Electrolux Corp. v. Val-Worth, Inc.

• Decision Date: 08 July 1959
• Docket Number: INC,VAL-WORT
• Citation: 190 N.Y.S.2d 977,6 N.Y.2d 556,161 N.E.2d 197
• Parties: , 161 N.E.2d 197, 123 U.S.P.Q. 175 ELECTROLUX CORPORATION, Appellant, v., et al., Defendants, and Vacuum Cleaner Conservation Company, Inc., et al., Respondents.
• Court: New York Court of Appeals Court of Appeals

Page 977

190 N.Y.S.2d 977

6 N.Y.2d 556, 161 N.E.2d 197, 123

U.S.P.Q. 175

ELECTROLUX CORPORATION, Appellant, v. VAL-WORTH, INC., et al., Defendants, and Vacuum Cleaner

Conservation Company, Inc., et al., Respondents.

Court of Appeals of New York.

July 8, 1959.

Hamilton Hicks, New York City, for appellant.

Sidney S. Bobbe and Raymond Sacks, New York City, for respondents.

Arthur E. Pettit and Carey Vennema, New York City, for the Singer Sewing Machine Co., amicus curiae.

CONWAY, Chief Judge.

The plaintiff is the manufacturer of the widely known 'Electrolux' vacuum cleaner. The defendants-respondents are Solomon Sacks, who does business as 'Famous Vacuum Shops' and 'Famous Appliance Shops,' and Vacuum Cleaner Conservation Company, Inc., of which Sacks is the president and principal stockholder.

It appears that respondents have been purchasing used 'Model XII' Electrolux vacuum cleaners from plaintiff and others since 1948 for prices ranging from $3.00 to $7.50 each. Respondents would then disassemble the machines, clean and rebuild them, and, when necessary, supply new parts and accessories some of which were not manufactured by the plaintiff. The result would then be sold and advertised as 'rebuilt Electrolux' vacuum cleaners (trade-mark 'Electrolux' displayed prominently). However, a small label and a decalcomania transfer which recite that the machine was reconditioned by Famous Vacuum Shops were attached to the machine.

In 1949 plaintiff requested by letter that respondents make it clear that the machines have been rebuilt by 'Famous' rather than by Electrolux. Since then, respondents have continued to buy thousands of used machines from plaintiff, rebuild them and advertise them as rebuilt by Famous Vacuum Shops, or Famous Appliance Shops with the full knowledge and acquiescence of plaintiff until January of 1953. However, the plaintiff, though it sold many used machines which it had acquired as 'trade-ins' to dealers such as respondents, refused at all times to sell them new parts and accessories.

In 1952 respondents arranged for television advertising with a television promoter. They agreed that the commercials would furnish telephone numbers for prospective inquirers and that telephone responses would be turned over to respondents for $2 to $3 each. During the commercials which were broadcast over four television channels, the actor of salesman exhibited a 'rebuilt Electrolux,' described it as such in glowing terms and offered it for $14.95. Telephone numbers were also furnished for prospective inquirers.

The record further discloses that Adler, an investigator hired by the plaintiff, called one of the telephone numbers furnished during the commercial and requested a demonstration. Subsequently, one Forde, a salesman, arrived at Adler's home where he demonstrated and sold to him a rebuilt machine. But then he attempted to sell a new machine not manufactured by the plaintiff which he claimed was a better machine. However, the investigator refused to make any further purchase and subsequently turned the rebuilt machine over to plaintiff's engineers who examined it. Although the motor and body were manufactured by Electrolux, some of the accessories were not.

The proof also demonstrates that respondents sold new machines manufactured by several of plaintiff's competitors but that respondents did not mention those machines on the commercials. Rather, they offered the rebuilt machines at $14.95 for the purpose of attracting prospects to whom more expensive new machines not manufactured by plaintiff might be sold. Furthermore, respondents' salesmen were not compensated for selling the 'rebuilt Electrolux' but rather their compensation depended on sales of the other machines.

In June of 1953 Electrolux brought an action seeking injunctive relief, as well as damages, against Sacks, Vacuum Cleaner Conservation Company and others who are not parties to this appeal. After trial before the court sitting without a jury, Special Term rendered a decision with specific findings of fact, including those set forth above, and conclusions of law.

In addition to the facts already stated, Special Term found that the procedure was to endeavor to sell the 'rebuilt Electrolux' and then to 'switch' the transaction to the new machine by calling the 'rebuilt Electrolux' 'just a lot of junk', and by saying that it looked 'silly' and by disparaging it generally. Furthermore, respondents would give a salesman the names and addresses of four telephone inquirers, four new machines but only one 'rebuilt Electrolux.' Moreover, the salesman would be instructed not to permit the rebuilt machine to leave his hands but rather to disparage it and to try to sell the new machine instead. In addition the rebuilt machine could not be sold profitably for $14.95 for the initial cost and business expenses compelled respondents to rely on the sale of the higher priced machines in order to make the operation a paying one. In short, the court found that the telecasts were calculated to give the impression that a used Electrolux with Electrolux parts, which retained the quality associated in the public mind with plaintiff's products, was obtainable at a low price whereas respondent's actual purpose was to discourage the purchase of the advertised machines and induce the public to buy costly machines of makes other than Electrolux.

Special Term also found that some of the non-Electrolux parts were functionally inferior to the corresponding parts manufactured by the plaintiff. Moreover, it was further found that Sacks instructed the television promoter to telecast that the machines were rebuilt by the famous vacuum cleaner company (meaning Electrolux, a famous company). This use of the word 'famous' was held to be deceptive whether used as an adjective or a noun. However, the court also found that since January 12, 1953, when Electrolux made its first complaint in this regard, there has been no advertising using the word 'famous', the reference having been changed to Parsons Appliance Corporation.

Special Term concluded, in substance, that it was actionably deceptive to advertise the rebuilt machines with the Electrolux name when they contained non-Electrolux parts and that it was also actionable to use the name without stating that the reconditioning was actually performed by Vacuum Cleaner Conservation Company. The court also held that respondents' sales practices constituted 'bait advertising' and that, as such, it was unfair to the public as well as the plaintiff owner of the advertised trade name. In addition, the court took the view that plaintiff was entitled to damages attributable to defendants' acts of unfair competition, in an amount to be determined by a court-appointed Referee.

Accordingly, a judgment was entered thereon which, in substance, enjoined defendants from (1) using the word 'Electrolux' unless the machines were wholly and completely the product of the plaintiff; (2) from offering any vacuum cleaner under the trade name 'Electrolux' for the purpose of luring prospects with the object of diverting them from the advertised article by disparagement or otherwise and for the purpose of inducing them to purchase a product not manufactured by the plaintiff; (3) from advertising and selling under the name 'Electrolux' a machine which was reconstructed by the Vacuum Cleaner Conservation Company without stating that the reconstruction was the work of that company; (4) from advertising and selling under the name 'Electrolux' and representing that the machines were built by someone else than the actual rebuilder; and (5) from using the word 'famous' in advertising and promoting vacuum cleaners not rebuilt by plaintiff so that the use of the word 'famous' was deceptive or misleading. Furthermore, the judgment directed that a Referee be appointed to report on the damages attributable to the acts of unfair competition including an accounting based on defendants' profits.

The Appellate Division, with one Justice dissenting, reversed certain specific findings of fact, made additional findings, reversed the conclusions of law, and, accordingly, dismissed the complaint. In addition to finding that plaintiff had shown no damages from the acts complained of, the Appellate Division found, in general, that respondents' use of the word 'famous', a common trade name, was not deceptive, and, further, that there were no representations that the machines were new or rebuilt by plaintiff. Moreover, it observed that since 1948 plaintiff has been selling old machines to respondents, who, in turn, had since then been using the same methods of refurbishing and labelling the machines with plaintiff's knowledge. Furthermore, although the Appellate Division agreed that respondents used the rebuilt machines as a lure to sell the new machines, it found that defendants did not refuse to sell the rebuilt machines, but did, in fact, sell 5,000 of them subsequent to 1948, including the one sold to plaintiff's investigator.

It readily appears from the foregoing that three types of conduct are here involved. The first two which form the essence of the first cause of action in the complaint fall into that category of unfair competition wherein it is charged that defendants have 'palmed off' their goods as those of the plaintiff. They are (a) the use of the Electrolux trade name on a machine which contains non-Electrolux parts and accessories, and (b) the use of the word 'famous' on the telecast. The third is respondents' use of the rebuilt machine as a lure to sell other nonadvertised machines which is alleged in the complaint as the second cause of action and which shall be treated last.

When the Appellate Division reverses specific findings of fact and makes new findings, as in this case, it becomes our duty to determine which findings are supported by the weight of the credible evidence (Civil Practice Act, § 605; see Roberts v. Fulmer, 19...