VERIFIED COUNTERCLAIM AGAINST PLAINTIFF SMALL AND THIRD-PARTY DEFENDANT JOHN CPAATTY
NATURE OF THE COUNTERCLAIM
1. This counterclaim seeks relief for federal trademark infringement and unfair competition under the Trademark Act of 1946, as amended (the Lanham Act, 15 U.S.C. §§ 1051 et seq.) and related common law and statutory causes of action arising from the Counterdefendants' infringement of Big's marks "TaxHQ®" and "Big TaxHQ®" in violation of Big's federally protected and common law rights. Big has used the "TaxHQ®" mark throughout the United States since at least 1997 to promote its business and to advertise its services to its existing and prospective clients. The Counterdefendants are wrongfully infringing that mark to promote virtually identical services in a manner likely to confuse the public as to the source of those services. Unless the counterdefendants are enjoined from further infringement, Big will suffer immediate and irreparable injury.
2. Defendant Counterclaimant Big is a corporation organized and existing under the laws of the State of New York.
3. Upon information and belief, plaintiff/counterdefendant Small is a professional corporation organized and existing under the laws of the State of Washington, with its principal place of business in Seattle, Washington.
4. Upon information and belief, counterdefendant John Cpaatty is a citizen of the State of Washington and a resident of Seattle, Washington. Upon information and belief, he is the President, Chief Operating Officer and Principal Shareholder of plaintiff/counterdefendant Small. This Court has jurisdiction over the Lanham Act and declaratory relief claims set forth below by virtue of 15 U.S.C. § 1121,28 U.S.C. § 1131, and 28 U.S.C. § 1338(a), and over the state law claim set forth below by virtue of 28 U.S.C. § 1338(b) and 28 U.S.C. § 1367(a).
BIG'S BUSINESS AND ITS PROTECTED MARKS
5. Since its founding, Big has become a leading national provider of federal and state tax filings and tax document filing and related services throughout the United States and the world. With over 700 employees in 23 states and a network of service providers throughout the country, Big serves the needs of major corporations, professional accounting firms and law firms throughout the United States (including Washington) by, among other things, counseling regarding and performance of state tax related activities and dealing with federal, state and local taxation authorities, including but not limited to assisting in the preparation of returns and other submissions to such authorities. Last year alone, Big provided service to over 200,000 clients in the United States and abroad.
6. One key to Big's continued success has been its ability to reach out to the corporate, accounting and legal communities across the country to publicize and market the services it offers. As part of that effort, in 1997, Big created a newsletter, entitled "TaxHQ", that it started distributing three to four times a year throughout the United States (including Washington) to existing and prospective clients, telling them about Big's services and capabilities and associating Big's services with the "TaxHQ" mark. Since that time, Big has continuously and conspicuously promoted its services under the mark "TaxHQ" in newsletters and other promotional materials to associate the mark in the public's mind with Big and the services it provides. Big has invested many hundreds of thousands of dollars toward that effort.
7. Recognizing the value of the "TaxHQ" mark, Big submitted a federal trademark application for that mark on November 26, 2004. The United States Patent and Trademark Office ("PTO") registered the trademark in Big's name on May 19, 2006 as U.S. Trademark Registration No. 2,000,000. A copy of Big's Certificate of Registration for the mark is attached as Exhibit A. The mark is inherently distinctive, possesses secondary meaning and has significant commercial value.
8. To better serve its clients and to open new marketing avenues, Big decided in the mid-2000s to create a new website on the Internet. In October 2004, Big registered with Network Solutions, Inc. ("NSI"), which registers domain names under government contract, the domain name "TaxHQ.COM" to serve as Big's web address: ..http:/www.TaxHQ.com". The following January Big launched the TaxHQ® site on the Internet. Besides providing promotional information about the services that Big offers and general information of interest to clients and prospective clients, the TaxHQ website created an interactive environment for subscribing members that provided clients with access to subscriber accounts, corporate tax forms and information such as tax and legal news and legislative updates, links to relevant websites, procedural outlines, and reference materials. Equally important, the TaxHQ® website allowed subscribers to receive company services directly on-line. The mark "TaxHQ®" and the related mark "Big TaxHQ" are displayed prominently on the pages of the website. Big has invested millions of dollars in developing and promoting the website under the "TaxHQ" marks.
9. After the launching of Big's TaxHQ website, Big (on March 10, 2005), filed an application for the registration of the service mark "Big TaxHQ", which Big has used continuously and conspicuously on its website since January 2005 and has used on other promotional materials, including the TaxHQ newsletter, since 1997. The PTO registered that mark in Big's name on January 12, 2007, under U.S. Trademark Registration No. 2,000,001 in connection with the provision of "computer services, namely, providing on-line database in the fields of tax information, tax documents, and related information on filing tax documents and related legal forms". A copy of Big's Certificate of Registration for the mark is attached as Exhibit B. The mark is inherently distinctive, possesses secondary meaning and has significant commercial value.
COUNTERDEFENDANTS' INFRINGING AND WRONGFUL ACTS
10. Big first learned of the Counterdefendants' infringing acts in June 2007, when it came across the Counterdefendants' website while searching the Internet. The site, which says that it is sponsored by plaintiff/counterdefendant Small, is addressed to a nationwide audience in the business, accounting and legal communities, identical to the classes of clients that Big seeks to attract, and solicits business for a number of services that are the same as those that Big offers and features on its TaxHQ web site and other promotional materials. For example, as is featured on Big's website, the Counterdefendants' website offers assistance in tax determinations, tax planning and the subsequent formation of corporate entities (not just in Washington, but nationwide), and providing clients with professionals who are qualified to deal with matters of state taxation on their behalf
11. Emblazoned across the top of every one of the Counterdefendants' website's pages is the legend "TaxHQ", which is virtually identical to Big's marks "TaxHQ®" and "Big TaxHQ". Equally alarming is the site's web-address: www.TaxHQ.net... which (except for the suffix "net") is the same as the web-address for Big's TaxHQ® website, which incorporates Big's protected marks. NSI records indicate that plaintiff/counterdefendant Small registered the domain name "TaxHQ.NET" with NSI early last March. The Counterdefendants' website also is accessible under the domain name "abouttax.com".
12. Big also discovered that the Counterdefendants have used Big's mark "TaxHQ®" in keywords on their website, which are embedded in machine-readable HTML code that is not visible on the website pages. By embedding those marks in the website's buried HTML code, the Counterdefendants attract to their website Internet search engines and Internet users who search for Big's TaxHQ website by making a generalized search request for "TaxHQ".
13. By using a deceptively similar (indeed, a virtually identical) Internet domain name, by displaying the mark "TaxHQ" on the pages of their website and their other promotional materials, and by incorporating Big's marks in its keywords to attract visitors to their website, the Counterdefendants are committing electronic piracy by diverting Big's clients and potential customers to their website and associating their services with Big's marks.
14. Further investigation has revealed records indicating that counterdefendant John Cpaatty apparently holds a federal trademark registration for the service mark "TaxHQ", under U.S. Trademark Registration No.1,000.000. Big did not obtain actual knowledge of this registration until June 2007, after discovering Counterdefendants' website. The application for registration claims that Cpaatty made first use of the mark in commerce on March 31, 2003. On information and belief, the mark was registered in October 2005, which was seven months before the federal registration of Big's mark "TaxHQ®". Because Big has made continuous and conspicuous use of the mark in association with its services since at least 1997 in interstate commerce and throughout the United States, it has priority over the Counterdefendants' registration and mark, giving Big superior rights to the use of the mark "TaxHQ®" and its derivatives. Additionally, on information and belief, Big's use of the marks 'TaxHQ®" and "Big TaxHQ®" in connection with the provision of on-line computerized services in the fields of tax information, tax documents and related information on filing tax related legal forms, predates Counterdefendants' use of their mark in association with their website.
15. The Counterdefendants' use of marks deceptively similar to Big's marks has occurred, and continues to occur, despite their knowledge of Big's prior use of those marks. In fall 2004, after Big registered with NSI the domain name "TaxHQ.COM" for use as part of its web address and TaxHQ® website, counterdefendant Cpaatty contacted Big to question Big's use of the mark in its domain name. Big told Cpaatty that it had been using and featuring the "TaxHQ®" mark for years as part of its national marketing efforts. Big also sent Cpaatty copies of past Big TaxHQ®newsletters to clients and prospective clients that display that mark prominently. Big had no further contact with Cpaatty until it discovered the Counterdefendants' website in June 2007.
16. After its discovery of the Counterdefendants' infringing acts, Big's general counsel sent the Counterdefendants a letter in late June 2007 objecting to their activity and demanding that further infringement cease. That letter is attached to this Complaint as Exhibit C. To date, the Counterdefendants have failed to respond to the letter. Instead, on July 14, 2007, Big was served with plaintiffs complaint alleging that Big is purportedly infringing its mark.
17. The Counterdefendants' acts of infringement and their other wrongful conduct have been, and continue to be, willful.
18. Unless the Counterdefendants are restrained by this Court, they will continue to use and solicit business under their infringing marks.
19. The Counterdefendants' conduct has caused, and, unless enjoined, will continue to cause Big to suffer immediate, irreparable and continuous loss, damage and injury to its goodwill and business reputation. Big has no adequate remedy at law to prevent these injuries.
FIRST CLAIM FOR RELIEF (Trademark Infringement in Violation of 15 U.S.C.§ 1114(a) (Lanham Act § 32))
20. Big repeats and realleges the allegations previously set forth. Counterdefendants' use of the marks "TaxHQ" and similar designations in interstate commerce, for the purpose of promoting and soliciting business for themselves, is likely to cause confusion, mistake and deception in the minds of the public and constitutes trademark infringement in violation of 15 U.S.C. § 1114(a).
21. By reason of the foregoing, Big has been injured in an amount not yet ascertained and is entitled to the remedies provided for in 15 U.S.C. § 1116 et seq.
SECOND CLAIM FOR RELIEF (False Designation of Origin in Violation of 15 U.S.C. § 1125(a) (Lanham Act § 43(a)))
22. Big repeats and realleges the allegations previously set forth. As many of the services that the Counterdefendants are offering are substantially the same as the services offered by Big, the Counterdefendants' use of the mark "TaxHQ" and similar designations is likely to cause the public to mistakenly believe that the Counterdefendants' services and solicitations originate from, are sponsored by, or are in some way associated with Big and the services it provides. As such, the Counterdefendants' use of those marks is a use in interstate commerce of a false designation of origin and/or a false description or representation, including words or symbols tending falsely to describe or represent the same, and constitutes a violation of 15 U.S.C.§ 1125(a).
23. The Counterdefendants' unauthorized association of their services with Big and its mark has, on information and belief, resulted in profits to them and has thereby deprived Big of revenue to which it is entitled. By reason of the foregoing, Big has been injured in an amount not yet ascertained.
THIRD CLAIM FOR RELIEF (Declaratory Relief; Cancellation of Registration of Counterdefendants' Service Mark under 15 U.S.C. § 1119)
24. Big repeats and realleges the allegations previously set forth. On October 7, 2005, the PTO issued U.S. Trademark Registration No.1,000,000 ("the 2005 registration") for the mark "TaxHQ" for "tax and legal services in the nature of determining choice of entity questions, including tax document preparation and the formation of corporate entities". The registration was issued to counterdefendant John Cpaatty.
25. The application for registration by Counterdefendant Cpaatty claimed that the date of his first use of the mark in commerce was March 31,2003. Big's has used the mark "TaxHQ®" in interstate commerce since at least 1997. Big has continuously and conspicuously used the mark and related marks in interstate commerce ever since.
26. The 2005 registration was improperly issued and is not valid because Big was using its mark in interstate commerce years before the Counterdefendants made first use of their mark in commerce, and because Counterdefendants' use of the mark is likely to cause confusion, mistake and deception in the minds of the public. As such, the registration should be cancelled
27. A question of actual controversy exists among the parties concerning the validity of the Counterdefendants' trademark registration. Pursuant to 28 U.S.C. § 2201 et seq. and 15 U.S.c. § 1119, Big is entitled to an order declaring the 2005 registration invalid and cancelling the registration.
FOURTH CLAIM FOR RELIEF
(Common Law Trademark Infringement)
28. Big repeats and realleges the allegations previously set forth. Big owns and enjoys common law trademark rights in the marks "TaxHQ®" and "Big TaxHQ®" for use in conjunction with providing computer services, namely, providing on-line database in the fields of tax information, tax documents, and related information on filing tax documents and related legal forms.
29. Counterdefendants' unauthorized use of the mark "TaxHQ" for the purpose of promoting and soliciting business for themselves is likely to cause confusion, mistake and deception in the minds of the public and is likely to cause the public to mistakenly believe that the Counterdefendants' services and solicitations originate from, are sponsored by, or are in some way associated with Big and the services it provides.
30. Counterdefendants' infringing acts violate Big's common law rights in its marks, By reason of the foregoing, Big has been injured in an amount not yet ascertained.
WHEREFORE, Big demands that judgment be entered against the Counterdefendants as follows:
A. That Counterdefendants, their officers, agents, servants, employees and all persons in concert or participation with Counterdefendants be preliminarily and permanently enjoined from infringing Big's marks containing "TaxHQ" or any derivative or shorthand notation of any of the foregoing in connection with tax document retrieval and preparation services, formation services or other related services to businesses and accounting and law firms, including the use of such marks as part of a domain name, as part of marks appearing on a webpage or as keywords;(1) Soliciting any business under said marks;(2) Registering for themselves any such marks; and (3) Selling or marketing services in any way that tends to deceive, mislead or confuse the public into believing that the Counterdefendants' services are in any way sanctioned or affiliated with Big.
B. That, as a form of preliminary and permanent relief, any Internet domain name registration including the mark "TaxHQ" owned by either of the Counterdefendants with any Internet registration service be cancelled;
C. That the Counterdefendants be directed to file with this Court and serve on Big within twenty (20) days after service of the injunction, a report in writing, under oath, setting forth in detail the manner and form in which the Counterdefendants have complied with the injunction;
D. That the Court declare that U.S. Trademark Reg. No. 1,000.000 is invalid and that, pursuant to this Court's authority under 15 U.S.C. § 1119, Counterdefendants' registration for the service mark "TaxHQ" be cancelled;
E. That any service mark registration owned by either of the Counterdefendants in any state for "TaxHQ" or any similar mark be cancelled;
F. That Counterdefendants be compelled to assign over to Big all Internet, E-mail, or other electronic addresses employing "TaxHQ" or any similar mark;
G. That Counterdefendants be required to pay to Big the Counterdefendants' profits and the actual damages suffered by Big as a result of Counterdefendants' acts, and that such damage be trebled because of the willful acts described in this Counterclaim, all of which were in disregard of Big' s rights;
H. That Counterdefendants be compelled to pay Big's attorneys' fees, together with all costs of this suit; and
I. For such other and further relief as the Court deems just and equitable.
Big hereby demands a trial by jury of all claims that are triable to a jury in this action.
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