Matrix Essentials, Inc. v. Emporium Drug Mart, Inc., of Lafayette

• Decision Date: 19 April 1993
• Docket Number: No. 91-4457,91-4457
• Citation: 26 USPQ2d 1532,988 F.2d 587
• Parties: 1993-1 Trade Cases P 70,196, 26 U.S.P.Q.2d 1532 MATRIX ESSENTIALS, INC., Plaintiff-Counter-Defendant, Appellant-Cross-Appellee, v. EMPORIUM DRUG MART, INC., OF LAFAYETTE, d/b/a Drug Emporium, and Emporium Drug Mart, Inc., of Shreveport, d/b/a Drug Emporium, Defendants-Counter Claimants, Appellees-Cross-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 587

988 F.2d 587

1993-1 Trade Cases P 70,196, 26 U.S.P.Q.2d 1532

MATRIX ESSENTIALS, INC., Plaintiff-Counter-Defendant, Appellant-Cross-Appellee, v. EMPORIUM DRUG MART, INC., OF LAFAYETTE, d/b/a Drug Emporium, and Emporium Drug Mart, Inc., of Shreveport, d/b/a Drug

Emporium, Defendants-Counter Claimants,

Appellees-Cross-Appellants.

No. 91-4457.

United States Court of Appeals, Fifth Circuit.

April 19, 1993.

Louis A. Colombo, Cleveland, OH, Louis Simon, II, Laborde & Neuner, Lafayette, LA, Theresa M. Gallion, Baker & Hostetler, Orlando, FL, for plaintiff-counter-defendant, appellant-cross-appellee.

Patrick J. Hanna, Joseph L. Lemoine, Jr., Onebane, Donohoe, Bernard, Torian, Diaz, McNamara & Abell, Lafayette, LA, for defendants-counter claimants, appellees-cross-appellants.

Appeals from the United States District Court for the Western District of Louisiana.

Before GARWOOD and EMILIO M. GARZA, Circuit Judges. ^*

GARWOOD, Circuit Judge:

Plaintiff-appellant Matrix Essentials, Inc. (Matrix) appeals a summary judgment rendered against it by the district court on claims of trademark infringement and unfair competition stemming from the unauthorized sale of its products by defendant-appellee-cross-appellant Emporium Drug Mart, Inc., (Emporium). 756 F.Supp. 280. Emporium cross-appeals the summary judgment rendered against it on its antitrust claims against Matrix. Finding no error below, we affirm both judgments.

Facts and Proceedings Below

Matrix is a manufacturer of specialty hair-care products that are normally sold only in hair-cutting salons. The products are labeled with Matrix's registered trademark and are often (but not always) marked with a label stating that they are intended to be sold only in professional salons. Matrix distributes its products through wholesale distributors who are contractually bound to resell Matrix products only to licensed cosmetologists.

Matrix intends that its products either be used by licensed cosmetologists on their clients in a salon, or be sold by a licensed cosmetologist to a consumer. Matrix also intends that such consumer sales be accompanied by a consultation so that the consumer may be directed to the particular Matrix product appropriate for the consumer's hair and scalp condition. To this end, Matrix spends several millions of dollars per year training cosmetologists in the use and sale of Matrix products. Matrix does not, however, monitor or otherwise act to attempt to insure that consumer sales of Matrix products happen only after consultation.

Emporium is the owner of two independent, high-volume, low-mark-up, over-the-counter retail drug stores. In 1988 Emporium procured and stocked on its shelves a large quantity of Matrix products with Matrix labeled instructions for home use. These products bore the Matrix trademarks and were the same products available in salons. Many of the Matrix products stocked by Emporium bore the labels "Sold Only in Professional Salons," or "Guaranteed Only When Purchased in Professional Salons."

Upon learning of Emporium's sale of Matrix products to consumers, a group of local salons complained to Matrix about competition from Emporium. Matrix's local wholesale distributor also complained. In July 1989, Matrix authorized its local distributor to buy out Emporium's stock of Matrix products at Matrix's expense. Emporium was able to restock its shelves with Matrix products, however, and Matrix subsequently demanded that Emporium cease its unauthorized sales of Matrix products.

When Emporium refused, Matrix on November 7, 1989, filed this suit in the United States District Court for the Western District of Louisiana alleging trademark infringement and unfair competition under the Lanham Act, 15 U.S.C. §§ 1114(1), 1125(a), and unfair competition under the Louisiana Unfair Trade Practices and Consumer Protection Law, L.S.A. § 51:1401. ¹ Emporium filed a counterclaim alleging that Matrix and its distributors and salon retailers had engaged in an unlawful conspiracy to restrain trade in violation of section 1 of the Sherman Act, 15 U.S.C. § 1.

Each party moved for dismissal or summary judgment of the other's claims. The district court granted Matrix's motion for dismissal or summary judgment as to Emporium's antitrust claims on December 13, 1990. Subsequently, Matrix presented evidence regarding its salon education program and sales/distribution network, including the deposition testimony of Matrix's president and CEO. The district court granted Emporium's motion for summary judgment on February 15, 1991. Both parties filed timely notices of appeal.

Discussion

I. Trademark and Unfair Competition Claims.

There are no disputed issues of material fact here. Summary judgment is proper "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Matrix bears the burden of proof here. Taking the evidence in the light most favorable to Matrix, the non-moving party, Lavespere v. Niagara Machine & Tool Works, Inc., 910 F.2d 167, 178 (5th Cir.1990), Emporium purchased Matrix products and sold them without authorization by Matrix. Matrix has made no showing or allegation that the products are counterfeit, or that Emporium has tampered with them in any way. Matrix acknowledges that, at least physically, the products sold by Emporium are of the same origin and quality as those sold by salons.

Matrix bases its claim on two theories. The first theory is that Emporium is not selling "genuine" Matrix products, because it is selling them without the professional consultation that is supposed to be available when a consumer chooses a Matrix product to purchase. Thus, according to Matrix, Emporium is circumventing an important quality control function of Matrix's distribution system. The product that an Emporium customer buys, without this potential assistance in selection, is therefore not the full, complete, and genuine Matrix product.

Matrix's second theory is that by stocking Matrix products, Emporium is deceiving the public into believing that Matrix has authorized Emporium to do so. This, according to Matrix, "is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association" of Emporium with Matrix "or as to the origin, sponsorship, or approval" by Matrix of Emporium's sale of Matrix products. 15 U.S.C. § 1125(a)(1).

Because liability under the Lanham Act is predicated on the use of a trademark in a way that is "likely to cause confusion," Soweco, Inc. v. Shell Oil Co., 617 F.2d 1178, 1185 (5th Cir.1980) (quoting 15 U.S.C. § 1114(1)(a), cert. denied, 450 U.S. 981, 101 S.Ct. 1516, 67 L.Ed.2d 816 (1981)), consumer confusion must be the linchpin of our analysis in this case. As recognized by the Fourth and Ninth Circuits (as well as various district courts), the general rule is that "trademark law does not apply to the sale of genuine goods bearing a true mark, even if the sale is without the mark owner's consent." Shell Oil Co. v. Commercial Petroleum, Inc., 928 F.2d 104, 107 (4th Cir.1991) (citing NEC Electronics v. CAL Circuit Abco, 810 F.2d 1506 (9th Cir.), cert. denied, 484 U.S. 851, 108 S.Ct. 152, 98 L.Ed.2d 108 (1987)).

In Shell, supra, the defendant was prohibited from selling bulk oil under Shell trademarks because the distributor did not observe the strict tank and line cleaning requirements that Shell required of its authorized distributors. These requirements insured that pure Shell-trademarked oil was not subjected to residue impurities in the tanks and lines of the distributors as it made its way to customers. Shell, supra, 928 F.2d at 107.

In El Greco Leather Products Co., Inc. v. Shoe World, Inc., 806 F.2d 392 (2d Cir.1986), cert. denied, 484 U.S. 817, 108 S.Ct. 71, 98 L.Ed.2d 34 (1987), the defendant, a discount shoe retailer, bought shoes bearing the plaintiff's trademark from a Brazilian manufacturer that had manufactured the shoes pursuant to the plaintiff's order. The manufacturer sold the shoes to the defendant after the plaintiff cancelled the order because of late delivery. The Second Circuit held that, because the shoes imported by the defendant had not undergone the careful quality inspection by the plaintiff's Brazilian agent that was normally required by the plaintiff before it sold its shoes in the United States, the shoes imported by the defendant were not "genuine."

Similarly, in Adolph Coors Co. v. A. Genderson & Sons, Inc., 486 F.Supp. 131 (D.Colo.1980), the court found that the Coors beer sold by the defendant distributor was not "genuine" Coors beer (though it had been manufactured and labeled by Coors) because the defendant, an unauthorized distributor, did not maintain the careful refrigeration requirements in transporting and storing the beer mandated by Coors. Coors beer contained no preservatives, and if allowed to sit unrefrigerated for long periods of time could deteriorate. The district court therefore determined that the beer sold by the defendant was therefore not "genuine" Coors beer. Id. at 134-137.

Not all value-added functions dictated by the manufacturer are required to insure a "genuine" product, however. In H.L. Hayden Co. of N.Y., Inc. v. Siemens Medical Systems, Inc., 879 F.2d 1005 (2d Cir.1989), the defendant imported and sold through its catalogue dental equipment manufactured by the plaintiff and bearing the plaintiff's trademarks. The defendant did not install the equipment sold, though the plaintiff required its authorized distributors to install the equipment they sold. The plaintiff argued that because its "product" was not merely what it manufactured, but rather what it manufactured and authorized its dealers to install, the defendant was not selling a genuine product. The Second Circuit rejected this...