the Proprietary Technolgy from PolyRock's predecessor-in-interest . . . which also provided General Steel with advertising and marketing materials depicting

00231420.WPD3 00231420.WPD1

-15-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 16 of 21

and describing the products and their installation, for General Steel's use in marketing and selling the purchased products." ¶5. "When General Steel and GenStone began marketing their own products, they deceptively used advertising and marketing materials received from and depicting the products of PolyRock's predecessors to advertise the products that General Steel and GenStone were now manufacturing on their own." ¶ 20. "General Steel subsequently17 began purchasing artificial stone building products from PolyRock's predecessors. In order to assist General Steel in marketing and selling the purchased products, PolyRock's predecessors supplied and permitted General Steel to use marketing and advertising materials that pictured and described the products and promotional video footage that included instructions on how to install the products. PolyRock's predecessors also supplied General Steel with samples to show prospective customers." ¶28. "When General Steel and GenStone began manufacturing and selling artificial stone building products on their own, they continued to use the advertising and marketing materials that PolyRock's predecessors had previously provided for the limited purpose of marketing the products of PolyRock's predecessors. These materials included, without limitation, pictures and descriptions of PolyRock's predecessors' products, installation instructions and the promotional and installation video. General Steel and GenStone even used a picture showing Harrington, the inventor of the Proprietary Technology, installing products of

17

¶ 19 makes allegations related to 2001. "Subsequently" would be after 2001. -16-

00231420.WPD3 00231420.WPD1

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 17 of 21

PolyRock's predecessors in marketing materials for General Steel and GenStone's products. The described actions were misleading and deceptive in that the products depicted were manufactured by PolyRock's predecessors and were not the products that GenStone or General Steel were making and offering for sale. This deception was enhanced by the use of Harrington's picture." ¶34. "Defendants GenStone and General Steel used materials received from and depicting products of PolyRock's predecessors to market and advertise artificial stone building products that PolyRock's predecessors did not manufacture. Such use was misleading in that these advertising materials did not depict the products that defendants were making and selling. These actions were likely to cause confusion concerning the source, sponsorship or approval of General Steel's goods, services or commercial activities and also falsely described or represented the nature, characteristics or qualities of General Steel's goods. These activities as alleged constitute unfair competition in violation of Section 43(a) of the Lanham Act, 11 [sic] U.S.C. 1125(a)." These are all of the allegations in the Second Amended Complaint which relate to alleged false advertising or marketing. Each and every one of them without exception is directed solely to the other defendants. Not one of them makes any allegation that Demarest engaged in false marketing or false advertising in any way. None of them alleges that Demarest continued to sell product to General Steel or GenStone when he knew or should have known that marketing materials which had been provided to General Steel by PolyRock's predecessor depicting PolyRock's product were allegedly being misused by General Steel and/or GenStone in a manner

00231420.WPD3 00231420.WPD1

-17-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 18 of 21

which would lead to confusion concerning the source of their own products. In point of fact, ¶27 in the Second Amended Complaint makes it perfectly clear that plaintiff cannot in good faith ever raise the allegation that Demarest continued to sell product to the other defendants with reason to know that they were engaged in false advertising, because plaintiff admits in ¶27 that in fact the relationship between Demarest and the other defendants was "soon terminated."18 Given this admission, it would be futile to even grant plaintiff leave to amend. Lastly, Demarest points to ¶18 of the Second Amended Complaint, which clearly does not put Demarest on notice of any contributory liability claim. It states: "Defendant Chuck Demarest is an individual resident of Colorado and a former consultant to General Steel and/or GenStone. Demarest is sued in his capacity as an individual, for his participation in personally receiving and misappropriating the Proprietary Technology." (Emphasis added). This allegation indisputably shows that the Second Amended Complaint is brought against Demarest for alleged acts and omissions which at most constitute state law claims for violation of the Colorado Uniform Trade Secrets Act, breach of contract, conspiracy and unjust enrichment.19 Taken in

18

The specific language of ¶27 is as follows:

"On information and belief, General Steel and GenStone soon terminated Demarest as their source of supply for artificial stone building products and engaged a manufacturer in Mexico where these defendants could ostensibly obtain these products at lower cost. On information and belief, General Steel and GenStone provided confidential information, including the Proprietary Technology received from PolyRock's predecessors, to the Mexican supplier who then utilized such confidential information to manufacture artificial stone building products for these defendants." (Emphasis added). The Motion limited itself to asking this Court to exercise its discretion to dismiss these state common law claims if it dismissed the only federal claim. In point of fact, the Second Amended Complaint also fails to state a claim against Demarest for conspiracy or unjust enrichment.
00231420.WPD3 00231420.WPD1
19

-18-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 19 of 21

their entirety, the allegations of the entire Second Amended Complaint fail to state a claim against Demarest for any direct or indirect violation of the Lanham Act. E. Demarest Again Asks this Court to Exercise its Discretion to Dismiss Plaintiff's State Law Claim if in Fact it Dismisses the Lanham Act Claim as to Demarest. Demarest's Motion asked this Court to exercise its discretion to dismiss plaintiff's state law claims if in fact it dismissed its sole federal claim against Demarest. Plaintiff's Response discusses authorities which hold that there is pendent party jurisdiction under 28 U.S.C. §133820 as well as supplemental jurisdiction under 28 U.S.C. §1367. Demarest does not dispute that the Tenth Circuit recognizes pendent party jurisdiction, unless Congress has expressly or impliedly negated such power in a particular jurisdictional context. Transok Pipeline Co. v. Maxwell Darks, 565 F.2d 1150, 1155 (10th Cir. 1977). However, the power is still discretionary, and generally, the same factors that are relevant to the exercise of jurisdiction over pendent claims apply to the exercise of jurisdiction over pendent parties. See 13B Wright, Miller and Cooper, Federal Practice and Procedure §3567.2 at p. 160 (2d Ed. 1984). Christensen v. Phelan, 607 F. Supp. 470, 472 (D. Colo. 1985). Among the factors to be considered in determining whether to exercise pendent jurisdiction or pendent party jurisdiction are "whether the federal claims were dismissed before trial, whether the state claims predominate, whether the state claims are closely tied to questions of federal policy, and whether the jury is likely to be confused by the treatment of divergent legal theories of relief." Curtis Ambulance of Florida v. Board of County Commissioners of the County of Shawnee, Kansas, 811 F.2d 1371, 1386 (10th Cir. 1987).

See, e.g., Schulman v. Huck Finn, Inc. 350 F.Supp. 853, 856 (D.Minn. 1972, aff'd 472 F.2d 864 (8th Cir. 1973).
00231420.WPD3 00231420.WPD1

20

-19-

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 20 of 21

Demarest asks this Court to exercise its discretion to dismiss all remaining state law claims. For all the reasons set forth above, it is clear that the only allegations of wrongdoing which could conceivably comprise a federal claim are those which have been pleaded against defendants General Steel and GenStone, and those are themselves very weak and susceptible to motions for summary judgment. The involvement of the other defendants with plaintiff preceded the very limited involvement of Demarest, and, as is made clear from the Second Amended Complaint, these other defendants allegedly have continued to manufacture the disputed product in Mexico, while defendant Demarest was "soon terminated" by General Steel. Demarest does not belong in this case. The only real common nucleus of fact is that defendant General Steel21 and Demarest each signed non-disclosures agreements with plaintiff's predecessor. However, those agreements are only valid if plaintiff can prove that its allegedly confidential information was in fact a trade secret. That claim and the other state law claims which plaintiff has pleaded belong in state court. They do not require a federal forum, and Demarest should not be kept in this forum in the absence of a valid federal claim. The case has just begun. The parties have exchanged Rule 26 disclosures and minimal written discovery. There have been no depositions and none are even scheduled. Demarest respectfully asks this Court to dismiss the federal Lanham Act Claim with prejudice, and to dismiss all the remaining state claims without prejudice.

21

Through Kevin Kissire. -20-

00231420.WPD3 00231420.WPD1

Case 1:04-cv-00617-LTB-BNB

Document 84

Filed 10/03/2005

Page 21 of 21

Dated this 3rd day of October, 2005.

By: s/ Susan M. Hargleroad Susan M. Hargleroad Attorneys for Charles Demarest PENDLETON, FRIEDBERG, WILSON & HENNESSEY, P.C. 1875 Lawrence St., 10th Floor Denver, CO 80202-1898 Telephone Number: 303-839-1204 Facsimile Number: 303-831-0786 E-mail: [email protected] CERTIFICATE OF SERVICE I hereby certify that on this 3rd day of October, 2005, I electronically filed the foregoing with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: John A. DeSisto E-mail: [email protected] Kurt S. Lewis E-mail: [email protected]

By: s/ Susan M. Hargleroad

00231420.WPD3 00231420.WPD1

-21-