SEBASTIAN INTERN. v. Consumer Contact (PTY) Ltd.

• Decision Date: 30 June 1987
• Docket Number: Civ. A. No. 87-1995.
• Citation: 664 F. Supp. 909
• Parties: SEBASTIAN INTERNATIONAL, INC., Plaintiff, v. CONSUMER CONTACT (PTY) LTD., d/b/a 3-D Marketing Services, Fabric Limited, Hiltexan Ltd., Quality King Manufacturing, Inc., Quality King Distributors, Inc., and John Does Nos. 1-5, Defendants.
• Court: U.S. District Court — District of New Jersey

664 F. Supp. 909

SEBASTIAN INTERNATIONAL, INC., Plaintiff, v. CONSUMER CONTACT (PTY) LTD., d/b/a 3-D Marketing Services, Fabric Limited, Hiltexan Ltd., Quality King Manufacturing, Inc., Quality King Distributors, Inc., and John Does Nos. 1-5, Defendants.

Civ. A. No. 87-1995.

United States District Court, D. New Jersey, Civil Division.

June 30, 1987.

Berger & Steingut, New York City by Robert A. Weiner, David B. Wechsler, Shanley & Fisher, P.C., Morristown, N.J. by Charles A. Reid, III, for plaintiff.

Greenberg, Dauber & Epstein, P.C., Newark, N.J. by Melvin Greenberg, Ina B. Lewisohn, Steven D. Scharfetter, for defendants Hiltexan Ltd. and Fabric Ltd.

BARRY, District Judge.

Gray market goods are authorized authentic imports which are available in this country outside of their normal channels of distribution. Sometimes called "parallel imports", gray market goods are almost always sold for less in the United States than products sold through authorized channels.¹ Traditionally, American businesses have sought to prevent the entry of gray market goods under both contract and trademark theories.² Under either theory, however, the result is unpredictable and, thus, unreliable.

Under a contract theory, courts require that a plaintiff establish that the holder of gray market goods had actual knowledge of contractual territorial limitations between the original licensee and licensor. Johnson & Johnson Products, Inc. v. DAL International Trading, 798 F.2d 100 (3d Cir.1986). Gray market goods often exchange hands numerous times before they enter this country, making this "actual knowledge" requirement a difficult burden for plaintiffs. The burden is especially great in applications for temporary restraining orders, invariably the manner by which the vast majority of these cases commence.³

Similarly, a trademark owner cannot with impunity rely on its mark given the wide split of authority as to what protection the Lanham Act provides against the importation of gray market goods. See Note, Vivitar Corp. v. United States: Protection Against Gray Market Goods under 19 U.S.C. Section 1526, 60 So.Cal.L. Rev. 179 (1986) and Note, The Graying of American Trademarks: The Genuine Goods Exclusion Act and the Incongruity of Customs Negotiation, 17 C.F.R. § 133.21, 54 Fordham L.Rev. 83 (1985). On December 8, 1986, the Supreme Court of the United States granted certiorari in Coalition to Preserve the Integrity of American Trademarks v. United States, 790 F.2d 903 (D.C.Cir.1986), cert. granted sub nom., K-Mart Corporation v. Cartier, Inc., ___ U.S. ___, 107 S.Ct. 642, 93 L.Ed.2d 699 (1986), in order to decide the breadth of protection available under the Lanham Act and section 526(a) of the Tariff Act of 1930 codified at 19 U.S.C. § 1526(a) (1982).

The case now before me raises the relatively new issue of what protection, if any, the Copyright Act of 1976 provides against the unauthorized importation of gray market goods. I find that the Act does, indeed, provide such protection and that, accordingly, the relief plaintiff seeks will be granted.

I

Plaintiff, Sebastian International, Inc. ("Sebastian"), is a California corporation engaged in the development, manufacture, and marketing of beauty products including shampoos, conditioners, and hair sprays. Sebastian alleges that its products are, or should be, available in the United States only in professional hair care salons. Complaint ¶ 2.

The following facts appear uncontested. In February, 1986 defendant Consumer Contacts (PTY) Ltd., d/b/a 3-D Marketing Services ("3-D"), a South African company, sought to become the first distributor of plaintiff's products in South Africa. Id. ¶ 14. Sebastian and 3-D entered into a six month trial agreement, pursuant to an oral contract, under which 3-D agreed to distribute Sebastian's products to professional hair care salons located only in South Africa and its territories and not to distribute these products in any other country or territory. Id. ¶ 16.

On January 29, 1987, Sebastian shipped four shipping containers of various Sebastian products valued at $218,467.95 to 3-D in Edenvale, South Africa. 3-D did not open these containers but shipped them back to the United States. They arrived in Newark, New Jersey on May 4, 1987 and were released by the United States Customs Service on May 14, 1987.

On Friday, May 22, 1987, Sebastian applied ex parte for an order to show cause restraining defendants from disposing of the products in any manner. While the complaint sounded in breach of contract and trademark, the application for a preliminary injunction was premised solely on contract principles. Counsel indicated that the products in question were not copyrighted. The court was led to believe that the products were, as of that date, in the possession of the Quality King defendants. Sebastian's submissions in support of the restraints established that the Quality King defendants knew generally of the sales limitations imposed on Sebastian products. Accordingly, these defendants could not have been good faith purchasers for value. Based on these allegations and on the assertion that Sebastian products are not generally available in the United States, the court found that plaintiff had shown both irreparable harm and a likelihood of success on the merits. The court, therefore, issued the order to show cause including the requested restraints.

On May 28, 1987, counsel for Sebastian and defendant Fabric Limited ("Fabric") appeared before the court. After hearing both parties, an amended order was signed allowing for expedited discovery on the sole question of the whereabouts of the products, a question to which the answer had become less than clear. Counsel for plaintiff indicated that, contrary to their earlier representation, the products at issue were, in fact, copyrighted. They indicated that they would be amending the complaint to include a copyright claim and would move for a preliminary injunction on that ground as well.

On June 2, 1987, Fabric filed a notice of motion pursuant to Fed.R.Civ.P. 65 to dissolve the temporary restraints arguing that plaintiff had failed to demonstrate that Fabric, which, it turned out, was in possession of the products, had actual notice of any limitations on those products as required by the Court of Appeals for the Third Circuit in DAL International Trading, supra, 798 F.2d at 106. On June 3, 1987, plaintiff amended its complaint to allege, inter alia, a violation of 17 U.S.C. § 602 (1982). More specifically, plaintiff alleged that it had certificates of copyright for the text appearing on two of its products, WET and Shpritz Forte. Additionally, plaintiff claimed that all of the remaining products at issue here bear an appropriate copyright symbol and that registration is pending for each of them. Plaintiff further claimed that it has never authorized any of the defendants to import its products or to distribute them in the United States.

A hearing was held on June 4, 1987 and, on June 5, 1987, the court entered an order dissolving the temporary restraints premised on the contract claim. Simultaneously, however, those restraints were reimposed based on the newly added copyright allegations. Relying on plaintiff's representation that it had either a certificate of copyright or had filed a registration form and fee with the Copyright Office for the texts of each of the products listed on the bill of lading, I found that Sebastian was likely to prevail on the merits.

On the motion for a preliminary injunction now before me, "the party seeking the injunction bears the burden of producing evidence sufficient to convince the court that (1) the movant has shown a reasonable probability of success on the merits; (2) the movant will be irreparably injured by denial of the relief; (3) granting preliminary relief will not result in even greater harm to the other party; and (4) granting preliminary relief will be in the public interest." ECRI v. McGraw-Hill, Inc., 809 F.2d 223, 226 (3d Cir.1987). I turn first to a discussion of the merits of plaintiff's copyright claim.

II

Fabric raises several reasons why it believes plaintiff's copyright claim is defective. First, Fabric argues that registration is a prerequisite to an infringement action under 17 U.S.C. § 411 (1982), and that plaintiff only has certificates of registration for the texts of two of the numerous products at issue here. In Apple Barrel Productions v. Beard, 730 F.2d 384, 386-87 (5th Cir.1984) citing 2 Nimmer on Copyright § 7.16B1⁴, the Fifth Circuit held that the requirements of § 411 are satisfied, in accordance with 17 U.S.C. § 410(d) (1982), when an application for registration, fee, and deposit are received at the Copyright Office. As noted above, Sebastian had alleged in its amended complaint and orally represented to the court on June 4, 1987 that it had pending applications at the Copyright Office relating to each of the products listed on the bill of lading. Relying on Sebastian's representations, I found that it had complied with Beard and was entitled to the requested restraints.

At the preliminary injunction hearing, however, it was established that, except as to the WET and Shpritz Forte texts⁵, no applications for any of the other texts on the other products had been received at the Copyright Office until, at the earliest, June 5, 1987.⁶ Plaintiff concedes that applications are not filed when mailed but only when received in the Copyright Office, see 2 Nimmer on Copyright § 7.16B (1986), and now presses a preliminary injunction on copyright grounds only as to WET and Shpritz Forte.

III

Second, Fabric argues that the texts at issue here are not copyrightable. The leading case on the issue of copyrightability is Bleistein v. Donaldson Lithographing Co., 188 U.S. 239, 23 S.Ct. 298, 47 L.Ed. 460 (1903) (Holmes, J.), which held that a work is protected under the Copyright Act if it is an original creation and owes it origin...