Case 2:14-cv RGK-FFM Document 17 Filed 05/19/14 Page 1 of 25 Page ID #:90

Transcription

1 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #:0 Adam R. Fox (State Bar No. ) Adam.Fox@squiresanders.com Emily L. Wallerstein (State Bar No. 0) Emily.Wallerstein@squiresanders.com Los Angeles, CA 00 Tel: + 00 Fax: + David S. Elkins (State Bar No. 0) David.Elkins@squiresanders.com Joseph P. Grasser (State Bar No. ) Joseph.Grasser@squiresanders.com 00 Hansen Way Palo Alto, California 0 Tel: Fax: Attorneys for Defendants and Counterclaimants ZIPPMARK, INC. and ZIPPO MANUFACTURING COMPANY LOEC, INC., a Delaware corporation, v. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA Plaintiff and Counterdefendant, ZIPPMARK, INC., a Delaware corporation; and ZIPPO MANUFACTURING COMPANY, a Pennsylvania corporation, Defendants and Counterclaimants. Case No. :-CV-0 RGK (FFMx) ZIPPO MANUFACTURING COMPANY S AND ZIPPMARK, INC. S FOR TRADEMARK INFRINGEMENT DEMAND FOR JURY TRIAL Case No. :-CV-0

2 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: ANSWER Defendants and counterclaimants Zippo Manufacturing Company ( Zippo ) and ZippMark, Inc. ( ZippMark ) answer plaintiff LOEC, Inc. s ( LOEC ) Complaint for Declaratory Judgment of Non-Infringement and Laches ( Complaint ) as follows: NATURE OF ACTION. Defendants admit that the Complaint purports to commence an action for declaratory judgment under U.S.C. -. THE PARTIES. Defendants admit this paragraphs allegations regarding LOEC s state or incorporation. Defendants lack sufficient information or belief with which to admit or deny the allegation regarding LOEC s principal place of business and therefore deny the allegation. Defendants deny that LOEC manufactures electronic cigarettes ( e-cigs ) in the United States. Defendants admit that LOEC sells and markets blu e-cigs and related products in the United States. Defendants admit that Blec, LLC ( Blec ) obtained a United States trademark registration for BLU ECIGS and that Lorillard Technologies, Inc. ( LTI ) acquired ownership of the registration and purports to have acquired from Blec ownership rights in what LOEC alleges as the BLU Family of Marks in or about April. Defendants deny all remaining allegations in this paragraph.. Answering the second sentence of this paragraph, Defendants admit that ZippMark owns certain U.S. trademark registrations for BLU, including without limitation U.S. Registration Nos. 0,, 0, 0, 0, and 00 (collectively, the BLU Trademarks or simply the BLU marks ); the BLU Trademarks are alleged in greater detail in paragraph of the Counterclaim below. Defendants admit this paragraph s remaining allegations.. Defendants admit that ZippMark has licensed the BLU Trademarks to Zippo, and that since 0 Zippo has used the BLU Trademarks in connection with Case No. :-CV-0

3 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: its manufacture, distribution, advertising and sales of its BLU butane lighters and related products. Defendants admit this paragraph s remaining allegations.. Defendants admit this paragraph s allegation.. This paragraph purports to state a legal conclusion for which no answer is required. VENUE AND JURISDICTION. Defendants admit that the Court has subject matter jurisdiction.. Defendants deny this paragraph s allegations. Defendants nevertheless submit to personal jurisdiction in this district for purposes of this action only.. Defendants deny this paragraph s allegations. Defendants nevertheless submit to venue in this district for purposes of this action only.. Defendants admit this paragraph s allegations. GENERAL ALLEGATIONS LOEC s Well-Known BLU Family of Marks. Defendants admit that since, LOEC has continuously used and extensively promoted its blu e-cigs and related products, in violation of Defendants trademark rights. Defendants admit that through its extensive advertising and marketing, LOEC has catapulted itself from a single digit market share of e-cig sales at the time it acquired Blec to the leading e-cig brand in the U.S. Defendants lack sufficient information and belief with which to admit or deny this paragraph s remaining allegations and therefore deny them.. Defendants admit that LOEC has spent substantial time and money to create an association in the minds of consumers between LOEC s e-cigs and related products and its use of blu. Defendants deny this paragraph s remaining allegations.. Defendants admit this paragraph s allegations.. Defendants admit the allegations in this paragraph and subparts that LTI purports to be the owner, and LOEC a licensee, of the trademark applications - - Case No. :-CV-0

4 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: identified. Defendants deny that LTI owns the marks identified or that LOEC may properly use them in connection with its e-cigs and related products. Defendants deny this paragraph s remaining allegations.. Defendants admit that LOEC has spent substantial time and money to create an association in the minds of consumers between LOEC s e-cigs and related products and its use of blu. Defendants lack sufficient information and belief with which to admit or deny this paragraph s remaining allegations and therefore deny them.. Defendants lack sufficient information and belief with which to admit or deny this paragraph s allegations and therefore deny them.. Defendants lack sufficient information and belief with which to admit or deny this paragraph s allegations and therefore deny them.. Defendants admit that by using the BLU Trademarks, LOEC became the leading e-cig seller in the U.S. Defendants deny this paragraph s remaining allegations.. Defendants admit that LOEC or its predecessor Blec sponsored NASCAR race cars to promote blu e-cigs but only after Zippo sponsored a race and a car in the NASCAR Nationwide series using the BLU trademark and a color scheme that LOEC or its predecessor happened to use later. Defendants lack sufficient information and belief with which to admit or deny this paragraph s remaining allegations and therefore deny them.. Defendants admit that LOEC s predecessor Blec sponsored a military related charity after Zippo had maintained a close connection to the U.S. military for decades. Defendants lack sufficient information and belief with which to admit or deny this paragraph s allegations and therefore deny them.. Defendants admit that LOEC has spent millions of dollars to promote its e-cigs and related productions using the BLU trademarks, and including in the Sports Illustrated Swimsuit Edition and in television and online commercials - - Case No. :-CV-0

5 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: featuring Stephen Dorff and Jenny McCarthy. Defendants lack sufficient information and belief with which to admit or deny this paragraph s remaining allegations and therefore deny them.. Defendants admit that Walgreen s and other retailers sell LOEC s blu e-cigs and related products throughout the U.S. Defendants lack sufficient information and belief with which to admit or deny this paragraph s remaining allegations and therefore deny them.. Defendants deny this paragraph s allegations.. Defendants deny this paragraph s allegations.. Defendants lack sufficient information and belief with which to admit or deny this paragraph s allegations and therefore deny them. Defendants Actions. Defendants admit the allegations of this paragraph and its subparts.. Defendants admit that Zippo has manufactured, distributed advertised and sold BLU torch flame butane cigarette lighters in commerce in the United States since 0. Defendants deny this paragraph s remaining allegations.. Defendants admit this paragraph s allegations.. Defendants admit this paragraph s allegations. 0. Defendants admit this paragraph s allegations.. Defendants admit this paragraph s allegations.. Defendants admit that they met with LOEC s in-house and outside counsel in Chicago, Illinois, to discuss resolution regarding LOEC s infringing use of the BLU trademarks, and that LOEC s president was on the telephone instead of attending the meeting personally, as promised. Defendants admit that they had previously advised LOEC that its unauthorized use of the BLU trademarks infringed ZippMark s trademark rights and that if the parties could not agree on a resolution, litigation would likely ensue. Defendants deny this paragraph s remaining allegations. - - Case No. :-CV-0

6 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #:. Defendants admit the LOEC s use of its BLU Family of Marks infringes the BLU trademarks, and that an actual controversy exists as to whether LOEC has infringed and continues to infringe the BLU trademarks. Defendants deny this paragraph s remaining allegations... Defendants deny this paragraph s allegations.. Defendants deny this paragraph s allegations.. Defendants admit that LOEC s use of the BLU trademarks constitutes trademark infringement and that LOEC seeks to avoid the consequences of its infringement.. Defendants admit the existence of a justiciable controversy regarding LEOC s infringement of the BLU trademarks in connection with LOEC s sale and marketing of its blu e-cigs and related products. Defendants lack sufficient information and belief with which to form a belief regarding LOEC s reasonable apprehension of being sued for infringement and therefore denies that allegation.. Defendants admit that LOEC purports to state a claim for declaratory relief as alleged in this paragraph. CLAIM FOR RELIEF (Declaratory Judgment of Non-Infringement of Trademarks and Laches). Defendants incorporate by reference their responses to paragraphs through above. 0. Defendants admit that LOEC purports to state a claim for declaratory relief as alleged in this paragraph.. Defendants admit that LOEC purports to allege entitlement to injunctive relief as alleged in this paragraph. - - Case No. :-CV-0

7 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: COUNTERCLAIMS INTRODUCTION AND SUMMARY OF CLAIMS. Zippo Manufacturing Company ( Zippo ) ZippMark s parent company makes the iconic Zippo flip-top, windproof, liquid fuel lighter in Bradford, Pennsylvania, where Zippo has been located for over 0 years. After years of investment and planning, it launched a butane gas torch lighter featuring patented technology, which burns much hotter than liquid fuel lighters. Zippo branded its new lighter BLU. ZippMark owns the U.S. intellectual property rights for all Zippo brands. It obtained trademarks for BLU as early as 0 based on filings at the U.S. Patent and Trademark Office as early as 0. The BLU lighter is also made in Bradford. An example of a registered BLU trademark is below left.. Zippo has invested in a planned line of lifestyle products featuring key parts of the BLU lighter technology (e.g., gas grills) and benefiting from the value in its BLU brand. Indeed, ZippMark has registered multiple trademarks for BLU in the United States and in many other countries. ZippMark s registered BLU trademark Blec s and now LTI s blu mark. Disregarding Zippo s use of the BLU brand and ZippMark s trademark registrations, in 0, a relatively new company called Blec, LLC ( Blec ) founded after ZippMark s registration and first use of BLU for its butane lighter launched its blu ecig with a glowing blue tip when in use. This brand, depicted above right, is confusingly similar to ZippMark s BLU trademarks, - - Case No. :-CV-0

8 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #:. In March, ZippMark filed an Opposition with the United States Patent and Trademark Office s ( USPTO ) Trademark Trial and Appeals Board ( TTAB ), asking the TTAB to deny Blec s applications to register blu (word and design), blu (word mark), and blu cigs (word mark) (collectively the Blec marks ) in light of ZippMark s earlier registered BLU trademarks and Zippo s earlier, 0 use in commerce of the BLU mark.. The following month, Lorillard, Inc. ( Lorillard ) the third largest tobacco company in the United States purchased Blec for about $ million. In accounting for its acquisition of Blec, Lorillard made the following disclosures: Lorillard, Inc. Annual Report at p. (highlighting added). ZippMark is informed and believes and on that basis alleges that Lorillard created LOEC, Inc. ( LOEC as in Lorillard e-cigarettes) as a subsidiary to own the assets acquired from Blec and to operate Lorillard s e-cig business.. Although Lorillard had expressly allocated over 0% of its acquisition price for Blec to the blu Cigs trademark and trade name, neither Lorillard nor LOEC owns a registration for the BLU mark that is emblazoned on all of its e- cig products. Lorillard s annual reports and SEC filings never disclosed this fact or that ZippMark owns the BLU mark for the same exact class in which Blec and now LOEC seeks to register blu and blu cigs. Finally, Lorillard has also failed to disclose that its applications to register a variety of blu marks for its e-cig products are the subject of an opposition proceeding that ZippMark commenced in March in the TTAB.. ZippMark has unsuccessfully sought to amicably resolve LOEC s unlawful, infringing use of ZippMark s BLU trademarks in connection with the TTAB opposition proceeding even agreeing to stay the proceedings to facilitate - - Case No. :-CV-0

9 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: such discussions. Despite three in-person meetings between the parties executives and ZippMark s concrete proposal for resolution, after their last and very abbreviated meeting on April, LOEC revealed that it had apparently never intended to engage ZippMark in a serious manner at all: within an hour or two of the meeting s end, LOEC sued ZippMark and Zippo for a declaratory judgment of noninfringement in this action.. Given LOEC s tactical ploy of stringing out settlement discussions for the sole apparent reason of preparing and then filing a declaratory judgment action in a venue that has no relationship to the parties or to ZippMark s claims, ZippMark is now constrained to bring this action. PARTIES. ZippMark is a corporation organized under the laws of Delaware, with a principal place of business located at North Market Street, Suite 00, Wilmington, Delaware 0.. LOEC, a wholly owned subsidiary of Lorillard, Inc., is a corporation organized under the laws of Delaware located at Green Valley Road, Greensboro, North Carolina, 0. JURISDICTION AND VENUE. This is an action for trademark infringement and for cancellation of a registered trademark arising under the Lanham Trademark Act of, U.S.C., et seq.. This Court has subject matter jurisdiction over this action pursuant to U.S.C. and U.S.C. and.. Venue is proper in this Court pursuant to U.S.C. (c)(). - - Case No. :-CV-0

10 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: BACKGROUND Zippo Invests Considerable Time and Money to Expand Its Iconic Brand of Lighters by Launching its BLU Butane Lighter in 0. Zippo makes the iconic Zippo flip-top, windproof lighter. The lighter owes its enduring success to many factors. The flint wheel guarantees a generous spark. The unique chimney design ensures that the spark will create a flame, even in the wind. The iconic design, easily refilled reservoir, ubiquitous use by American GIs during World War II, and even the unique sound made by the flip-top latch all contribute to the lighter s continuing popularity.. Founded by George Blaisdell in Bradford, Pennsylvania in, Zippo is owned by one of Mr. Blaisdell s direct descendants, continues to be headquartered in Bradford and continues to make all of its flip-top, windproof lighters in the United States.. The Zippo brand is one of the top-ten well-known brands in the U.S. The brand has achieved such notoriety in large measure because of the quality, practicality and popularity of its classic flip-top, windproof lighter. Another reason for the brand s notoriety, however, is ZippMark s ceaseless efforts to police and enforce its trademark and trade dress rights.. In or about 0, Zippo was approached by a cigarette manufacturer unrelated to Defendants about developing a butane torch lighter. The cigarette manufacturer planned to roll out a new line of products made from more naturally processed, and more naturally tasting, tobaccos. A torch flame butane lighter burns at a much higher temperature than the vaporized liquid fuel of Zippo s flip-top lighters and imparts no change on a cigarette s taste profile. The higher temperature of the flame makes it appear blue. - - Case No. :-CV-0

11 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #:0. Zippo spent several years designing and developing its butane lighter. Doing so was not as simple as merely replacing the fuel source. Zippo planned that the new lighter would share some key features of its existing lighter, prominent among them the flip-top and flint wheel. At the same time, fuel storage in the new lighter, metering the supply of fuel through a valve system and pre-mixing the fuel with air in a burner assembly required Zippo to develop new technology. For example, using butane as the lighter s fuel required invention of an intricate new valve and burner system to permit ignition of a fuel-air mixture for a torch-like flame. And avoiding vapor lock within the lighter fuel reservoir required development of an innovative insulated coupler. Zippo developed the new lighter s features to meet all applicable product safety standards (e.g., ASTM-F00, ISO ) and to meet Zippo s longstanding performance and quality standards. Zippo ultimately received multiple patents for some of the new lighter technology it developed and expects that additional patents will issue in the future. Development of the new butane lighter, and the investment required by unique high technology manufacturing equipment, cost Zippo millions more than it had ever spent on the development and manufacturing start-up of any new product.. Zippo christened its new butane lighter BLU and introduced it to the public in September 0, following ZippMark s commencement of filing applications for BLU registered marks beginning in June 0. At considerable additional expense, Zippo accompanied BLU s launch with a flood of promotional marketing and advertising.. With Zippo s and ZippMark s longtime focus on brand protection, they have developed a global portfolio of trademark registrations for BLU. ZippMark has obtained registered marks from the United States Patent and Trademark Office ( USPTO ), while Zippo owns trademark registrations in many other countries, including Canada, Mexico, the United Kingdom, Japan and China, - - Case No. :-CV-0

12 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: as well as the European Union. These registrations include several trademark classes. Of particular relevance here is their inclusion of Class, which broadly encompasses cigarettes, cigarette and cigar lighters, and other smoking related accessories. Zippo Owns Extensive Rights in its BLU Marks. ZippMark s exclusive licensee, Zippo, has distributed, advertised and sold in United States commerce many of its butane lighters and related goods under ZippMark s BLU trademarks. As a result, ZippMark also has common law rights to BLU.. ZippMark s trademarks for BLU registered with the United States Patent and Trademark Office, include without limitation, U.S. Registration Nos. 0,, 0, 0, 0, and 00 (collectively, the BLU Trademarks or simply the BLU marks ). See Ex. A (United States Patent and Trademark Office records of relevant ZippMark registrations). These registrations cover: a. U.S. Registration No. 0 for BLU and design for lighters not of precious metal in International Class 0, filed on June 0, 0 and registered September, 0; b. U.S. Registration No. 0 for BLU and design for hand- held cigarette and utility lighters of precious metal in International Class 0, filed on June 0, 0 and registered July, 0; c. U.S. Registration No. 0 for BLU for fuel for lighters in International Class 00, filed on June, 0 and registered on April, 0; d. U.S. Registration No. 00 for BLU for lighters not of precious metal and lighters of precious metal in International - - Case No. :-CV-0

13 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: Class 0, first used in commerce on March, 0, filed on June, 0, and registered on September, 0; e. U.S. Registration No. for ZIPPOBLU and design for lighters not of precious metal in International Class 0, filed on July, 0 and registered September, 0; and f. U.S. Registration No. 0 for ZIPPOBLU and design for cigarette and utility lighters of precious metal in International Class 0, filed on July, 0 and registered July, 0. ZippMark owns each of these valid and subsisting registrations.. Zippo is the exclusive licensee of the BLU Trademarks and has continuously sold significant numbers of Zippo lighters and related products bearing the BLU marks throughout the United States since 0. ZippMark and its related companies have also extensively advertised and promoted the BLU marks and products in the United States and throughout the world. In addition, products bearing the BLU mark, as well as the BLU mark itself, have been the subject of numerous press and media reports.. By virtue of continued and extensive domestic and international sales, advertising and promotion, and press coverage, the BLU marks embody goodwill that is extraordinarily valuable to ZippMark. The Rapid Growth of E-Cigs. E-cigs essentially are nicotine delivery devices. Unlike nicotine patches and gum, e-cigs have the look and feel of traditional cigarettes and simulate the act of smoking. E-cigs nevertheless differ from traditional cigarettes in that no combustion takes place. Rather, the e-cig s internal battery heats the liquid nicotine mixture contained in a disposable cartridge. Heating the liquid to the correct temperature vaporizes it for the user to inhale. In other words, the user inhales an e-cig s nicotine without the tar and other harmful chemicals produced from the combustion of a conventional cigarette. Moreover, although many jurisdictions ban - - Case No. :-CV-0

14 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: smoking indoors, e-cigs may be used in many indoor locales because they produce vapor, not smoke.. As e-cigs have grown in popularity, they have also become a fulcrum in anti-smoking efforts. Some scientists and doctors seek regulation of e- cigs as a gateway to cigarette use, particularly among teens. Others see e-cigs as an important new tool in battling cigarette addiction and avoiding the negative health consequences associated with smoking.. In sum, e-cigs have quickly become an increasingly popular alternative to traditional cigarettes, with e-cig sales growing rapidly since their U.S. introduction in 0. Blec Launches Its Blu E-Cig. ZippMark is informed and believes and therefore alleges that Blec was a limited liability company, formed to design and market e-cigs by Jason Healey, an Australian national, with the backing of investors. Unlike other e-cig companies that designed their e-cigs with a glowing red tip to mimic conventional cigarettes or others with no lighted tip, ZippMark is informed and believes and therefore alleges that Blec designed its e-cig with a tip that glows in a color distinct from the burning tips of conventional cigarettes so that others in the vicinity could readily tell that the user is not smoking a real cigarette. Doing so potentially opened up wider use of the e-cig in places (restaurants, airports, offices) where smoking has been banned.. According to its applications to register U.S. trademarks, Blec began using the blu brand with its e-cigs in commerce in 0 two years after Zippo had begun using the identical mark for its butane cigarette and cigar lighter. It was - - Case No. :-CV-0

15 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: also four years after ZippMark applied for and two years after it had obtained its U.S. trademark registration for BLU for lighters in international class. Nevertheless, Blec somehow obtained a U.S. Trademark Registration for BLU ECIGS (Registration No. 0) on September,. ZippMark is informed and believes and therefore alleges that blu e-cigs have been and continued to be manufactured in China, both when sold by Blec and by LOEC. 0. On July, September, and September,, Blec filed three applications for trademark registration with the USPTO in International Class 0 (the Blec Applications ): a. July, : Application for BLU CIGS for electronic cigarettes containing tobacco substitutes not for medical purposes that utilize electronic cigarette chargers and not lighters; electronic cigarettes for use as an alternative to traditional cigarettes that utilize electronic cigarette chargers and not lighters; smokeless cigarette vaporizer pipes that utilize electronic cigarette chargers and not lighters. This application was assigned Application Serial No. /0. b. September, : Application for BLU for electronic cigarettes that utilize electronic cigarette chargers and not lighters; electronic cigarettes for use as an alternative to traditional cigarettes that utilize electronic cigarette chargers and not lighters; smokeless cigarette vaporizer pipes that utilize electronic cigarette chargers and not lighters. This application was assigned Application Serial No. /. c. September, : Application for BLU and design for electronic cigarettes that utilize electronic cigarette chargers and not lighters; electronic cigarettes for use as an alternative to traditional cigarettes that utilize electronic cigarette chargers and - - Case No. :-CV-0

16 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: not lighters; smokeless cigarette vaporizer pipes that utilize electronic cigarette chargers and not lighters. This application was assigned Application Serial No. /. None of these applications has issued.. Not surprisingly, the Trademark Office s Examining Attorney initially refused each of the applied-for marks based on ZippMark s BLU marks, emphasizing the similarity between the applied-for marks and the BLU marks would cause confusion as to the source of Blec s goods. Blec attempted to rebut the refusal by arguing that the applied-for marks and the BLU marks were dissimilar in appearance and connotation, that the goods to which the various marks relate were dissimilar, and that the purchasers of Blec s products are sophisticated and not likely to be confused. The Examining Attorney eventually revoked the initial refusal.. That revocation notwithstanding, the Examining Attorney had correctly concluded that Blec s proposed use of the applied-for marks is indeed likely to (a) cause confusion, mistake or deception with the BLU marks, and (b) result in the mistaken belief that Blec or its BLU devices are in some way legitimately connected with, licensed or approved by ZippMark. The marks for which Blec (and now LOEC) sought registration are identical or nearly identical in sound, appearance, meaning, connotation and commercial impression to ZippMark s existing trade name and trademarks. Moreover, because ZippMark s registrations include International Class and all of the pending Blec Applications are for Class, the products to which both sets of marks relate are similar such that they would be encountered by the same purchasers under circumstances that would give rise to the mistaken belief that the goods come from a common source.. Indeed, several instances of actual confusion as to the source or origin of the blu e-cigs have already occurred, with individuals mistakenly believing that those products are authorized, approved, sponsored or in some other way - - Case No. :-CV-0

17 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: associated with Zippo. The first such instances of which ZippMark is presently aware occurred in at the IPCPR (International Premium Cigar & Pipe Retailers), the TPE (Tobacco Plus Expo) and N.A.T.O. (National Association of Tobacco Outlets) trade shows. By way of example of such confusion, at these trade shows, attendees asked a Zippo representative how long Zippo had been in the e-cig business and to explain how the blu e-cigs operated. Attendees at these trade shows also informed a Zippo representative that they believed the blu e-cigs were affiliated with Zippo because of the similarity in the names and product packaging.. Now, however, given LOEC s flood of advertising regarding its blu e- cigs (as alleged in further detail below), ZippMark is informed and believes and therefore alleges that the general consuming public is likely to believe that Zippo s BLU-branded products are authorized, approved or sponsored by or in some other way associated with the maker of blu e-cigs.. The USPTO s Official Gazette includes notices listing trademark applications that are published for opposition. On November and,, the Official Gazette listed Blec as applicant for the Blec Applications. On March,, ZippMark filed with the USPTO s Trademark Trial and Appeals Board a combined opposition to registration of the Blec Applications (the Opposition ). Lorillard Purchases the Blu Cigarette Brand in the Hope of Growing Its Business in the Face of Declining Cigarette Sales. At the start of, the e-cig industry presented an expansion opportunity. The industry was fragmented. Many different competitors were jostling for attention. And most e-cig companies sold predominately over the Internet.. Although relatively new, industry analysts projected that the e-cig sector s sales would be $00 million doubling to $ billion in. Indeed, e-cig sales are growing at such a fast rate that by, sales of e-cigs and their associated cartridges may match sales of traditional cigarettes. E-cigs also face - - Case No. :-CV-0

18 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: few, if any, regulations to limit their potentially explosive growth bolstered by effective marketing. Just two years ago, at the start of, e-cig companies were generally small, relying largely on the Internet for both sales and marketing. Any large tobacco company that decided to employ its comparatively unlimited marketing and advertising experience and resources could dive into that market as a potential game-changer.. Lorillard s entry into the e-cig market was a critical part of its strategic plan. As shown in the chart below, cigarette smoking in the U.S. has been declining steadily since shrinking the purchasing base for Lorillard s products. An ever shrinking market, of course, means ever shrinking revenue. Office on Smoking and Health, National Center for Chronic Disease Prevention and Health Promotion, ZippMark is informed and believes and therefore alleges that as of Lorillard also faced (and continues to face) difficulties in the traditional cigarette marketplace that do not exist in the e-cig market. For example, Lorillard has stated that its ability to compete has been affected in some marketing areas as a result of retail merchandising contracts offered by Philip Morris and RJR Tobacco, which limit the retail shelf space available to Lorillard s brands. Moreover, - - Case No. :-CV-0

19 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: ZippMark is informed and believes and therefore alleges that Lorillard s largest selling product, its Newport cigarettes, is potentially facing even more rigorous regulation (because of its use of menthol). Such regulation will hurt Lorillard s sales even further. 0. In sum, up to, Lorillard faced difficulties in simply maintaining its level of cigarette sales let alone expanding them.. With much fanfare, Lorillard one of the Big Three US tobacco companies closed its purchase of Blec on April, for a purchase price of $ million (which included the assumption of Blec s debt). The acquisition marked the first tangible interest by a large tobacco company in the emerging e- cigarette or e-cig business. As part of the $ million that it invested to acquire Blec, Lorillard valued Blec s brand (i.e., the value of Blec s blu brand name) at $ million. Upon information and belief, Lorillard s desire to acquire Blec was driven by its belief that the Blec s brand (i.e., its use of blu ) had the highest brand equity in the e-cig marketplace.. ZippMark is informed and believes and therefore alleges that following Lorillard s purchase of Blec in April, it injected close to if not more than $0 million to raise the profile of its blu e-cig brand. The marketing barrage included ubiquitous television commercials featuring Hollywood celebrity Stephen Dorff (below left, since replaced by Jenny McCarthy, below right), print ads, bus displays and so on, all focusing attention on the blu brand. - - Case No. :-CV-0

20 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #:. Lorillard s injection of marketing dollars had a substantial impact. ZippMark is informed and believes and therefore alleges that at the time Lorillard purchased Blec, blu e-cigs commanded a meager -% market share for e-cigs. Two years later, blu e-cigs now occupy a dominating, top market share position, approaching a 0% market share. At the same time, the number of retail locations selling blu e-cigs grew exponentially by December,, LOEC had approximately 00 direct buying customers providing its e-cigs to approximately,000 retail accounts in the United States. LOEC s sales of e-cigs grew nearly four-fold in one year, from $ million in to $0 million in. As Bloomberg Business Week reported on October,, in an article entitled Lorillard Sees Red-Hot Sales of Its Blu E-Cigarettes: Big Tobacco may not be dying after all. Lorillard (LO), the tobacco giant behind Newport and Kent brand smokes, is now getting almost percent of its revenue from electronic cigarettes. The North Carolina-based company says its Blu e- cigarette brand posted $ million in sales in the recent quarter, a brisk trade that helped push Lorillard s total sales up percent, to $. billion. The company estimates that it now holds about half of the U.S. market for e-cigarettes, which heat a liquid cocktail of nicotine to create a smokeless vapor. Its e-cig sales have risen almost fivefold in the past year thanks to a national TV advertising campaign featuring Jenny McCarthy and strong repeat purchases, Lorillard says. Lorillard Discovers ZippMark s Ownership of The Blu Mark but Continues Disregarding ZippMark s Trademark Rights. Lorillard is a publicly held company, with its shares traded on the New York Stock Exchange. As of April,, its market capitalization was a (last accessed on Apr., ). - - Case No. :-CV-0

21 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: reported $. billion. Given Lorillard s relative sophistication in business deals, ZippMark is informed and believes and therefore alleges that in contemplating its purchase of Blec, Lorillard performed extensive comprehensive due diligence of Blec s books and records. Thus, despite Lorillard s disclosures filed with the SEC valuing the blu brand at $ million, or more than 0% of its purchase price ZippMark is informed and believes and therefore alleges that Lorillard s pre- acquisition due diligence revealed that Blec did not own trademark registrations protecting its use of the blu brand. Indeed, ZippMark is informed and believes and therefore alleges that Lorillard s due diligence revealed that ZippMark had registered and was using BLU for its butane lighter before Blec was even founded, and that ZippMark had initiated its formal Opposition to the Blec Applications. Nevertheless, while that Opposition was proceeding, Lorillard closed its acquisition of Blec, and then placed the Blec business into LOEC, the Lorillard subsidiary included within Lorillard s consolidated finances for purposes of SEC filings and its annual reports.. In sum, as of the acquisition s closing on April,, Lorillard knew that Blec did not and that LOEC consequently would not own the blu mark with which to lawfully brand its e-cigs. Choosing to publicly disclose in its SEC filings and annual report that % of the $ million that Lorillard paid for Blec rested in the $ million value of the blu brand, Lorillard concealed that (a) it did not have a trademark registration for blu, (b) ZippMark is the actual owner of BLU trademark registrations, (c) ZippMark (through Zippo, its exclusive licensee) is the senior user of the mark for products in the same product segment and (d) ZippMark had already initiated proceedings in the TTAB opposing registration of the blu mark in connection with Lorillard s newly acquired e-cig business. Lorillard further boasted that blu ecigs has the leading brand equity, highest brand awareness, and the highest customer loyalty and product attribute scores versus other top brands in the category. - - Case No. :-CV-0

22 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: LOEC Leads ZippMark on in Discussions to Resolve LOEC s Infringement on an Amicable Basis. During the pendency of ZippMark s Opposition to the Blec Applications, ZippMark invited LOEC to engage in face-to-face discussions among the responsible business executives of each company to explore an amicable resolution of the dispute. The parties first met in person in Chicago, Illinois, on September,. Present were the Zippo group s General Counsel, Vice President of Sales and its outside counsel. LOEC s president, Lorillard s in-house counsel responsible for LOEC and two of its outside counsel also attended. The Zippo representatives were given the impression that the parties were making good progress, and made in good faith a business proposal to resolve the resolution.. The meeting in Chicago was sufficiently encouraging to Zippo that it hosted a second meeting at its headquarters in Bradford, Pennsylvania, to discuss in detail one aspect of Zippo s proposed resolution.. The parties discussed another meeting, this time with a neutral third party to help facilitate discussions. Scheduling the mediation was delayed for some time, ostensibly because LOEC replaced its initial president with Jason Healey Blec s founder during this time period. Eventually, LOEC s counsel suggested that the parties did not even need a neutral to help guide discussions at their third face-to-face meeting.. The parties scheduled their in-person meeting for April,, in Chicago, Illinois. The same Zippo group team attended, this time also accompanied by its president. Although LOEC s team was to be essentially the same as before, with Jason Healey replacing its former president, no one with his authority showed up. 0. Additionally, despite the passage of almost seven months since their first meeting and ZippMark s initial proposal, LOEC had no counter and no response other than to proclaim ZippMark s proposal unacceptable. - - Case No. :-CV-0

23 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #:. The third meeting was a sham. It ended about minutes after it began, and within an hour or two of the meeting s end, LOEC filed an action against ZippMark and Zippo seeking a declaratory judgment of noninfringement in district court in Los Angeles. ZippMark is informed and believes and therefore alleges that LOEC never intended to negotiate in good faith.. In light of ZippMark s inability to resolve LOEC s infringement of the BLU trademarks on an amicable basis despite its best efforts and LOEC s conduct in stringing out settlement discussions for the sole apparent reason of filing an action in a venue that has no relationship to the parties or to ZippMark s claims ZippMark is compelled to pursue this action. CLAIM FOR RELIEF (Trademark Infringement - U.S.C. ()(a)) above.. Zippo realleges and incorporates by reference paragraphs through. LOEC is impermissibly using the BLU Trademarks in commerce in connection with Lorillard e-cigs. As alleged above, such use is likely to cause both actual and potential purchasers confusion or mistake, or to deceive both actual and potential purchasers.. LOEC s use of the BLU Trademarks is calculated to trade on ZippMark s goodwill in its BLU Trademarks.. LOEC is thus liable under U.S.C. ()(a) for its past and continuing infringement of the BLU Trademarks.. Pursuant to U.S.C. (a), ZippMark is entitled to recover its actual damages and/or LOEC s profits from sales of its blu e-cigs, as well as the costs of this action.. As alleged above, LOEC s use of the BLU Trademarks was and is intentional and in bad faith. Its intent to infringe is demonstrated by, among other things: (a) LOEC s knowledge, before acquiring Blec, both that (i) Blec did not - - Case No. :-CV-0

24 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #: own the blu brand used for its e-cigs and (ii) ZippMark owned the BLU Trademarks and had been using them in commerce in connection with its BLU lighter and related products since before Blec existed; and (b) LOEC s active concealment of these facts in the course of disclosing both (i) its purchase of Blec and (ii) the $ million value of the blu brand and trademarks over 0% of the entire purchase price. As also alleged above, LOEC s bad faith is evidenced by, among other things, such concealments and by its conduct in the fruitless discussions to resolve its use confusing use of the BLU Trademarks. LOEC s intentional infringement and bad faith justify an award of enhanced damages under U.S.C. (b) in an amount up to three times the actual damages.. Because this is an exceptional case under U.S.C. (a)(), ZippMark should be awarded its reasonable attorneys fees. 0. In addition, because ZippMark s remedies under U.S.C. (a) are not sufficient to fully protect its continuing interest in preserving the BLU Trademarks marks against future infringements by LOEC and those with which it is in active concert, ZippMark is entitled to an injunction against the future use of the BLU Trademarks, or any colorable imitation or confusingly similar variation of the BLU Trademarks, by LOEC and those with which it is in active concert. ZippMark is also entitled to an injunction prohibiting any other infringing use by LOEC. PRAYER FOR RELIEF WHEREFORE, ZippMark respectfully prays for judgment as follows:. That LOEC be directed to account for and pay to ZippMark all damages suffered by ZippMark as a result of LOEC s wrongful conduct described above, including its infringement of the BLU Trademarks and unfair competition, as well as to account for all gains, profits and advantages derived by such wrongful conduct; - - Case No. :-CV-0

25 Case :-cv-0-rgk-ffm Document Filed 0// Page of Page ID #:. That such damages caused by LOEC be trebled in accordance with U.S.C. because its unfair acts were done intentionally and therefore warrant enhanced damages and/or punitive damages as the Court may find appropriate;. For a permanent injunction pursuant to U.S.C. restraining LOEC, its affiliates, franchises, and subsidiaries, and those in active concert with them from doing, abiding, causing, aiding or abetting any of the following: a. Using the BLU Trademarks, or any colorable imitation or confusingly similar variation of the BLU Trademarks; b. Making any other infringing use of the BLU Trademarks; and c. Otherwise competing unfairly with Zippo in any manner;. That ZippMark be awarded its attorneys fees and costs under the provisions of U.S.C. ; amount;. That ZippMark be awarded prejudgment interest on any judgment. That ZippMark be awarded post-judgment interest on the foregoing sums at the maximum rate permitted by law from the date judgment is entered until paid; and. That ZippMark be awarded such other and further relief as the court deems equitable, just and appropriate. JURY DEMAND ZippMark respectfully demands a jury trial on all issues so triable. Dated: May, By: /s/ David S. Elkins David S. Elkins Attorneys for Defendants and Counterclaimants ZIPPMARK, INC. and ZIPPO MANUFACTURING COMPANY - - Case No. :-CV-0