The Second Circuit has vacated and remanded a Southern District of New York’s decision on Thursday in SM Kids’ lawsuit against Google, finding that a question of trademark validity was not a standing issue, but instead a merits question properly addressed by a motion or trial.
In 1995, Steven Silvers created the Googles brand, and registered the trademark and domain name two years later (www.googles.com). The site, a children’s education and entertainment site, launched in 1998. Google, the search engine, took its name in the same year. Silvers sued Google in 2005 for trademark infringement. In 2007 Silvers assigned the trademark rights to Stelor Productions and in 2008 Google and Stelor settled. Stelor eventually transferred the Googles rights and assets to SM Kids.
In March 2018, SM Kids sued Google and other related entities, alleging a breach of the 2008 settlement for the previous trademark dispute. Google agreed not to “intentionally mak[e] material modifications to its [then-] current offering of products and services in a manner that is likely to create confusion in connection with [Googles].” In particular, Google agreed not to “create, develop and publish children’s books, fictional children’s videos, or other fictional children’s related content that have a title of ‘Google’ or a ‘Google-’ formative title or mark.” SM Kids claimed that Google breached this agreement via its Google Play and YouTube Kids services, both of which have children’s content. Google sought to dismiss for lack of standing, claiming that SM Kids “did not own the subject trademark, as it had been improperly assigned by SM Kids’ predecessor, which had executed the settlement agreement.” The Southern District of New York determined that the trademark was invalid and it dismissed the suit for lack of Article III standing, claiming the trademark was “the subject of the settlement by the trademark’s prior owner.” SM Kids appealed the decision.
The Second Circuit noted that the district court relied on materials that “SM Kids had not shown by a preponderance of the evidence that it had validly acquired the trademark” Specifically, the court below relied on that the Googles website “had not been used to identify goods or services sold to consumers because it was merely a ‘coming soon’ page.” Google argued that SM Kids lacked Article III standing “because it was not the holder of the Googles trademark,” and Google claimed that since the mark “had not been used in commerce…[it] could not be assigned to SM Kids.” Therefore, since “SM Kids was not the holder of the mark, Google reasoned, it had no rights under the settlement agreement and did not have a legally protected interest whose impairment could be redressed in a lawsuit.” The district court agreed with Google, “treat[ed] this deficiency as jurisdictional” and concluded that SM Kids lacked Article III standing and the court did not have subject-matter jurisdiction, thus granting Google’s motion to dismiss.
The Second Circuit disagreed, stating that the “validity of the assignment was [not] a question of Article III standing. Instead, the question was one of contractual standing, which asks a different question: whether a party has the right to enforce a contract.” The court continued, stating that “[a]lthough the question of whether Google breached a contract with SM Kids depends on whether SM Kids enjoyed a contractual relationship with Google, the existence of such a relationship is not a prerequisite to a court’s power to adjudicate a breach-of-contract claim.”
The Second Circuit found that Article III standing requirements were satisfied because SM Kids argues Google has breached its contract and may cause economic damage to their company. Further, “[w]hether the elements of breach of contract, including the existence of a contract, are satisfied…goes to the merits, not to a court’s power to resolve the controversy.”
The court went on to rule that the district court erred in its interpretation of the Lanham Act. Specifically, the law “provides that a trademark is assignable only ‘with the good will of the business in which the mark is used.’ It requires that the mark be used in commerce.” The district court “treated this section as a jurisdictional hurdle,” stating that since the “Googles mark was not used in commerce, SM Kids could not have been validly assigned the trademark and consequently the court lacked subject-matter jurisdiction.” However, the Second Circuit stated that this provision “does not mention jurisdiction,” claiming that nothing in the statute suggest that Congress intended to limit jurisdiction or exclude cases.
The court concluded that “[b]ecause the court resolved Google’s motion as a fact based motion under Rule 12(b)(1), it considered evidence beyond the complaint. It also placed on SM Kids the burden of proving subject-matter jurisdiction.” However, if the district court “treated the motion as one under Rule 12(b)(6), its review would, of course, have been limited to the complaint, to documents attached to the complaint or incorporated by reference, and to documents of which the district court could have taken judicial notice.” This would have required the court to treat all facts as true and factual inferences in SM Kids’ favor. Additionally, SM Kids “would have been required to plead only a plausible claim to relief and the burden to show otherwise would have fallen on Google.”
SM Kids is represented by Davis Wright Tremaine LLP. Google is represented by Cooley LLP.
