Arthur Guinness & Sons, PLC v. Sterling Pub. Co., Inc.

• Decision Date: 16 April 1984
• Docket Number: No. 1009,D,1009
• Citation: 732 F.2d 1095
• Court: U.S. Court of Appeals — Second Circuit
• Parties: ARTHUR GUINNESS & SONS, PLC, Plaintiff-Appellant, v. STERLING PUBLISHING COMPANY, INC., Defendant-Appellee, and Bantam Books, Inc., Intervenor-Defendant. ocket 83-9056.

Page 1095

732 F.2d 1095

ARTHUR GUINNESS & SONS, PLC, Plaintiff-Appellant, v. STERLING PUBLISHING COMPANY, INC., Defendant-Appellee and Bantam Books, Inc., Intervenor-Defendant.

No. 1009, Docket 83-9056.

United States Court of Appeals Second Circuit.

Argued March 28, 1984.

Decided April 16, 1984.

Oliver P. Howes, Jr., Nims, Howes, Collison & Isner, New York City (Julie A. Lauber Thomas J. Ward, J. Dickson Burton, Ward Lazarus, Grow & Cihlar, Washington, D.C., of counsel), for plaintiff-appellant.

Jeffrey A. Mishkin, Proskauer, Rose, Goetz & Mendelsohn, New York City (Francis D. Landrey and David M. Lederkramer, New York City, of counsel), for defendant-appellee.

Before KAUFMAN, KEARSE and PIERCE, Circuit Judges.

IRVING R. KAUFMAN, Circuit Judge:

For the past thirty years, the human adventure in its astonishing, recondite, inspiring, and not infrequently bizarre variety has been chronicled in a unique publication. First styled the "Guinness Book of Superlatives" and later the "Guinness Book of Records", this product of a British brewery's desire to settle its customers' barroom disputes is widely known in America and elsewhere as the "Guinness Book of World Records." The record book, published in the United States since 1961 by Sterling Publishing Co. ("Sterling") under license from Arthur Guinness & Sons PLC ("Guinness"), has long since outgrown its original conception as an arbiter of drinking companions' arguments. The Guinness Book of World Records has become an institution--a fascinating chronicle of human achievement and natural wonders.

The compilers of the record book are not unacquainted with the judicial system. Their tome describes history's most protracted litigation (761 years for a dispute involving religious festivals, finally terminated in India in 1966), the highest bail ($50 million, in 1977 in Iran), and the shortest probated will (two words in length). In October, 1983, Guinness became a participant, rather than a spectator, of the legal process when it commenced this action against Sterling, its American licensee, alleging trademark infringement and false designation of origin of goods in violation of the Trademark Act of 1946 (the Lanham Act), 15 U.S.C. Secs. 1114, 1125(a). Guinness's complaint, and its application for a temporary restraining order, were the culmination of a dispute between the British licensor and the American licensee that began two years earlier.

The trial court denied the request for a temporary restraining order, and subsequently held a hearing on Guinness's motion for a preliminary injunction requesting an order that Sterling refrain from selling, distributing, or advertising the 1984 American edition of the Guinness Book of World Records. Judge Duffy denied that motion in November, and Guinness brought this appeal. We conclude that the district court's denial of Guinness's motion is consistent with the preliminary injunction standards this Circuit has formulated. Accordingly, we affirm the trial court's order. Before discussing our reasoning in greater detail, we set forth the relevant facts.

I.

The Guinness-Sterling relationship began in 1961, when Sterling secured the exclusive right to use the Guinness trademark in the United States to publish the American edition of the Guinness Book of World Records. Sterling has produced the American edition annually since that time. A new License Agreement dated January 31, 1973 extended Sterling's exclusive right to publish the Guinness Book of World Records in the United States until the year 2016, subject to editorial review and approval of each edition by Guinness. A Publishing Agreement concluded February 2, 1973, set forth the operational details of the arrangement. According to the Agreement, Guinness was to begin furnishing Sterling with page proofs of the subsequent year's British edition each May, and all page proofs (or "updating materials") were to be provided by August 15. Sterling would then revise and modify the updating materials for the United States market (substituting baseball records for cricket statistics, for example) and ship its American edition to bookstores in time for the Christmas season.

The Publishing Agreement also gave Sterling the exclusive right to negotiate merchandising "tie-ins" involving the Guinness name, subject to final approval by the licensor. Guinness was to receive 50% of the net proceeds from such licenses, after Sterling had deducted "all direct out of pocket expenses (including reasonable agency commissions and legal fees if any)." Examples of merchandising rights specified in the contract include tie-in licenses for puzzles, chewing gum and coloring books. The Agreement could be terminated by Guinness if Sterling "wilfully [broke] an important obligation" of the contract and failed to cure it within one month of notification. Both parties adhered to the Agreement without apparent rancor for seven years.

Guinness acquired new management in 1981, and by the company's own account, began to re-evaluate its relationship with Sterling. In April, 1982, Guinness formulated new guidelines for the merchandise licenses, instituting detailed procedures for Sterling to follow in obtaining Guinness's approval. Sterling, for example, had entered into negotiations for an American manufacturer to produce Guinness wallpaper; Guinness insisted that a formal request be made for that license despite Sterling's belief, based on Guinness's previous furnishing of British wallpaper samples, that the license would be authorized by Guinness. As part of its new procedures, Guinness insisted that Sterling itemize the legal fees it deducted from royalty payments. Previously, Sterling had deducted from the royalties related to merchandising a percentage of the monthly retainer it paid to its law firm.

Guinness continued to suspect that the legal fee withholdings were excessive, and that Sterling was charging Guinness for expenses unrelated to licenses approved by Guinness. In September, Sterling's lawyer submitted an itemized bill for work performed beginning in April 1982. Guinness immediately disputed Sterling's right to deduct these fees from the royalty payments Sterling was forwarding to Guinness. The details of the dispute do not properly concern us for purposes of this appeal, because they presumably will be the subject of further litigation in the underlying suit from which the motion for an injunction arose. In brief, Guinness contends that the fees deducted by Sterling are not attributable to work connected with Guinness. Sterling asserts that the disputed expenses were incurred in connection with negotiations for licenses which Guinness refused to approve. The dispute continued for the next six months, with Guinness adding the further demand that the Publishing Agreement be re-negotiated and the merchandising rights returned to Guinness's exclusive control.

On April 14, 1983, Guinness informed Sterling that it regarded the licensee's refusal to pay the disputed amounts as a wilful breach of an important obligation, thereby invoking the threat of termination. Guinness demanded immediate payment. Sterling responded by tendering $16,388 in disputed deductions, but the American publisher continued to insist that $33,600 in legal fees was properly withheld. Guinness, referring not only to the fee dispute but to its dissatisfaction with the quality of Sterling's merchandising efforts, responded by informing Sterling that it considered the license and Publishing Agreement terminated. ¹

For the duration of 1983, Sterling made timely demands upon Guinness to furnish the 1984 page proofs in accordance with the procedure that had been followed each year since the inception of the license. Guinness steadfastly refused, although it had been informed as early as May 5 that Sterling, which had ordered paper, reserved presses, placed advertisements in trade publications and already received orders for the next edition, fully intended to produce the 1984 record book. Faced with Guinness's refusal to supply the page proofs, Sterling proceeded to produce the 1984 edition by revising and modifying the 1983 version. Sterling followed the same procedure used in preparing previous editions. It prepared new editorial material for the American market, updated those sections for which it had information on new world records, and edited the book to appeal to American readers. In accordance with the terms of the license, it offered page proofs for Guinness to approve, but the licensor refused to cooperate in any way. 90,000 non-returnable hardcover copies of Sterling's 1984 American edition had been shipped to customers throughout the United States by October 21, 1983, the date on which Guinness served the order to show cause seeking a temporary restraining order.

Judge Duffy denied the request for a restraining order, and following a two-day hearing that concluded Nov. 1, denied the motion for a preliminary injunction, finding that Guinness failed to show that Sterling's publication would cause irreparable injury, or that Guinness was substantially likely to prevail on the merits of the fee dispute. This appeal followed.

II.

We now turn to the applicable law. The purpose of a preliminary injunction is to preserve the status quo pending the final determination of a dispute. See 7 Moore's Federal Practice p 65.04 (1982). It is well-settled in this Circuit that the party seeking injunctive relief must establish that the injunction is necessary to prevent irreparable harm and that he is likely to prevail on the merits of the underlying controversy. Bell & Howell: Mamiya Co. v. Masel Supply Co., 719 F.2d 42, 45 (2d Cir.1983). In the alternative, the moving party need not show likelihood of success on the merits, but must demonstrate the presence of sufficiently serious and substantial questions going to the merits as to make them a fair ground for litigation, and a balance of hardships tipping...