Hilton Intern. Co., Inc. v. Hilton Hotels Corp.

• Decision Date: 15 May 1995
• Docket Number: 91 Civ. 7510 (JFK).
• Citation: 888 F. Supp. 520
• Parties: HILTON INTERNATIONAL CO., INC., Plaintiff, v. HILTON HOTELS CORPORATION, Conrad International Hotels Corporation, Hilton Hotels U.S.A., Inc., Conrad Royalty Corp. and Conrad International Investment Corp., Defendants.
• Court: U.S. District Court — Southern District of New York

888 F. Supp. 520

HILTON INTERNATIONAL CO., INC., Plaintiff, v. HILTON HOTELS CORPORATION, Conrad International Hotels Corporation, Hilton Hotels U.S.A., Inc., Conrad Royalty Corp. and Conrad International Investment Corp., Defendants.

91 Civ. 7510 (JFK).

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

May 15, 1995.

Cowan, Liebowitz & Latman, P.C. (Robert J. Bernstein, Richard S. Mandel, of counsel), New York City, for plaintiff.

Brumbaugh, Graves, Donohue & Raymond (Joseph D. Garon, Doreen L. Costa, Thomas J. Parker, of counsel), New York City, for defendants.

FINDINGS OF FACT and CONCLUSIONS OF LAW

KEENAN, District Judge:

BACKGROUND

Plaintiff, Hilton International Co., Inc. ("HI" or "International"), seeks a permanent injunction restraining defendants from using the name CONRAD in connection with hotels located outside the United States and otherwise enforcing the terms of a certain Trademark Agreement. This agreement, PX 1,¹ was entered into by the parties on December 1, 1964. This Trademark Agreement provides inter alia that HI has the exclusive right to use HILTON as the name of hotels operated outside the United States; and Hilton Hotels Corporation ("HHC") has the exclusive right to use HILTON as the name of hotels operated within the United States.

The 1964 Agreement also includes a provision permitting the parties to operate hotels outside their designated HILTON territories provided the hotels are (i) not named "HILTON," and (ii) not "directly" or "indirectly" advertised, promoted or identified as "HILTON" hotels. See PX 1. Plaintiff maintains that defendants are violating this agreement by operating hotels known as "CONRAD" in several locations outside the United States.

A summary of the pleadings should be helpful in order to follow and understand this decision. HI brings the following causes of action against HHC based on HHC's use of the name CONRAD for its international properties: (1) breach of an agreement not to advertise, promote, or identify hotels operated outside the United States directly or indirectly as HILTON hotels; (2) breach of an implied covenant not to derogate from the value of goodwill in HILTON transferred by HHC to HI; (3) unfair competition under New York common law; and (4) false advertising under § 43(a) of the Lanham Act. HI seeks an injunction against use of the name CONRAD, and damages.

HHC raises the following affirmative defenses: (1) failure to state a claim for which relief can be granted; (2) unclean hands based on the fact that HI previously evidenced an interpretation of the Trademark Agreements which is opposed to the positions asserted by them in this lawsuit and that HI caused the harm that they now seek to remedy; (3) laches, acquiescence and estoppel based on HI's delay in asserting its rights as well as its affirmative acts which evidenced a consent to the use of the name CONRAD, while HHC expended significant sums developing and promoting the name CONRAD; (4) fair use of the name of HHC's founder, Conrad Hilton; and (5) The statute of limitations bars HI from asserting that the manner in which "CONRAD" was used before October 1988 in promoting, advertising and identifying the CONRAD hotels in Australia and St. Martin, breaches the trademark agreements.

HHC asserts the following Counterclaims against HI: (1) breach of the trademark agreements as a result of HI's advertising, promotion and identification of VISTA hotels directly and indirectly as HILTON hotels; and (2) prima facie tort under New York common law resulting from simultaneous termination by HI of its participation in joint HHC-HI programs and the institution of this lawsuit with the sole intention of inflicting harm on HHC without excuse or business justification. HHC seeks an injunction and damages.

The trial has been bifurcated to first determine liability. If necessary, damages will be determined by a separate trial.

FINDINGS OF FACT

Plaintiff HI is a Delaware corporation owned by a British conglomerate, Ladbroke Group PLC, having its principal place of business in London, England. HI owns or operates the HILTON hotel chain abroad, and the VISTA hotel chain in the United States. See Stip. at ¶ 1.

Defendant HHC is a Delaware corporation having its principal place of business in Beverly Hills, California. Through various subsidiaries, HHC owns, operates or franchises the HILTON hotel chain in the United States and the CONRAD hotel chain abroad. See Stip. at ¶ 2. Defendant Hilton Hotels U.S.A., Inc. ("Hilton USA"), is a Delaware corporation, and a wholly owned subsidiary of HHC, having its principal place of business in California. See Stip. at ¶ 3. Defendants, Conrad International Hotels Corporation, Conrad Royalty Corporation, and Conrad International Investment Corporation are Nevada corporations, and wholly-owned subsidiaries of Hilton USA, having their principal places of business in California. See Stip. at ¶¶ 4-7.

HI was organized by HHC in 1948 to establish HILTON hotels outside the continental United States. HHC's and HI's founder and first president was Conrad Hilton, the world-renowned hotelier. See Stip. at ¶¶ 7-8. HI began its expansion outside the United States in 1949 with the opening of the Caribe HILTON, a 300 room hotel in Puerto Rico. See Tr. at 922; PX 613. Over the next decade, HI opened HILTON hotels in Madrid, Istanbul, Mexico City, Panama, Havana, Montreal, Berlin and Acapulco. In 1964, HI was spun-off as a separate company. At that time, HI was operating 23 hotels around the world, with eight additional hotels under construction. See PX 613.

Conrad Hilton was integrally associated with HI's early development. See Tr. at 1930. After the spin-off in 1964, Conrad Hilton remained Chairman of the Board of Directors and President of both HHC and HI. While he continued to run HHC, Conrad Hilton ceased the active management of HI which was taken over by its then Executive Vice President, Curt Strand. See Tr. at 930-31, 942, 3354. However, his image and reputation were central to the openings of the various international HILTON hotels. See Tr. at 937. He was a major figure at the hotel openings, which were media events attended by movie stars, the press, local politicians and dignitaries. See Tr. at 923-28, 933-38; PX 1886, PX 1887, PX 1977. The openings generated extensive publicity, much of it focusing on Conrad Hilton, who had his own public relations person. See Tr. at 925, 928, 935, 937, 1930-31, 3286. As a result of his close involvement with HI's development abroad, Conrad Hilton established a worldwide reputation as the founder of HI and the world's most famous hotelier. See Tr. at 3286-87. The names Conrad Hilton and HILTON both became very well known around the world (see Tr. at 1913, 3286-87), and Conrad Hilton's own image and reputation became closely associated with the HILTON name. See Tr. at 978-979.

From the founding of HI in 1948 until December 1, 1964, all of HI's issued and outstanding stock was owned by HHC. See Stip. at ¶ 10. In 1964, HHC's Board of Directors decided to spin-off HI as a separate company because Conrad Hilton's financial advisors believed the market was not fully appreciating the value of this company. See Tr. at 846-47, 3280-81. The HHC Board concluded that having HI and HHC trading as one stock "was like having a race horse and a plow horse" pulling the same wagon. See Tr. at 3281. The "race horse" in this analogy was HI, which HHC believed had tremendous growth potential. See Tr. at 3281.

HHC's Board of Directors eventually authorized the distribution of all the issued and outstanding stock of HI to HHC's shareholders of record as of November 16, 1964 on the basis of one share of HI for each two shares of HHC owned on that date. The shares of HI were mailed to the shareholders on December 1, 1964. See Stip. at ¶ 11. The combination of the two stocks appreciated by 35% as soon as the spin-off took place. See Tr. at 3281.

In connection with the spin-off, HI and HHC entered into a series of agreements, including the Trademark Agreement. See PX 1. HI and HHC also entered into two agreements, the same day, December 1, 1964, relating to the joint ownership and management of Hilton Reservation Service ("HRS") through Hilton Service Corporation ("HSC"), a corporation owned 51% by HHC and 49% by HI. See PX 2. The parties contractually committed to participate in HRS for a period of forty years. See PX 2, at ¶ 9.

The Trademark Agreement was drafted by HHC. See Tr. at 852-53. It provided that it was to be construed in accordance with Delaware law. Under the Agreement, HI received the sole and exclusive right to use the HILTON name and trademarks outside the United States and HHC received the sole and exclusive right to use the HILTON name and trademarks in the United States (with the exception of certain specified rights given to HI with respect to a pre-existing HI hotel in Hawaii). See PX 1. The key provision of PX 1 so far as this lawsuit is concerned is contained in Section A, paragraph 4 thereof. It reads in pertinent part as follows:

nothing contained herein shall prevent either Hotels or International from owning, leasing, operating, managing or licensing others to operate hotels, restaurants, bars or related facilities any place in the world under other than the "HILTON" name, service marks and symbols hereinabove referred to, provided that any such hotels, restaurants, bars or related facilities are not advertised, promoted or identified, directly or indirectly, as "HILTON" hotels.

The word "indirectly" is the problem because of subsequent actions by both HI and HHC.

The Trademark Agreement was designed to divide the goodwill associated with the HILTON name on a global basis. The agreement ensured that subsequent to the spin-off of HI from HHC and the commencement of their operation as separate companies, the goodwill associated with the HILTON name would inure exclusively to the benefit of HI outside the United...