Case 1:11-cv-02381-VM Document 69-1

Filed 10/16/12 Page 1 of 7

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------x Christian Louboutin S.A., Christian Louboutin, : L.L.C. and Christian Louboutin, : Plaintiffs/Counterclaim-Defendants, : vs. : Yves Saint Laurent America, Inc., Yves Saint Laurent America Holding, Inc. and : Yves Saint Laurent S.A.S., et al., : Defendants/Counterclaim-Plaintiffs. : ------------------------------------x

Civil Action Number 11-cv-2381 (VM) ECF Case

MEMORANDUM OF LAW OF DEFENDANTS/COUNTERCLAIM-PLAINTIFFS IN SUPPORT OF MOTION TO DISMISS THEIR COUNTERCLAIMS VOLUNTARILY

DEBEVOISE & PLIMPTON LLP David H. Bernstein (dhbernstein@debevoise.com) Jyotin Hamid (jhamid@debevoise.com) Rayna S. Feldman (rsfeldman@debevoise.com) 919 Third Avenue New York, New York 10022 Telephone 212-909-6696 Dated: New York, New York October 16, 2012 Counsel to Defendants and Counterclaim Plaintiffs Yves Saint Laurent America, Inc., Yves Saint Laurent America Holding, Inc., and Yves Saint Laurent S.A.S.

Case 1:11-cv-02381-VM Document 69-1

Filed 10/16/12 Page 2 of 7

Yves Saint Laurent America, Inc., Yves Saint Laurent America Holding, Inc. and Yves Saint Laurent S.A.S. (collectively, YSL) respectfully submit this memorandum of law in support of their motion to dismiss voluntarily their counterclaims against Christian Louboutin S.A., Christian Louboutin L.L.C. and Christian Louboutin (collectively, Louboutin). PRELIMINARY STATEMENT In its September 5, 2012 ruling in this case, the U.S. Court of Appeals for the Second Circuit directed that final judgment be entered in YSLs favor on all of Louboutins federal trademark claims. The Court of Appeals ruled conclusively that the YSL monochromatic shoes that Louboutin challenged in this lawsuit do not infringe any trademark rights of Louboutin. As a result, the only issues remaining to be litigated in this case are YSLs counterclaims against Louboutin. In light of YSLs conclusive victory in defeating Louboutins claims, and for the reasons detailed herein, YSL believes it appropriate to dismiss its counterclaims voluntarily, thus resolving what remains of this litigation and allowing the parties to close the book on this litigation and refocus their attention on their respective fashion creations. Counterclaims Seeking Cancellation. Four of YSLs counterclaims seek cancellation of Louboutins U.S. Trademark Registration on various bases. This Court had subject matter jurisdiction over those counterclaims only because Louboutin had asserted claims for trademark infringement against YSL. With Louboutins claims now removed as a result of the Second Circuit ruling, this Court no longer has subject matter jurisdiction with respect to YSLs counterclaims seeking cancellation. Under controlling law in this Circuit, district courts lack subject matter jurisdiction to adjudicate a claim for cancellation of a federal trademark registration if no other basis for federal jurisdiction is present; instead, such claims must be brought before the Trademark Trials & Appeals Board (the T.T.A.B.) of the United States

Case 1:11-cv-02381-VM Document 69-1

Filed 10/16/12 Page 3 of 7

Patent & Trademark Office. Accordingly, the counterclaims seeking cancellation should be dismissed without prejudice. Counterclaims for Tortious Interference and Unfair Competition. YSLs fifth and sixth counterclaims, for tortious interference and unfair competition, are based on Louboutins efforts in early 2011 to pressure certain retailers to return to YSL the red monochromatic shoes challenged in this case. Although YSL maintains its view that such actions were wrongful, YSL was able to mitigate some of its damages by re-selling the returned inventory at YSL boutiques or through e-commerce. In light of that, and given its desire to refocus its energies on its business and creative designs, YSL has decided that these claims are no longer worth pursuing. Accordingly, YSL voluntarily dismisses those counterclaims with prejudice. PROCEDURAL HISTORY Louboutin filed its Complaint and moved for a preliminary injunction on April 7, 2011, challenging four models of red monochromatic shoes sold by YSL, and asserting federal trademark claims and related state law claims. YSL filed an Answer and Counterclaims on May 20, 2011, and an Amended Answer and Counterclaims on June 27, 2011. YSL asserted six counterclaims: four seeking cancellation of Louboutins federal Trademark Registration on various grounds, and the two for tortious interference and unfair competition, respectively, based on Louboutins efforts in early 2011 to pressure certain retailers to return to YSL the red monochromatic shoes challenged in this case. On July 22, 2011, this Court held a hearing on Louboutins motion for a preliminary injunction. Preceding the hearing was a period for expedited discovery and full briefing, but both the discovery and the briefing were limited to issues raised by Louboutins motion; they did not include any discovery or briefing on YSLs counterclaims. To date, no discovery of any kind has been taken or exchanged on the counterclaims. 2

Case 1:11-cv-02381-VM Document 69-1

Filed 10/16/12 Page 4 of 7

On August 10, 2011, this Court issued its opinion denying Louboutins motion for a preliminary injunction. Louboutin took an interlocutory appeal. Subsequently, in response to Louboutins request, this Court stayed further action on the litigation. On September 5, 2012, the Second Circuit ruled on Louboutins appeal. The Second Circuit affirmed the district courts denial of Louboutins request for an injunction. The Second Circuit further held that the YSL monochromatic red shoes at issue in this lawsuit do not violate any rights of Louboutin. The Second Circuit thus directed that final judgment be entered in YSLs favor on all of Louboutins federal trademark claims, and remanded this case for further proceedings related to YSLs counterclaims. ARGUMENT I. Applicable Standards. Rule 41(a)(2) of the Federal Rules of Civil Procedure permits a District Court to dismiss an action at a plaintiffs request, with or without prejudice. The rule applies equally to the dismissal of a defendants counterclaims where, as here, the plaintiff has served an answer to those counterclaims. See Fed. R. Civ. P. 41(c). A request for the voluntary dismissal of an action without prejudice should be granted absent prejudice to the other party. Catanzano v. Wing, 277 F.3d 99, 109 (2d Cir. 2001); Wakefield v. N. Telecom, Inc., 769 F.2d 109, 114 (2d Cir. 1985). Such a dismissal is proper in cases where (i) the counterclaim-plaintiff did not delay in bringing the motion; (ii) there is no evidence that the action was brought to harass; (iii) the action progressed very little and no discovery has been taken; (iv) no expenses would be duplicated if the counterclaim-defendant were forced to relitigate the counterclaims in another suit; and (v) the counterclaim-plaintiff has a resasonable explanation for dismissing the action. See, e.g., In re Solv-Ex Corp. Sec. Litig., 2003 U.S. App. LEXIS 7409, *4-5 (2d Cir. 2003) (applying factors set forth in Zagano v. 3

Case 1:11-cv-02381-VM Document 69-1

Filed 10/16/12 Page 5 of 7

Fordham Univ., 900 F.2d 12, 14 (2d Cir. 1990)); AET Rail Group, LLC v. Siemens Transp. Sys., Inc., No. 08-CV-6442, 2009 WL 5216960, at *2-3 (W.D.N.Y. Dec. 30, 2009) (applying Zagano factors to motion seeking dismissal of counterclaims without prejudice). II. The Counterclaims Seeking Cancellation Should Be Dismissed Without Prejudice. Dismissal of YSLs counterclaims seeking cancellation of Louboutins federal Trademark Registration is required because this Court no longer has subject matter jurisdiction over YSLs counterclaims for cancellation. Under controlling law, a federal district court lacks subject matter jurisdiction to adjudicate a claim for cancellation of a federal trademark registration if no other basis for federal jurisdiction is present. See Nike, Inc. v. Already, LLC, 663 F.3d 89, 94, 98-99 (2d Cir. 2011), cert. granted, --- S. Ct. ---, 2012 WL 425184 (2012) (once plaintiffs claims for trademark infringement were conclusively terminated, dismissal of defendants counterclaim for cancellation was appropriate because court lacked subject matter jurisdiction over counterclaims for cancellation). Although Louboutins claims against YSL previously provided a basis for subject matter jurisdiction in the district court, that basis is no longer present now that the Second Circuit has directed that final judgment be entered in YSLs favor on all of Louboutins federal trademark claims. Applying the Zagano factors, the dismissal of YSLs counterclaims seeking cancellation should be without prejudice: YSL has a reasonable explanation for seeking dismissal: The Second Circuits ruling has removed the basis for the Courts subject matter jurisdiction over YSLs counterclaims. YSL has brought this motion very promptly: YSL has filed this motion within three weeks of the Second Circuit issuing its mandate (on September 27). There is no evidence that YSL asserted its counterclaims for cancellation of Louboutins Trademark Registration in bad faith or to harass Louboutin. To the contrary, YSL believed and this Court and the Second Circuit both agreed that Louboutins Trademark Registration was not valid as previously registered. 4

Case 1:11-cv-02381-VM Document 69-1

Filed 10/16/12 Page 6 of 7

This action has not reached an advanced stage of proceedings, and no discovery has taken place with respect to any of YSLs counterclaims. Because no discovery has taken place on these counterclaims, Louboutin would not have to duplicate expenses if it were forced to relitigate YSLs claims for cancellation in the future or in another forum (such as the T.T.A.B.). Furthermore, the law is clear in this Circuit that the mere prospect of a second lawsuit is not a sufficent reason to deny a partys request for voluntary dismissal without prejudice. Lopes v. First Unum Ins. Co., No. 09CV02642 (RRM)(SMG), 2012 WL 3887517, at * 1 (E.D.N.Y. Sept. 7, 2012) (citing Cone v. West Virigina Pulp & Paper Co., 330 U.S. 212, 217 (1947)); see also Charles A. Wright & Arthur R. Miller, 9 Federal Practice and Procedure 2364, at 474-76 (3d ed. 2008)). Accordingly, YSL respectfully submits that its counterclaims seeking cancellation of Louboutins Trademark Registration should be dismissed without prejudice. III. The Counterclaims For Tortious Interference and Unfair Competition Should Be Dismissed With Prejudice. YSLs counterclaims for tortious interference and unfair competition were brought as a result of Louboutins efforts in early 2011 to pressure certain retailers to return to YSL the red monochromatic shoes challenged in this case. Although YSL maintains its position that such conduct was improper, YSL was able to mitigate some of its damages by re-selling the returned inventory to its customers through YSL boutiques and through e-commerce. Now that the Second Circuit has definitively rejected Louboutins claims against YSL, YSL prefers to refocus its energies on its business and creative designs, and has determined that these claims are no longer worth pursuing. As such, YSL is willing to dismiss these counterclaims with prejudice. Because Louboutin can have no conceivable objection to the dismissal of these claims with prejudice, YSL respectfully requests that the Court dismiss its counterclaims for tortious interference and unfair competition with prejudice.

Case 1:11-cv-02381-VM Document 69-1

Filed 10/16/12 Page 7 of 7

CONCLUSION For the foregoing reasons, YSL respectfully requests that the Court grant YSLs motion to dismiss voluntarily its first four counterclaims without prejudice and its fifth and sixth counterclaims with prejudice. Dated: New York, New York October 16, 2012 Respectfully submitted, DEBEVOISE & PLIMPTON LLP /s/ David H. Bernstein_________________ David H. Bernstein (dhbernstein@debevoise.com) Jyotin Hamid (jhamid@debevoise.com) Rayna S. Feldman (rsfeldman@debevoise.com) 919 Third Avenue New York, New York 10022 Telephone 212-909-6696 Counsel to Yves Saint Laurent America, Inc., Yves Saint Laurent America Holding, Inc., and Yves Saint Laurent S.A.S.