UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES - GENERAL
Case No.
CV 14-04898 J VS (MRWx)
Date September 8, 2014
Title
J AT Wheels Inc. v. J NC Wheel Collection et al.
Present: The
Honorable
J ames V. Selna
Karla J . Tunis Sharon Seffens
Deputy Clerk Court Reporter
Attorneys Present for Plaintiffs: Attorneys Present for Defendants:
Andrew J ason Wei J ames J uo / Kenya Williams
Proceedings:
Defendants Motion for Sanctions Under Rule 11 (Fld 8-6-14)
Cause called and counsel make their appearances. The Courts tentative
ruling is issued. Counsel make their arguments. The Court GRANTS the
defendants motion referenced above and rules in accordance with the tentative
ruling as follows:
Defendant J NC Wheel Collection (J NC) moves for sanctions against Plaintiff
J AT Wheels, Inc. d/b/a STR Racing (STR) and its counsel Tommy Wang (Wang)
pursuant to Federal Rule of Civil Procedure 11. (Mot., Docket No. 15.) STR opposes the
motion. (Oppn, Docket No. 19.) J NC has replied. (Reply, Docket No. 21.) For the
following reasons, the motion for sanctions is GRANTED.
I. Background
STR and J NC are both distributors of automobile wheels. On J une 24, 2014, STR
filed suit against J NC, asserting claims for trademark infringement, trademark
counterfeiting, false designation of origin, trademark dilution, unfair competition,
copyright infringement, and patent infringement. (Compl., Docket No. 1.) These claims
are based upon J NCs alleged sale of products that infringe STRs trademark and design
patents and J NCs unauthorized use of STRs copyrighted photographs. (Id. 1.)
On August 6, 2014, J NC filed the present motion for sanctions against STR,
arguing that the Court should impose sanctions upon STR because all of its claims are
frivolous. (See generally Mot.) More specifically, STR seeks the dismissal of the
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 14-04898 J VS (MRWx)
Date September 8, 2014
Title
J AT Wheels Inc. v. J NC Wheel Collection et al.
Complaint and an award of attorneys fees and expenses. (Id. 8-9.)
II. Legal Standard
Under Rule 11, sanctions may be imposed when a filing is frivolous, legally
unreasonable, or without factual foundation, or is brought for an improper purpose.
Estate of Blue v. County of Los Angeles , 120 F.3d 982, 985 (9th Cir. 1997). The cases
warranting imposition of sanctions for frivolous actions are rare and exceptional.
Operating Engrs Pension Trust v. A-C Co., 859 F.2d 1336, 1344 (9th Cir. 1988).
Sanctions imposed under Rule 11 shall be limited to what is sufficient to deter repetition
of such conduct or comparable conduct by others similarly situated. Fed. R. Civ. P.
11(c)(2). Rule 11 sanctions may include an award for reasonable attorneys fees and
other expenses directly resulting from the violation. Id. This Court has substantial
discretion regarding the application of Rule 11 sanctions. Committee Notes on
Amendments to Federal Rules of Civil Procedure, 146 F.R.D. 401, 587 (1993).
When a complaint is the primary focus of Rule 11 proceedings, a district court
must conduct a two-prong inquiry to determine (1) whether the complaint is legally or
factually baseless from an objective perspective, and (2) if the attorney has conducted a
reasonable and competent inquiry before signing and filing. Christian v. Mattel, Inc.,
286 F.3d 1118, 1127 (9th Cir. 2002); Q-Pharma, Inc. v. Andrew J ergens Co., 360 F.3d
1295, 1299 (Fed. Cir. 2004.)
Procedurally, a motion for sanctions under Rule 11 must be made separately from
any other motion and must describe the specific conduct that allegedly violates Rule
11(b). Fed. R. Civ. P. 11(c)(2). The motion must be served under Rule 5, but it must not
be filed or be presented to the court if the challenged paper claim, defense, contention, or
denial is withdrawn or appropriately corrected within 21 days after service or within
another time the court sets. Id.
III. Discussion
1
1
As a threshold matter, STR argues that J NC failed to comply with the meet and confer
requirement of Local Rule 7-3 before filing the present motion for sanctions. (Oppn 2.) The Court
concludes that the email exchange between counsel on J uly 7, 2014 and J uly 8, 2014 discussing the
basis for the motion was sufficient to satisfy the meet and confer requirement of Local Rule 7-3. (See
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 14-04898 J VS (MRWx)
Date September 8, 2014
Title
J AT Wheels Inc. v. J NC Wheel Collection et al.
J NC first argues that STRs assertion of patent infringement claims based upon its
pending design patent application warrants the imposition of sanctions under Rule 11.
(Mot. 5-6.) The Court agrees. The Federal Circuit has interpreted Rule 11 to require, at a
minimum, that an attorney interpret the asserted patent claims and compare the accused
device with those claims before filing a claim alleging infringement. Q-Pharma, 360
F.3d at 1300-01. In its Complaint, STR alleges that it owns five different design patents,
which were all duly and properly issued by the U.S. Patent and Trademark Office on
May 29, 2014. (Compl. 5, 55, 61, 67, 73, 79.) This is patently false. These alleged
patents all refer to design patent applications that were submitted to the USPTO on May
29, 2014.
2
A claim for patent infringement requires a valid patent. STRs counsel should
be familiar with this basic fact given that he represents himself as a registered patent
attorney. (Wang Decl. 1; see also J uo Decl. 12 & Ex. K.) It was clearly objectively
unreasonable for STR to assert infringement claims against J NC based upon pending
patent applications.
3
Defendants also argue that STRs trademark and unfair competition claims are
frivolous. (Mot. 6.) Defendants emphasize STRs allegation that it owns a valid registered
STR trademark when in fact there has been no such registration issued. (Id.) The
Complaint alleges that Plaintiffs STR Trademark has been registered with the USPTO
under registration number 86256705 and that this registration is in full force and effect.
(Compl. 14, 25.) However, as noted by Defendants, this alleged registration is actually
the number for the trademark registration application that was filed by STR on April 18,
2014. (Mot. 6; J uo Decl. 3-4 & Ex. B-C.) Plaintiffs do not dispute the fact that no
federal registration of the STR mark has issued. (Oppn 8.) As such, the Court agrees
with J NC that STRs claims for trademark infringement and trademark counterfeiting
J uo Decl. Ex. D-E.)
2
The Complaint also falsely claims that copies of the allegedly issued design patents are
attached to the Complaint as Exhibits A, C, E, G and I. (Compl. 55, 61, 67, 73, 79.) These exhibits are
simply electronic acknowledgment receipts for STRs submitted design patent applications.
3
In its Opposition, STR attempts to justify its infringement claims by relying upon the priority
provisions of the Hague Agreement Concerning International Registration of Industrial Designs. (Oppn
6.) These provisions are irrelevant to STRs ability to assert infringement claims based upon pending
design patent applications.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 14-04898 J VS (MRWx)
Date September 8, 2014
Title
J AT Wheels Inc. v. J NC Wheel Collection et al.
under 15 U.S.C. 1114 and 1116 are clearly frivolous because both provisions only
apply to registered trademarks.
J NC also argues that STRs other trademark and unfair competition claims violate
Rule 11.
4
(Mot. 7.) J NC argues that these causes of action are rendered frivolous by
STRs failure to disclose its pre-filing basis for these other trademark and unfair
competition claims.
5
(Id.) More specifically, J NC faults STR for failing to substantively
respond to an email sent by J NCs counsel on J uly 7, 2014 demanding the specific factual
and legal basis for STRs other trademark and unfair competition claims. (Id.; J uo Decl.
5, 6 & Ex. D-E.) J NC infers from STRs failure to substantively respond to its email
that STR has no objectively reasonable basis for its trademark and unfair competition
causes of action. (Mot. 8.) In response, STR explains that Tim Luo (Luo), general
manager of STR, had seen marketing material and eBay auctions of J NC using the STR
trademark. (Luo Decl. 6.) Luo informed STRs counsel for the purpose of investigating
whether J NC had infringed STRs rights. (Wang Decl. 3.) Following this discussion,
STRs counsel visited J NCs website and eBay listings, yet much of the allegedly
infringing material had since been taken down. (Wang Decl. 3, 4.) STRs counsel
proceeded to file a Complaint against J NC following his discussion with Luo and his
investigation into STRs claims.
6
(Id. 4.)While STRs counsel could have engaged in a
4
STR has asserted claims for false designation of origin, federal trademark dilution, federal
unfair competition, California common law unfair competition, and California Business and Professions
Code 17200.
5
These causes of action do not require a federally registered trademark, therefore they are not
rendered frivolous on the same basis as STRs claims under 15 U.S.C. 1114 and 1116.
6
In its Reply, J NC argues that this pre-filing investigation is insufficient because counsel cannot
merely rely upon the assertions of his client. (Reply 3-4.) J NC argues that sanctions are warranted
because there is no indication that STRs counsel actually viewed the accused marketing materials and
eBay auctions that allegedly infringed upon STRs trademark. (Id.) In support of this argument, J NC
cites to two patent cases, in which counsel were sanctioned for failing to obtain a sample of the
allegedly infringing devices in order to conduct a pre-filing infringement analysis. View Engineering
Inc. v. Robotic Vision System, Inc., 208 F.3d 981, 895-97 (Fed. Cir. 2000); J udin v. United States, 110
F.3d 1070, 784-85 (Fed. Cir. 1997). These cases are distinguishable. First, the cases cited by J NC
specifically involve the pre-filing investigation necessary prior to filing patent claims. Second, counsel
in both of those cases failed to offer a satisfactory reason why they had failed to examine any of the
accused devices. Here, following his discussions with Luo, STRs counsel did attempt to view the
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 14-04898 J VS (MRWx)
Date September 8, 2014
Title
J AT Wheels Inc. v. J NC Wheel Collection et al.
more thorough pre-filing investigation of STRs trademark and unfair competition
claims,
7
the Court concludes that STR has sufficiently demonstrated that a reasonable
inquiry was conducted prior to the filing of these claims such that sanctions under Rule
11 are not warranted. Furthermore, the Court emphasizes that Rule 11 motions are not
intended to test the legal sufficiency or efficacy of the allegations in the pleadings; other
motions are available for these purposes. Fed. R. Civ. P. 11 Advisory Committee Notes
(1993 Amendments). The Court finds that a Rule 11 motion for sanctions is not the
proper vehicle to take up J NCs concerns regarding the sufficiency of STRs additional
trademark and unfair competition claims.
Lastly, Defendants also contend that STRs copyright infringement claim is
frivolous in light of STRs failure to plead copyright registration. (Mot. 7-8.) Defendants
correctly assert that the copyright registration requirement of section 411(a) is a
precondition to filing a claim for copyright infringement. See Reed Elsevier, Inc. v.
Muchnick, 559 U.S. 154, 166 (2010); L.A. Printex Indus., Inc. v. Aeropostale, Inc., 676
F.3d 841, 852 (9th Cir. 2012). While counsel should have made a more thorough
investigation into STRs copyright infringement claim and should have realized that a
valid copyright registration is required to assert a claim for copyright infringement, the
Court does not find that Rule 11 sanctions are warranted on this basis. Notably, courts
have held that as a matter of efficiency, a failure to allege registration can be cured if the
plaintiff registers the copyright and files an amended complaint including an allegation
that the copyrighted work is registered. Zito v. Steeplechase Films, Inc., 267 F. Supp. 2d
1022, 1025 (N.D. Cal. 2003). Given that the error in pleading a copyright registration is
easily curable, the Court is not inclined to impose sanctions based upon STRs failure to
allegedly infringing marketing materials and eBay prior to the filing of the Complaint but they had
already been taken off of the internet. As such, the Court is not convinced that sanctions are warranted
simply because STRs counsel never saw the allegedly infringing marketing materials and eBay
auctions.
7
As noted by J NCs counsel at the J une 8, 2014 hearing, most of the pre-filing investigation
undertaken by STR's counsel related to the design patent claims asserted in the Complaint. For example,
STRs counsel describes examining the J NC wheels for sale on eBay and on J NCs website and
comparing them to the wheels sold by STR. (Oppn 8-9.) Notably, this investigation into the design of
J NCs wheels does not relate to the trademark claims and competition clams given that those claims are
based upon the J NCs allegedly infringing use of the word mark STR Racing, USPTO application no.
86256705. (See Compl. 14, 24-46, 84-108.)
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.
CV 14-04898 J VS (MRWx)
Date September 8, 2014
Title
J AT Wheels Inc. v. J NC Wheel Collection et al.
allege copyright registration as required by section 411(a). Furthermore, the Court finds
that J NCs arguments concerning the factual and legal sufficiency of STRs copyright
infringement claim is better suited for resolution by a motion to dismiss or motion for
summary judgment.
Given the Courts conclusion that STR has violated Rule 11(b)(2) by asserting
frivolous claims for design patent infringement and trademark infringement and
counterfeiting under of 15 U.S.C. 1114 and 1116, the Court concludes that Rule 11
sanctions are appropriate. The Court hereby strikes the first, fifth, sixth, seventh, eighth,
and ninth counts (Compl. 54-83) of the Complaint.
8
The Court also awards J NC its
attorneys fees and costs incurred in connection with brining the motion for sanctions.
The Court directs that, within 20 days, J NC submit a declaration and supporting
documentation (e.g., time entries and billing rates) to establish its fees and expenses in
bringing the motion for sanctions. Given that only certain claims were stricken, J NC shall
make a reasonable allocation to determine fees and costs associated with the successful
portion of its motion.
In view of the fact that no fault appears on the part of STR, sanctions shall be paid
by counsel.
IV. Conclusion
For the foregoing reasons, the motion for sanctions is GRANTED.
IT IS SO ORDERED.
: 19
Initials of Preparer kjt
8
The Court notes that the eighth and ninth counts of the complaint are both incorrectly listed as
Count V.
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