975 F.2d 58 (2nd Cir. 1992), 1375, Polymer Technology Corp. v. Mimran
|Docket Nº:||1375, Docket 92-7177.|
|Citation:||975 F.2d 58|
|Party Name:||24 U.S.P.Q.2d 1189 POLYMER TECHNOLOGY CORPORATION, Plaintiff-Appellant, v. Emile MIMRAN, also known as Alan Franco, U.D.S. Export & Import, also known as User Designed Software, Optic Express, Inc., National Contact Lens Co., International Contact Lens Lab, Cosmetics Plus, Price Wise, Inc., Defendants-Appellees.|
|Case Date:||September 11, 1992|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued April 3, 1992.
As Amended Nov. 25, 1992.
[Copyrighted Material Omitted]
G. Roxanne Elings, New York City (Harley I. Lewin, William M. Ried, Lewin & Laytin, of counsel), for plaintiff-appellant.
Philip E. Roux, New York City (Milton S. Gould, Jonathan A. Kenter, Shea & Gould, of counsel), for defendants-appellees.
Before: KEARSE and MAHONEY, Circuit Judges, and RESTANI, Judge [*].
This action involves claims for trademark infringement, trademark counterfeiting, false designation of origin, fraud and unfair competition under the Trademark Act of 1946, 15 U.S.C. §§ 1051-1127 (1988) ("Lanham Act") and New York state law. The district court denied plaintiff's motion for a preliminary injunction, and indicated its intent to award defendants damages from the injunction bond. We reverse and remand for further findings.
Plaintiff, Polymer Technology Corporation ("Polymer") manufactures and sells ophthalmic products, including solutions for the care of contact lenses. Defendant, Emile Mimran ("Mimran"), also known as Alan Franco, owns a number of businesses that distribute ophthalmic lens care products. These businesses include Optic Express, User Designed Software, and Spare Lens, doing business as American Contact Lens Association, all of which are named as defendants in this action (collectively "Mimran defendants"). 1
Polymer sells its lens care solutions under the federally-registered "BOSTON" trademarks. Three solutions are at issue: lens cleaner, conditioning solution, and reconditioning drops. Polymer distributes its solutions in two distinct channels of trade: one line of solutions is sent to distributors for resale to optometrists, ophthalmologists and other eye-care practitioners ("professional solutions"); the other line is distributed in the retail market ("retail solutions"). Retail solutions are sold for profit; professional solutions are sold at a loss, and are intended to encourage retail sales.
The professional and retail solutions differ in several respects. Retail solutions are packaged individually. 2 The outer packaging contains warnings concerning contamination, contraindications, and shelf life. The outer packaging also contains a list of active ingredients and preservatives, a notice that the contents are sterile, and tamper-evident seals on the top and bottom flaps. Labelling and packaging of retail solutions must receive premarket approval from the Food and Drug Administration ("FDA") and comply with its regulations. 3
In contrast, the professional solutions are packaged in kits containing three solutions each. There are two types of kits: the "Care System" which contains each of the three solutions in full retail size; and the "Starter Kit" which contains reduced sizes of the solutions. 4 Some of the professional
kits contain labels such as: "Not for Sale"; "For Dispensing by an Eye Care Professional Only or for Professional Dispensing Only"; and "For Dispensing by An Eye Care Professional Only." 5 The outer packaging for the professional solutions does not contain a list of active ingredients or preservatives, nor does it contain warnings. In addition, the professional solutions, particularly those contained in the Advance Starter Kit, do not always contain the tamper-evident seal. 6 The professional kits are not submitted to the FDA for approval because they are not intended for retail sale.
Polymer claims that Mimran obtains the professional kits and resells them in the retail trade; the Mimran defendants do not deny this allegation. Polymer also alleges that Mimran breaks down the kits and sells individual bottles of the professional solutions at retail. 7 The Mimran defendants deny tampering with the packaging, and claim that Polymer is simply trying to enforce a pricing scheme.
STANDARD OF REVIEW
A preliminary injunction may issue if the plaintiff demonstrates irreparable harm, and either a likelihood of success on the merits, or sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly in its favor. Coca- Cola Co. v. Tropicana Products, Inc., 690 F.2d 312, 314-15 (2d Cir.1982). We review an order denying a preliminary injunction for abuse of discretion, which may consist of "an error of law, an error of fact, or an error in the substance or form of the trial court's order." Id. at 315.
The district court found no evidence of tampering, and no evidence that retail sale of the kits is unauthorized. We review these findings under the clearly erroneous standard. We are also confronted with two legal issues: whether Polymer can establish its claim based on (1) diversion of professional solutions into the retail market, and (2) alteration of the packaging. Under the circumstances of this case, we conclude that a claim for unfair competition or trademark infringement could be made out on either of these grounds. Because certain factual evidence relevant to these claims was not considered, we vacate the district court's denial of the preliminary injunction, and remand for further findings.
Application of Trademark Law
As a general rule, trademark law 8 does not reach the sale of genuine goods bearing a true mark even though the sale is not authorized by the mark owner. NEC Electronics v. Cal Circuit Abco, 810 F.2d 1506, 1509 (9th Cir.), cert. denied, 484
U.S. 851, 108 S.Ct. 152, 98 L.Ed.2d 108 (1987). Thus, a distributor who resells trademarked goods without change is not liable for trademark infringement. See 2 J. Thomas McCarthy, Trademarks and Unfair Competition, § 25:11 (2d ed. 1984) (citing Prestonettes, Inc. v. Coty, 264 U.S. 359, 44 S.Ct. 350, 68 L.Ed. 731 (1924) and Champion Spark Plug Co. v. Sanders, 331 U.S. 125, 67 S.Ct. 1136, 91 L.Ed. 1386 (1947)). In addition, even repackaging of goods is not trademark infringement if it does not deceive the public or damage the mark owner's goodwill. See Prestonettes, 264 U.S. at 368, 44 S.Ct. at 351 (sale of repackaged cosmetics permitted provided statement disclosing origin is enclosed); Champion, 331 U.S. at 130, 67 S.Ct. at 1139 (sale of reconditioned spark plugs under original name permitted provided full disclosure made).
In this case, however, Polymer alleges that the Mimran defendants did not sell "genuine" products, and therefore are liable for trademark infringement. Polymer relies on several theories of liability: quality control; unauthorized distribution; and contributory infringement.
1. Quality Control
Polymer claims Mimran disregarded its quality control measures, presumably by breaking the packaging on the professional kits, and diverting the kits to the retail trade. Because the labelling on the professional solutions need not comply with FDA regulations, Polymer claims that distribution of professional solutions in the retail market subjects it to criminal penalties, and creates a public hazard.
This court has stated: "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." El Greco Leather Products Co. v. Shoe World, Inc., 806 F.2d 392, 395 (2d Cir.1986), cert. denied, 484 U.S. 817, 108 S.Ct. 71, 98 L.Ed.2d 34 (1987). Polymer cites several cases in which trademark infringement was found when the seller failed to maintain quality control standards established by the trademark owner. See, e.g., El Greco, 806 F.2d at 395 (when certificate of inspection is integral part of plaintiff's quality control effort, resale without certificate infringes trademark); Shell Oil Co. v. Commercial Petroleum...
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