Filing of federal application is "protected act" under California anti-SLAPP law

United States of America
In Mindys Cosmetics Inc v Dakar (Case 09-55134, July 6 2010), the US Court of Appeals for the Ninth Circuit has considered the following issue: whom do you represent when you file a federal trademark application? The answer in this unusual case placed an attorney in jeopardy for malpractice, breach of fiduciary duty, fraudulent concealment and contributory conversion. Care in identifying and taking instructions only from the client must be exercised to avoid falling into a similar situation.

This case involved a bitter dispute among the Dakar family over ownership of two marks - namely, SONYA DAKAR and THE PROBLEM SKIN SPECIALISTS. The dispute pitted the father (Israel) and one son (Natan) against the mother (Sonya), another son (Yigal) and two daughters (Donna and Mimi) on the issue of ownership. The expression 'perfect storm', which describes an event where a rare combination of circumstances will aggravate a situation drastically, applies to this type of dispute.

In 2006, when Sonya Dakar learned that the mark SONYA DAKAR (and design) (registered in the name of Donna Dakar, a California corporation, for cosmetics in Class 3 and salon services in Class 42 of the Nice Classification) had been cancelled by the US Patent and Trademark Office (USPTO) for failure to file a statement of continued use in a timely manner, she retained Kia Kamran (an attorney who had not been involved in the registration of the now cancelled mark) to address that legal situation and provide a “variety of services on behalf of the family business”. In 2007 Yigal instructed Kamran to apply to register the marks SONIA DAKAR, both in block capital letters and in the combined word and design form, for the same goods and services in the individual name of Sonya Dakar. Kamran complied with those instructions.

Israel and Natan claimed that they had founded Mindys Cosmetics Inc in 1994. They further alleged that they alone had managed the family business since 1999. Sonya began requesting licence fees from Mindys when the two federal applications matured into registrations. Mindys wanted the two registered marks transferred to it. The defendants refused and a suit was filed in federal district court that alleged:
  • trademark infringement by Sonya Dakar;
  • legal malpractice and breach of fiduciary duty by Kamran; and
  • fraudulent concealment and conversion by Kamran and the Dakar defendants.  
Kamran moved under California’s anti-strategic lawsuit against public participation (SLAPP) law (Cal Civ Proc Code § 425.16) to strike the claims against him. He argued unsuccessfully to the district court that Mindys’ suit against him was a SLAPP suit within the meaning of California’s anti-SLAPP statute. That statute was designed to allow courts “to promptly expose and dismiss meritless and harassing civil claims seeking to chill protected expression”. The broadly interpreted statute provides that a party may file a motion to strike a cause of action against it if the complaint “aris[es] from any act of that person in furtherance of the person’s right of petition or free speech under the US Constitution or the California Constitution in connection with a public issue”.

At issue before the district court was whether the filing of a federal trademark application fell within the prohibition of California’s anti-SLAPP statute.

To successfully use the California anti-SLAPP statute as a shield, a defendant must make a prima facie showing that the plaintiff’s suit “arises from an act in furtherance of the defendant’s rights of petition or free speech”. If the defendant makes a prima facie showing, the burden of proof shifts to the plaintiff. The plaintiff must then demonstrate to the court the “probability of prevailing on the challenged claims”. If a plaintiff successfully demonstrates a probability of prevailing, then the action against the defendant is not barred by the anti-SLAPP statute.

The district court denied Kamran’s motion to strike under the anti-SLAPP statute. It did not determine whether filing a federal trademark application was a “protected act”, because it concluded that the suit did not arise from protected conduct under that statute. It further said that, even if it did arise from protected conduct, Mindys had demonstrated a probability of prevailing on the merits of its claims. An appeal was filed.

The Ninth Circuit reviewed the anti-SLAPP statue, its state interpretations and the issue raised by the motion to strike, and then affirmed. It concluded that Kamran was correct (and the district court was incorrect) that the filing of a federal trademark application at the USPTO is a “protected act” within the meaning of the California anti-SLAPP statute, since it is more than merely a ministerial act connected with a business transaction. Each of Mindys' causes of action arose not out of a general breach of duty by Kamran, but out of Kamran’s act of filing the application in Sonya Dakar’s name as an individual. The trademark application was not ‘incidental” to the causes of action but was their gravamen. Absent those filings, Mindys would have no reason to sue Kamran. Because Mindys' claims arose from Kamran’s act of applying to register in Sonya’s name, they were properly subject to Kamran’s anti-SLAPP motion to strike.

At the second step of the anti-SLAPP inquiry, the burden shifts to the plaintiff to show a probability of success in the action. To satisfy that burden, the plaintiff must show a "reasonable probability" of prevailing on its claims for those claims to survive dismissal. "Reasonable probability" in the California anti-SLAPP statute has a specialised meaning - the statute requires only a “minimum level of legal sufficiency and triability". The statute poses no obstacle to suits that possess minimal merit. To establish “minimal merit”, the plaintiff needs only “state and substantiate a legally sufficient claim”. The court concluded that fraudulent concealment and conversion of ownership rights over the trademark might exist under the cause of action, since Kamran filed the application in the sole name of Sonya Dakar as the owner of the trademark. 

Brian E Banner, H&A Intellectual Property Law PLLC, Alexandria 

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