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December 18, 2000


The opinion of the court was delivered by: Chin, District Judge


Plaintiff GMA Accessories, Inc. ("GMA") brings this action alleging, inter alia, that defendant Idea Nuova, Inc., GMA's competitor in the novelty industry, infringed upon GMA's copyrighted floral designs. In response, Idea Nuova asserts counterclaims against GMA based on GMA's sale of inflatable furniture under trademarks similar to Idea Nuova's "ROOM IN A BOX" mark. Idea Nuova asserts six amended counterclaims for: (1) trademark infringement, false designation of origin, false description, and false representation under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125 (a); (2) trademark dilution under Section 43(c) of the Lanham Act, 15 U.S.C. § 1125 (c); (3) cancellation of trademark registration, under Section 37 of the Lanham Act, 15 U.S.C. § 1119 (c); (4) "fraudulent trademark registration application," under Sections 35(a) and 38 of the Lanham Act, 15 U.S.C. § 1117 (a) and 1120; (5) declaratory relief under the Declaratory Judgment Act, 28 U.S.C. § 2201; and (6) common law unfair competition.

GMA moves to dismiss the amended counterclaims, contending that because they are permissive rather than compulsory and because they fail to state a claim under federal law, they must be dismissed pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). For the reasons that follow, the motion is granted in part and denied in part.


A. Facts

The facts as alleged by Idea Nuova and assumed to be true for purposes of this motion, are as follows:

Idea Nuova and GMA are competitors in the business of manufacturing novelty items and selling them to retail stores. (Am.Ans.¶ 120). GMA was started by former employees of Idea Nuova; since its inception in 1990, GMA has hired approximately twenty to twenty-five former Idea Nuova employees, including office workers and designers. (Am.Ans.¶ 122). GMA hires these employees "to ascertain what types of products, designs and labels Idea Nuova is going to sell in the coming seasons" so that it may develop similar, competitive products. (Am.Ans.¶ 123).

One product Idea Nuova creates, designs, and markets is inflatable furniture made from flexible polyvinyl chloride or "PVC." (Am.Ans.¶ 80). Idea Nuova's inflatable PVC furniture is regarded by wholesalers, retailers, and consumers as being of the "highest quality." (Am. Ans.¶ 81). Since 1998, Idea Nuova has sold its inflatable PVC furniture in a "single and novel package" marketed under the trademark "ROOM IN A BOX."*fn1 (Am. Ans.¶ 82). "During all relevant times," Idea Nuova has continuously used the ROOM IN A BOX trademark in connection with its inflatable PVC furniture. (Am.Ans.¶ 83). In addition, through its wide distribution and extensive sales, "the ROOM IN A BOX trademark has developed a secondary meaning and a significance in the minds of the purchasing public," such that the public readily identifies the trademark with Idea Nuova's distinctive furniture. (Am.Ans.¶¶ 84-85). Idea Nuova has spent substantial sums of money advertising its ROOM IN A BOX product, and, as a result of its efforts, the ROOM IN A BOX trademark has become an "extremely valuable asset" of Idea Nuova. (Am.Ans.¶¶ 86-87).

In late 1998 or early 1999, after Idea Nuova began using the ROOM IN A BOX trademark in connection with its inflatable PVC furniture, GMA began selling its own inflatable PVC furniture under the names "Inflatable Room In A Box," "Bathroom In A Box," and "Room On The Run."*fn2 (Am. Ans.¶ 89). Idea Nuova alleges that GMA's use of these names in connection with the sale of inflatable PVC furniture "is likely to cause confusion and mistake in the minds of the purchasing public" by creating the impression that GMA's furniture is "authorized, sponsored, or approved by Idea Nuova." (Am.Ans.¶ 91). Idea Nuova further alleges that GMA intentionally and wilfully adopted marks that are "confusingly similar" to Idea Nuova's ROOM IN A BOX trademark in an effort to take unfair advantage of Idea Nuova's goodwill and reputation. (Am.Ans.¶¶ 92-93). Finally, Idea Nuova asserts that GMA's use of confusingly similar marks "dilute[s] the distinctive quality of defendant Idea Nuova's names." (Am.Ans.¶ 116).

In January 1999 and again in May 1999, Idea Nuova demanded that GMA cease and desist from using names or marks confusingly similar to Idea Nuova's ROOM IN A BOX mark. (Am.Ans.¶ 94). GMA did not comply with the demand; instead, it filed an application with the Patent and Trademark Office ("PTO") to trademark the name "Room in A Box" for use on "inflatable toy furniture." (Am.Ans.¶ 95). GMA's application for the "Room in a Box" trademark was "suspended" because the PTO determined that another company — not Idea Nuova — had "first use" of the mark. (Affirmation of Michele Ficarra, dated Aug. 4, 2000, ¶ 5).*fn3 Indeed, it appears that at least four non-parties to this action have, at some point, registered the mark "ROOM IN A BOX" or variations thereof. (Ficarra Aff. ¶¶ 6-7, Ex. D). Idea Nuova has not disputed that it never attempted to register the ROOM IN A BOX trademark.

B. Prior Proceedings

On August 7, 2000, GMA moved to dismiss Idea Nuova's counterclaims, contending that because the counterclaims: (1) are permissive rather than compulsory, and (2) fail to state a federal cause of action, they must be dismissed pursuant to Fed. R.Civ.P. 12(b)(1) and 12(b)(6). On September 5, 2000, Idea Nuova both opposed the motion and amended its counterclaims to address some of the pleading defects identified in GMA's motion. See Fed. R.Civ.P. 15(a); Rose v. Associated Univs., Inc., No. 00 Civ. 0460, 2000 WL 1457115, at *3 (S.D.N.Y. Sep. 28, 2000) (motion to dismiss is not a responsive pleading). Unsatisfied, GMA moved to dismiss the amended counterclaims on the same grounds it previously raised.


A. Motion to Dismiss Standard

In reviewing a motion to dismiss, I must accept the factual allegations set forth in the complaint (or, as here, a counterclaim) as true, and draw all reasonable inferences in favor of the plaintiff. See Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir. 1996). A complaint may not be dismissed under Fed.R.Civ.P. 12(b)(6) unless it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir. 1998) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). In other words, the issue before the Court on a motion to dismiss "is not whether . . . plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Villager Pond; Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995) (citation omitted), cert. denied, 519 U.S. 808, 117 S.Ct. 50, 136 L.Ed.2d 14 (1996).

B. Compulsory v. Permissive Counterclaims

Pursuant to Fed.R.Civ.P. 13(a), "[a] pleading shall state as a counterclaim any claim [that] . . . arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction." A counterclaim is compulsory when a "logical relationship exists between the claim and the counterclaim and . . . the essential facts of the claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit." Adam v. Jacobs, 950 F.2d 89, 92 (2d Cir. 1991) (internal quotations omitted); see AT & T Corp. v. American Cash Card Corp., 184 F.R.D. 515, 519 (S.D.N.Y. 1999) (quoting same). A compulsory counterclaim need not have an independent basis of federal jurisdiction. See Klein v. London Star Ltd., 26 F. Supp.2d 689, 697 (S.D.N.Y. 1998) (citing Harris v. Steinem, 571 F.2d 119, 122 (2d Cir. 1978)).

In contrast, a counterclaim that does not arise out of the same transaction or occurrence as the opposing party's claim is deemed "permissive," see Fed. R.Civ.P. 13(b), and must be dismissed absent "an independent jurisdictional predicate." Klein, 26 F. Supp.2d at 697. Here, Idea Nuova does not contest GMA's characterization of its counterclaims as permissive. Rather, Idea Nuova alleges that its counterclaims do have an ...

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