Monday, February 10, 2020

U.S. Court of Appeals for the Seventh Circuit, Charles Curry v. Revolution Laboratories, LLC, Docket No. 17-2900


Trademark Infringement
First Use in Commerce
Advertisement and Sale
Unfair Competition

E-Commerce
E-Mail
Online Contacts with a Forum

Subject Matter Jurisdiction

Personal Jurisdiction
Purposefully directed activities at a forum even in the “absence of physical contacts” with a forum

Supplemental Jurisdiction (State and Federal Claims)
Venue

Illinois Law
Illinois Long-Arm Statute

Contract Drafting


The district court had subject matter jurisdiction over Mr. Curry’s four claims “arising under” federal statutes related to trademarks and unfair competition. See 28 U.S.C. §§ 1331, 1338(a)–(b). With regard to Mr. Curry’s remaining three claims for fraud, unfair competition, and trademark infringement arising under state law, amicus counsel for Mr. Curry submits that subject matter jurisdiction exists over those claims as well because the state and federal claims share a “common nucleus of operative fact.” United Mine Workers v. Gibbs, 383 U.S. 715, 725 (1966), and they are part of the “same case or controversy.” 28 U.S.C. § 1367(a). We agree. Thus, the district court had supplemental jurisdiction over the state claims. See Ammerman v. Sween, 54 F.3d 423, 424 (7th Cir. 1995) (“A loose factual connection between the claims is generally sufficient.”).

Charles Curry is the founder and Chief Executive Officer (“CEO”) of a company named “Get Diesel Nutrition” that sells dietary supplements to fitness enthusiasts and athletes. Mr. Curry contends that the “essence” of his brand is “Diesel.” Indeed, he has adopted the alter ego “Chuck Diesel,” and his company name, website address, and the product at issue, Diesel Test, all contain the word “Diesel.” He has paid for advertising for his products, including Diesel Test, in nationally distributed fitness magazines since 2002. He first manufactured Diesel Test in March 2005 and has advertised the product since June 2005. Diesel Test received awards from Planet Muscle magazine in 2015 and 2016.

In October 2016, the defendants began to sell the product that is at the heart of Mr. Curry’s complaint; the defendants’ product is a sports nutritional supplement branded Diesel Test Red Series, All Natural Testosterone Booster. Like Mr. Curry’s Diesel Test product, the defendants’ product comes in red and white packaging with right-slanted all-caps typeface bearing the words “Diesel Test.”

The defendants admittedly sold their product exclusively online through the following websites: (1) www.revlabs.com; (2) www.boostedtestforyou.com; (3) www.amazon.com; and (4) www.ebay.com. Although the defendants did not sell their product until 2016, they claimed in advertisements that their product was ranked “Best Product and Number 1” in 2015. The defendants have not denied that they concocted a fake ESPN news webpage and created a fake ESPN article touting their product. The defendants conducted all their marketing and advertising for their product through the Internet. In just over seven months, they received more than $1.6 million in gross sales from their product. At least 767 of the sales were to consumers in Illinois.

Mr. Curry promptly demanded that the defendants cease and desist selling their product. The defendants responded and said that they wished to find an “amicable resolution.” On November 15, Mr. Curry sent a second email to Revolution in which he renewed his claims and instructed them to contact his attorney. Two weeks later, however, Joshua Nussbaum, President of Revolution, filed a trademark appli- cation for the Diesel Test mark to be used in connection with dietary and nutritional supplements. In the trademark application, Mr. Nussbaum, as signatory, declared that “he believes that to the best of his knowledge and belief, no other persons ... have the right to use the mark in commerce.” He further indicated on the application that the “filing base” was “Intent to Use.” At the time he filed this application, however, the defendants already were selling their product in commerce bearing the Diesel Test mark.

On December 9, 2016, Mr. Curry filed a federal trademark application for the Diesel Test mark for dietary and nutritional supplements indicating that he had first used the mark in commerce in April 2005. The United States Patent and Trademark Office (“USPTO”) suspended the processing of both applications, citing a likelihood of confusion between the defendants’ and Mr. Curry’s marks.

(…) Federal law protects trademarks even if the owner has not yet sought federal registration.

(…) According to these affidavits, “Revolution does not hold itself out to do business in Illinois” on its website. Although Revolution lists on its website several companies where its products can be purchased, none of the listed companies are located in Illinois. It is not disputed that the defendants (1) are not registered to do business and do not have a registered agent in Illinois; (2) do not have a place of business in Illinois, a telephone, or a mailing address in Illinois; (3) do not have any employees located in Illinois or any who have traveled to Illinois for business; (4) do not have any real or personal property in Illinois; and (5) have never attended any trade shows or participated in any business- related meetings in Illinois.

(…) Specifically, the defendants contended that jurisdiction was not proper over Revolution because, “while Revolution does have some minimal sales to Illinois, those sales represent only 1.8% of Revolution’s total gross sales nationwide.”

(…) Because this case involves claims under both federal law and state law, the district court’s jurisdiction rested on a federal question, 28 U.S.C. § 1331, and supplemental jurisdiction, 28 U.S.C. § 1367. In a case involving federal question jurisdiction, “a federal court has personal jurisdiction over the defendant if either federal law or the law of the state in which the court sits authorizes service of process to that defendant.” Mobile Anesthesiologists Chicago, LLC v. Anesthesia Assocs. of Houston Metroplex, P.A., 623 F.3d 440, 443 (7th Cir. 2010). The only federal statute under which Mr. Curry brings his claims is the Lanham Act, which does not authorize nationwide service of process. See be2 LLC v. Ivanov, 642 F.3d 555, 558 (7th Cir. 2011). Thus, “a federal court sitting in Illinois may exercise jurisdiction over the defendants in this case only if authorized both by Illinois law and by the United States Constitution.” Id. (citing Fed. R. Civ. P. 4(k)(1)(A)). The Illinois long-arm statute provides that “a court may also exercise jurisdiction on any other basis now or hereafter permitted by the Illinois Constitution and the Constitution of the United States.” 735 ILCS 5/2-209(c). We have held that “the Illinois long-arm statute permits the exercise of jurisdiction to the full extent permitted by the Fourteenth Amendment’s Due Process Clause.” Tamburo v. Dworkin, 601 F.3d 693, 700 (7th Cir. 2010). Thus, the question we must answer is whether the exercise of personal jurisdiction over the defendants “comports with the limits imposed by federal due process.” Walden v. Fiore, 571 U.S. 277, 283 (2014); Mobile Anesthesiologists, 623 F.3d at 443 (noting that “there is no operative difference between” the constitutional limits of the Illinois Constitution and the United States Constitution in terms of subjecting a defendant to personal jurisdiction).

(…) For the exercise of specific jurisdiction over an out-of-state defendant: First, the defendant’s contacts with the forum state must show that it “purposefully availed itself of the privilege of conducting business in the forum state or purposefully directed its activities at the state. Second, the plaintiff’s alleged injury must have arisen out of the defendant’s forum-related activities. And finally, any exercise of personal jurisdiction must comport with traditional notions of fair play and substantial justice.

(…) We also note that, although Revolution’s sales of the allegedly infringing product to Illinois consumers all took place through either its interactive website or a third party’s website, we consistently have declined “to fashion a special jurisdictional test for Internet-based cases.” Tamburo, 601 F.3d at 703 n.7. “We think that the traditional due process inquiry ... is not so difficult to apply to cases involving Internet contacts that courts need some sort of easier-to-apply categorical test.” Illinois v. Hemi Grp. LLC, 622 F.3d 754, 759 (7th Cir. 2010).

We first examine whether Revolution’s activity can be characterized as purposefully directed at Illinois, the forum state. Revolution has no physical presence in Illinois. Our cases make clear, however, that physical presence is not necessary for a defendant to have sufficient minimum contacts with a forum state. Indeed, we have noted that the “purposeful-direction inquiry ‘can appear in different guises.’” Tamburo, 601 F.3d at 702 (quoting Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1071 (10th Cir. 2008)). The essential point of the inquiry is to “ensure that an out-of-state defendant is not bound to appear to account for merely ‘random, fortuitous, or attenuated contacts’ with the forum state.” Dudnikov, 514 F.3d at 1071 (quoting Burger King, 471 U.S. at 475).

The principal approach employed to ensure that a defendant’s contacts with a state are not random, fortuitous, or attenuated is to inquire whether the record demonstrates that the defendant has “‘purposefully directed’” his activities at a forum even in the “absence of physical contacts” with a forum. Burger King, 471 U.S. at 476 (quoting Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 774–75 (1984)). Such “purposeful direction” may be shown by evidence that the defendant’s actions, even if initiated outside of the forum state, nevertheless were directed at the forum state. For example, a defendant may cause its product to be distributed in the forum state. See, e.g., Keeton, 465 U.S. at 774–75 (finding purposeful direction where defendant published magazines outside the forum state and circulated them in the forum state). Among our recent cases, Hemi is particularly instructive. There, the State of Illinois sued Hemi Group LLC (“Hemi”) for selling cigarettes to Illinois residents in violation of state law and for failing to report the sales in violation of federal law. Hemi was based in New Mexico; it “was not incorporated or organized under Illinois law, it was not registered to do business in Illinois, it did not have any offices or employees in Illinois, it did not bank in Illinois, and it had not advertised in print media in Illinois.” Hemi, 622 F.3d at 755–56. Hemi sold its cigarettes through its websites, and the complaint identified only one Illinois resident, a special senior agent of the Illinois Department of Revenue, who had purchased cigarettes from Hemi through its websites. This agent had purchased over three hundred packs of cigarettes from Hemi over the course of two years. Id. at 755.

We held that Hemi’s contacts with Illinois were sufficient to support personal jurisdiction in that state. We based our decision in part on Hemi’s maintenance of “commercial websites through which customers could purchase cigarettes, calculate their shipping charges using their zip codes, and create accounts.” Id. at 757–58. Because Hemi “knowingly did do business with Illinois residents ... , Hemi’s argument that it did not purposefully avail itself of doing business in Illinois rang particularly hollow.” Id. at 758.

(…) The Supreme Court has held that an out-of-state insurer who sold only a single policy within the state is subject to personal jurisdiction within the state at least with respect to a cause of action related to that policy. See McGee v. Int’l Life Ins. Co., 355 U.S. 220, 222 (1957).

We are satisfied that Revolution has formed sufficient minimum contacts with Illinois. Like Hemi, Revolution sells its products only online through its website and third-party websites. Revolution’s interactive website for the sale of its products requires the customer to select a shipping address. Illinois is among the “ship-to” options from which the customer must choose. Illinois residents purchasing Revolution’s products also receive an email from Revolution thanking them for their business, confirming their order, and listing the Illinois shipping address. Revolution admittedly sold its Diesel Test product to 767 Illinois residents between October 14, 2016, and June 1, 2017.

(…) See Hemi, 622 F.3d at 758; uBid, 623 F.3d at 428 (stating that defendant’s argument that its sales to Illinois residents were merely “automated transactions unilaterally initiated by those residents” was not persuasive because those “customers ... are not simply typing their credit card numbers into a web form and hoping they get something in return”; the defendant “itself set the system up this way”).

In the face of this sales arrangement, it is not persuasive to say that Revolution did not exploit the Illinois market simply because its advertising was not especially aimed at that state. See uBid, 623 F.3d at 428–29. There is no per se requirement that the defendant especially target the forum in its business activity; it is sufficient that the defendant reasonably could foresee that its product would be sold in the forum. See Keeton, 465 U.S. at 781. In Keeton, the Supreme Court upheld the exercise of personal jurisdiction even though the defendant magazine publisher had not targeted specifically the forum. The Court determined that, with a nationwide market, the publisher reasonably should have anticipated that it could be held accountable in the forum state for activities arising from the “substantial number” of sales in the forum state. Id. In Hemi, we concluded that personal jurisdiction was proper irrespective of the fact that Hemi “had not advertised in print media in Illinois.” Hemi, 622 F.3d at 756. Revolution’s nationwide advertisements were accessible in Illinois.

Significant caution is certainly appropriate when assessing a defendant’s online contacts with a forum “to ensure that a defendant is not haled into court simply because the defendant owns or operates a website that is accessible in the forum state.” Hemi, 622 F.3d at 760. Here, however, Revolution’s 767 sales of Diesel Test to Illinois residents provides solid evidence that Revolution has “purposely exploited the Illinois market.” be2, 642 F.3d at 558 (collecting cases). These sales certainly distinguish Revolution from “the defendant that merely operates a website, even a ‘highly interactive’ website, that is accessible from, but does not target, the forum state.” Id. at 559 (collecting cases).

The proper exercise of specific jurisdiction also requires that the defendant’s minimum contacts with the forum state be “suit-related.” Advanced Tactical, 751 F.3d at 801 (quoting Walden, 571 U.S. at 284). There must be a “connection between the forum and the specific claims at issue.” Bristol-Myers Squibb, 137 S. Ct. at 1781. “Even regularly occurring sales of a product in a State do not justify the exercise of jurisdiction over a claim unrelated to those sales.” Goodyear, 564 U.S. at 931 n.6.

We held that Advanced Tactical failed to establish personal jurisdiction. Real Action’s email to its customer list, which included customers in Indiana, could not support jurisdiction because, we explained, any connection between the lawsuit and where the email was opened would be “entirely fortuitous.” Although Real Action made at least one sale to an Indiana resident, Advanced Tactical did not provide evidence that the sale had any connection to the underlying claims of trademark infringement. No evidence, for example, suggested that Indiana residents saw Real Action’s email or website before purchasing products from Real Action. “The only sales that would be relevant,” we explained, “are those that were related to Real Action’s alleged unlawful activity,” and Advanced Tactical did “not provide evidence of any such sales.” We emphasized in Advanced Tactical that the defendant’s contacts with the forum state must be related to the plaintiff’s claims to support specific personal jurisdiction. Advanced Tactical, 751 F.3d at 801.

Mr. Curry, on the other hand, certainly has met his burden. Unlike the sales in Advanced Tactical, which were made by the defendant in the forum state but were not related to the claims underlying the suit, Mr. Curry has shown that the direct sales that Revolution made in Illinois involved Diesel Test, a product that bears the allegedly infringing trademark that forms the very basis of this action. Mr. Curry submits that Revolution participated in the Illinois market by selling its product in a manner that would lead the consumer to confuse Revolution’s product with his. The gravamen of his case is that Revolution’s advertisement and sale of its product in the national market caused confusion and consequently deprived Mr. Curry of the value of his trademark in those states, including Illinois, where the product was sold.

(…) Advanced Tactical cannot be read as requiring, at this stage of the litigation, anything more. As we have just noted, Revolution’s sales are inextricably linked to the alleged tortious activity underlying Mr. Curry’s claims. By contrast, the allegations of trademark infringement in Advanced Tactical appear to be based solely on statements made on the defendant’s website about its affiliations. The sales in the forum state therefore did not have, as the court noted, any relevance to the allegations of the complaint. Notably, Advanced Tactical made no attempt to limit our earlier decision in Hemi, which had upheld an assertion of personal jurisdiction based on sales of cigarettes to one individual in the forum state.


(U.S. Court of Appeals for the Seventh Circuit, February 10, 2020, Charles Curry v. Revolution Laboratories, LLC, Docket No. 17-2900)

No comments:

Post a Comment