Lurzer Gmbh v. American Showcase, Inc.

• Court: U.S. District Court — Southern District of New York
• Writing for the Court: Rakoff
• Citation: Lurzer Gmbh v. American Showcase, Inc., 75 F.Supp.2d 98 (S.D. N.Y. 1998)
• Decision Date: 30 December 1998
• Docket Number: No. 97 Civ. 6576(JSR).,97 Civ. 6576(JSR).
• Parties: LURZER GMBH, Plaintiff, v. AMERICAN SHOWCASE, INC. and the One Club for Art & Copy, Inc., Defendants.

Page 98

75 F.Supp.2d 98

LURZER GMBH, Plaintiff, v. AMERICAN SHOWCASE, INC. and the One Club for Art & Copy, Inc., Defendants.

No. 97 Civ. 6576(JSR).

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

December 30, 1998.

Georges Nahitchevansky, Fross Zelnick Lehrman & Zissu, New York City, for plaintiff.

Richard C. Seltzer, Kaye, Scholer, Fierman, Hays & Handler, New York City, for defendants.

MEMORANDUM ORDER

RAKOFF, District Judge.

This Memorandum Order resolves all motions not finally determined by the prior orders and proceedings in this case, full familiarity with which is here presumed. Specifically, this Memorandum Order addresses ten issues that either were not presented to the jury or else were raised subsequent to the jury's verdict of October 15, 1998 that (i) found defendant The One Club for Art & Copy, Inc. not liable on plaintiff Lurzer GMBH's trademark infringement claim (the only claim against that defendant not otherwise dismissed by the Court); (ii) found defendant American Showcase, Inc. liable for infringing Lurzer's "Archive" trademark in connection with the publication called "One." and awarded Lurzer $180.00 on that claim; (iii) found American Showcase liable for infringing Lurzer's "Archive" trademark in connection with the publication called "Klik!" and awarded Lurzer $652,811.00 on that claim; (iv) found American Showcase liable on Lurzer's breach of contract claim for failing to pay certain subscription royalties and awarded Lurzer $39,226.00 on that claim; and (v) awarded American Showcase $219,000.00 on its breach of contract counterclaim against Lurzer for Lurzer's refusal to print 70 pages of paid advertising in certain issues of Archive magazine, as to which the Court had previously found Lurzer liable. See Lurzer GMBH v. American Showcase, 73 F.Supp.2d 327, 331 (S.D.N.Y. 1998).

First, the Court denies Lurzer's motion for a declaration rescinding the contract between Lurzer and American Showcase¹ and directing American Showcase to take numerous actions attendant on such a declaration. See Pl. Mot. at 31.

Under New York law (which governs this contract), the extraordinary remedy of rescission will be granted only if the breach in question "may be said to go to the root of the agreement between the parties," Septembertide Publishing, B.V. v. Stein & Day, Inc., 884 F.2d 675, 678 (2d Cir.1989) citing Canfield v. Reynolds, 631 F.2d 169, 178 (2d Cir.1980) (applying New York law), and is "so substantial and fundamental as to strongly defeat the object of the parties in making the contract." Callanan v. Powers, 199 N.Y. 268, 284, 92 N.E. 747 (Ct.App.1910). While Lurzer claims that the trademark infringement found by the jury constitutes such a breach, in actuality that infringement had nothing to do with the contract in question, which, as the Court previously determined, is "silent regarding trademark rights." Lurzer, 73 F.Supp.2d at 329.

Rather, the fundamental purpose of the contract is to arrange for the publication and distribution in the United States of Archive magazine. American Showcase breached this contract in only two, minor respects — first, as the jury found, by failing to pay $39,226.00 in subscription royalties during a limited period of time, and, second, as the Court found, by failing to pay $9,191.00 for run-ons and related items as a result of a misapplication of currency exchange rates. See Trial Tr. 2324-25, 2523. These acts, whether evaluated alone or in combination, cannot be considered a substantial breach in the context of this large, long-term contract.² Indeed, courts have declined to grant rescission in cases where defendants have been far more delinquent in paying far greater percentages of royalties required under a contract. See, e.g., Nolan v. Sam Fox Publishing Co., 499 F.2d 1394, 1398-99 (2d Cir.1974) (affirming trial court's refusal to grant rescission where defendant failed to pay 74 per cent of the royalties due under a contract). Accordingly, Lurzer's application for rescission must be denied.

Second, the Court grants in part and denies in part Lurzer's motion for a permanent injunction enjoining American Showcase from using Lurzer's "Archive" mark in any way, soliciting business from any of Lurzer's subscribers or advertisers, misleading anyone into believing that Klik! or One. are related to Archive, and misappropriating editorial materials submitted for publication in Archive. See Pl. Mot. at 24; Oral Arg. Tr. Nov. 25, 1998.

Although the Lanham Act gives a district court the power to grant injunctive relief "according to the principles of equity and upon such terms as the court may deem reasonable," 15 U.S.C. § 1116, "the relief granted should be no broader than necessary to cure the effects of the harm caused," George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532, 1542 (2d Cir.1992) (internal citations and quotation marks omitted). Here, it is clear to the Court from its own familiarity with the evidence in this case that the jury's findings of infringement were based not on an ongoing pattern of widespread abuse but on a few discreet, albeit willful, instances of misuse of the Archive name and letterhead in connection with the sale of advertising in Klik! (and, to a trivial extent, in connection with One.). Since American Showcase has "ceased its infringing conduct and shows no inclination to repeat the offense," Reader's Digest, Inc. v. Conservative Digest, Inc., 821 F.2d 800, 807 (D.C.Cir.1987), the broad injunctive relief Lurzer seeks is unwarranted. See Id.; Schutt Mfg. Co. v. Riddel, Inc., 623 F.2d 202, 207 (7th Cir. 1982); cf. Burndy Corp. v. Teledyne Industries, 748 F.2d 767, 772 (2d Cir.1984).

Moreover, granting the sweeping injunction sought by Lurzer would allow it to prevail on claims it has already litigated and lost. For example, preventing American Showcase from using the mark "in any way" would preclude it from performing its contractual duty to distribute the United States edition of Archive. See Def. Ex. 52, Contract of March 14, 1987 ("1987 Contract"), Part I ¶ 1. This would amount to a rescission of the contract between the parties — a remedy the Court has rejected.

Nevertheless, based on the parties' submissions and oral arguments, the Court concludes that there continues to exist some danger that American Showcase is not taking sufficient steps to disabuse those persons seeking to submit editorial material for publication in Archive of any notion that American Showcase is any longer entitled to have any role in that process. Accordingly, American Showcase is hereby not only enjoined from soliciting editorial materials for publication in Archive magazine but also directed to send directly to Lurzer, within 48 hours of receipt, any editorial materials intended for Archive that American Showcase hereinafter receives. Moreover, in order to obviate any future such submissions to American Showcase, the Court also enjoins American Showcase from making any statement suggesting that editorial materials for Archive should be submitted to American Showcase or that American Showcase is acting as Lurzer's agent in any way with respect to such materials.

Third, the Court denies Lurzer's motion for an award of prospective advertising costs to correct the "misleading impressions created by defendant's infringement." Pl. Mot. 28.

Corrective advertising is a remedy designed to "counteract the public confusion" resulting from trademark infringement, see Big O Tire Dealers v. Goodyear Tire & Rubber Co., 561 F.2d 1365 (10th Cir.1977); but at the trial in this case Lurzer was unable to adduce material evidence of actual confusion and, instead, submitted its infringement claims to the jury on a theory of intentional deception. See Trial Tr. at 1297. Moreover, even if Lurzer were now able to adduce sufficient proof of actual confusion as to merit further consideration of the issue, the motion would nonetheless fail because Lurzer has not made the additional showing necessary to justify a prospective award, an extraordinary remedy reserved for cases in which a plaintiff lacks the financial ability to pay for reparative ads. See Mastercard Int'l v. Arbel Corp., No. 86 Civ. 6801(SWK), 1989 WL 125781, at *8 (S.D.N.Y. Oct. 18, 1989); Cuisinarts, Inc. v. Robot-Coupe Int'l, 580 F.Supp. 634, 641 (S.D.N.Y.1984).

Fourth, the Court denies Lurzer's motion to vacate the jury award of $219,000 for American Showcase's breach of contract counterclaim on the ground that American Showcase failed to give proper notice of the breach and the concomitant opportunity to cure.

This belated argument — made not only after the Court awarded summary judgment on the counterclaim but also after Lurzer allowed the issue of damages on the counterclaim to be submitted to the jury without this objection — comes far too late to avoid the bar of waiver. See Wolff & Munier, Inc. v. Whiting-Turner Contracting Co., 946 F.2d 1003, 1009 (2d Cir. 1991); cf. Peter A. Camilli & Sons, Inc. v. State, 41 Misc.2d 218, 223, 245 N.Y.S.2d 521, 527 (Ct.Cl.1963); Kelly v. St. Michael's Roman Catholic Church, 148 App. Div. 767, 773, 133 N.Y.S. 328, 334 (2d Dep't 1912).

Moreover, contrary to Lurzer's arguments, this Court never ruled that American Showcase's notice of default (or the countervailing notice of default submitted by Lurzer in connection with its breach of contract claim) was inadequate for all purposes. Rather, the Court simply found that the notices were insufficient to trigger the forfeiture provisions of the contract, which provide that failure to cure within a specified period after receiving proper notice results in a loss of all contractual rights. Trial Tr. at 1480, 2501; see 1987 Contract, Part I ¶ 9(vi), Part II ¶ 1A. As the Court noted in making its prior ruling, when a party seeks the draconian remedy of forfeiture based on another party's failure to respond to a notice of default, the notice in question will be scrutinized carefully and any inadequacy, no...