Arrow United Industries, Inc. v. Hugh Richards, Inc., 1035

• Citation: 678 F.2d 410
• Decision Date: 06 May 1982
• Docket Number: No. 1035,D,1035
• Parties: ARROW UNITED INDUSTRIES, INC., Plaintiff-Appellee, v. HUGH RICHARDS, INC., Defendant-Appellant, and A. J. Pegno Construction Corp., Defendant. ocket 82-7101.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 410

678 F.2d 410

216 U.S.P.Q. 940

ARROW UNITED INDUSTRIES, INC., Plaintiff-Appellee, v. HUGH RICHARDS, INC., Defendant-Appellant, and A. J. Pegno Construction Corp., Defendant.

No. 1035, Docket 82-7101.

United States Court of Appeals, Second Circuit.

Argued April 8, 1982.

Decided May 6, 1982.

Martin E. Goldstein, New York City (McAulay, Fields, Fisher, Goldstein & Nissen, New York City, on the brief), for plaintiff-appellee.

Alfred L. Haffner, Jr., New York City (Lorimer P. Brooks, Brooks, Haidt, Haffner & Delahunty, New York City, on the brief), for defendant-appellant.

Before TIMBERS, KEARSE and PIERCE, Circuit Judges.

KEARSE, Circuit Judge:

In this action brought principally under the Lanham Act, 15 U.S.C. § 1125(a) 1976), defendant Hugh Richards, Inc. ("Richards") appeals from the entry of a preliminary injunction against it in the United States District Court for the Southern District of New York, Henry F. Werker, Judge, prohibiting it (1) from designating certain products manufactured by plaintiff Arrow United Industries ("Arrow") as Richard's own products, and (2) from fulfilling two contracts with defendant A. J. Pegno Construction Corporation ("Pegno"). We affirm so much of the order as enjoins Richards

from designating Arrow products as its own; but because Arrow failed to show that it would likely suffer irreparable harm if Richards were to perform the Pegno contract without passing off Arrow products as its own, we vacate so much of the injunction as prohibits Richards from performing the contracts.

BACKGROUND

Arrow and Richards are competitors in the manufacture and installation of various types of air-control equipment, including dampers. Since about 1964 Arrow has manufactured and installed a damper known throughout the industry as the "Arrow-Foil." The district court found that no other entity in the United States makes or sells a damper like the Arrow-Foil. Richards apparently has been manufacturing and installing dampers of other types since 1963.

During the summer of 1981, the New York City Transit Authority ("Transit Authority"), invited bids on two contracts for the installation of ventilation equipment, including dampers, for the New York City subway system. The contract specifications required that all dampers be the product of a single manufacturer and be Arrow-Foil dampers or an approved equal. Pegno was a general contractor planning to bid on the Transit Authority contracts. In determining its bid for each of the general contracts, Pegno received bids with respect to dampers from both Richards and Arrow. In each instance Richards submitted the lower bid, ¹ and when Pegno was awarded the general contract it awarded Richards the subcontract.

Thereafter, Pegno and Richards were required by the contracts to submit to the Transit Authority acceptable sample dampers. To comply with this requirement Richards purchased three standard Arrow-Foil dampers from a jobber. It proceeded to remove the various stickers identifying these dampers as products of Arrow, it modified the dampers in size and perhaps in other respects, and it submitted the resulting dampers to Pegno and the Transit Authority with labels attached identifying them as Richards "Uni-Foil" dampers. ²

Ultimately the Transit Authority found the samples "generally acceptable" in "concept." In the interim, however, Transit Authority personnel informed Arrow that the sample dampers submitted by Richards closely resembled Arrow-Foil dampers. Upon examination Arrow concluded that the samples were slightly modified Arrow-Foil dampers. Arrow then commenced the present action, claiming that Richards and Pegno had violated section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), ³ by engaging in unfair competition, false representation, and false designation of origin. The complaint alleged that Richards and Pegno had submitted modified Arrow-Foil dampers to the Transit Authority as Richard's own, in order to show that they could meet the Transit Authority's contract specifications even though they lacked that capability. Arrow promptly moved, pursuant to Fed.R.Civ.P. 65, for a preliminary injunction preventing On January 22, 1982, following an evidentiary hearing, the district court orally granted the motion. It ruled that Arrow was threatened with irreparable harm, because "(i)t is well settled that 'the consequences of trademark infringement, or passing off, and unfair competition generally, are by their nature not fully compensable by money damages,' " quoting National Lampoon, Inc. v. American Broadcasting Companies, 376 F.Supp. 733 (S.D.N.Y.), aff'd, 497 F.2d 1343 (2d Cir. 1974). The Court held that Arrow had established the existence of sufficiently serious questions on the merits to make them a fair ground for litigation, and concluded that the balance of hardships tipped decidedly in Arrow's favor because any harm to Richards brought about by the injunction could be compensated by money damages, while in the absence of an injunction Arrow might suffer "the irreparable harm of loss of good will which is not compensable in money damages." A written order was filed on February 22, enjoining Richards, as requested, (1) from "directly or indirectly displaying to potential customers a product of Plaintiff which bears an indicia (sic) of manufacture by Defendant Hugh Richards, or which is displayed in such manner as to create the impression that it is a product of Defendant Hugh Richards"; and (2) from "filling any orders for the 'Uni-Foil' for which samples were received by the New York City Transit Authority in about August 1981, or at any time thereafter."

Richards from "displaying to potential customers a product of Plaintiff which bears an indicia (sic) of manufacture by Defendant Hugh Richards, or which is displayed in such manner as to create the impression that it is a product of Defendant Hugh Richards"; and from "filling any orders for the 'Uni-foil' for which samples were received by the New York City Transit Authority in about August 1981, or at any time thereafter."

Richards appeals from this order, ⁴ contending principally that Arrow would not have been irreparably harmed had no preliminary injunction issued and that the balance of hardships does not tip decidedly toward Arrow. ⁵ We reject these contentions insofar as Richards has been enjoined from designating Arrow products as its own, but find merit in the contention that Arrow did not show a likelihood of irreparable injury absent an injunction against Richard's performance of the subcontracts.

DISCUSSION

It is well-settled in this Circuit that a preliminary injunction may be granted only upon

"a showing of (a) irreparable harm and (b) either (1) likelihood of success on the merits of (2) sufficiently serious questions going to the merits to make them a fair Sperry International Trade, Inc. v. Government of Israel, 670 F.2d 8, 11 (2d Cir. 1982) (quoting Jackson Dairy, Inc. v. H. P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979) (per curiam)). If the moving party has established these elements, the granting of the injunction may be reversed only if the district court has abused its discretion. Doran v. Salem Inn, Inc., 422 U.S. 922, 931-32, 95 S.Ct. 2561, 2567-68, 45 L.Ed.2d 648 (1975) ("While the standard to be applied by the district court in deciding whether a plaintiff is entitled to a preliminary injunction is stringent, the standard of appellate review is simply whether the issuance of the injunction, in the light of the applicable standard, constituted an abuse of discretion."); Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200, 206 (2d Cir. 1979).

ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief."

Insofar as the district court enjoined Richards from the misbranding of Arrow products as those of Richards, we find that the applicable standard was met. As to the issue of irreparable injury, the district judge analogized the present case to cases involving trademark infringement and other forms of passing-off that produce a high probability of confusion as to the origin of the products, with the consequent likelihood that the plaintiff will lose sales and that the plaintiff's reputation will be injured. E.g., Omega Importing Corp. v. Petri-Kine Camera Co., 451 F.2d 1190, 1195 (2d Cir. 1971) (Friendly, J.); American Home Products Corp. v. Johnson Chemical Co., 589 F.2d 103, 106 (2d Cir. 1978). Judge Friendly, speaking for this Court in Omega Importing, stated the rationale of such cases as follows:

Where there is, then, such high probability of confusion, injury irreparable in the sense that it may not be fully compensable in damages almost inevitably follows. While an injured plaintiff would be entitled to recover the profits on the infringing items, this is often difficult to determine; moreover, a defendant may have failed to earn profits because of the poor quality of its product or its own inefficiency. Indeed, confusion may cause purchasers to refrain from buying either product and to turn to those of other competitors. Yet to prove the loss of sales due to infringement is also notoriously difficult, Pure Foods, Inc. v. Minute Maid Corp., 214 F.2d 792, 797 (5 Cir.), cert. denied, 348 U.S. 888, 75 S.Ct. 208, 99 L.Ed. 697 (1954). Furthermore, if an infringer's product is of poor quality, or simply not worth the price, a more lasting but not readily measurable injury may be inflicted on the plaintiff's reputation in the market. See 3 Callmann, supra, § 88.3 at 188.

451 F.2d at 1195.

While we agree with the district court that the circumstances here adequately established that Richards's misbranding would likely cause injury to Arrow that would defy adequate calculation and monetary compensation, the typical passing-off case is not precisely parallel to the present case. For example, there is no parallel here to the normal circumstance that the...