Gucci America Inc. v. Frontline Processing Corp.
| Decision Date | 23 June 2010 |
| Docket Number | No. 09 Civ. 6925(HB).,09 Civ. 6925(HB). |
| Citation | 721 F.Supp.2d 228 |
| Parties | GUCCI AMERICA, INC., Plaintiff, v. FRONTLINE PROCESSING CORP., Woodforest National Bank, Durango Merchant Services LLC, d/b/a National Bankcard Systems of Durango, “ABC Companies,” and “John Does”, Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Robert L. Weigel, Anne Maureen Coyle, Howard Sean Hogan, Jennifer Colgan Halter, Kimberly Michelle Lindsay, Gibson, Dunn & Crutcher, LLP, New York, NY, for Plaintiff.
Stanley Lawrence Lane, Jr., Otterbourg, Steindler, Houston & Rosen, New York, NY, Charles Patrick Kennedy, Gregg Adam Paradise, William L. Mentlik, Lerner, David, Littenberg, Krumholz & Mentlik, LLP, Westfield, NJ, Christopher Clark Stoneback, G. Trenton Hooper, Herbert I. Pierce, III, Jeffery J. Oven, Crowlye, Fleck PLLP, Billings, MT, Todd Wengrovsky, Law Offices of Todd Wengrovsky, PLLC, Calverton, NY, for Defendants.
Gucci America, Inc. is a well-known manufacturer of luxury goods. The company holds a variety of trademarks in its products and designs, and invests substantial capital in ensuring that the marks maintain a reputation for quality. Seeking to capitalize on the popularity of Gucci products, certain internet merchants have sold “replica,” counterfeit Gucci products that infringe Gucci marks at significantly lower prices and of lower quality. Gucci recently concluded a successful litigation against one such merchant that operated a website called TheBagAddiction.com. The owners of the website admitted that they sold counterfeit Gucci products to customers across the country through the website. In its continuing effort to root out and prevent infringement of its trademarks, Gucci now brings suit against three entities, which while a step down in the “food chain,” allegedly ensured that TheBagAddiction.com was able to sell these counterfeit products. These defendants allegedly established the credit card processing services used to complete the online sales of fake Gucci items. The three defendants have jointly moved to dismiss the case for lack of personal jurisdiction and for failure to state a claim. For the reasons that follow, the defendants' motion to dismiss is DENIED.
Gucci America, Inc. (“Plaintiff” or “Gucci”) is a New York company, with its principal place of business in New York City. Compl. ¶ 11. It is the sole, exclusive distributor in the United States of items labeled with the “Gucci Marks,” including leather goods, jewelry, home products, and clothing. Id. The Gucci Marks are a series of marks-the Gucci name, the Gucci crest, the “non-interlocking GG monogram,” the “repeating GG design,” etc.-registered by Gucci with the United States Patent and Trademark Office. See Compl. ¶¶ 24-25 (reproduction of marks), Ex. 1 (Patent Office registration certificates). According to Plaintiff, the marks are well-known and recognizable in the United States and around the world. Gucci promotes the marks widely, and relies on “strict quality control standards” for its products, and as a result has achieved and retains a reputation for quality. Id. ¶ 28. The company spends hundreds of millions of dollars to advertise and promote its products and marks, and enjoys billions in sales of the Gucci products. “Based on the extensive sales of the Gucci [p]roducts and such products' wide popularity,” claims Plaintiff, “the Gucci Marks have developed a secondary meaning and significance in the minds of the purchasing public, and the services and products utilizing and/or bearing such marks and names are immediately identified by the purchasing public with Plaintiff.” Id. ¶ 30.
This case arises out of Plaintiff's attempts to eliminate online sales of counterfeit products and the unauthorized use of the Gucci Marks. In Gucci America, Inc., et al. v. Laurette Company, Inc., et al., No. 08 Civ. 5065(LAK), Gucci brought suit in this District against certain defendants, collectively known as the “Laurette Counterfeiters” or “Laurette,” for the sale of counterfeit Gucci products on a website called “TheBagAddiction.com.” 1 Through this website, the Laurette Counterfeiters sold a variety of “replica” luxury products, and, in particular, sold replica Gucci products under the Gucci name, with the various Gucci registered trademarks, and at fractions of the retail price for an authentic version. See Compl. ¶¶ 33-36 (). The website itself was replete with the use of the Gucci name and trademarks. See id. ¶ 41 (image of TheBagAddiction.com website). According to Plaintiff, the Laurette Counterfeiters “openly boasted” about the sale of counterfeit products, because the website expressly noted that the products were not authentic but rather “mirror images” of Gucci products. See id. ¶ 32. Though they are inferior in quality and workmanship, they appear to the naked eye to be similar if not identical to Gucci products. Gucci claims that, as a result of the sale of these counterfeit products, customers were deceived and misled “into believing that the products sold by the Laurette Counterfeiters on TheBagAddiction.com were authorized or sponsored by the Plaintiff.” Id. ¶ 40. Eventually, Laurette consented to the entry of judgment and admitted liability for counterfeiting activities. According to Plaintiff, “the Laurette [c]ounterfeiters admitted ... that, without authorization or license ... they willfully and intentionally used, reproduced and/or copied the Gucci [m]arks in connection with their manufacturing, distributing, exporting, importing, advertising, marketing, selling and/or offering to sell their [c]ounterfeit [p]roducts.” Id. ¶ 31.
Plaintiff now seeks to bring the present action against three companies, Durango Merchant Services, Frontline Processing Corporation, and Woodforest National Bank 2 , who allegedly assisted the Laurette Counterfeiters and other similar website operators. Durango Merchant Services (“Durango”) is a Wyoming corporation with its business address in Durango, Colorado. According to Defendants, Durango has only five employees, and has no offices, no employees, and no property located in New York. Durango's business is predicated on assisting merchants in setting up credit card processing services with institutions that provide credit card merchant accounts. Durango does business with New York-based companies, but maintains that this accounts for less than one percent of its revenue. Frontline Processing Corporation (“Frontline”) is a Nevada corporation with its principal place of business in Bozeman, Montana. Frontline is a “nationwide provider of credit card processing and electronic payment services for merchants, banks, and sales agents,” and is an “Independent Service Organization” and “Merchant Service Provider” with Visa and MasterCard, respectively. Compl. ¶ 58. Similar to Durango, Defendants claim that Frontline has no office, no employees, and no property in New York. A small minority of the businesses it has worked with maintain addresses in New York. Finally, Woodforest National Bank (“Woodforest”) is a bank organized under the laws of the United States, with its business address in The Woodlands, Texas. Similar to Frontline, Woodforest also “provides certain credit card processing services.” Id. ¶ 14. Like the other two defendants, Woodforest claims to have no New York offices or property in New York, while a small percentage of its business comes from New York-based clients. Gucci alleges that Woodforest provides some of its services through an affiliate with an office in New York, Merchants' Choice Card Services Corporation (“MCCS”), though Woodforest disputes the nature of the relationship.
To understand the roles of the three defendants and their alleged liability, a summary explanation of the credit card transaction process is necessary. A customer will initiate the process when he or she purchases a product from the merchant with a credit card. Once the credit card information is “swiped” on a terminal, or entered on a website, the merchant terminal transmits an authorization request to the merchant's “acquiring bank,” who in this case was Frontline and Woodforest. The acquiring bank sends the credit card request through an electronic network to the cardholder's issuing bank. Based on the cardholder's credit limit or other factors, the issuing bank will send a message back through the network to the acquiring bank, who forwards it back to the merchant, which states that the merchant should either approve or decline the transaction. If approved, the merchant will complete the transaction and the acquiring bank will credit the merchant's account with the appropriate amount of funds. This entire process typically takes a matter of seconds. Some days to months after the sale is completed, the acquiring bank will submit the transaction information to the issuing bank, which will seek payment from the cardholder and settle with the acquiring bank.
Gucci's overarching theory of the case is that Durango arranged for web companies that sold counterfeit Gucci products to establish credit card processing services with companies like Woodforest and Frontline. These processors then provided the credit card services necessary for the sale of the faux Gucci items. The complaint focuses largely on the allegedly representative conduct of Defendants with the Laurette Counterfeiters. According to Plaintiff, Durango acted as an agent for the defendant credit card processing companies 3 to locate potential customers, including the Laurette Counterfeiters and other similar infringing online operations. Durango collected a referral fee for bringing together these...
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