Original Appalachian Artworks v. GRANADA ELECTRON.
| Decision Date | 23 July 1986 |
| Docket Number | No. 85 Civ. 9064 (WCC).,85 Civ. 9064 (WCC). |
| Citation | 640 F. Supp. 928 |
| Parties | ORIGINAL APPALACHIAN ARTWORKS, INC., Plaintiff, v. GRANADA ELECTRONICS, INC., Defendant. |
| Court | U.S. District Court — Southern District of New York |
Wyatt, Gerber, Shoup, Scobey & Badie, New York City, for plaintiff; Gerard F. Dunne, Bruce N. Proctor, Eliot S. Gerber, New York City, Stanley F. Birch, Jr., Vaughn, Roach, Davis, Birch & Murphy, William H. Needle, Atlanta, Ga., of counsel.
Haas, Greenstein, Hauser, Sims, Cohen & Gerstein, P.C., New York City, for defendant; Noel W. Hauser, of counsel.
This action raises again the always troublesome issue whether the owner of a registered U.S. trademark can prevent the sale in this country of imported "grey goods" bearing the trademark which are manufactured abroad under license from the owner. The Court concludes that, at least in the particular circumstances of this case, where the foreign license is territorially restricted and the foreign-made goods are materially different from the U.S.-made goods, the question must be answered affirmatively.
The action was brought by Original Appalachian Artworks, Inc. ("OAA"), the original source and licensor of the well-known CABBAGE PATCH KIDS ("CPK") dolls, against Granada Electronics, Inc. ("Granada") a United States importer and distributor of CPK dolls made in Spain by Jesmar, S.A. ("Jesmar") under license from OAA. The action originally charged not only infringement of OAA's U.S.-registered trademark CABBAGE PATCH KIDS but also infringement of OAA's U.S.-registered copyright on the design of the dolls. However, at the trial, the copyright claim was voluntarily dismissed with prejudice.
Following a two-day non-jury trial on the trademark claim, the Court makes the following findings of fact and conclusions of law, pursuant to Rule 52(a), Fed.R.Civ.P.
OAA is a corporation of the State of Georgia with its principal place of business in Cleveland, Georgia. Granada is a corporation of the State of New York having its principal place of business in Brooklyn. OAA is engaged in the manufacture and sale of soft-sculpture dolls under the trademark CABBAGE PATCH KIDS. OAA is also engaged in licensing, the manufacture and sale of CPK dolls and related items by others under its trademark and copyright.
OAA's own soft-sculpture CPK dolls are completely hand-sewn in Cleveland, Georgia by OAA and are sold at retail for a price in excess of $100. OAA markets these CPK dolls through what it calls "adoption centers," which are primarily specialty stores and finer department stores. OAA has approximately 450 of these outlets around the United States. In addition, OAA has two retail stores of its own where it offers for "adoption," or sale, its CPK dolls. With each "adoption," or purchase, of a CPK doll, the purchaser receives a "birth certificate" and "adoption papers" to be filled out by or for the "parent," or owner, of the doll, who takes an "oath of adoption." A copy of the executed adoption papers is returned to OAA and the relevant information thereon is entered in OAA's computer. On the first anniversary of the "adoption," the "adopting parent" receives a "birthday card" from OAA. This "adoption" process is an important element of the mystique of the CPK dolls, which has substantially contributed to their enormous popularity and commercial success.
On March 1, 1982, OAA entered into an agreement with Schlaifer Nance and Company, Inc. ("SNC") whereby SNC was engaged to act as OAA's exclusive agent to license the CPK rights to others. On August 8, 1982, OAA, through SNC, granted a license to Coleco Industries, Inc. ("Coleco") of Hartford, Connecticut to manufacture, promote and distribute copies of plaintiff's CPK dolls within the United States. CPK dolls marketed by Coleco are a smaller version of OAA's soft-sculpture CPK dolls. However, instead of being entirely hand-sewn from fabric like the OAA dolls, those of Coleco are mass-produced with vinyl heads and are packaged in boxes which prominently feature the CABBAGE PATCH KIDS trademark, and set forth the CPK "legend,"1 while the original dolls of OAA are unpackaged. The Coleco CPK dolls normally retail at a price of $35 to $45.
The Coleco CPK dolls, like those of OAA, are accompanied by birth certificates and adoption papers which prominently display the CABBAGE PATCH KIDS trademark. These dolls are also accompanied by English-language instructions directing the purchaser to return the completed adoption papers in a pre-addressed envelope to a processing center in the United States. These instructions also describe the procedure for "legally" changing the name of the doll if desired. To process the adoption papers, Coleco engages the services of "fulfillment houses" which are compensated on a per-piece basis. Upon receipt of the adoption papers, the fulfillment house sends the "adopting parent" a suitable-for-framing birth certificate as well as a birthday card on the first "birthday" of the doll.
Coleco was initially given worldwide rights for manufacture and distribution of CPK dolls and related articles, but subsequently relinquished its worldwide rights. Thereafter, OAA, through its exclusive licensing agent SNC, licensed other companies outside the United States to manufacture and sell, in specified areas outside the United States, the vinyl-headed smaller version of the CPK doll similar to that sold by Coleco. On April 13, 1984, SNC licensed Jesmar to manufacture and distribute this version of the CPK doll in Spain, the Canary Islands, Andorra and Ceuta Melilla. Like other foreign licensees, Jesmar agreed not to make, sell or authorize any sale of the licensed products outside its licensed territory. Jesmar further agreed that it would sell or distribute licensed products only with an express agreement that the purchaser will not use or resell the licensed products outside the licensed territory.
The CPK dolls made by Jesmar come in boxes on which the "legend" of the CPK dolls, and most of the other wording, is printed entirely in the Spanish language. However, the CABBAGE PATCH KIDS trademark is prominently displayed in English on all panels of the box except the bottom. Also printed in English are the words "The World of" which immediately precede the trademark CABBAGE PATCH KIDS on the rear panel of the box, and the name Original Appalachian Artworks, Inc. and its address, Cleveland, Georgia, U.S.A. which appear in small print in the copyright notice.
The Jesmar dolls are sold with birth certificates and adoption papers which are completely in the Spanish language, as are the instructions for completing the "adoption" and obtaining a change of name. The mailing address to which the adoption papers are directed to be sent is located in Spain.
OAA received Trademark Registration No. 1,298,970 from the United States Patent and Trademark Office on October 2, 1984 for the trademark CABBAGE PATCH KIDS for dolls. Thereafter, OAA caused Trademark Registration No. 1,298,970 for CABBAGE PATCH KIDS for dolls to be recorded with the United States Customs Service. As directed by the regulations of the United States Customs Service, 19 C.F.R. §§ 133.2(c), 133.21-.24 (1985), OAA's application for recordation with Customs included, inter alia, "the name and principal business address of each foreign person or business entity authorized or licensed to use the trademark and a statement as to the use authorized." Accordingly, Jesmar was listed on the application for Customs recordation by OAA. Consequently, the Customs Service sent a letter to its officials authorizing CPK dolls made by Jesmar to pass through Customs, as the Customs Service regulations do not provide for halting the importation of goods which were made abroad under license granted by the recording party.
OAA has, or has had, at least 120 licensees for various CPK products, with Coleco's vinyl-headed version of the CPK doll being the centerpiece of this licensing program. Coleco has enjoyed spectacular commercial success with its version of the CPK doll, with sales of over 37 million of such dolls. Coleco spent $1,800,000 in advertising its CPK dolls in 1983, approximately $5,000,000 in 1985 and approximately $2,900,000 in the first two quarters of 1986, for a total of approximately $9,700,000 on CPK dolls alone. Coleco's advertising for the entire CPK product line through 1985 totals $38,800,000 and Coleco plans to spend approximately $20,000,000 more in advertising for the line in 1986.
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