Schering Corp. v. Schering Aktiengesellschaft

• Decision Date: 28 August 1987
• Docket Number: Civ. A. No. 82-1392 (CSF).
• Citation: 667 F. Supp. 175
• Parties: SCHERING CORPORATION, Plaintiff, v. SCHERING AKTIENGESELLSCHAFT and Berlex Laboratories Inc., Defendants, Schering-Plough Corporation, Additional Defendant on the Counterclaim.
• Court: U.S. District Court — District of New Jersey

667 F. Supp. 175

SCHERING CORPORATION, Plaintiff, v. SCHERING AKTIENGESELLSCHAFT and Berlex Laboratories Inc., Defendants Schering-Plough Corporation, Additional Defendant on the Counterclaim.

Civ. A. No. 82-1392 (CSF).

United States District Court, D. New Jersey.

August 28, 1987.

COPYRIGHT MATERIAL OMITTED

Alfred T. Lee, Griffith B. Price, Jr., Milgrim Thomajan Jacobs & Lee, New York City, Ronald Gould, Shanley & Fisher, Morristown, N.J., for plaintiff and defendant on the counterclaim.

John A. Mitchell, Curtis, Morris & Safford, New York City, Gail Allyn, Pitney, Hardin, Kipp & Szuch, Morristown, N.J., for defendants.

CLARKSON S. FISHER, Chief Judge.

This case arises from the parties' competing claims to the right to use the name "Schering" in this country. Plaintiff, Schering Corporation, and its subsidiary, Schering-Plough Corporation, defendant on the counterclaim, sue defendants, Schering Aktiengsellschaft West Germany and Berlex Corporation, for infringing on its trade name "Schering," for the use of the name as a false representation of origin and quality of goods, diluting the strength of its trade name and mark in violation of state law, and common law unfair competition. Plaintiffs seek the following: a declaratory judgment stating that defendants' use of the name is a violation of plaintiffs' exclusive rights to the name, an injunction permanently enjoining defendants from using the name without prior authorization from plaintiff, and treble damages for the injury incurred and profits enjoyed by the illegal use of the name. Defendants counterclaim, seeking a declaratory judgment stating that they are permitted to use the name as a business name without a disclaimer, that the Schering name properly is used as a surname, and that plaintiff is misusing its trademark and unfairly competing with defendants. The following are the court's findings of fact and conclusions of law mandated by FED.R.CIV.P. 52(b).

The infringement action is brought pursuant to Section 32(1) of the Lanham Trademark Act of 1946, 15 U.S.C. § 1114(1); the use of false representation of origin is brought pursuant to Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); and trademark dilution is brought under state law and pursuant to common law unfair competition theories. This court has subject matter jurisdiction pursuant to 15 U.S.C. § 1121, 28 U.S.C. §§ 2201, 2202, and 1338(a) and (b).

Findings of Fact

During the course of the trial, the parties expended great quantities of time, effort and paper establishing the existence and histories of the corporations. For purposes of this opinion, I note only the following.

The name to which all parties claim right is that of Ernst Schering, a German pharmacist, born in 1824, who also produced chemicals and offered them for sale from 1864 to 1871 under the name "E. Schering and Company." On October 23, 1871, the company was converted into a joint stock company, "Chemische Fabrik auf Aktien (vorm E. Schering)." Ernst Schering died in 1889, and no descendants with the name Schering are among the current members of defendants' boards of directors, corporate officers or employees. Ernst Schering's son was a member of Schering Aktiengesellschaft West Germany's board of directors until his death in 1947.

On July 23, 1927, Chemische Fabrik auf Aktien merged with C.A.F. Kahlbaum Chemische Fabrik GmbH, to create Schering-Kahlbaum Aktiengesellschaft, or Schering-Kahlbaum AG. Although this company conducted some business in the United States, it did not maintain a place of business here. In 1928, it formed Schering Corporation (Schering AG New York) in New York as a distributor of its products in the United States. Most of the company's distribution in this country was bulk camphor. Schering New York began to manufacture its own finished pharmaceuticals later, in 1933. On April 26, 1932, Schering-Kahlbaum transferred to Schering New York all United States rights to the "Schering" name and mark (Reg. No. 228,145), including the goodwill, trademark registrations (and trademarks covered thereby), and all other business property. This agreement was a complete assignment, containing no restrictions on Schering New York's power to assign or sell any of the rights transferred.¹ Subsequently, on March 28, 1935, Schering New York obtained a trademark registration (No. 324,677), in its own name, of the Schering name and "flask" design.

The present corporate entity Schering Corporation was organized pursuant to the laws of New Jersey in December 1935 and by assignment acquired all assets of Schering AG New York, which company subsequently was dissolved. The written assignment from Schering New York to Schering Corporation New Jersey was identical in form to the assignment between Schering-Kahlbaum and Schering AG New York; it assigned all rights and assets, including the rights to the Schering name and mark (No. 324,677). Schering Corporation produced pharmaceuticals of its own and continued to distribute Schering-Kahlbaum products, all under the Schering name and mark, and included a reference to Schering-Kahlbaum on those goods imported from Germany.

In 1937 Schering-Kahlbaum merged with Kokswerke und Chemische Fabriken AG to form Schering AG or, as it is called today, Schering AG West Germany. Plaintiff contends that subsequent to this merger Schering AG West Germany made great efforts to dissociate its name from the Schering (USA) corporate name to avoid a public presence in the United States and thereby protect its assets from expropriation during World War II. Plaintiff strongly urges this court to find that defendant Schering AG West Germany engaged in a long-range scheme to preserve its American assets in the face of German-American hostilities of the early 1940s. Plaintiff produced documentation indicating Schering AG's alleged efforts to conceal the ownership of the subsidiary companies by transferring those corporations' ownership shares to Swiss nominees which actually were shells of Schering Germany.

In light of the ensuing Alien Property Custodian (APC) action, this court need not address these contentions. Although these facts are interesting for historical purposes, this court finds that the events which transpired in the months preceding the action by the Alien Property Custodian are irrelevant to the outcome in this matter. In December 1941, with the declaration of war between Germany and the United States, the U.S. situs assets of all German nationals, including the Schering subsidiaries, were seized by the APC; the United States thereby took complete control of Schering Corporation. Pursuant to the Department of Justice, Office of the Alien Property Custodian, Vesting Order No. 4, the Schering AG property seized included the stock of Schering New York and Schering Corporation (New Jersey); a related corporation, Sherka Chemical Company, Inc., New York; undeclared and unpaid dividends of Schering Corporation; Schering AG (Germany)'s United States bank accounts, contract rights and all patent rights and pending patent rights. The vesting order explicitly states that the property included

All right, title and interest, if any, of whatever kind or nature, including without limitation any reversionary interest ... of Schering A.G., ... in and to any goodwill of the business in the United States of Schering Corporation, a corporation organized under the laws of New Jersey, and in and to any and all registered and unregistered trademark or tradenames ... and in and to every license, agreement, privilege, power and right of whatsoever kind or nature arising under or with respect thereto, is property which is ... within the United States owned or controlled by ... Schering A.G., the aforesaid national of a designated enemy country (Germany); and THERE IS HEREBY VESTED in the Attorney General of the United States the property described above, to be held, used, administered, liquidated, sold or otherwise dealt with in the interest of and for the benefit of the United States.

Thereafter, the property actually vested in the Alien Property Custodian on April 18, 1942. The order stated that the property and its proceeds were to be held in a special account pending further determination by the Alien Property Custodian. Included in the property expropriated were the ownership shares of Schering Corporation New York² and Schering Corporation New Jersey. These shares were expropriated on the basis that they were the property of an enemy alien. The Alien Property Custodian found that the ownership in the name of the Swiss nominee was a sham, intended to defraud the United States and to protect the property from expropriation.

In January 1942, the United States Secretary of the Treasury ousted the German nationals directing and managing Schering Corporation and permanently barred them from entering the premises. At this point, Schering Corporation became a completely independent entity, having absolutely no contact with the Schering AG company. It did not receive any management or direction, raw or processed materials, input or influence of any kind from German Schering. Schering produced, marketed and sold its products on its own.

The United States, through the Alien Property Custodian and his successor, the Office of the Alien Property of the Justice Department, maintained ownership of Schering as the sole shareholder throughout the war and later, until 1952. As sole shareholder, the Alien Property was responsible for appointing management personnel, obtaining loans to cover operational expenses and generally conducting business. The APC appointed Francis C. Brown to manage the corporation until a permanent manager could be found and appointed. Mr. Brown in fact remained in the post through October 1966. During the 1943-1952 period, a five-member board of directors managed Schering Corporation. The board was chosen by the sole shareholder, the Alien Property Custodian.

During this 19...