14 F.3d 733 (2nd Cir. 1994), 797, Sterling Drug, Inc. v. Bayer AG

Docket Nº:797, 1045, Dockets 92-7920, 92-7970.
Citation:14 F.3d 733
Party Name:29 U.S.P.Q.2d 1321 STERLING DRUG, INCORPORATED, Plaintiff-Appellee-Cross-Appellant, v. BAYER AG, Bayer USA Incorporated, and Miles, Incorporated, Defendants-Appellants-Cross-Appellees, Mobay Corporation, Defendant.
Case Date:January 07, 1994
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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14 F.3d 733 (2nd Cir. 1994)

29 U.S.P.Q.2d 1321

STERLING DRUG, INCORPORATED, Plaintiff-Appellee-Cross-Appellant,

v.

BAYER AG, Bayer USA Incorporated, and Miles, Incorporated,

Defendants-Appellants-Cross-Appellees,

Mobay Corporation, Defendant.

Nos. 797, 1045, Dockets 92-7920, 92-7970.

United States Court of Appeals, Second Circuit

January 7, 1994

Argued Jan. 25, 1993.

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David Boies, New York City (Francis P. Barron, Robert H. Baron, Cravath, Swaine & Moore, New York City, and Willian, Brinks, Olds, Hofer, Gilson & Lione, Chicago, IL, on the brief), for defendants-appellants-cross-appellees.

Lewis A. Kaplan, New York City (Daniel J. Leffell, Beth R. Lobel, Paul, Weiss, Rifkind, Wharton & Garrison, and Louis Kunin, von Maltitz, Derenberg, Kunin, Janssen & Giordano, on the brief), for plaintiff-appellee-cross-appellant.

Hughes Hubbard & Reed, Abraham D. Sofaer, John M. Townsend, Alan G. Kashdan, Wash., D.C., filed a brief for amicus curiae Federal Republic of Germany.

Before: NEWMAN, Chief Judge, MINER, Circuit Judge, and CONNER, [*] District Judge.

JON O. NEWMAN, Chief Judge:

This appeal primarily concerns the permissible scope of an injunction issued to protect American trademark rights against infringement by a foreign corporation. The context of the dispute is the name and mark "Bayer" in which both an American corporation, Sterling Drug Inc. ("Sterling"), and a German corporation, Bayer AG, hold rights. The appeal is brought by Bayer AG, Bayer U.S.A. Inc., and Miles, Inc. from the July 22, 1992, judgment of the District Court for the Southern District of New York (Robert J. Ward, Judge), upholding Sterling's claims of breach of contract and trademark infringement and broadly enjoining Bayer AG from using the word "Bayer" in any advertisement or materials that are reasonably likely to be disseminated in the United States. See Sterling Drug, Inc. v. Bayer AG, 792 F.Supp. 1357 (S.D.N.Y.1992) ("Sterling "). We conclude that Sterling is entitled to prevail but that the injunction is overly broad and must be modified. We therefore affirm in part, vacate the injunction, and remand for reconsideration.

Background

At the turn of the century, the rights to the "Bayer" name and mark in the United States were owned by Bayer AG. It lost those rights during World War I when Bayer AG's United States subsidiary, The Bayer Company, Inc., was seized by the United States Alien Property Custodian. In 1918, Sterling acquired rights to the "Bayer" name and mark by purchasing The Bayer Company from the Alien Property Custodian. That acquisition precipitated decades of controversy

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between Sterling and Bayer AG, marked by a series of lawsuits and agreements.

Sterling is a Delaware corporation with its principal place of business in New York. Sterling manufactures and sells prescription drugs and over-the-counter ("OTC") medicines, as well as home and personal care products. Ever since purchasing The Bayer Company, Sterling (which was itself acquired by the Eastman Kodak Company in 1988 and, since this lawsuit began, has changed its name to Sterling Winthrop, Inc.) has sold aspirin and related products in the United States under the "Bayer" trademark. Sterling's total sales in 1989 were $1.6 billion, of which $125 million was attributable to aspirin and related products using the "Bayer" trademark. Over the last five years, Sterling has spent approximately $50 million a year in promoting and advertising its "Bayer" trademark and products.

Bayer AG, founded in Germany some 125 years ago by Friedrich Bayer, is a large multinational corporation headquartered in Leverkusen, Germany, with worldwide sales in 1990 of $25.7 billion. The United States is Bayer AG's largest single market. In the United States, Bayer AG owns Miles, Inc., a pharmaceutical company, and Mobay Corporation, a chemical company. Bayer AG also owns Bayer USA Inc., a Delaware corporation, which is the subject of much of the pending controversy. Since the initiation of this lawsuit, Bayer USA and Mobay have been merged into Miles, and Bayer AG no longer uses "Bayer" as part of the name of any subsidiary in the United States.

  1. The Agreements

    In 1955, Bayer AG brought suit against Sterling in an ultimately unsuccessful effort to regain the right to use the "Bayer" mark in the United States. See Farbenfabriken Bayer A.G. v. Sterling Drug, Inc., 307 F.2d 210 (3d Cir.1962), cert. denied, 372 U.S. 929, 83 S.Ct. 872, 9 L.Ed.2d 733 (1963). It sued under the antitrust laws, arguing that Sterling had improperly asserted trademark rights to the "Bayer" mark as a means of suppressing competition. The Third Circuit held against Bayer AG, ruling broadly that Sterling "acquired absolute rights to the exclusive use of the trademarks in question by its purchase of [The Bayer Company, Inc.]" Id. at 212. The Court dismissed the suit, ruling that because Sterling had acted within its legal rights in using the mark, that use could not violate the antitrust laws.

    Following this decision, Sterling and Bayer AG signed a contract in 1964 governing Bayer AG's use of the Bayer mark in the United States. The 1964 Agreement prohibited Bayer AG from using the Bayer name "in connection with Aspirin or other analgesics ... [or] in the course of trade in any other goods." 1964 Agreement p 1, 2. The Agreement recognized an exception that allowed Bayer AG to use its full name (then "Farbenfabriken Bayer A.G.") in packaging inserts for consumer goods including pharmaceutical products. The Agreement also permitted Bayer AG to use its full name for nonpharmaceutical and non-consumer goods, as long as it did not advertise them on radio or television.

    In 1970, Bayer AG and Sterling signed another agreement, this time dealing with the use of the "Bayer" name and mark in all countries other than the United States and Cuba. Under this agreement, in return for a payment of $2.8 million, Sterling recognized Bayer AG's exclusive rights in the "Bayer" name and mark everywhere except the United States, Canada, and some Caribbean nations. In Canada, the parties agreed to concurrent use of the "Bayer" name, while in some Caribbean countries, Sterling was granted exclusive rights to the "Bayer" name and mark.

    In 1971, the parties modified the 1964 Agreement in response to Bayer AG's plan to drop "Farbenfabriken" from its corporate name. Sterling consented to the use of Bayer AG's new name in the United States, but under more limited circumstances than had been permitted under the 1964 Agreement.

    The late 1970's and early 1980's saw a major expansion of Bayer AG's U.S. operations. Bayer AG bought out its partner in the Mobay Corporation, acquired Cutter Laboratories and Miles Laboratories, and created a U.S. holding company called "Rhinechem." Bayer AG's higher U.S. profile

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    led to further negotiations between Bayer AG and Sterling regarding the German firm's rights to use the "Bayer" name in the U.S. These negotiations culminated in a 1986 modification to the 1964 Agreement. The 1986 Agreement permitted Bayer AG to change the name of its U.S. holding company to "Bayer USA Inc." so long as this company remained "a non-operating holding company, i.e., [a company] not trading in goods." 1986 Agreement p 1. Sterling expressly agreed to concurrent use of the Bayer tradename and to registration of the "Bayer" trademark by Bayer AG for use "in the course of trade in non-consumer and non-pharmaceutical goods." Id. p 2. The 1986 Agreement provided that "[t]hese uses shall include advertising to the relevant trade in the normal course of trade." Id. Bayer for its part agreed not to use the mark "in communicating with the pharmaceutical industry or consumers in general through product, institutional or company-identifying advertising or promotion...." Id. Bayer AG paid Sterling $25 million for Sterling's concessions under the 1986 Agreement.

  2. The Alleged Violations

    Following execution of the 1986 Agreement, defendants began to make extensive use of the "Bayer" name and mark. Though Bayer AG characterizes these actions as being fully consistent with Sterling's contractual and legal rights, Sterling sees them as "more than a few innocent steps over the line." Brief for Appellee at 13.

    Bayer AG began by obtaining federal registrations for the "Bayer" mark for industrial and agricultural chemicals and related products. It advertised these products in trade journals. In accordance with the 1986 Agreement, it renamed Rhinechem "Bayer USA Inc." Bayer AG expanded this subsidiary's managerial functions, employing 60 persons at Bayer USA Inc. where Rhinechem had employed none. During 1987 and 1988, Bayer USA conducted a corporate "image" campaign, placing a total of 67 advertisements in the Wall Street Journal, Forbes, Fortune, Business Week, and the "Business World" section of the Sunday New York Times. The advertisements introduced Bayer USA as the "highest-ranked new company on the Fortune 500," and described Bayer USA as a "group of progressive, dynamic, forward-looking companies like Miles Laboratories and Mobay Corporation." The advertisements observed that Bayer USA's "businesses range from chemical to health and life sciences to imaging and graphic information systems." Miles also distributed press releases that identified it as "the health-care company of Bayer USA Inc." Bayer AG sponsored at least three international medical symposia held in the United States. Bayer AG used its name freely in these symposia, including it in the literature printed for the events, and sometimes even incorporating it into the name of the symposium, as, for example, in "Bayer AG Centenary Symposium: Perspectives in Antiinfective...

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