S&L Vitamins, Inc. v. Australian Gold, Inc.

• Decision Date: 30 September 2007
• Docket Number: No. 05-CV-1217 (JS)(MLO).,05-CV-1217 (JS)(MLO).
• Citation: 521 F.Supp.2d 188
• Parties: S&L VITAMINS, INC., Plaintiff, v. AUSTRALIAN GOLD, INC., Defendant.
• Court: U.S. District Court — Eastern District of New York

521 F.Supp.2d 188

S&L VITAMINS, INC., Plaintiff, v. AUSTRALIAN GOLD, INC., Defendant.

No. 05-CV-1217 (JS)(MLO).

United States District Court, E.D. New York.

September 30, 2007.

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Ronald D. Coleman, Esq., Coleman Law Firm, New York City, for Plaintiff and Third-Party Defendants: Larry Sagarin and John Does 1-10.

Francis Earley, Esq., Mintz Levin Cohn Ferris Glovsky & Popeo PC, New York City, for Defendant.

MEMORANDUM AND ORDER

SEYBERT, District Judge.

Presently pending before the Court is Plaintiff S&L Vitamins, Inc. ("S&L Vitamins" or "S&L") motion for summary judgment and Defendant Australian Gold's ("AG") motion for partial summary judgment. For the reasons explained below, S&L's motion is GRANTED in part and DENIED in part and AG's motion is GRANTED in part and DENIED in part.

PROCEDURAL BACKGROUND

On March 4, 2005, S&L Vitamins commenced the instant action seeking a declaratory judgment that its sale of AG's products did not, inter alia, constitute trademark infringement. AG answered the Complaint, alleging counter-claims against S&L Vitamins for copyright infringement, trademark infringement, unfair competition, trademark dilution, tortious interference with contract, tortious interference with prospective economic advantage, deceptive business practices, and false advertising. AG also filed a Third-Party Complaint, alleging similar claims against Larry Sagarin ("Sagarin"), the owner of S&L Vitamins.¹

While S&L's motion for judgment on the pleadings was pending, AG moved for leave to file a Second Amended Answer. With S&L's consent, the Court granted the motion for leave to amend. Accordingly, on September 14, 2005, AG filed its Second Amended Answer with Counter-claims, alleging that S&L (1) copied AG's copyrighted works; (2) used AG's Marks without authorization or permission, and/or manipulated AG's Marks in order to give a false impression of affiliation in violation of federal law and New York State law; (3) engaged in unfair competition in violation of the Lanham Act, and New York state law; (4) diluted the distinctive quality of the Marks; (5) tortiously interfered with AG's Distributorship Agreements; (6) tortiously interfered with AG's business relationships in the United States and abroad; (7) conducted deceptive business practices in violation of New York General Business Law §§ 133, and 349; and (8) falsely advertised AG's products in violation of the Lanham Act and New York General Business Law § 350.

As a result, the Court construed S&L's Motion for Judgment on the Pleadings as pertaining to AG's Second Amended Answer with Amended Counter-claims and Third Party Complaint. However, because no Answer had been filed with respect to the Amended Counter-claims and Cross Claims, the Court construed S&L's motion as filed pursuant to Rule 12(b)(6). On March 30, 2006, the Court granted in part and denied in part S&L's motion to dismiss. Specifically, the Court dismissed AG's claims pursuant to New York General Business Law §§ 349 and 350 and denied the remainder of S&L's motion.

S&L now asks the Court to grant its request for a declaratory judgment and to summarily dismiss all AG's remaining counterclaims. AG also seeks summary judgment with respect to its federal claims for copyright infringement, trademark infringement and unfair competition and with respect to S&L's third cause of action for unfair competition.

FACTUAL BACKGROUND

The following facts have been taken from the parties Rule 56.1 Statements and Counter-Statements and the exhibits annexed thereto.

AG is an Indiana corporation with its principal place of business in Indianapolis, Indiana. (AG R. 56.1 Stmt. ¶ 3.) AG manufactures tanning lotions and other related tanning products that are sold to a majority of the tanning salons throughout the United States. (Id. ¶ 4.) AG is the manufacturer and exclusive distributor of "Australian Gold," "Caribbean. Gold," and "Swedish Beauty" tanning lotions ("Products"). (Id. ¶ 5.) AG owns or is the licensee of registered and common law trademarks ("Marks") for these Products. (Id. ¶ 6.) In addition, AG has created artwork, which it has copyrighted, for use on the labels of its Products. (Id. ¶ 8.)

S&L is a New York corporation with its principal place of business located in New York. (Id. ¶ 1.) S&L does business on the Internet at two web addresses: www. thesupplenet.com, and www.bodysource online.com (collectively, the "Websites"). (S&L R. 56.1 Stmt. ¶ 7.) S&L also owns a retail store located in Lindenhurst, New York. (AG R. 56.1 Stmt. ¶ 27.)

S&L sells the Products to the public through the Website and/or at its retail location. (Id.) AG claims that S&L's use of its Marks and distribution of its Products via the Website violates AG's copyrights and trademarks, and tortiously interferes with its distribution contracts.

AG's Distribution Of The Products

AG distributes its Products through independent distributors ("Distributors"). (Id. ¶ 10; S&L R. 56.1 Stmt. ¶ 12.) The Distributors' ability to resell the Products is limited by the terms of a "Distributorship Agreement." (AG R. 56.1 Stmt. ¶ 11; S&L R. 56.1 Stmt. ¶ 12.)

The Distributorship Agreement provides that the Products only be sold to "a salon environment where they have tanning as a majority of their business." (AG R. 56.1 Stmt. ¶ 11.) Sales to internet sellers, such as S&L, and other retailers, who will resell the Products to the general public without guidance and training are prohibited. (Id. ¶¶ 20, 22-23.)

In addition, the Distributorship Agreement requires that the distributor work with AG on training the distributor's staff and the salons to which they sell. (Id. ¶ 12.) In a typical year, AG trains over 30,000 employees, salon owners and managers on the proper use of the Products and has spent over $1.5 million in training to date. (Id. ¶¶ 15-16.) While these facts are not disputed, whether all distributors receive training and the extent of the training is disputed. (S&L R. 56.1 Stmt. ¶¶ 56-57, 66, 68.)

AG contends that it has expended substantial time and effort to preserve the integrity of its Marks and distribution strategy. For example, AG routinely performs "store checks" to ensure that the Products are being sold to businesses operating as tanning salons as defined in the Distributorship Agreements. (AG R. 56.1 Stmt. ¶ 21.)

S&L's Acquisition And Sale Of The Products

S&L is not party to a Distributorship Agreement with AG and it is not a salon as defined in such agreement. (Id. 133.) Furthermore, S&L does not receive or participate in any training regarding indoor tanning safety. (Id. ¶ 34.) S&L acquires the Products from various tanning salons, not Distributors. (Id. ¶ 35.) S&L then re-sells the Products on its Websites at a substantial discount — approximately 50% of the retail price at authorized tanning salons. (Id. ¶ 37.)

S&L's Websites contain a number of links that direct a computer user to a listing of all products according to brand name, including AG's brands. (Id. ¶ 41.) When a computer user clicks on a brand name, the person is directed to a listing of the products offered for sale by S&L, including AG's Products using AG's Marks. (Id. ¶ 42.) The Websites also contain thumbnail pictures of the Products, which, when clicked on, produce a larger, full image of the Products. (Id. ¶¶ 47-49.) Essentially, S&L places photographs of AG's Products on its Websites, which S& L then modifies by adding S&L trade names and logos adjacent to or superimposed over the images. (Id. ¶ 51.) In addition, S&L adds the phrase "All Rights Reserved" directly beneath the images. (Id. ¶ 52.) S&L does include a brief disclaimer at the bottom of the web page with the thumbnail, listings, which states "Tanning Lotion Disclaimer Body Source is Not affiliated with ANY Tanning Lotion manufacturer. To see full Disclaimer Click here." (Id. ¶ 54; Exs. I, J (emphasis in original).) Neither the brief disclaimer nor the full disclaimer specifically identify AG, its Marks or copyrights. (Id. ¶ 56.)

S&L promotes sale of the Products using "pay for placement" service, whereby a business can pay to "sponsor" certain search terms. (Id. 158.) An entity that sponsors a given search term (or terms) will have its name and web address appear at the top of the list of "hits" for the term. (Id. ¶ 59.) For example, S&L's Website is listed near the top of the search results for the terms Australian Gold and Swedish Beauty. (Id.) S&L's also uses the Marks in the HTML source code and metatags² for its Website.

On January 15, 2004, AG sent a cease and desist letter to S&L. (Id. SI 64.) The cease and desist letter informed S&L of AG's prohibition on internet sales of the Products. AG also provided S&L with a copy of the Distributorship Agreement. (Id. ¶ 65; Sagarin Dep. 150.)

DISCUSSION

The parties have cross-moved for summary judgment and their arguments address a number of overlapping issues. The Court will address each cause of action and argument in turn; however, to the extent the parties arguments address a common issue, the Court will address the arguments simultaneously.

I. Standard Of Review On Summary Judgment

"Summary judgment is appropriate where there is no genuine dispute concerning any material facts, and where the moving party is entitled to judgment as a matter of law." Harvis Trien & Beck, P.C. v. Fed. Home Loan Mortgage Corp. (In re Blackwood Assocs., L.P.), 153 F.3d 61, 67 (2d Cir.1998) (citing Fed.R.Civ.P. 56(c)); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

"The burden of showing the absence of any genuine dispute as to a material fact rests on the party seeking summary judgment." McLee v. Chrysler Corp., 109 F.3d 130, 134 (2d...