Ebeling & Reuss Co. v. International Collectors Guild, Ltd.

• Decision Date: 06 December 1978
• Docket Number: Civ. A. No. 78-3073.
• Citation: 462 F. Supp. 716
• Parties: EBELING & REUSS CO. v. INTERNATIONAL COLLECTORS GUILD, LTD.
• Court: U.S. District Court — Eastern District of Pennsylvania

462 F. Supp. 716

EBELING & REUSS CO. v. INTERNATIONAL COLLECTORS GUILD, LTD.

Civ. A. No. 78-3073.

United States District Court, E. D. Pennsylvania.

December 6, 1978.

Arthur H. Seidel, Seidel, Gonda & Goldhammer, Philadelphia, Pa., for plaintiff.

Robert W. Maris, Dilworth, Paxson, Kalish, Levy & Kauffman, Philadelphia, Pa., for defendant.

OPINION

HANNUM, District Judge.

On September 19, 1978, plaintiff instituted the instant suit seeking, inter alia preliminary injunctive relief. The complaint alleges causes of action for common law unfair competition and unfair competition based upon § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a). The request for preliminary injunction was heard on October 20, 1978. The testimony having been transcribed and the parties having submitted proposed findings of fact and conclusions of law, the Court now makes its findings and conclusions, per Rule 52(a), F.R.Civ.P.

The Facts.

Plaintiff is a Pennsylvania corporation with its principal place of business in Devon, Pa. Defendant is a California corporation with its principal place of business in Los Angeles. Jurisdiction of this Court is founded upon 28 U.S.C. §§ 1331, 1338 and 1332, there being diversity of citizenship existing between the parties and the requisite amount in controversy.

Plaintiff is in the business of importing and distributing giftware, china and glassware. Its products are sold in interstate commerce and, locally, through retail stores in the Eastern District of Pennsylvania. Plaintiff's products are promoted at trade shows, by thirty salesmen, and through seventeen showrooms located in various parts of the United States. In addition, its products are advertised in trade publications, consumer magazines and through mailings to retail stores.

Since 1974 plaintiff's product line has included a so-called "fortune-telling" teacup and saucer set (the Taltos set), bearing distinctive symbols and characters that designate the various signs of the Zodiac. Included with each set sold is an instructional booklet of some twenty-one pages in length. A depiction of the Taltos set appears on the cover thereof. The set is manufactured by an English company, which has granted plaintiff exclusive rights to market the set in the United States. The set is not, however, protected by patent or copyright.

The Taltos cup and saucer are produced from what is known as "bone china," a high grade form of china, containing animal bone ash. The result is a characteristically white appearance to the product. Most recently, the set has been priced at $5.00, retail, a price set in September, 1978. This is contrasted with the previous suggested retail price of $10.00, which prevailed during the preceding months of 1978. Testimony at the hearing reflected that the Taltos set had been a stable item in plaintiff's line; that is, until recently, the demand for this item had remained at a relatively constant level over an extended period of time. In short, the set was not a trendy product, the appeal of which was merely of a few months' duration. As of the date of the hearing it was shown that the set was being carried by twelve retail stores in the Philadelphia area.

Alan Saxon, vice-president of defendant, testified at the hearing and stated that he first became aware of plaintiff's Taltos set in July, 1977, while in the course of preparing the American Archives Division of International Silver catalogue. The set was included in the catalogue, approximately one million copies of which were sent out to general members of the public who in the past had purchased merchandise from mail order catalogues.

Then, in January, 1978, Saxon and others formed the defendant company herein, and Saxon purchased several of the Taltos sets. His stated desire was to use these sets as models for manufacture of exact replicas, for ultimate sale to consumers. At least one set was sent to Japan and, allegedly, the Japanese manufacturer turned out a single exact copy of the set. However, due to trade restrictions it was unable to massproduce quantities of the duplicates for export. Accordingly, the decal (i. e., painted design) on the cup and saucer was altered— per instructions from Saxon to make as few changes as possible—resulting in defendants' Zarka set.¹

As of approximately April 22, 1978, Saxon was aware what the Zarka set would look like, having received an example from the Japanese manufacturer. Advertisements for the product began running in magazines of general circulation that same month. Included among these magazines were "Family Weekly," "Women's Day" and "House Beautiful." The advertisements depicted a cup set identical in appearance to plaintiff's Taltos set, and priced at $5.00 per set,² a price considerably lower than plaintiff's current suggested retail price for its own set.

Defendant would explain the similarity of appearance between plaintiff's set and the advertising depictions of defendant's set as follows: upon receiving the duplicate prototype from the Japanese manufacturer, defendant had it photographed. These photographs, it alleges, are the ones appearing in the advertisements, not photographs of plaintiff's Taltos set. Regardless, it was evident to defendant from April, 1978, onward that the Zarka set was not the same set shown in its advertisements and offered for sale. These same photographs have appeared in the advertisements ever since.

Not only is defendant's set not the same one depicted, but it is also composed of porcelain, an inferior grade material to the bone china of which plaintiff's cup set is composed. It is impossible to determine from merely looking at the advertisements what material makes up the Zarka set, and defendant makes no distinction between the grades, referring instead, throughout to its product being made of "fine china."

As opposed to dealing with the public through retailers, as plaintiff does, defendant deals directly with customers through mail order. Purchasers simply clip the coupons from defendant's advertisements and mail them to it. The Zarka set is one of three products marketed by defendant. Its inventory stands at 121,000 sets, out of total purchases of 210,000 sets ordered from its Japanese manufacturer. On the other hand, plaintiff sells a wide range of products. Its current inventory of unsold Taltos sets is approximately 17,000. Plaintiff's sales of its sets have dropped considerably since April, 1978.³ Conversely, defendant's sales of its sets have increased dramatically over this same period.

It must also be noted that, although defendant knew as early as April, 1978, that its advertisements depicted a product that it could not deliver, defendant made no attempt to substitute a photograph of the Zarka set for the set actually shown. Defendant attempts to explain this by saying that the advertisements were placed well in advance of the magazines' issuance dates; therefore, they could not be changed. However, even giving the defendant a generous interpretation of the requisite "lead time" involved (at most three months, by Saxon's estimate), the advertisements could have been altered for the August, September and October, 1978 issues. We note that defendant's advertisement in the October, 1978, issue of "Better Homes and Gardens" does contain changes not reflected in prior advertisements. Specifically, this copy shows the inclusion of a picture of the instructional booklet accompanying each set purchased. The photograph of the set itself, however, remains the same. Accordingly, Saxon's testimony that the advertisements could not be changed is unconvincing.

Finally, on this score, we observe that defendant was not without notice that its advertisements were misleading to customers. Saxon, himself, testified that defendant had received complaints from several purchasers that the sets they received in response to defendant's advertisements were not the same as the sets depicted.

One further factual matter requires discussion, that is, the question of laches. Concerning this issue the Court finds that plaintiff first became aware of defendant's Zarka set in April, 1978, when one of plaintiff's salesmen forwarded to the main office a copy of one of defendant's advertisements, which had appeared in "The Sunday Philadelphia Bulletin." Plaintiff then wrote to its English manufacturer to ascertain whether it had authorized anyone else to market the Taltos sets in the United States. Upon learning that it had not, Allen Goeldner, plaintiff's vice-president, requested that one of his office secretaries order a Zarka set from defendant. This she did on May 19, 1978. The cup set was received in late June, 1978. Included with the set was an instructional booklet, the contents of which are virtually verbatim of plaintiff's booklet, and bears a photograph of the plaintiff's Taltos set. Goeldner testified that he, personally, next began noticing advertisements for defendant's product in general circulation magazines in approximately August, 1978. Suit was commenced here on September 19, 1978.

The Law.

In determining whether a preliminary injunction shall issue in a case such as this, the Court must consider whether there has been an adequate showing of (1) probability of ultimate success on the merits, and (2) irreparable injury pendente lite if the injunction is not granted. The applicant for such relief, of course, bears the burden of establishing each of these elements. Chips 'N Twigs, Inc. v. Chip-Chip, Ltd., 414 F.Supp. 1003, 1012-13 (E.D.Pa.1976). In addition, the Court should also take into account the traditional equitable consideration of the public interest involved, an interest particularly strong in cases such as these. Given these basic guidelines, we turn to the case before the Court.

Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), provides that:

(a) Any person who shall affix, apply, or annex, or use in connection with any goods or services, or any container or

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