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DE BEERS LV TRADEMARK LIMITED v. DeBEERS DIAMOND SYNDICATE

May 18, 2005.

DE BEERS LV TRADEMARK LIMITED and DE BEERS LV LIMITED, Plaintiffs,
v.
DeBEERS DIAMOND SYNDICATE INC. and MARVIN ROSENBLATT Defendants.



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

OPINION AND ORDER

Plaintiffs De Beers LV Limited ("De Beers LV") and De Beers LV Trade Mark Limited (De Beers LV Trade Mark") bring claims against DeBeers Diamond Syndicate Inc. ("Syndicate") and its president, Marvin Rosenblatt ("Rosenblatt"). They allege a violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and unfair competition and trademark dilution violations under New York law. This Opinion addresses plaintiffs' motions to strike the affirmative defenses of unclean hands and lack of standing and considers plaintiffs' motions to dismiss defendants' counterclaims for a declaratory judgment and alleging conspiracy in restraint of trade under the Sherman Antitrust Act. The counterclaims name the plaintiffs and several additional counterclaim defendants: De Beers Consolidated Mines, Limited ("Consolidated Mines"); De Beers Centenary AG ("Centenary"); and De Beers Trademarks Limited ("Trademarks") (collectively, the "Additional Counterclaim Defendants"). This Opinion also addresses defendants' motion to join the Additional Counterclaim Defendants as necessary parties to the action under Rule 19, Fed.R.Civ.P.

  For the reasons stated below, the affirmative defense of unclean hands is stricken. The motions to strike the affirmative defense of lack of standing and to dismiss the declaratory judgment counterclaim are denied. The motion to dismiss Sherman Antitrust Act counterclaim is granted. Defendants' motion for joinder is denied.

  Background

  The following facts are taken from the allegations in the complaint, unless otherwise noted. Plaintiffs were incorporated in the United Kingdom in January 2002. The entities were created as a joint venture between the unspecified "owner of rights in De Beers" and luxury goods producer LMVH Moët Hennessy Louis Vuitton "to further exploit use of the DE BEERS trade identity in the retail diamond and luxury goods area in the United States and elsewhere." Plaintiff De Beers LV has been assigned the right to use DE BEERS in the United States as a trademark and service mark for diamonds, jewelry, and other luxury goods.*fn1 Plaintiff De Beers LV Trade Mark, a wholly owned subsidiary of De Beers LV, owns the trademark for and has filed applications to register the DE BEERS mark in the United States for luxury goods such as watches and clocks and for "retail store services."

  The DE BEERS name has been used for over a century in connection with the diamond mining and distribution business founded in 1888 by Cecil Rhodes. It was associated in this country, over an unspecified period, with an advertising campaign featuring the slogan "A Diamond Is Forever," although plaintiffs' Memorandum of Law appears to concede that neither products nor services have been sold in the United States under the DE BEERS name. Plaintiffs trace their rights to the DE BEERS name and trade identity to Consolidated Mines and Centenary. These entities assigned their rights to Trademarks, which in turn assigned them to De Beers LV. De Beers LV assigned all or some of its rights to De Beers Trade Mark LV, which, according to plaintiffs' Memorandum, apparently licenses the mark back to De Beers LV for some purposes.*fn2 Defendant Syndicate was incorporated in Delaware on September 10, 1981. The company became inoperative on March 1, 1986 for failure to file annual reports and for nonpayment of state taxes. In December 2001, defendant Rosenblatt registered approximately thirty-four Internet domain names that include the word DeBeers. On January 15, 2002, Syndicate filed a Certificate of Renewal and Revival of Certificate of Incorporation with the Delaware Secretary of State. On January 29 of that year, Syndicate registered the mark "DEBEERS DIAMOND SYNDICATE" with the U.S. Patent and Trademark Office for use on diamonds and for use in purchasing diamonds for others, wholesale ordering services, and distributorship of diamonds. Each application disclaims exclusive rights to use "DIAMOND SYNDICATE" and lists a first use date of June 1981 and a first use in commerce date of January 2002.

  Plaintiffs filed this action on June 1, 2004, alleging trademark infringement in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); unfair competition under New York common law; and trademark dilution in violation of New York General Business Law § 360-1. Defendants answered on September 21, 2004, raising affirmative defenses of failure to join necessary parties, unclean hands, priority of use of the mark "Debeers Diamond Syndicate," and lack of standing. Defendants also allege counterclaims against plaintiffs and the Additional Counterclaim Defendants. The first counterclaim is for a declaratory judgment that the plaintiffs and Additional Counterclaim Defendants have no right to use or prevent others from using the DE BEERS mark in the United States. The second counterclaim alleges restraint of trade and interference with business relationships under Sherman Antitrust Act provisions 15 U.S.C. §§ 1-2.

  Discussion

  Plaintiffs have moved to strike defendants' affirmative defenses of unclean hands and lack of standing. They have also moved to dismiss the counterclaims against them. Defendants have filed a motion to join the Additional Counterclaim Defendants as necessary parties to the action under Rule 19, Fed.R.Civ.P.

  I. Motion to Strike the Affirmative Defenses

  A court may strike any "insufficient defense." Rule 12(f), Fed.R.Civ.P. A motion to strike an affirmative defense for legal insufficiency is "not favored," however. William Z. Salcer, Panfeld, Edelman et al. v. Envicon Equities Corp., 744 F.2d 935, 939 (2d Cir. 1985), vacated on other grounds, 478 U.S. 1015 (1986). Such a motion "will not be granted unless it appears to a certainty that plaintiffs would succeed despite any state of the facts which could be proved in support of the defense." Id. (citation omitted). "[W]here the defense is insufficient as a matter of law," however, "the defense should be stricken to eliminate the delay and unnecessary expense from litigating the invalid claim." SEC v. KPMG, No. 03 Civ. 671 (DLC), 2003 WL 21976733, at *2 (S.D.N.Y. Aug. 20, 2003) (citation omitted).

  A plaintiff must establish three criteria to prevail on a motion to strike an affirmative defense: First, there must be no question of fact that might allow the defense to succeed. Second, there must be no substantial question of law that might allow the defense to succeed. Third, the plaintiff must be prejudiced by the inclusion of the defense. KPMG, 2004 WL 21976733, at *2; see also DGM Investments, Inc. v. New York Futures Exch., Inc., No. 01 Civ. 11602 (RWS), 2004 WL 635743, at *1 (S.D.N.Y. Mar. 31, 2004). "Increased time and expense of trial may constitute sufficient prejudice to warrant granting plaintiff's Rule 12(f) motion." Estee Lauder, Inc. v. Fragrance Counter, Inc., 189 F.R.D. 269, 272 (S.D.N.Y. 1999).

  A. Unclean Hands

  Unclean hands may be asserted as an affirmative defense to equitable claims in an action under Lanham Act Section 43(a). See Warner Bros., Inc. v. Gay Toys, Inc., 724 F.2d 327, 334 (2d Cir. 1983). "The doctrine of unclean hands is based on the principle that since equity tries to enforce good faith in defendants, it no less stringently demands the same good faith from the plaintiff." Dunlop-McCullen v. Local 1-S, AFL-CIO-CLC, 149 F.3d 85, 90 (2d Cir. 1998) (citation omitted). Misconduct that is "unrelated to the claim to which it is asserted as a defense," however, "does not ...


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