Abercrombie & Fitch v. Fashion Shops of Kentucky, 1:05CV29.

• Decision Date: 16 February 2005
• Docket Number: No. 1:05CV29.,1:05CV29.
• Citation: 363 F.Supp.2d 952
• Parties: ABERCROMBIE & FITCH, et al Plaintiffs, v. FASHION SHOPS OF KENTUCKY, INC., et al Defendants.
• Court: U.S. District Court — Southern District of Ohio

Page 952

363 F.Supp.2d 952

ABERCROMBIE & FITCH, et al Plaintiffs, v. FASHION SHOPS OF KENTUCKY, INC., et al Defendants.

No. 1:05CV29.

United States District Court, S.D. Ohio.

February 16, 2005.

Eric Wade Richardson, Daniel Jerome Buckley, Vorys Sater Seymour & Pease, Cincinnati, OH, John L. Landolfi, Vorys Sater Seymour & Pease, Columbus, OH, William H. Oldach, III, Vorys Sater Seymour & Pease LLP, Washington, DC, for Plaintiffs.

James David Liles, King & Shickli, PLLC, Lexington, KY, for Defendants.

MEMORANDUM OPINION & ORDER

WATSON, District Judge.

This matter is before the Court upon Plaintiffs' Motion for Preliminary Injunction. (Doc. 3) Defendant filed a Memorandum in Opposition (Doc. 8) and Plaintiffs filed a Reply. (Doc. 12) Defendant was also granted leave to file a Sur-reply. (Doc. 16) On January 28, 2005, the Court held a hearing on the application for a preliminary injunction in accordance with Fed.R.Civ.P. 65(a)(2). For the reasons stated herein, the Court orders that the Motion be GRANTED.

I. FACTUAL BACKGROUND

Plaintiffs (hereafter referred to collectively as "Abercrombie") are a national retailer of casual apparel targeted at men and women aged eighteen through college.¹ Abercrombie maintains that it enjoys an excellent reputation through its high-quality merchandise, highly successful marketing efforts, and its 110-year history in the retail field. Abercrombie explains that it uses a number of registered and common law trademarks in the marketing and sale of its goods, but the most relevant registered marks for purposes of this action are: No. 951,410 for the mark "ABERCROMBIE & FITCH;" No. 2,530,664 for the mark "A & F;" and No. 2,774,426 for the mark "HOLLISTER CO." (Plaintiffs' Preliminary Injunction Hearing Ex. 1, 2, 3)²

Defendant Fashion Shops of Kentucky, Inc. (hereinafter referred to collectively as "Fashion Shop")³ operates a small, family-owned, off-price retail clothing chain. Fashion Shop stores are located in Kentucky, Indiana, and Ohio. Fashion Shop sells brand-name clothing, typically quantity overproduction or end-of-season goods, at discount prices. Fashion Shop states that it has sold Abercrombie-branded merchandise for the past ten years.

Abercrombie seeks to enjoin Fashion Shop from selling any articles of clothing bearing the marks "ABERCROMBIE & FITCH," "A & F," "HOLLISTER CO.," or "HOLLISTER;" or using these marks in any advertising or promotional material. Abercrombie is also seeking an order from this Court requiring Fashion Shop to turn over to Abercrombie any and all articles of clothing in its possession bearing the marks "ABERCROMBIE & FITCH," "A & F," "HOLLISTER CO.," or "HOLLISTER." In addition, Abercrombie is seeking Fashion Shop's business records demonstrating the quantity, type, purchase price and sales price for all articles of clothing bearing the marks "ABERCROMBIE & FITCH," "A & F," "HOLLISTER CO.," or "HOLLISTER" which Fashion Shop has had in its possession since January 1, 2000, as well as records identifying all entities or individuals from whom Fashion Shop has acquired this merchandise.

At the hearing, Matt Braun, an Abercrombie Brand Protection Specialist, testified that in September of 2004 he learned that Fashion Shop was selling Abercrombie merchandise in one of its stores in Louisville, Kentucky. This information came from a security supervisor who had been working in the area for two months. In October of 2004, Braun visited this store and two other Louisville stores, inspected the Abercrombie merchandise, and determined that approximately fifty percent of the merchandise was counterfeit. Braun based his determination on certain clues: the clothing was black, but Abercrombie does not produce black clothing; the labels on the printed t-shirts stated that they were made in Turkey, but Abercrombie does not produce t-shirts in Turkey; the sweatpants had a "1892" graphic imprint, but Abercrombie has not approved that style or font of the "1892" graphic; and the clothing was an inferior quality to that produced by Abercrombie. Examples of genuine and counterfeit Abercrombie clothing were marked as Plaintiffs' Exhibits 6 through 16 at the hearing.

Braun telephoned Fashion Shop and Informed them that he determined that the stores were selling counterfeit merchandise. David Levine, the owner of Fashion Shop, met Braun at the one of the Louisville stores. Levine had all items which Braun indicated were counterfeit removed from the store's display area. Levine also directed the other Fashion Shop stores to remove like items from display. In addition, at Braun's direction, Levine removed the signs which advertised Abercrombie merchandise. (Plaintiffs' Ex. 17) Braun told Levine that the remaining Abercrombie merchandise "appeared to be genuine." This merchandise remained on display. Braun testified that Abercrombie is still in the process of investigating whether or not this merchandise is counterfeit.

While they were at the store, Braun handed Levine two letters which directed Fashion Shop to "immediately cease and desist from any and all further use of any and all of the ABERCROMBIE & FITCH trademarks;" and to provide information regarding Fashion Shop's sales, inventory, and suppliers of Abercrombie merchandise. (Plaintiffs' Ex. 18)

At the hearing, Benjamin Levine, Vice President of Fashion Shop, testified that Fashion Shop has no interest in selling counterfeit merchandise such as those illustrated by Plaintiffs' Exhibits 6 through 16. Levine stated that Fashion Shop will remove any items which Abercrombie reasonably identifies as counterfeit from their stores.⁴

John Carriero, Abercrombie's Director of Loss Prevention, explained at the hearing that Abercrombie's merchandise is produced by various overseas manufacturers. Carriero stated that after production, all merchandise is inspected at Abercrombie's distribution center in New Albany, Ohio. Carriero stated that the merchandise which passes inspection is only sold in Abercrombie stores. Carriero explained that merchandise is rejected if it does not meet Abercrombie's high quality standards. Carriero stated that a merchandise order may be cancelled if the quality of a "sample run" of the merchandise shipped to Abercrombie does not meet its standards; or the order is going to be delivered late.

Carriero explained that Abercrombie allows the manufacturers to sell any rejected merchandise, but with certain restrictions. These restrictions are memorialized in a "Sell-Off Compliance Agreement." (Plaintiffs' Ex. 19) As stated in the Agreement, no Abercrombie merchandise can be sold in the United States, and Abercrombie must approve of the final destination for the merchandise. (Id.) In addition, Abercrombie requires that certain modifications be made: the brand names on all interior labels must be "blacklined" or "cut" through prior to being sold; all marketing that contains brand names (such as price tickets and hangtags) must be removed; and interior prints and tapes which contain the brand names must be marked through completely with black indelible ink. (Id.) Carriero explained that Abercrombie keeps a record of all merchandise which was authorized for "sell off" each year. (Plaintiffs' Ex. 22)

Carriero testified that there were two exceptions to Abercrombie's prohibition against merchandise being sold within the United States. First, Carriero explained that Abercrombie permitted manufacturers to sell denim garments within the United States because Abercrombie's demanding quality standards resulted in a high number of rejected garments, and the overseas market for such denim garments was not good. Second, Carriero explained that Abercrombie permitted a chain of discount stores called "Gabriel Brothers" to sell any end-of-season merchandise which did not sell at their outlet stores and any damaged merchandise which came from the Abercrombie retail stores. Carriero testified that none of the merchandise approved for sale by Gabriel Brothers had "ever" surfaced in other retail outlets in the United States.

Carriero stated that Abercrombie employs Investigators world-wide to ensure that their manufacturers are not "selling off" or manufacturing merchandise without their approval. Carriero also explained that it would not be in a manufacturer's best financial interest to "cross" Abercrombie. However, Carriero admitted that it was impossible to police all the sales of the rejected merchandise. Carriero testified that while some of the labels on the clothing were marked with a black or red line, these markings were not done according to Abercrombie's requirements under the "Sell-Off Agreement."⁵

Levine testified that Fashion Shop purchased Abercrombie merchandise and other merchandise from various "jobbers." Levine explained that this merchandise was often made available at different trade shows throughout the United States. Levine testified that Fashion Shop was never told that it needed authorization to sell Abercrombie products, but he also stated that Fashion Shop has never sought such authorization. Levine testified that Fashion Shop's purchasers do not typically question how the jobbers acquired the merchandise.

Levine testified that he was informed by one of Fashion Shop's employees that a customer had been sent to Fashion Shop's store by an Abercrombie store employee to purchase Abercrombie shorts from the previous season.

Levine testified that if the Court were to order Fashion Shop to stop selling Abercrombie merchandise, it would threaten their line of credit, and possibly result in Fashion Shop declaring bankruptcy. Levine estimated that the Abercrombie merchandise comprised of $150,000 worth of inventory. Levine stated that the loss of this inventory would lower the quality of the merchandise in their stores and interfere with the planning done for the season. Levine estimated the overall financial impact on Fashion Shop to be $300,000, which would be "potentially...