Warner-Lambert Co. v. Northside Development Corp.

• Decision Date: 29 May 1996
• Docket Number: WARNER-LAMBERT,Nos. 1715,1825,D,s. 1715
• Citation: 86 F.3d 3
• Parties: COMPANY and Parke Davis & Co., Limited, Plaintiffs-Appellants-Cross-Appellees, v. NORTHSIDE DEVELOPMENT CORPORATION, Northside Development Company, Inc., and Joseph Dekama, Defendants, Quality King Distributors, Inc. and Northside Associates, Inc., Defendants-Appellees-Cross-Appellants. ockets 96-7105, 96-7189.
• Court: U.S. Court of Appeals — Second Circuit

Page 3

86 F.3d 3

39 U.S.P.Q.2d 1136

WARNER-LAMBERT COMPANY and Parke Davis & Co., Limited Plaintiffs-Appellants-Cross-Appellees, v. NORTHSIDE DEVELOPMENT CORPORATION, Northside Development Company, Inc., and Joseph Dekama, Defendants Quality King Distributors, Inc. and Northside Associates Inc., Defendants-Appellees-Cross-Appellants.

Nos. 1715, 1825, Dockets 96-7105, 96-7189.

United States Court of Appeals Second Circuit.

Argued April 1, 1996.

Decided May 29, 1996.

Peter Buscemi, Morgan, Lewis & Bockius, Washington, D.C. (Michael F. Clayton, Morgan, Lewis & Bockius, Washington, D.C., of counsel; John J. O'Donnell, Morgan, Lewis & Bockius, New York City; John N. O'Shea, Warner-Lambert Company, Morris Plains, John B. Rosenquest III, Edwards & Angell, Providence, Rhode Island (Alfred R. Paliani, Edwards & Angell, Providence, Rhode Island; Dennis M. Apfel, Miller & Apfel, Deer Park, New York, of counsel), for Defendants-Appellees-Cross-Appellants.

New Jersey, of counsel), for Plaintiffs-Appellants-Cross-Appellees.

Before: WINTER, McLAUGHLIN, and CALABRESI, Circuit Judges.

WINTER, Circuit Judge:

Warner-Lambert Company, the maker of HALLS cough drops, and Parke Davis & Company, a wholly owned subsidiary of Warner-Lambert (collectively "Warner-Lambert"), commenced this trademark infringement action pursuant to 15 U.S.C. § 1051 et seq. alleging that Quality King Distributors and Northside Associates (collectively "Quality King") knowingly sold, and intend to continue to sell, HALLS cough drops that fail to comply with Warner-Lambert's quality control standards for freshness. On Warner-Lambert's motion for a preliminary injunction, Judge Scheindlin ordered Quality King not to sell any of the HALLS cough drops unless marked with an accurate shelf life date. Judge Scheindlin refused, however, to enjoin Quality King from distributing any of the accurately marked cough drops for which the freshness date has passed while this litigation is pending. Both parties appeal. We reverse in part and order entry of the requested preliminary injunction in full.

BACKGROUND

Warner-Lambert manufactures and distributes cough drops and cough suppressant tablets under the registered HALLS trademark. Quality King is a wholesaler of over-the-counter drugs and health and beauty aids, including HALLS products. According to Warner-Lambert's research, physical deterioration of a HALLS brand cough drop begins to occur by the twenty-fourth month after production. Under normal storage conditions, however, HALLS cough drops usually remain of acceptable quality for up to 30 months. In order to prevent consumers from ingesting stale HALLS cough drops, Warner-Lambert has established a shelf life for the product of 24 months from the date of manufacture. This shelf life is based on the assumption that consumers generally exhaust a package of cough drops within six months after the date of purchase. The bottom line, therefore, is that Warner-Lambert wants the product sold to consumers within 24 months after manufacture.

Warner-Lambert attempts to enforce this policy through various quality control procedures that include: (i) shipping HALLS within 18 months from the date of manufacture; (ii) marking the shipping cases ("shippers") and display trays contained in the shippers with the shelf life of the product; (iii) informing its wholesale and retail customers about the product shelf life; (iv) sending sales representatives to stores that sell HALLS cough drops to monitor the product's freshness and issuing credits for new HALLS to replace outdated supply; (v) segregating lots manufactured at different times; and (vi) supervising the destruction of outdated product. In addition, a Warner-Lambert representative testified that the company initiates legal action against, or discontinues selling to, customers that refuse to comply with its freshness policy.

In September or October of 1995, Warner-Lambert learned that the Jack Eckerd Corporation, owner of a retail drug store chain, had purchased from Quality King large quantities of HALLS cough drops more than 24 months old. The cough drops Eckerd purchased from Quality King were not packaged in the original Warner-Lambert shippers and trays. Instead, they had been repackaged in plain white cardboard trays and in shippers that did not indicate the shelf life of the product. According to a representative of Quality King, Quality King had acquired the HALLS products at a discounted price precisely because the products had a short remaining shelf life and had been repackaged to conceal this fact.

Warner-Lambert brought this action against Quality King seeking injunctive relief and damages for, inter alia, trademark infringement, unfair competition, and false designation of origin under the Lanham Act, 15 U.S.C. § 1051, et seq. Judge Scheindlin preliminarily

                enjoined Quality King from shipping HALLS brand cough drops in packaging that omits an accurate freshness date.   However, she denied Warner-Lambert's request to enjoin Quality King from distributing any HALLS cough drops for which the freshness date has passed.   She denied this relief on the ground that Warner-Lambert could have adopted more stringent quality control measures that would have effectively prevented any ultimate consumers from purchasing stale product
                

DISCUSSION

To obtain a preliminary injunction Warner-Lambert must demonstrate: "(i) irreparable harm and (ii) either (a) a likelihood of success on the merits or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly" in Warner-Lambert's favor. See Jackson Dairy v. H.P. Hood & Sons, 596 F.2d 70, 72 (2d Cir.1979). We may reverse a district court's decision to grant or deny a preliminary injunction only for an abuse of discretion. See Waldman Publishing Corp. v. Landoll, Inc., 43 F.3d 775, 780 (2d Cir.1994). A district court may abuse its discretion by applying an incorrect legal standard or by basing the preliminary injunction on a clearly erroneous finding of fact. Id.

An action for trademark infringement arises where "[a]ny person ... without the consent of the registrant ... use[s] in commerce any ... registered mark in connection with the sale ... of any goods ... [and] such use is likely to cause confusion...." 15 U.S.C. § 1114(1)(a). Distribution of a product that does not meet the trademark holder's quality control standards may result in the devaluation of the mark by tarnishing its image. If so, the non-conforming product is deemed for Lanham Act purposes not to be the genuine product of the holder, and its distribution constitutes trademark infringement. Polymer Technology Corp. v. Mimran, 37 F.3d 74, 78 (2d Cir.1994); El Greco Leather Prods. Co. v. Shoe World, Inc., 806 F.2d 392, 395 (2d Cir.1986) ("One of the most valuable and important protections afforded by the Lanham Act is the right to control the quality of the goods manufactured and sold under the holder's trademark."), cert. denied, 484 U.S. 817, 108 S.Ct. 71, 98 L.Ed.2d 34 (1987).

Quality King wants to continue distributing HALLS cough drops for which Warner-Lambert's 24-month freshness date has passed. Quality King concedes that the cough drops are more than 24 months old but contends that because Warner-Lambert's procedures do not preclude the sale of some stale product to consumers, Quality King's distribution of stale HALLS cannot constitute trademark infringement.

As noted, Warner-Lambert employs a variety of procedures aimed at preventing stale...