Second Circuit Confirms Frivolous Finding in Hoisin Sauce Trademark Infringement Litigation

The Second Circuit Court of Appeals has upheld an award of $10,000 in
sanctions under Federal Rule of Civil Procedure 11 for the filing of a frivolous
action related to trademark infringement litigation between companies that
make and sell hoisin sauce. Star Mark Mgmt., Inc. v. Koon Chun Hing Kee Soy
& Sauce Factory, Ltd., Nos. 10-4931, 11-16 (2d Cir., decided June 13, 2012).
Koon Chun prevailed, in part, on its claims of willful trademark infringement
against Star Mark, based on Star Mark’s sale of counterfeit versions of Koon
Chun’s hoisin sauce. A magistrate judge awarded damages and costs, and the
Second Circuit affirmed.

In the meantime, the parties were litigating Star Mark’s suit to cancel Koon
Chun’s mark “on the theory that Koon Chun’s use of the word ‘hoisin’—which
translates to ‘seafood’—was deceptive because the sauce did not contain
seafood.” When considering this matter in a motion to amend Star Mark’s
answer in the initial lawsuit, the magistrate expressed skepticism about the
claim and noted that he would consider imposing sanctions if the motion
were made. Star Mark decided not to file the motion, but asserted the claims
in a new lawsuit. Koon Chun’s counsel requested in writing that Star Mark
withdraw the new complaint, threatening to file a Rule 11 motion. The
complaint was not withdrawn, and Koon Chun moved for judgment on the
pleadings as well as Rule 11 sanctions, asserting that the lawsuit was frivolous.
The district court agreed and imposed a total of $10,000 for fees and
costs “based upon the showing of financial hardship by plaintiffs and their
attorneys.”

Finding that Koon Chun complied with the spirit of Rule 11 when giving
notice to Star Mark, the court found the rule’s safe harbor requirement
satisfied. The court also determined that the magistrate did not abuse its
discretion in finding that Star Mark’s suit was frivolous. As the magistrate
pointed out, “the fact that Koon Chun’s product name translates to ‘seafood
sauce’ but does not contain seafood does not make the product misleading because many sauces are not named after their ingredients, but are named after the foods they accompany.” The Second Circuit agreed.