Sally Gee, Inc. v. Myra Hogan, Inc.

• Decision Date: 07 February 1983
• Docket Number: D,No. 440,440
• Citation: 699 F.2d 621
• Parties: SALLY GEE, INC., Plaintiff-Appellant, v. MYRA HOGAN, INC., Myra Hogan and Sally Lee, Defendants-Appellees. ocket 82-7329.
• Court: U.S. Court of Appeals — Second Circuit

Page 621

699 F.2d 621

217 U.S.P.Q. 658

SALLY GEE, INC., Plaintiff-Appellant, v. MYRA HOGAN, INC., Myra Hogan and Sally Lee, Defendants-Appellees.

No. 440, Docket 82-7329.

United States Court of Appeals,

Second Circuit.

Argued Oct. 29, 1982.

Decided Feb. 7, 1983.

Abraham Friedman, Brooklyn, N.Y. (Goodman & Teitelbaum, Brooklyn, N.Y., of counsel), for plaintiff-appellant.

Arthur W. Baily, New York City, for defendants-appellees.

Before MOORE ^*, CARDAMONE and PRATT, Circuit Judges.

CARDAMONE, Circuit Judge:

Sally Gee, Inc. appeals from a judgment entered in the United States District Court for the Southern District of New York dismissing its complaint against defendants Sally Lee, Myra Hogan and Myra Hogan, Inc. The complaints allege Lanham Act claims of trademark infringement and false designation of origin, in violation of 15 U.S.C. Secs. 1114, 1125, and pendant state claims of trademark infringement, unfair competition, and dilution of trademarks. After a one day bench trial, District Judge Vincent L. Broderick made oral findings of fact and conclusions of law rejecting all of plaintiff's claims. ¹ We affirm the dismissal of the Lanham Act claims and the pendant claims of trademark infringement and unfair competition for the reasons set forth by the district court in its opinion. We also affirm the dismissal of the claim alleging dilution, but write in order to clarify the elements necessary for a cause of action under New York's "anti-dilution" statute, N.Y.Gen.Bus.Law Sec. 368-d (McKinney 1968).

Facts

Sally Gee, Inc. ("Sally Gee") is a New York corporation which has manufactured and distributed women's apparel since 1940. It services over 16,000 accounts and in 1981 generated total net sales of over $4.5 million. Plaintiff's operations are conducted from a main showroom and office facility in New York City's garment district and several regional offices. Sally Gee's principal customers are department stores, although it also sells to specialty shops and mail order houses. It advertises widely through trade journals, catalogues, department store displays and cooperative newspaper advertisements with its retailer customers.

Sally Gee manufactures and sells both accessories, such as scarves, stoles, and ties, and ready-to-wear items, such as tops, skirts, sweaters, jackets, and culottes. This apparel is manufactured in a "cut and sew" warehouse and mill. Prices are commensurate with mechanical mass production. Sweaters, which accounted for more than 40 per cent of Sally Gee's 1981 net sales, sold at a wholesale price of $10 to $20 each. In most department stores Sally Gee's accessories and ready-to-wear items are displayed on the ground floor which, in the euphemistic language of the trade, "has a lower price point." Occasionally, Sally Gee items have been displayed with higher priced merchandise on an upper floor.

The fictitious name "Sally Gee" was coined by Sally Goldstein, one of the corporation's founders. It was registered as a trademark for "sweaters, stoles, scarfs, and the like," in 1963. Sally Gee has since registered other trademarks using "Sally Gee" or "Sally" for apparel. ² The clothing labels bearing the Sally Gee marks are printed in italicized lettering of upper and lower case, e.g., "Sally Gee".

Defendant Sally Lee, nee Sara Margaret Lee, has used the name Sally Lee since childhood except on such official documents as her driver's license and social security card. After working for over seven years as a freelance designer of jewelry and clothing, Sally Lee commenced her present business as a designer, manufacturer, and distributor of women's apparel in 1978. She incorporated in New York as Sally Lee, Ltd. in 1979. Her small but growing business, based in her New York City residential loft, generated gross sales of $50,000 in its first year and $100,000 in 1981. Sally Lee primarily sells sweaters and blouses, but also sells skirts, dresses, pants, culottes, and other ready-to-wear apparel. Sally Lee designs these items, chooses the material, and contracts with independent workers for their production. Her sweaters are hand knit and her blouses are made by a manual "cut and sew" method. The prices of Sally Lee's clothing reflect their handmade quality. Several models of Sally Lee sweaters sold in 1981 for wholesale prices ranging from $150 to $175; blouses sold in early 1982 for wholesale prices from $34 to $70.

Sally Lee clothing is marketed through the New York City garment district showroom of defendant Myra Hogan, Inc., which is owned by defendant Myra Hogan. Hogan, acting as Sally Lee's sole sales representative, has primarily sold the Sally Lee line to New York City department stores and boutiques. Sally Lee's creations are displayed on the upper floors of department stores such as Lord & Taylor and Bloomingdale's. Her merchandise is sold in the "better" departments ³ as opposed to "moderate" or "budget" departments, and, according to the testimony of Hogan, has never been relegated to a ground floor sales spot.

Sally Lee has not registered her name as a trademark. She does not advertise. The label affixed to her clothing contains the name "Sally Lee" in upper case block letters, e.g., SALLY LEE. Both Sally Lee and Hogan testified that they had neither heard of Sally Gee nor seen its trademarks prior to the commencement of this action.

The District Court's Decision

In dismissing Sally Gee's Lanham Act claims, the district court first determined that since the parties' products differed in quality, price and consumers, the products were noncompetitive. The court then proceeded to analyze the case under the standards for Lanham Act litigation involving noncompetitive products set forth in Polaroid Corp. v. Polarad Electronics Corp., 287 F.2d 492 (2d Cir.), cert. denied, 368 U.S. 820, 82 S.Ct. 36, 7 L.Ed.2d 25 (1961). ⁴ Applying the Polaroid criteria, the district court first characterized the "Sally Gee" marks as "fairly strong" and "fanciful." Second, it found the "Sally Gee" and "Sally Lee" marks similar, but visibly and audibly distinguishable. Third, using the same factors underlying its finding of noncompetitiveness, the court found the parties' products to be "proximate" only in the sense that they were both women's clothing, and to possess divergent qualities, prices, and consumers. Fourth, the court found no evidence that the wide price or quality gap between the products of the respective parties would be bridged. Fifth, the trial judge stated that absolutely no actual or likely confusion as to source had been demonstrated by plaintiff. Sally Gee presented neither evidence of confused inquiries by retailers or the consuming public, nor any market study showing latent confusion. Sixth, the court found Sally Lee's product to be of higher quality than plaintiff's. Finally, the court found that retailers were extremely sophisticated in their buying habits and that the consuming public was sufficiently discerning in its purchases to distinguish between the two lines of clothing. The pendant state claims of trademark infringement and unfair competition by "palming off" were dismissed based on the findings and conclusions on the Lanham Act claims.

The district court also dismissed the remaining pendant claim which alleged that the use of the Sally Lee name on clothing diluted the distinctive quality of the Sally Gee marks. In addressing this claim, the trial court held that plaintiff's cause of action under New York's anti-dilution statute failed because plaintiff did not demonstrate the existence of what the court believed were five necessary elements: (1) consumer confusion; (2) defendant's intent to trade on plaintiff's mark; (3) likelihood of injury to the plaintiff's business reputation or dilution of its mark or the distinctiveness of its mark; (4) direct competition; and (5) the inferior quality of defendant's product.

Sally Gee's appeal to this Court followed.

Discussion

We affirm the dismissal of the Lanham Act claims. The district court's finding of noncompetitiveness was not clearly erroneous and it correctly applied the Polaroid criteria in passing upon the Lanham Act claims. We also affirm its dismissal of the state law claims of trademark infringement and unfair competition by "palming off." Under New York law, proof of likelihood of confusion as to source is essential to prevail on either of these causes of action. Allied Maintenance Corp. v. Allied Mechanical Trades, Inc., 42 N.Y.2d 538, 543, 399 N.Y.S.2d 628, 369 N.E.2d 1162 (1977); Dell Publishing Co. v. Stanley Publications, Inc., 9 N.Y.2d 126, 132-33, 211 N.Y.S.2d 393, 172 N.E.2d 656 (1961). As with the Lanham Act claims, such proof was lacking.

While the District Court also reached the correct result in dismissing the claim of dilution, it incorrectly included as necessary elements of that cause of action consumer confusion and direct competition. New York's anti-dilution statute provides:

Likelihood of injury to business reputation or of dilution of the distinctive quality of a mark or trade name shall be a ground for injunctive relief in cases of infringement of a mark registered or not registered or in cases of unfair competition, notwithstanding the absence of competition between the parties or the absence of confusion as to the source of goods or services.

N.Y.Gen.Bus.Law Sec. 368-d (emphasis added). Section 368-d's qualifying clause means exactly what its language denotes. Neither competition between the parties nor confusion about the source of products, Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200, 205 n. 8 (2d Cir.1979), appears to be necessary to state a cause of action for dilution. Allied, 42 N.Y.2d at 544-45, 399 N.Y.S.2d 628, 369 N.E.2d 1162. ⁵

The purposes for which the statute was enacted lend further support to our view that confusion and direct competition are not necessary elements of an anti-dilution action under New York law. Section 368-d...