Wham-O v. Manley Toys: No Fed. Jurisdiction to Declare a Mark Nongeneric

A California district court dismissed a declaratory judgment action brought by a trademark owner, seeking to skip a TTAB proceeding and get the Court to declare that its trademarks had not become generic and thus subject to cancellation.The Court held that in the absence of an actual infringement claim, there was neither jurisdiction nor a “justiciable case or controversy” and therefore the Court had no authority to decide the declaratory judgment action. The court's decision, Wham-O, Inc. v. Manley Toys, Ltd., No. 2:08-cv-07830-CBM (C.D. Cal. Aug. 13, 2009), relied on the Supreme Court’s decision in MedImmune Inc. v. Genentech Inc., 549 U.S. 118 (2007), which lowered the threshold for proving a case or controversy, indicating that perhaps the MedImmune standard is quite not as liberal as some practitioners may have believed.

BACKGROUND

Toymaker Wham-O, Inc. owns the federal marks for famous toys like the FRISBEE, HULA HOOP, SLIP ‘N SLIDE, and more. For years, Wham-O has been engaged in bitter legal battles with competitor Manley Toys, Ltd., which Wham-O has accused of engaging in “a wide-ranging scheme to destroy Wham-O’s business and the enormous goodwill associated with many of its famous brands.” In the past, Wham-O has obtained a $6 million award against Manley for the intentional infringement and dilution of SLIP ‘N SLIDE, and a permanent injunction against Manley regarding the use of FRISBEE and SUPERBALL.

In 2008, Manley filed cancellation petitions with the Trademark Trial and Appeal Board (TTAB), claiming that Wham-O should no longer have exclusive rights to SLIP ‘N SLIDE, FRISBEE, HULA HOOP, and SUPERBALL because the alleged marks had become generic. Thereafter, Wham-O filed a declaratory judgment action in the Central District of California seeking a ruling that its marks had not become generic. At Wham-O’s request, the TTAB suspended its proceedings in March 2009 pending disposition of the federal lawsuit.

Manley filed a motion to dismiss the federal action with prejudice based on, among other things, lack of subject matter jurisdiction and the complaint’s failure to present a case or controversy as required by Article III of the U.S. Constitution. The district court agreed and dismissed the action with prejudice on both grounds. Wham-O, Inc. v. Manley Toys, Ltd., No. 2:08-cv-07830-CBM (C.D. Cal. Aug. 13, 2009).

Absent infringement, the Court has no Jurisdiction

Wham-O had alleged federal subject matter jurisdiction based on both diversity and federal question. Diversity of citizenship exists where all plaintiffs are of different citizenships from all defendants and the amount in controversy exceeds $75,000.  28 U.S.C. section 1332. Wham-O’s complaint failed to include an allegation regarding the amount in controversy, thus it failed to establish diversity jurisdiction. (Slip op., p. 5).

Federal district courts have original federal question jurisdiction in actions arising under the Lanham Act to “determine the validity of trademark registrations that are otherwise before them, e.g., in an infringement action.” In this case, the Court determined that it lacked federal question jurisdiction because “the courts do not have ‘jurisdiction under the Declaratory Judgment Act to determine the validity of [a] trademark where there is no issue of infringement.’” Because there were no infringement or other legal claims between the parties, and the TTAB proceeding could not be construed as a potential infringement claim, the court had no jurisdiction. (Slip op., p.6).

A Declaratory Judgment Action Simply to Determine Nongenericness Does Not Present a Case or Controversy

In order to decide the case or controversy question, the Supreme Court turned to the standard articulated in MedImmune Inc. v. Genentech Inc., 549 U.S. 118 (2007), requiring that “the facts alleged, under all 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.”

In MedImmune, the Court held that a company could challenge the validity of a patent while still paying royalties on the patent license. The challenger did not have to stop paying royalties and potentially infringe on a patent in order to create a justiciable case or controversy – the mere threat of a private enforcement action if the challenger did stop paying royalties was enough to create a case or controversy. The MedImmune decision loosened the definition of what constitutes a case or controversy and overruled the more stringent test previously developed by the Federal Circuit in Windsurfing Int’l Inc. v. AMF Inc., 828 F.2d 755 (Fed. Cir. 1987).

Referencing MedImmune, the Wham-O Court determined that the complaint presented no case or controversy because “[t]here is no evidence of a threat of litigation or liability hanging over Wham-O as a result of any activity on Defendants’ part…” (Slip op., p. 7). The court noted that Manley never threatened to sue Wham-O for Wham-O’s use of its own marks, nor was Wham-O faced with having to pursue illegal activity or abandon legal valid activity due to a threat of legal action. Id. Instead, dismissing the case preserves a status quo in which Wham-O continues its exclusive protected use of its own marks, which Manley is enjoined from using until and unless the TTAB decides otherwise. (Slip op., p.8).

CONCLUSION

The Wham-O district court decision indicates that perhaps MedImmune did not liberalize the “case or controversy” standard quite as much as many pundits believed. The case suggests that the filing of a TTAB cancellation proceeding based on something other than infringement or likelihood of confusion may not create the kind of case or controversy to support Article III jurisdiction.

Wham-O has appealed this opinion to the Ninth Circuit Federal Court of Appeals.

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Jeffrey J. Zuber

Laura D. Castner

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