The US Court of Appeals for the Second Circuit vacated and remanded a district court’s dismissal of a trademark dispute for lack of subject matter jurisdiction, noting that the dispute arose under contractual standing, which is not a jurisdictional issue. SM Kids, LLC v. Google LLC, Alphabet Inc., Case No. 19-cv-2547 (2d Cir. June 25, 2020) (Parker, J.). 

In 1997, Googles Children’s Workshop registered the trademark GOOGLES and the internet domain name www.googles.com. The website launched in 1998 and focused on children’s education and entertainment. That same year, Google adopted its name, and in 2004 it registered the GOOGLE mark. In 2005, the founder of Googles Children’s Workshop sued Google for trademark infringement.

In 2007, the Googles Children’s Workshop founder assigned all rights in the mark GOOGLES to Stelor Productions. In 2008, Stelor and Google settled the trademark infringement dispute, with Google agreeing to not intentionally make material modifications to its then-current offering of products and services in a manner that would likely create confusion in connection with the Children’s Workshop mark GOOGLES. Specifically, Google agreed not to create, develop and publish children’s books and fictional children’s content with the title of “GOOGLE or a GOOGLE-.”

In 2011, following a bankruptcy proceeding, Stelor assigned its rights in the GOOGLES mark to the company’s main investor, Stephen Garchik. By that point, the Googles website had become static and outdated, albeit still operational. In 2013, Garchik replaced the content on the Googles website with a “coming soon” page, added some content, and transferred the Googles assets to his company, SJM Partners. Five years later, SJM transferred its assets to SM Kids, a newly formed firm owned by Garchik. In February 2018, SM Kids sued Google and its affiliates for breach of the 2008 settlement agreement. SM Kids alleged that Google had breached the agreement by creating Google Play and YouTube Kids, which publish and distribute children’s content. SM Kids also objected to Google’s acquisition of several children’s entertainment businesses, including Launchpad Toys and the “Toontastic” application.

Google moved to dismiss the complaint pursuant to Rules 12(b)(1) and 12(b)(6). Google alleged that SM Kids was not the holder of the GOOGLES mark, because a trademark must be actually used in the marketplace. Google argued that because the mark had not been used in commerce, it could not be assigned, and therefore SM Kids lacked standing to sue because only the holder of the mark could enforce the settlement agreement. The district court stayed the case and ordered discovery as to the issues of standing and subject matter jurisdiction. After taking discovery, Google renewed its motion to dismiss, pursuant only to Rule 12(b)(1). Relying on materials outside the complaint that were generated during discovery, the district court found that SM Kids had not shown that it had validly acquired the trademark, because the trademark had not been used in commerce from 2010 to 2018 when it was assigned to SM Kids. The district court treated this deficiency as jurisdictional and granted Google’s motion to dismiss. SM Kids appealed.

The Second Circuit disagreed, explaining that the validity of a settlement agreement is not a question of Article III standing, but of contractual standing, which does not implicate subject matter jurisdiction. Article III standing has three requirement: the plaintiff must have (1) suffered an injury in fact (2) that is fairly traceable to the challenged conduct of the defendant and (3) that is likely to be redressed by a favorable judicial decision. The Second Circuit found that SM Kids plausibly alleged that the availability of children’s Google content—which allegedly violated the settlement agreement—had injured the popularity of SM Kids’ Googles content and thereby caused SM Kids economic injury, which could be redressed by injunctive or monetary relief. As a result, the Court found that the requirements of Article III standing were satisfied.

The Second Circuit also pointed out that the Supreme Court of the United States has cautioned lower courts against reading jurisdictional limitation into substantive statutory provisions. The relevant provision of the Lanham Act on trademark assignments is 15 USC § 1060, which provides that a trademark is assignable only “with the good will of the business in which the mark is used.” There is nothing in the statute that mentions jurisdiction. The Second Circuit cautioned that if a statute does not clearly state that an issue is jurisdictional, courts should treat any restriction in the statute as nonjurisdictional in character. The Second Circuit noted this as a “readily administrable bright line” test.