Larsen v. Terk Technologies Corp.
| Decision Date | 14 July 1998 |
| Docket Number | No. 97-1032,97-1032 |
| Citation | 151 F.3d 140 |
| Parties | Tommy LARSEN; Tommy Larsen ApS, Plaintiffs-Appellees, v. TERK TECHNOLOGIES CORPORATION, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: George A. Somerville, Mays & Valentine, Richmond, Virginia, for Appellant. Marsha G. Gentner, Jacobson, Price, Holman & Stern, P.L.L.C., Washington, DC, for Appellees. ON BRIEF: Frank J. Franzino, Jr., Stephen M. Rosenberg, Davida S. Scher, Franzino & Rosenberg, P.C., New York City, for Appellant. Andrew J. Gray, IV, Jacobson, Price, Holman & Stern, P.L.L.C., Washington, DC, for Appellees.
Before HAMILTON and MOTZ, Circuit Judges, and WILLIAMS, Senior United States District Judge for the Eastern District of Virginia, sitting by designation.
Affirmed by published opinion. Judge HAMILTON wrote the opinion, in which Judge MOTZ and Senior Judge WILLIAMS joined.
This action involves a case of "passing off," actionable under the Lanham Act, 15 U.S.C. §§ 1051-1127, and Maryland law. Appellees Tommy Larsen, a Danish citizen, and Tommy Larsen AS, a Danish corporation (collectively Larsen), filed suit against Appellant Terk Technologies Corp. (Terk), alleging that Terk sold counterfeit copies of Larsen's designer compact disc (CD) holder under Larsen's trade name, trademark and logo, and falsely designated it as a product of Denmark. The district court held that Terk intentionally, willfully, knowingly, surreptitiously and fraudulently passed off counterfeit goods of inferior quality as Larsen's authentic Danish-made goods, and awarded Larsen treble damages in the amount of $217,779.78. We affirm.
Tommy Larsen is a designer of products of functional art, useful products designed to be aesthetically and artistically appealing in form and appearance. Tommy Larsen manufactures and distributes his products through Tommy Larsen AS. 1 Terk is a small, privately held New York corporation that produces and distributes upscale consumer electronics equipment.
In 1992, Larsen designed and began distributing a decorative CD holder which Larsen called the "CD 25." (J.A. 78). The CD 25 is made from a single piece of solid steel tubing, bent and curved sinuously into an elegant storage unit that holds 25 CD cases. The CD 25 is sculptural in feel, and available in black or chrome finish. The base of the unit is covered with high-quality rubber tubing that neither slips nor leaves marks on furniture surfaces. The district court noted that it is immediately apparent the CD 25 is a high-quality product.
After introducing the product in Europe, Larsen desired to export the CD 25 to the United States. To accomplish this, Larsen sought the aid of Marna Christensen, the Vice Consul for Trade in the Royal Danish Consulate General in Chicago. Individually and together, Larsen and Christensen contacted and met with buyers for retailers such as the New York Museum of Modern Art (MOMA), Hammacher Schlemmer, Bang & Olufsen, and Sony. As a result of these efforts, Larsen succeeded in shipping and selling CD 25s in the United States. In these early sales, Larsen shipped the CD 25s in a packaging "sleeve" that bore the TOMMY LARSEN name and logo, and identified the product as a "Design of Denmark." (J.A. 398; see also Appellee's Br. at 40).
In addition to these direct marketing efforts, Larsen desired to find a suitable distributor that would market and promote the CD 25 in the United States. In August 1993, Neil Terk, the Chief Executive Officer of Terk Technologies, approached Tommy Larsen at a trade show in Berlin about distributing the CD 25 in the United States. Over the next several weeks, Larsen and Terk engaged in negotiations regarding a distribution arrangement for the product. During these negotiations, Larsen suggested an exclusive distributorship, but Terk rejected the idea because it was unwilling to commit to the minimum sales levels Larsen required for such an arrangement. Terk, on the other hand, proposed manufacturing the CD 25 in New York or the Far East. Larsen rejected this proposal, desiring to keep the CD 25 a Danish product. The discussions culminated in November 1993 when Terk placed its first--and only--order for 11,232 CD 25s. At Terk's request, and to assist Terk in quickly entering and building a U.S. market, Larsen agreed to reduce its price by $1.00 per unit for this initial shipment.
To reduce Terk's costs, Larsen agreed to allow Terk to develop a "gift box" in which to distribute the CD 25s. Terk produced such a box, which included the TOMMY LARSEN name and logo, the name "CD 25," and the phrases "Made in Denmark" and "Design of Denmark" several places on the top and sides of the box. (J.A. 41-42, 396-97).
Terk distributed the CD 25 for sale in upscale electronics, housewares and department stores such as Neiman Marcus, Bang & Olufsen, Bed Bath and Beyond, and Sony retail stores. Terk also sold the CD 25 through mail-order catalogs for high-quality products and objects of applied art such as Attitudes and the MOMA mail order catalogs. In its marketing efforts, press releases, catalogs, advertising and trade show materials, Terk identified and promoted the product as the CD 25, a TOMMY LARSEN product, a TOMMY LARSEN design, a Danish Design, and made in Denmark. Terk also identified the product as the "TOMMY LARSEN" and/or the CD 25 on Terk's invoices. (J.A. 348). Terk packaged the boxed CD 25s in shipping cartons marked "CD 25" and "TOMMY LARSEN TM Design of Denmark." (J.A. 427-28). These marketing efforts paid off, for Terk's customers began to refer to the product as "the TOMMY LARSEN" and/or the "CD 25." (See, e.g., J.A. 487, 489).
Following Terk's initial order in November 1993, Larsen desired to develop Terk's market for the CD 25 in the United States. When companies in the United States inquired about sales of the product, Larsen referred them to Terk. Moreover, Larsen suspended its direct-sales efforts to retailers such as MOMA and Bang & Olufsen, allowing Terk to distribute the product to these companies. However, despite having what appears to have been a de facto exclusive distributorship in the United States, Terk placed no additional orders for CD 25s over the ensuing eighteen months. During this time, Larsen communicated with Terk--even traveling to New York--to determine why Terk was not ordering additional units. During one visit to New York in the Spring of 1994, Terk again raised, and Larsen rejected, the possibility of manufacturing the CD 25 in New York.
Despite Larsen's efforts to obtain another order, Terk continuously gave excuses for not ordering additional units. For example, in a letter dated September 22, 1994, Neil Terk wrote Larsen:
At the present rate of sales, we cannot justify placing another order at this time. In fact, it appears as if it would not be until after the new year. We are presently trying to move out the balance of our inventory between now and the end of the year.... Neither you nor I have been able to make alot [sic] of money from [selling CD 25s], but the friendship keeps it worth pursuing these business opportunities.
(J.A. 412). That letter also indicated that Terk had been sitting on a large inventory of CD 25s for a long time. However, what Terk did not tell Larsen was that Terk had in reality nearly sold out of CD 25s and had received numerous orders for substantial Christmas deliveries. In fact, at that time TJ Maxx Corporation wanted to buy 7,000 CD 25s from Terk, and Larsen could have delivered them had Terk placed the order. The district court made an explicit finding that Terk's failure to place that order constituted a clear lost sales opportunity for Larsen. It turns out that Terk did not need to order units from Larsen because Terk had arranged to have counterfeit CD 25s manufactured by a local company.
In August 1994, Terk had approached Allen Machine Products (Allen), a manufacturer in New York State, about producing counterfeit CD 25s. After comparing the costs of distributing the Allen-made units versus the genuine Larsen products, Terk, without permission from Larsen, placed an order with Allen on September 8, 1994, for the manufacture and delivery of approximately 11,000 counterfeit CD 25s. Allen did manufacture, and Terk took delivery of, these counterfeit units. The district court found that these counterfeit CD 25s were inferior in quality and materials to the Larsen product. For example, they did not have the clean, sharp lines characteristic of Danish Design, and a CD case would not fit in the counterfeit units unless forced. Furthermore, the rubber tubing on the base was loose enough to slip off, and was shown to leave black marks on furniture surfaces.
Terk packaged the counterfeit units in the same gift box Terk had designed for Larsen's products, bearing the "CD 25" and TOMMY LARSEN names, Larsen's logo, and designated a "Design of Denmark" and "Made in Denmark." (J.A. 41-42, 396-97). In its marketing efforts, Terk referred to the Allen-made units as "the TOMMY LARSEN" and the "CD 25." (See, e.g., J.A. 232-35). Moreover, despite being manufactured in New York, Terk promoted the products as Danish design and made in Denmark. In response to purchase orders for "TOMMY LARSEN CD 25s," Terk delivered and sold the counterfeit units. In a colloquy with the district court, Neil Terk admitted to selling counterfeit Larsen products:
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