Levi Strauss & Co. v. Shilon

• Decision Date: 05 August 1997
• Docket Number: 96-55367.,No. 96-55256,96-55256
• Citation: 121 F.3d 1309
• Parties: LEVI STRAUSS & COMPANY, Plaintiff-Appellee, v. Avner SHILON, a/k/a Avi Shilon, d/b/a A. Shilon & Co., Defendant-Appellant. LEVI STRAUSS & COMPANY, Plaintiff-Appellee, v. Avner SHILON, a/k/a Avi Shilon, d/b/a A. Shilon & Co., Defendant-Appellant. and A. Shilon & Co., Defendant.
• Court: U.S. Court of Appeals — Ninth Circuit

121 F.3d 1309

LEVI STRAUSS & COMPANY, Plaintiff-Appellee, v. Avner SHILON, a/k/a Avi Shilon, d/b/a A. Shilon & Co., Defendant-Appellant.

LEVI STRAUSS & COMPANY, Plaintiff-Appellee, v. Avner SHILON, a/k/a Avi Shilon, d/b/a A. Shilon & Co., Defendant-Appellant. and A. Shilon & Co., Defendant.

Nos. 96-55256, 96-55367.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 2, 1997.

Decided August 5, 1997.

Timothy R. Cahn, Legal Strategies Group, Emeryville, CA, for plaintiff-appellee.

Harry S. Berman, Los Angeles, CA, for defendant-appellant.

Before: BROWNING, FLETCHER and KOZINSKI, Circuit Judges.

FLETCHER, Circuit Judge:

After conducting a private undercover investigation, Levi Strauss and Company brought this action against Avner Shilon for: (1) offering to sell and producing counterfeit goods under section 32 of the Lanham Act, 15 U.S.C. § 1114; (2) unfair competition under section 43 of the Lanham Act, 15 U.S.C. § 1125; and (3) unfair competition and trademark dilution under California law. Cal. Bus. & Prof.Code §§ 14320, 14330 & 17200.

The district court granted partial summary judgment to Levi Strauss on the question of whether Shilon offered to sell counterfeit labels and jeans. After a bench trial, the district court rejected Shilon's affirmative defenses, enjoined Shilon from further dealings in Levi Strauss products, and awarded Levi Strauss a portion of its attorney's fees and investigation costs.¹ Shilon timely appeals each of these rulings. We have jurisdiction, 28 U.S.C. § 1291, and we affirm.

BACKGROUND

During an undercover investigation initiated by Levi Strauss & Company, Avner Shilon, a Los Angeles clothing manufacturer, offered to sell 10,000 sets of counterfeit Levi Strauss labels and tags and 10,000 pairs of "blank" counterfeit Levi's jeans² to Carlos Fernandez, a private investigator hired by Levi Strauss posing as a clothing distributor from Mexico. Because he was not authorized by Levi Strauss to purchase counterfeit goods, Fernandez never paid for, and Shilon never provided, the counterfeit jeans and tags. However, Shilon did provide Fernandez with a sample set of counterfeit Levi's tags and labels and with a single pair of "blank" jeans with Levi Strauss trademark arcuate stitch pattern on the back pockets.

Fernandez tried unsuccessfully to convince the police and customs officials to conduct a raid on Shilon's business to seize the labels. Thus, without having the actual counterfeit goods in hand, Levi Strauss filed this lawsuit against Shilon for offering to sell and producing 10,000 sets of counterfeit Levi Strauss jeans and components.

DISCUSSION

A. Liability Under the Lanham Act

1. An Offer to Sell Counterfeit Goods

Shilon appeals the district court's grant of summary judgment on the issue of liability for offering to sell counterfeit goods where no goods were actually sold or produced. Shilon argues that the Lanham Act does not create liability for a "naked offer" to sell goods.³ Shilon does not dispute the district court's finding of fact that he offered to sell counterfeit goods to Fernandez. He claims instead that as a matter of law a "naked offer to provide labels" cannot create liability under the Lanham Act.

A grant of summary judgment is reviewed de novo. Jesinger v. Nevada Fed. Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994). Our review is governed by the same standard used by the trial court under Federal Rule of Civil Procedure 56(c). Id. We must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir.1996). Summary judgment is not proper if material factual issues exist for trial. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995), cert. denied, ___ U.S. ___, 116 S.Ct. 1261, 134 L.Ed.2d 209 (1996).

Section 32 of the Lanham Act created a civil cause of action for trademark infringement and counterfeiting. Despite clear language to the contrary, Shilon argues that without the actual sale or production of counterfeit goods he cannot be held liable to Levi Strauss simply for making an offer to sell such goods. Section 32 provides that:

(1) Any person who shall, without the consent of the registrant-

(a) use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake or to deceive; or

(b) reproduce, counterfeit, copy, or colorably imitate a registered mark and apply such reproduction, counterfeit, copy, or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be used in commerce upon or in connection with the sale, offering for sale, distribution, or advertising of goods or services or in connection with which such use is likely to cause confusion, or to cause mistake or to deceive shall be liable in a civil action by the registrant....

15 U.S.C. § 1114 (1995) (emphasis added). The statute does not require that the defendant be in possession of counterfeit goods at the time of the offer or that the defendant make an actual sale. An offer to sell without more will suffice to establish liability.

Shilon argues that without the actual counterfeit goods Levi Strauss cannot establish that the use of such goods was likely to "cause confusion, or to cause mistake or to deceive." Id. This argument is unavailing. Shilon did not offer to sell hypothetical Levi's tags, labels, and jeans which may or may not have been close enough to the real product to cause consumer confusion. His offer was to sell 10,000 sets of tags, labels, and jeans exactly like the samples that he had provided to the Levi Strauss investigators. Shilon admitted to providing these samples and he does not claim that these samples, if sold, would not cause consumer confusion or were not likely to deceive or cause mistake. Certainly the counterfeit Levi's tags, labels, and jeans were intended to "cause confusion, or to cause mistake or to deceive." Accordingly, Shilon can be liable under section 32 for an offer to sell counterfeit goods despite the district court's conclusion that there was insufficient evidence to prove that he actually sold or produced the goods.

2. An Offer to Sell Counterfeit Goods is Not Protected by the First Amendment

Shilon argues that, because Levi's claim is based upon a "naked offer," the First Amendment prevents the court from finding him liable under the Lanham Act. The district court's conclusions on constitutional questions are reviewed de novo. Jacobsen v. United States Postal Serv., 993 F.2d 649, 653 (9th Cir.1992) (First Amendment).

Shilon's contention that his offer to sell counterfeit Levi's components is protected by the First Amendment is specious. For commercial speech to come within the protection of the First Amendment, it must concern lawful activity. Nordyke v. Santa Clara County, 110 F.3d, 707, 710 (9th Cir.1997).

The First Amendment does not protect all proposals to engage in commercial transactions. An offer to pay a "hit man" one million dollars to murder my neighbor proposes a commercial transaction. Similarly, an offer to pay a government official to provide unauthorized copies of classified documents also proposes a commercial transaction. But these proposals to engage in commercial transactions are not accorded First Amendment protection because the underlying transaction is illegal.

Id. Because the transaction underlying Shilon's offer, i.e. selling counterfeit goods, is unlawful, the offer itself is not afforded First Amendment protection.

3."Unclean Hands" as an Affirmative Defense in Cause of Action Under the Lanham Act Action

Shilon argues that, because the investigators committed misconduct during the investigation, Levi Strauss has "unclean hands" and should have been equitably estopped from obtaining relief under the Lanham Act. Shilon claims that he was "entrapped" by Fernandez who conducted an unlawful "sting" operation. The district court denied Shilon equitable relief.

A district court's decision to deny equitable relief is reviewed for an abuse of discretion. See Diaz v. San Jose Unified Sch. Dist., 861 F.2d 591, 595 (9th Cir.1988). A district court abuses its discretion if it fails to apply the correct law or if it rests its decision on a clearly erroneous finding of material fact. Marchand v. Mercy Medical Ctr., 22 F.3d 933, 936 (9th Cir.1994).

"Unclean hands is a defense to a Lanham Act infringement suit. To prevail ... equity requires that those seeking its protection shall have acted fairly and without fraud or deceit as to the controversy in issue." Fuddruckers, Inc. v. Doc's B.R. Others, Inc., 826 F.2d 837, 847 (9th Cir.1987) (internal citations and quotations omitted). For example, a court should not protect a trademark which itself is misleading. Worden & Co. v. California Fig Syrup Co., 187 U.S. 516, 533-34, 23 S.Ct. 161, 165-66, 47 L.Ed. 282 (1903) (laxative named "Syrup of Figs" unprotectable where product contains no figs or fig juice). In its claim for equitable relief, "the defendant must demonstrate that the plaintiff's conduct is inequitable and that the conduct relates to the subject matter of its claims." Fuddruckers, 826 F.2d at 847.

The district court heard three days of trial testimony primarily concerning what transpired during the investigation. Shilon and Fernandez each testified and was subjected to cross-examination by opposing counsel. During closing arguments, Shilon's counsel urged the court to grant Shilon equitable relief because he had been "entrapped" by Levi Strauss' investigator. At the close of trial the district court expressed some concern about Fernandez's investigation tactics;...