Ahoy Mateys! Judge scuppers suit against Pirate Joe's

October 18, 2013

On Oct 2, 2013, a Washington District Court judge dismissed a trademark infringement lawsuit against Vancouver businessman, Michael Hallatt. Powerful U.S. discount grocer Trader Joe’s had filed the suit, irked by Hallatt’s business of reselling its products in his cheekily-named Vancouver shop, Pirate Joe’s. Trader Joe’s has no Canadian locations, so Hallatt made frequent buying trips to its U.S. outlets. There he paid retail prices, then declared the goods at the border, marked them up and sold them in his store.

In its complaint, Trader Joe’s made numerous allegations under the Lanham Act (the U.S. federal trademark legislation), including trademark infringement, false endorsement, unfair competition, trademark dilution and false advertising. It also alleged deceptive business practices and trademark dilution under state law. Trader Joe’s contended that Pirate Joe’s intentionally copied the appearance of its stores and used its product images in order to confuse customers and pass as an authorized Trader Joe’s retailer. This, it argued, would damage the Trader Joe’s brand and dilute the source-designating ability of its trademarks, as well as deter Canadian customers from traveling to the United States to purchase its products.

Hallatt countered the lawsuit with a motion to dismiss it on jurisdictional grounds. The court granted the motion. It held that, although the Lanham Act can apply to activities in a foreign jurisdiction, extraterritorial application was not supported in this case. Significantly, all alleged infringing activity occurred in Canada. As well, there was no proof of harm to Trader Joe’s – neither economic harm (since Hallatt paid retail prices), nor harm to goodwill.

Since the court’s decision was based on jurisdictional questions, the trademark issues were not resolved. However, as permitted in the court’s Oct 2 order, Trader Joe’s has now submitted an amended claim to support federal diversity jurisdiction over its state law claims. Diversity jurisdiction allows a U.S. federal court to hear cases involving citizens of different states or foreign citizenship, provided the value of the matter exceeds $75,000. As well, Trader Joe’s has filed a motion asking the court to reconsider its dismissal of the Lanham Act claims. So while Trader Joe’s may have lost the first battle, the “pirate wars” may not yet be over.

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