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Usana Health Sciences Inc. v. Smartshake US, Inc.

United States District Court, D. Utah Central Division

June 5, 2018

USANA HEALTH SCIENCES, INC., Plaintiff,
v.
SMARTSHAKE US, INC., a Pennsylvania corporation; DEVPAT AB, a Swedish limited company; and MIKAEL NILSSON, an individual, Defendants.

          MEMORANDUM DECISION AND ORDER GRANTING [19] MOTION TO DISMISS

          David Nuffer United States District Judge.

         Defendants SmartShake US, Inc. (“SmartShake”), DevPat AB (“DevPat”), and Mikael Nilsson (“Nilsson”), collectively “Defendants, ” filed a Motion to Dismiss[1] Plaintiff USANA Health Sciences, Inc.'s (“USANA”) Complaint.[2] In its Complaint, USANA seeks declaratory judgment that its USANA MYSMART mark does not infringe on DevPat's three SMARTSHAKE registered trademarks.[3] Additionally, USANA seeks declaratory judgment of invalidity and cancellation of the three SMARTSHAKE trademarks.[4]

         In the Motion to Dismiss, Defendants argue that the Complaint should be dismissed in its entirety under Rule 12(b)(1) of the Federal Rules of Procedure due to lack of subject matter jurisdiction.[5] Alternately, Defendants argue that the Complaint against SmartShake and Nilsson should be dismissed under Rule 12(b)(6) for failure to state a claim upon which relief can be granted.[6]

         After consideration of the written submissions of the parties, Defendants' Motion to Dismiss the Complaint in its entirety pursuant to Rule 12(b)(1) is GRANTED. Because this case is dismissed for a lack of subject matter jurisdiction, it is unnecessary to reach Defendants' 12(b)(6) arguments.

         TABLE OF CONTENTS

         Background ..................................................................................................................................... 2

         Standard of Review ......................................................................................................................... 6

         Discussion ....................................................................................................................................... 6

         There Is No. Subject Matter Jurisdiction over USANA's Claims ....................................... 7

         USANA's Suit Is Not Based on an “Actual Controversy” ..................................... 7

         USANA Engaged in Procedural Fencing ............................................................... 9

         USANA's Claim for Relief is Moot ................................................................................. 12

         Order ……………………………………………………………………………………………16

         BACKGROUND[7]

         USANA is a Utah corporation that manufactures nutritional supplements, diet and energy products, personal care, and other healthcare products.[8] DevPat is a Swedish company that manufactures a line of drinking bottles, shakers, and food containers that it ships to and offers for sale in the United States under the SMARTSHAKE brand.[9] DevPat owns three trademarks in relation to its SMARTSHAKE mark.[10] SmartShake is a Pennsylvania corporation that acts as the “U.S. arm” of DevPat.[11] Nilsson is a resident of Sweden who, according to USANA, is the founder of DevPat and SmartShake.[12]

         Among its wide array of goods, USANA sells a line of protein shake products that it previously offered under a mark titled “MYSMARTSHAKE.”[13] DevPat became aware of USANA's use of the MYSMARTSHAKE mark in June of 2016 when USANA's products were featured on The Dr. Oz Show.[14] Believing that USANA's MYSMARTSHAKE mark created consumer confusion with DevPat's SMARTSHAKE brand, DevPat sent two cease and desist letters to USANA in July and September of 2016.[15] In both letters, DevPat expressed its preference to “resolve this issue amicably, perhaps possibly based on a business relationship.”[16]USANA responded to DevPat's letters in October of 2016 and likewise communicated its commitment to resolve the matter amicably.[17]

         As a result, USANA and DevPat entered into negotiations.[18] On January 4, 2017, USANA communicated to DevPat that it was “working on changing labelling (packaging and published marketing) to make sure there is a clear distinction” between DevPat's and USANA's products.[19] On January 17, 2017, USANA sent DevPat its proposed repackaging, which DevPat accepted.[20] The proposed packaging displayed the USANA MYSMART label and no longer utilized the MYSMARTSHAKE mark.[21] Following the agreement on USANA's revised packaging, USANA and DevPat continued to negotiate additional settlement terms-including what to do with USANA's remaining inventory that displayed the allegedly infringing MYSMARTSHAKE mark.[22]

On February 15, 2017, DevPat sent an email to USANA stating, in relevant part:
I have not heard back from you on that or in weeks. I would appreciate a response as soon as possible. I think all parties would like to settle this amicably but if communication is cut off, I have been given instructions to file an action in Federal court.[23]

         Following this email, it appears that negotiation continued. Six days later, on February 21, 2017, USANA contacted DevPat inquiring whether and to what amount DevPat expected to be compensated should USANA proceed to sell its remaining inventory that still carried the MYSMARTSHAKE mark and whether DevPat would be willing to enter into a licensing agreement.[24] The following day, on February 22, DevPat replied stating that given the size of the remaining inventory, it did not believe that a seven figure No. was unreasonable and that it had not considered a licensing agreement because USANA had previously informed DevPat that it was not interested in one.[25] On February 23, counsel for USANA replied: “I need to discuss this with our Executive team, but unfortunately, they are tied up in a VP retreat through tomorrow afternoon. I'll get back to you as soon as I can.”[26]

         USANA filed for declaratory relief in this case the next day on February 24, 2017.[27] In its Complaint, USANA sought declaratory judgment that the revised packaging that carried the USANA MYSMART mark does not infringe DevPat's three SMARTSHAKE trademarks.[28]Additionally, USANA sought declaratory judgement of invalidity and cancellation of DevPat's three SMARTSHAKE trademarks.[29] Other than in a headnote in the “factual background” section, [30] USANA made no mention of its prior use of the MYSMARTSHAKE mark or product inventory in its Complaint.

         On April 20, 2017, DevPat sued USANA in the United States District Court for the Southern District of New York.[31] In its suit, DevPat asserted that USANA's use of the MYSMARTSHAKE mark infringed on DevPat's SMARTSHAKE trademarks.[32] DevPat explicitly stated in its Complaint that USANA's revised USANA MYSMART mark does not infringe upon DevPat's SMARTSHAKE mark.[33] Additionally, on May 29, 2017, DevPat executed a unilateral covenant not to sue over the USANA MYSMART mark.[34]

         STANDARD OF REVIEW

         Due to the limited scope of federal jurisdiction, federal courts do not presume jurisdiction.[35] Rather, the burden of proof falls upon the party asserting federal jurisdiction.[36]Motions to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) generally take two forms.[37] A party may either (1) challenge the sufficiency of the complaint through a “facial attack on the complaint's allegations” or (2) “go beyond allegations contained in the complaint and challenge the facts upon which subject matter jurisdiction depends.”[38] The Defendants' current Motion falls into the latter category. The complaint's factual allegations are no longer presumed to be true and reference to evidence outside of the pleadings is appropriate.[39]

         DISCUSSION

         Defendants assert that there is no subject matter jurisdiction over USANA's claims under the Declaratory Judgment Act.[40] Alternately, Defendants argue that USANA's case is moot due to the unilateral covenant not to sue over the USANA MYSMART trademark that DevPat executed on May 29, 2017.[41] Either ground provides a sufficient basis upon which to grant Defendants' Motion to Dismiss.

         There Is No. Subject Matter Jurisdiction over USANA's Claims

         The Declaratory Judgment Act states, in relevant part: “In a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.”[42] As such, a plaintiff seeking declaratory judgment must meet two requirements. The plaintiff must first “present the court with a suit based on an ‘actual controversy, ' a requirement the Supreme Court has repeatedly equated to the Constitution's case-or-controversy requirement.”[43] “Second, even where a constitutionally cognizable controversy exists, the Act stipulates only that the district courts “may”-not “must”-make a declaration on the merits of that controversy; accordingly . . . district courts are entitled to consider a No. of case-specific factors in deciding whether or not to exercise their statutory declaratory judgment authority.”[44] USANA's complaint does not present an actual controversy and this court's discretion is best exercised to decline to hear the case.

         USANA's Suit Is Not Based on an “Actual Controversy”

         “A declaratory judgment ‘controversy' . . . requires no greater showing than is required for Article III.”[45] It must be (1) “definite and concrete, touching the legal relations of parties having adverse legal interests, ” (2) “real and substantial, ” and (3) “admit of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.”[46] In other words, “the question in each case is whether the facts alleged, under the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”[47]

         USANA argues this standard is easily satisfied in the current case because DevPat not only threatened to file suit in federal court in an email sent on February 15, 2017, but has also since acted on that threat by filing an action in the Southern District of New York.[48] However, USANA fails to distinguish between the controversy arising from its use of the MYSMARTSHAKE mark and the lack of controversy about its use of the USANA MYSMART mark.

         An actual controversy exists between the parties regarding USANA's use of the MYSMARTSHAKE mark. DevPat issued two cease and desist letters shortly after it became aware of USANA's use of the mark. Additionally, the threat to pursue litigation in federal court that USANA points to in the February 15 email was aimed towards USANA's use of the MYSMARTSHAKE mark, not the USANA MYSMART mark. DevPat sent the email after the parties had already agreed that USANA would cease using the MYSMARTSHAKE mark and replace it with the USANA MYSMART mark. At that point, the only thing left to be negotiated was how to treat USANA's inventory that still carried the allegedly infringing MYSMARTSHAKE mark. The email states that DevPat had not heard from USANA for some time and expressed its desire to still resolve the situation amicably, but also informed USANA that DevPat had given counsel permission to file suit in federal court if further communication was cut off.[49] Nothing indicates that DevPat made this alleged threat as a result of USANA's planned use of the USANA MYSMART mark. Rather, context suggests it was made in relation to the inventory that still carried the MYSMARTSHAKE brand.

         Finally, the pending suit that DevPat initiated in the Southern District of New York further bolsters the conclusion that there is no “actual controversy” between the parties regarding the USANA MYSMART mark. DevPat's S.D.N.Y. Complaint alleges that USANA's MYSMARTSHAKE mark infringes on DevPat's SMARTSHAKE trademarks.[50] DevPat's Complaint explicitly states that the subject of USANA's Complaint, the USANA MYSMART mark, does not infringe on DevPat's trademarks: “the revised mark . . . does not infringe Plaintiff's MYSMARTSHAKE® Trademark. . . . [T]he “USANA MYSMART” mark was never alleged to be infringing, or threatened with suit, but to the contrary was approved for use by Plaintiff.”[51] USANA has not countered this assertion. And now, DevPat has provided a covenant not to sue over the USANA MYSMART mark.

         For these reasons, the parties do not have “adverse legal interests” concerning USANA's use of the USANA MYSMART mark on the packaging and marketing of its protein shake products. The parties appear to agree that the USANA MYSMART mark does not infringe DevPat's registered trademarks.

         USANA Engaged in Procedural Fencing

         Although a finding that a case lacks an “actual controversy” is sufficient to dismiss a complaint seeking declaratory relief, [52] USANA's Complaint would warrant dismissal even if the requisite controversy had been present.

         “[T]he district court is not obliged to entertain every justiciable declaratory claim brought before it. The Supreme Court has long made clear that the Declaratory Judgment Act ‘gave the federal courts competence to make a declaration of rights; it did not impose a duty to do so.'”[53] In determining whether to hear a case seeking declaratory judgment, courts may consider a No. of case-specific factors, including:

[1] whether a declaratory action would settle the controversy; [2] whether it would serve a useful purpose in clarifying the legal relations at issue; [3] whether the declaratory remedy is being used merely for the purpose of “procedural fencing” or “to provide an arena for a race to res judicata ”; [4] whether use of a declaratory action would increase friction between our federal and state courts and improperly encroach upon state jurisdiction; and [5] whether there is an alternative remedy which is better or more effective.[54]

         Assuming that USANA had presented an “actual controversy” surrounding the USANA MYSMART mark, the first, second, and fourth factors may have tilted in favor of USANA- however, this is speculative. Regardless, the third factor-which considers whether the plaintiff has engaged in “procedural fencing”-carries considerable weight in the current case.

         Buzas Baseball Inc. v. Bd. of Regents of Univ. Sys. of Georgia[55] is remarkably similar to the present case. In Buzas, an “actual controversy” existed between the parties regarding the plaintiff's use of the “Buzz” mark.[56] The parties had engaged in negotiations and at one point the plaintiff had agreed that it would discontinue using “Buzz” in its name and logo, and was leaning towards rebranding itself as “Beezz.”[57] The defendant had presented plaintiff with a written settlement agreement to which plaintiff never responded.[58] Instead, plaintiff filed suit seeking declaratory judgment in Utah federal district court eleven days after receiving the written settlement proposal.[59] Defendant initiated a trademark infringement action in Georgia federal district court approximately three weeks later.[60]

         The Utah district court dismissed plaintiff's declaratory judgment action, finding that plaintiff had filed the action in anticipation of the Georgia lawsuit and had never informed the defendant that its proposal was unacceptable.[61] The Tenth Circuit affirmed the district court's dismissal of the case, stating that “[a] district court may decline to follow the first-to-file rule and dismiss a declaratory judgment action if that action was filed for the purpose of anticipating a trial of the same issues in a court of coordinate jurisdiction.”[62]

         As in Buzas, USANA and DevPat were still engaged in ongoing negotiations at the time that USANA initiated the present suit. USANA had already agreed to replace the MYSMARTSHAKE with the USANA MYSMART mark in the marketing and on the packaging of its protein shake products. At that point, all that was left to negotiate were details such as what was to be done with USANA's remaining inventory that carried the allegedly infringing mark. That issue is not raised in this case. There is also no indication that USANA informed DevPat that they had reached an impasse prior to seeking declaratory judgment. Furthermore, DevPat filed suit alleging trademark infringement by the MYSMARTSHAKE products in the Southern District of New York approximately two months later.

         USANA does point to the email that DevPat sent on February 15 to suggest that negotiations had broken down prior to it initiating the current action.[63] It is true that DevPat did state it might file suit in federal court if communication ceased between the parties.[64] However, this argument ignores the subsequent emails sent between the parties on February 21-23. The final communication that USANA sent February 23rd to DevPat prior to filing the present action on February 24th stated: “I need to discuss this with our Executive team, but unfortunately, they are tied up in a VP retreat through tomorrow afternoon. I'll get back to you as soon as I ...


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