El Greco Leather Products Co. v. Shoe World, Inc.

• Decision Date: 21 December 1984
• Docket Number: No. 83 Civ. 5376.,83 Civ. 5376.
• Parties: EL GRECO LEATHER PRODUCTS CO., INC. d/b/a Candie's International, Plaintiff, v. SHOE WORLD INC. d/b/a Gussini, Defendant.
• Court: U.S. District Court — Eastern District of New York

599 F. Supp. 1380

EL GRECO LEATHER PRODUCTS CO., INC. d/b/a Candie's International, Plaintiff, v. SHOE WORLD INC. d/b/a Gussini, Defendant.

No. 83 Civ. 5376.

United States District Court, E.D. New York.

December 21, 1984.

COPYRIGHT MATERIAL OMITTED

Mark M. Aarons, Richard Olicker, Harry I. Rand, James A. Altman, Botein, Hays, Sklar & Herzberg, New York City, for plaintiff.

Marc Dahan, Glenn Backer, Dahan & Nowick; Edward V. Filardi, M. Andrea Ryan, Brumbaugh, Graves, Donohue & Raymond, New York City, for defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

GLASSER, District Judge:

Plaintiff El Greco Leather Products Co., Inc., d/b/a Candie's International ("El Greco") brings this action against defendant Shoe World, Inc., d/b/a Gussini ("Shoe World"), alleging trademark infringement in violation of the Lanham Act, 15 U.S.C. §§ 1114, 1125(a) and 1126(g), unfair competition, violation of New York Gen.Bus.L. §§ 368-b, 368-d and § 279-n, and violation of the Genuine Goods Exclusion Act, 19 U.S.C. § 1526.¹ Jurisdiction arises under 28 U.S.C. § 1331, 28 U.S.C. § 1338(a) and (b), and 15 U.S.C. §§ 1121 and 1125(a).

El Greco seeks a permanent injunction restraining defendants from using the mark "CANDIE'S" on any goods sold by defendant. El Greco also seeks compensatory damages in an amount yet to be determined, punitive damages in the amount of $10,500,000, destruction of the allegedly infringing goods and an order requiring defendant to place advertisements disclaiming any connection between the shoes sold by it and plaintiff.

In response, defendant has alleged counterclaims for defamation, trade defamation and disparagement, tortious interference, unfair competition, prima facie tort and abuse of civil process. Defendant seeks to enjoin plaintiff from engaging in the above activities and demands compensatory damages of at least $42,000,000 and punitive damages in an amount to be determined.

Simultaneous with its commencement of this action, plaintiff made an application, by ex parte order to show cause, for a temporary restraining order and preliminary injunction on December 13, 1983. I originally denied plaintiff's application for a temporary restraining order due to plaintiff's failure to comply with the notice requirements of Fed.R.Civ.P. 65(b). On December 16, 1983, I reconsidered plaintiff's request for relief at a hearing where both parties were present. At that time, I granted the application for a restraining order on the basis of papers which alleged that defendant was selling counterfeit CANDIE'S shoes. See infra at 1388-1389. After a hearing on December 30, 1983, Judge Platt vacated the temporary restraining order conditioned on defendant's voluntary agreement not to sell the allegedly infringing shoes pending adjudication of the order to show cause for a preliminary injunction. At the conclusion of a hearing held on January 10, 1984 and January 19, 1984, I denied plaintiff's application for a preliminary injunction due to its failure to establish the existence of irreparable harm. Tr. 448-50.² Pursuant to Rule 65(a)(2) of the Federal Rules of Civil Procedure, the hearing of January 10 and 19 was treated as a trial on the merits.

On the basis of the hearing held on January 10 and 19, 1984, as well as on supplemental memoranda and proposed findings submitted thereafter by both parties, the following represent my findings of fact and conclusions of law. For the reasons that follow, I find that plaintiff is not entitled to the relief it seeks.

I. FINDINGS OF FACT

A. The Parties and Their Industry

Plaintiff El Greco is a New York corporation which merchandises various types of shoes and wearing apparel in the United States. With regard to its marketing of shoes, plaintiff routinely engages foreign manufacturers to manufacture shoes under plaintiff's trademark. Plaintiff thereafter imports these shoes into the United States and sells them here.

At all times relevant to this action, plaintiff has been the owner of the duly registered federal and New York State trademarks "CANDIE'S." Plaintiff's federal trademark, Registration No. 1,157,373 applies to boots, shoes and slippers and has been registered with the United States Customs Service pursuant to 15 U.S.C. § 1124 and 19 U.S.C. § 1526. Plaintiff's mark is registered in New York State in connection with the sale of shoes and jeans.

Defendant Shoe World, a Maryland corporation, has 92 "Gussini" stores nationwide. Through these stores, defendant distributes women's shoes in the central and eastern United States at a set retail price, which for the year 1983 was $13.88. Approximately 80% of Shoe World's total sales volume is derived from shoes manufactured to its own specifications and sold under its own trademark. The remainder of Shoe World's sales volume is generated by the sale of other brands constantly offered throughout the trade. The sale of job-lot and closeout merchandise represents approximately 20% of Shoe World's overall business. Plaintiff's employees, particularly Chris Crabill and Lynn Miller, as well as plaintiff's president, Charles Cole, knew at least as of June 1982 that Shoe World sells all of its women's shoes, including CANDIE'S shoes, at its set retail price of $13.88, and were familiar with Shoe World's marketing practice.

At issue in this action is defendant's importation and sale of certain Brazilian-made CANDIE'S women's shoes, namely, Style No. 4666 Dramatic, No. 4216 Loyalty, and No. 1431 Bravo. Plaintiff essentially merchandises such apparel in the following manner.

Plaintiff engages Brazilian manufacturers, among other foreign firms, to manufacture its women's shoes. Sapatus Assessoria e Lancamentos Ltds., ("Sapatus"), a Brazilian firm, is plaintiff's exclusive representative for the production of shoes in Brazil. Acting on plaintiff's behalf and with plaintiff's approval, Sapatus selects the manufacturers with which orders will be placed; the production of any particular shoe style, if the volume is substantial, may be entrusted to more than one manufacturer.

Sapatus then places the orders with the manufacturers, supervises production at the factories; exercises careful control of the quality of the merchandise and assures that it accords in every respect with plaintiff's standards and specifications, inspects the shoes as they are produced and after lots are completed and tendered for delivery to plaintiff, certifies that the lots are in compliance with plaintiff's standards and specifications, and then arranges for shipment of the completed lots to plaintiff. In the event that there have been quality problems at a given factory, Sapatus will permanently station its employees at that factory to inspect and review the shoes as they are manufactured, virtually on a pair-by-pair basis. Shoes that are found to have any noticeable defects, that are inferior in quality or otherwise not in compliance with plaintiff's standards and specifications are rejected, and the manufacturer is required to set them aside and not to include them in lots tendered to plaintiff. No shoes are approved or accepted unless and until a principal of Sapatus signs an Inspection Certificate certifying that the lot of shoes to which it relates fully complies with plaintiff's standards and specifications. As will be detailed further below, however, plaintiff has failed to demonstrate that any of the allegedly infringing shoes sold by defendant were defective.

Plaintiff's specifications for shoes manufactured in Brazil provide, among other things, that the CANDIE'S trademark shall be imprinted or stamped on the sock lining inserted into the shoe. The insertion of the sock lining is one of the final steps in the manufacturing process. Tr. 25. As to some shoes, the specifications have provided also for the insertion of a metallic tag bearing the mark at the base of the heel. It is unclear whether the metallic tag can be removed from shoes without destroying or effectively impairing them. Tr. 77-78, 156-57, 159-60.

In addition, there is no market in Brazil for women's shoes which had been produced for eventual sale in the United States; rather, the only realistic market for such shoes is the United States. Thus, any shoes made by a Brazilian manufacturer for plaintiff but not accepted by plaintiff could not be disposed of for retail sale in Brazil; realistically, they could be sold only in the United States. At the close of its seasonal sales, the plaintiff regularly sells CANDIE'S shoes as closeout merchandise to discount shoe chains such as Shoe World, Barett and Delton, which sell the shoes at prices substantially lower than full price. Like defendants, Barett and Delton also sell CANDIE'S shoes at the set retail price of $13.88. Tr. 170-72, 196-97; D. Exhs. K & J. Prior to the controversy which resulted in this lawsuit, defendant purchased CANDIE'S shoes from plaintiff in 1981, 1982 and 1983 in this manner.

Defendant Shoe World also acts through agents in order to conduct its retail shoe business. Defendant's agent for the purpose of purchasing shoes made in Brazil is Fulvio Alviani of Alviani Imports (both hereafter referred to as "Alviani"), who buys for his own company in addition to acting as defendant's agent. In all transactions relevant to this action, Alviani purchased shoes from a Brazilian agent, Intra Exportacoes Ltda. ("Intra").

B. The Instant Controversy

1. Style No. 4666 Dramatic

The Style No. 4666 shoes represent the greatest quantity of shoes in controversy.

On March 17, 1983, plaintiff placed an order with Solemio, Ltda. ("Solemio"), a Brazilian manufacturer, for the production of 25,200 pairs of Style No. 4666, at a cost to plaintiff of $7.10 a pair ex factory. The shoes were to be manufactured for and shipped to plaintiff no later than 15 days after May 30, 1983, ex-factory, in seven separate lots, 2505A-2505G, of 3,600 pairs each. To effect payment, plaintiff opened a bank letter of credit in Solemio's favor for...