Intern. Star Class Yacht Racing v. Tommy Hilfiger

• Decision Date: 04 March 1997
• Docket Number: No. 94 Civil 2663 (RPP).,94 Civil 2663 (RPP).
• Parties: INTERNATIONAL STAR CLASS YACHT RACING ASSOCIATION, Plaintiff, v. TOMMY HILFIGER U.S.A., INC., Defendant.
• Court: U.S. District Court — Southern District of New York

959 F.Supp. 623

INTERNATIONAL STAR CLASS YACHT RACING ASSOCIATION, Plaintiff, v. TOMMY HILFIGER U.S.A., INC., Defendant.

No. 94 Civil 2663 (RPP).

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

March 4, 1997.

Ross & Hardies, New York City, by J. Joseph Bainton, John G. McCarthy, Chike I. Chukwulozie, for Plaintiff.

Cowan, Liebowitz & Latman, P.C., New York City, by Louis S. Ederer, Joseph H. Lessem, for Defendant.

OPINION AND ORDER

ROBERT P. PATTERSON, Jr., District Judge.

On April 4, 1996 the Second Circuit affirmed in part, vacated in part, and remanded the judgment this Court entered on May 19, 1995. The Second Circuit found that the District Court's conclusion that there was no evidence of bad faith or wilful infringement in defendant Tommy Hilfiger, U.S.A., Inc.'s ("Hilfiger") use of the "Star Class" marks was based on two erroneous factual findings: (1) that the trademark search that defendant undertook was of both federal and state marks, when in fact it was of federal marks only, see International Star Class Yacht Racing Association v. Hilfiger, 80 F.3d 749, 752 (2d Cir.1996); and, (2) that although Hilfiger intentionally copied plaintiff International Star Class Yacht Racing Association's ("ISCYRA") "Star Class" mark, it did not intend to copy a trademark owned by another. Id. at 753. The Second Circuit found this to be clearly erroneous given Hilfiger's minimal efforts to ascertain whether "Star Class" was a trademark. Id.

The Second Circuit also found that the District Court's analysis of Hilfiger's bad faith was incomplete, as the District Court did not address Hilfiger's failure to conduct a full trademark search on Star Class "in direct contravention of the advice of its attorneys," id. at 754, and did not take into consideration Hilfiger's continued sale of allegedly infringing merchandise after initiation of this suit. Id.

On remand, the defendant moved to present additional evidence on the issue of its alleged bad faith and the amount of damages to be imposed, based on the Second Circuit's statement that after plaintiff instituted this action Hilfiger continued to utilize plaintiff's mark on its apparel, "racking up over $3 million in sales". Id.

The District Court granted defendant's motion and allowed the presentation of additional evidence on October 24, 1996. The evidence consisted of the testimony of Steven R. Gursky ("Gursky"), counsel to defendant, whose testimony was designed to rebut the Second Circuit's statement that defendant ignored the advice of his firm in its use of the "Star Class" mark. Also, a witness from Hilfiger's controllers' office presented records showing defendant shipped only $818,492.85 worth of goods bearing the words "Star Class" after the commencement of the action (Transcript of October 24, 1996 Hearing, "Hearing Tr." at 557-60), not the "over $3 million in sales" stated by the Circuit Court.

The Court rejects in toto the testimony of Gursky at the October 24, 1996 hearing. Defense counsel had adequate notice at trial of the plaintiff's claim of bad faith and made a record at trial as to the advice defendant received from its counsel on the use of "Star Class". Contrary to defendant's contention in its Post-Trial Memorandum of Law on Remand ("Post-Trial Mem." at 2-3 n. 1) requesting the evidentiary hearing, prior to trial the plaintiff did raise the issue of the defendant's bad faith, albeit in a less direct fashion than suggested by the Second Circuit. The plaintiff's complaint filed on April 13, 1994 charged a violation of the Lanham Act, which should have alerted defense counsel to the probability of a claim of bad faith, a factor considered under Lanham Act analysis. See Paddington Corp. v. Attiki Importers & Distributors, Inc., 996 F.2d 577, 584 (2d Cir.1993). Also, in its Memorandum in Support of Its Motion For a Preliminary Injunction ("Mem. in Supp. of Prelim. Inj.") filed with the complaint, in sections entitled "Defendant's Bad Faith" (Mem. in Supp. of Prelim. Inj. at 16) and "Predatory Intent" (Id. at 21), as well as in its Memorandum Opposing Summary Judgment, plaintiff disputed defendant's claim of no evidence of intentional copying. Similarly plaintiff leveled charges in the Pre-Trial Order of "wilful and deliberate" copying and "deception", and in its Proposed Findings of Fact and Conclusions of Law, plaintiff charged Hilfiger acted with predatory intent. All of these statements should have put defendant's counsel on notice that at trial plaintiff would be charging bad faith. The fact that defendant's counsel did not realize at trial that plaintiff was offering evidence which could show bad faith is irrelevant. Defendant's counsel had an opportunity to counter such claims with proof from the defendant's executives as to their state of mind in utilizing the mark "Star Class" and chose not to do so, but to rely instead on counter-designations in the deposition testimony of defendant's director of design Michael Sondag ("Sondag")¹ to the effect that he did not know that the Star Class existed as a class of racing yachts. (Transcript of Trial of January 9, 10, 1995, "Trial Tr." at 233-34.) The defense also called Neil Burstein ("Burstein"), of counsel on intellectual property matters to the law firm representing defendant and an adviser to defendant in this matter, to show that the defendant had proceeded to use "Star Class" only after its attorneys had conducted two trademark screening searches. The fact that defendant employed counsel with insufficient trial experience is no excuse for its failure to call additional witnesses.

Accordingly, the evidence presented at the trial is the sole basis on which plaintiff's bad faith claim should be evaluated, and only the evidence at trial (not the evidence at the October 24, 1996 hearing) will be reconsidered in light of the Second Circuit's opinion.

Discussion

In its Findings of Fact and Conclusions of Law, this Court did commit a clear mistake in finding that a trademark search of federal and state registrations had been conducted by the defendant, as opposed to just a federal trademark search.² The Court's recollection of the nature of the "knock-out" trademark search conducted for the defendant was clearly incorrect, but this error is not one of any moment, as a state trademark search would not have revealed any trademark of plaintiff's (Plaintiff's Exhibit, "Pl.Ex." 79),³ and so this error by the Court does not bear on the issue of defendant's bad faith.

The Second Circuit's suggestion that, in light of Hilfiger's minimal efforts to ascertain whether "Star Class" was in fact a trademark, this Court erred in finding Hilfiger guilty only of simple copying and not intent to copy a mark, does not take into account the change in industry practice in trademark searches that took place in the late 1980s and early 1990s of which the District Court was aware.

Corsearch v. Thomson & Thomson, 792 F.Supp. 305 (S.D.N.Y.1992), an antitrust case, was tried before this Judge over a period of about four weeks in late 1991. In that case it was uncontested that after the fall of 1989 industry practice in trademark searches underwent a significant metamorphosis following the general release by the federal patent and trademark office of its computerized data base of all federally registered marks and pending applications. See Corsearch v. Thomson & Thomson, 792 F.Supp. at 308, 323-25. Thereafter, several firms, including Corsearch, Mead Data Central and Dun & Bradstreet, entered the trademark screening search field in competition with Thomson & Thomson which had held "monopoly power in the `comprehensive trademark search market'" and had had an exclusive right, as had Trademark Research Corporation, to license the computerized version of the federal trademark search which they helped develop. Id. at 308. Testimony in Corsearch revealed that a number of "trademark search firms" now offer only screening searches of the federal data base, id. at 323, and that such firms are widely used by in-house and trademark counsel to conduct "knock-out" or "rule out" searches of names and symbols, and comprehensive or "more sophisticated searches are reserved for marks which have passed knock out tests and are being seriously considered for trademark registration." Id. at 311 (quoting Affirmation of Dr. Marion Stewart ¶¶ 21-22).

Indeed, industry statistics demonstrated that a multitude of federal trademark applications are regularly filed without a full search being conducted.⁴ Id. at 307. It was thus common practice for businesses to use trademarks and apply for federal registration without conducting a full trademark search and to rely instead on computerized screening searches, or "knock-out" searches, comprised only of federal trademarks and pending applications, before such use and registration. Id. at 307.

Indeed, the Court has been unable to find any case prior to the Second Circuit decision which has held that a party in Hilfiger's position had a duty to conduct a full search of prior uses of a trademark before use, and has only found two explicitly requiring the search for existing registered marks. See Sands, Taylor & Wood. Co. v. Quaker Oats, Co., 978 F.2d 947 (7th Cir.1992) cert. denied, 507 U.S. 1042, 113 S.Ct. 1879, 123 L.Ed.2d 497 (1993) (aff'g 1990 WL 251914 at * 20 (N.D.Ill. Dec.20, 1990)); see also Zazú Designs v. L'Oreal, 979 F.2d 499, 504 (7th Cir.1992) ("Firms need only search the register before embarking on development."); Hasbro, Inc. v. Lanard Toys, Ltd., 858 F.2d 70 (2nd Cir. 1988) (upholding lower court finding that search limited to only registered marks was not bad faith). Court opinions such as these, although principally dicta, evidently were relied upon in business and by trademark counsel, especially by those anxious not to maximize their costs with full searches and anxious not to delay production while a comprehensive search was conducted.

In light of the common practice in the...