(CN) - A Canadian dessert maker accused of forcing Applebee's to stop selling an American competitor's apple turnovers may assert trademark infringement counterclaims, a federal judge ruled.
As recounted by U.S. District Judge Michael Baylson, of the federal court in Philadelphia, Sweet Street Desserts Inc., a Reading, Pa.-based maker of frozen bakery products, created an apple turnover for Applebee's restaurants and sought to outsource its production.
In September 2010, it entered into such an agreement with Canadian backer Chudleigh's Ltd., but then, after signing various agreements, decided production of the turnovers should be kept in house.
Seeking to establish a new baking facility to produce the turnovers, Sweet Street received quotes from several companies to produce a special dough-folding machine. It says Forms & Frys, a Danish pastry-folding company's American subsidiary, provided a quote, then abruptly refused to make the machine. In its complaint, Sweet Street claimed Forms & Frys felt "pressured" by Chudleigh's.
Undeterred, Sweet Street created its own in-house production process, and Applebee's began selling the apple turnover on its menu in August 2011. Days later, however, the restaurant received a cease and desist letter from Chudleigh, demanding it no longer sell the product, which the vendor said looked "strikingly similar" to its well-known, trademarked blossom design.
The letter made no mention of Sweet Street, however, but accused Applebee's of trademark infringement, unfair competition, false designation of origin, and an unfair and deceptive trade practice under federal, state and common law.
After Applebee's stopped selling its turnover, Sweet Streetsued Chudleigh's, seeking a declaration the trademark is invalid, since the blossom shape is a "generic configuration" incapable of distinguishing it from other products.
The complaint also asserted claims for tortious interference with Sweet Street's contractual relations with Applebee's and Forms & Frys, violations of Pennsylvania's Unfair Trade Practices and Consumer Protection Law, and breach of contract.
After Senior U.S. District Judge Michael Baylson ruled this April that Chudleigh's had plausibly sent its demand letter in bad faith, the defendant answered with affirmative defenses.
Months later, it moved to add two new defenses for failure to state a claim, plus counterclaims for trademark infringement, false designation of origin, and unfair competition.
Sweet Street objected, claiming that Chudleigh's "has unduly delayed these proceedings with dilatory and unnecessary motion practice," that its counterclaims are duplicative and barred by latches, and that it failed to ask the plaintiff for consent to amend.
But Judge Baylson tossed those arguments aside, holding that "A two-and-a-half-month delay is a relatively short period of time, and not undue delay" and that granting the motion would not prejudice Sweet Street.
"Plaintiff does not contend that defendant's delay in seeking leave to amend has prejudiced its ability to prove its claims," Baylson wrote. "Instead, plaintiff contends the inconsistent legal position has required additional briefing and might cause its perishable products and inventory to spoil. Plaintiff does not assert that products or inventory must be preserved as evidence, or that leave to amend would unfairly disadvantage its ability to present facts or evidence."
The judge later added: "Although the motion to dismiss did raise the question of whether the complaint failed to state a claim, defendant did not previously raise the insufficiency of facts pleaded, which is why defendant moves to amend its answer. Accordingly, this question was not previously raised or decided, and is not duplicative."
The court also held that "the proposed counterclaims are compulsory under Rule 13(a) because they arise out of the same transaction or occurrence."
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