International Cosmetics v. Gapardis Health

• Decision Date: 26 August 2002
• Docket Number: No. 01-16495.,01-16495.
• Citation: 303 F.3d 1242
• Parties: INTERNATIONAL COSMETICS EXCHANGE, INC., d.b.a. I.C.E. Marketing Corp., a New York Corporation, Plaintiff-Counter-Defendant-Appellant-Cross-Appellee, Gaby McHeileh, Ailatan Investments, Inc., Counter-Defendants-Appellants-Cross-Appellees, v. GAPARDIS HEALTH & BEAUTY, INC., Xavier Tancogne, et al., Defendants-Counter-Claimants-Appellees-Cross-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1242

303 F.3d 1242

INTERNATIONAL COSMETICS EXCHANGE, INC., d.b.a. I.C.E. Marketing Corp., a New York Corporation, Plaintiff-Counter-Defendant-Appellant-Cross-Appellee Gaby McHeileh, Ailatan Investments, Inc., Counter-Defendants-Appellants-Cross-Appellees, v. GAPARDIS HEALTH & BEAUTY, INC., Xavier Tancogne, et al., Defendants-Counter-Claimants-Appellees-Cross-Appellants.

No. 01-16495.

United States Court of Appeals, Eleventh Circuit.

August 26, 2002.

R. Thomas Farrar, Holland & Knight, LLP, Martin Alan Feigenbaum, Miami, FL, Michael J. Ioannou, McClosky, D'Anna, Ioannou & Dieterle, LLP, Boca Raton, FL, for Appellants.

Lauri Waldman Ross, Lauri Waldman Ross, P.A., Miami, FL, for Appellees.

Appeals from the United States District Court for the Southern District of Florida.

Before BIRCH and WILSON, Circuit Judges, and DOWD^*, District Judge.

BIRCH, Circuit Judge:

This appeal arises out of a contract dispute. I.C.E. Marketing Corp. ("ICE"), Gabby McHeileh and Ailatan Investments, Inc. ("McHeileh/Ailatan") appeal a preliminary injunction in favor of Gapardis Health & Beauty, Inc. ("Gapardis") and its principals, Tanios Saba, Abdallah Ghandour, Michel Farah, and Continental Laboratories Medica ("CLM") and its principal Xavier Tancogne. The district court¹ found that the contract between ICE and CLM ("Agreement") was enforceable and that both parties breached the Agreement, although the first breach was by Tancogne and CLM. Furthermore, it found that CLM was entitled to injunctive relief because when ICE began selling non-CLM "FAIR & WHITE" product, ICE caused confusion regarding that trademark, and subsequent sales by McHeileh/Ailatan added to the confusion. We AFFIRM.

I. BACKGROUND

CLM, a French corporation, manufacturers and sells ethnic cosmetic products in France and Europe under its trademark "FAIR & WHITE." CLM's President, Xavier Tancogne, is a chemist with a doctorate in pharmacy and created the formula for the "FAIR & WHITE" products.

ICE, a United States company founded by Michael Aini, is engaged in the purchase, importation, sale and distribution of ethnic cosmetic products. Aini is also the owner of four "Home Boys" stores in Brooklyn, New York, which are discount stores selling health and beauty aids to the African-American community. While in France, Michael's brother Jacob ("Jack") became interested in "FAIR & WHITE." In 1998, Jack purchased small quantities of "FAIR & WHITE" products from CLM to test United States market acceptance. These products were sold in the "Home Boys" stores and were well received.

Thereafter, ICE and CLM entered into contract negotiations to continue "to develop, market and promote the `FAIR & WHITE' brand name in the United States." R1-31-44. The Agreement stated that CLM was the owner of the "FAIR & WHITE" trademark in France and Europe, and that ICE was "the owner and holder of all rights, title and interest in the mark `FAIR & WHITE' in the United States, Canada and Caribbean Islands." Id. In return, the Agreement obligated ICE to sell $250,000 for the first year and use its best efforts to increase sales by 20 percent per year over the next five years. However, there were no provisions as to purchase or manufacture of the products. Another term of the Agreement was that it would be governed by New York law.

In the fall of 1999, ICE purchased approximately $125,000 of "FAIR & WHITE" product from CLM. ICE applied to register the mark with the United States Patent and Trademark Office in early 2000.

Meanwhile, Michel Farah, owner of Gapardis, a distributor of ethnic products in Miami, became interested in "FAIR & WHITE" products and contacted Tancogne. On 13 April 2000, Farah and his associate Tanios Saba entered into an agreement by which Gapardis became the exclusive distributor in the United States for CLM's cosmetics bearing the "FAIR & WHITE" mark.

At some point, Tancogne became aware that counterfeit "FAIR & WHITE" goods were being sold in the United States. He believed that ICE was responsible and stopped providing ICE with product in April of 2000. ICE then took immediate steps to procure substitute "FAIR & WHITE" products from a Spanish manufacturer, Jabones Pardo. ICE provided Pardo with samples of "FAIR & WHITE" products and the formula of its active ingredients. Thereafter, ICE distributed non-CLM manufactured goods bearing the "FAIR & WHITE" mark and the associated trade names in the United States.

Gaby McHeileh with Ailatan Investments, Inc. was in business with Michel Farah. When McHeileh was excluded from the agreement between CLM and Gapardis, he began to receive and sell product from other sources, which were believed to be counterfeit "FAIR & WHITE" products. As a result of undercover purchases in several Florida stores, it was established that McHeileh/Ailatan was selling counterfeit "FAIR & WHITE" product. The "FAIR & WHITE" products were identified as counterfeit because they contained a small visible "pipette" inside the bottle, which is not present on the CLM manufactured product. See generally R3-258.

ICE filed an action under the Lanham Act, 15 U.S.C. § 1125, against Gapardis and its principals, Saba, Ghandour, Farah, and CLM and its principal Tancogne asserting inter alia, trademark infringement and breach of contract. ICE sought a preliminary injunction for infringement of its United States trademark rights to the "FAIR & WHITE" mark.

Gapardis, CLM, and Tancogne counterclaimed against ICE and added counter-defendants McHeileh/Ailatan. Also alleging Lanham Act violations and related state law claims, they moved for a preliminary injunction to prevent ICE and McHeileh/Ailatan from importing or selling counterfeit CLM goods under the "FAIR & WHITE" mark and its associated trade names.

The district court found that the ICE/CLM Agreement was enforceable and, according to the Agreement, ICE was owner and holder of all rights in the "FAIR & WHITE" mark in the United States. It concluded that Tancogne breached the Agreement when CLM, without notifying ICE, obtained a more favorable agreement with Gapardis, and when CLM failed to supply ICE with "FAIR & WHITE" products. However, ICE could not show irreparable harm to substantiate a preliminary injunction because ICE had breached the Agreement by selling counterfeit "FAIR & WHITE" products. The district court determined that the "FAIR & WHITE" mark reverted back to CLM. Further, ICE and McHeileh/Ailatan were enjoined from using the "FAIR & WHITE" mark and associated trade name, and from importing and distributing "FAIR & WHITE" products into the United States.

II. DISCUSSION

First, we affirm the ruling that the ICE/CLM Agreement was enforceable. CLM argues that the Agreement was an invalid "`assignment in gross,' which at minimum assigned the mark to ICE only in conjunction with the sale of genuine CLM-manufactured products." Appellee Brief at 25. CLM maintains that ICE was only interested in owning the mark and did not purchase its formula or any assets. However, it is well-settled law that "the transfer of a trademark or trade name without the attendant good-will of the business which it represents is, in general, an invalid, `in gross' transfer of rights." Berni v. Int'l Gourmet Rest. of Am., 838 F.2d 642, 646 (2d Cir.1988). Although an assignment must be accompanied by the attendant good-will, there need not be any transfer of tangible assets. See Defiance Button Mach. Co. v. C & C Metal Prod. Corp., 759 F.2d 1053, 1059-60 (2d Cir. 1985). "[A]n assignment of United States trademark rights by a foreign manufacturer to its United States distributor ordinarily will not be regarded as an assignment in gross, even if the transfer occurs after the designation has acquired trademark significance in this country." J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 29:8 (4th ed. 2002) (citation omitted).

As the district court correctly notes, the Agreement clearly recognizes the prior efforts of ICE with respect to "FAIR & WHITE" product:

I.C.E. has developed, distributed and marketed the "FAIR & WHITE" brand name in connection with the Products in the United States ... and as a result of I.C.E.'s efforts, the "FAIR & WHITE" brand name has achieved wide-spread popularity, recognition and awareness, and has become known to retailers and consumers in the United States....

R1-31-44. Thus, at the time the Agreement was created, the assignment was not in gross because it continued the association of the "FAIR & WHITE" trademark with the very goods which created its reputation. Thus, we agree with the district court that the Agreement was enforceable. Having established that the Agreement was enforceable, we analyze the appropriateness of injunctive relief.

"The grant or denial of a preliminary injunction is within the sound discretion of the district court and will not be disturbed absent a clear abuse of discretion." Palmer v. Braun, 287 F.3d 1325, 1329 (11th Cir.2002). A party seeking a preliminary injunction for trademark infringement must establish four elements: "(1) a substantial likelihood of success on the merits; (2) a substantial threat of irreparable injury if the injunction were not granted; (3) that the threatened injury to plaintiffs outweighs the harm an injunction may cause the defendant; and (4) that granting the injunction would not disserve the public interest." Levi Strauss & Co. v. Sunrise Int'l Trading Co., 51 F.3d 982, 985 (11th Cir.1995) (quotation omitted).

A. ICE's Entitlement to Injunctive Relief

The district court found that ICE established a substantial likelihood of success as to its claim against CLM for breach of contract. The essential elements of an action for breach of contract under New York law are: (1) formation of a contract between the parties; (2) performance by ICE; (3) non-performance by Tancogne and CLM; and (4) resulting damages to ICE. See Terwilliger v. Terwilliger, 206 F.3d 240, 245-46 (2d Cir.2000) (quotation...