Shaw v. Rolex Watch, USA, Inc., 86 Civ. 5244 (WCC).

• Decision Date: 12 November 1987
• Docket Number: No. 86 Civ. 5244 (WCC).,86 Civ. 5244 (WCC).
• Parties: Leslie SHAW, Plaintiff, v. ROLEX WATCH, U.S.A., INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

673 F. Supp. 674

Leslie SHAW, Plaintiff, v. ROLEX WATCH, U.S.A., INC., et al., Defendants.

No. 86 Civ. 5244 (WCC).

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

November 12, 1987.

Soller, Singer & Horn, New York City, for plaintiff; Carl R. Soller, of counsel.

Gibney, Anthony & Flaherty, New York City, for Rolex Watch, U.S.A., Inc. and Rolex Industries, Inc.; Stephen F. Ruffino, of counsel.

WILLIAM C. CONNER, District Judge.

Plaintiff Leslie Shaw seeks to recover damages in excess of $7,500,000, trebled, for injuries resulting from defendants' alleged violations of sections 1 & 2 of the Sherman Anti-Trust Act, 15 U.S.C. §§ 1 & 2 (1982), and the Racketeering Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 (c) & (d) (1982). Plaintiff has also asserted pendent state law claims for fraud, conversion and intentional infliction of emotional distress on which he seeks compensatory damages in the amount of $16,000,000, and punitive damages in the amount of $28,000,000. Defendants Rolex Watch U.S.A., Inc. ("Rolex U.S.A.") and Rolex Industries, Inc. ("Rolex Industries") have moved to dismiss the complaint under Rule 12 (b) (6), Fed.R.Civ.P., for failure to state a claim upon which relief may be granted.¹ Defendants have also asked the Court to impose sanctions on plaintiff's attorneys under Rule 11, Fed.R.Civ.P. For the reasons set forth below, defendants' motion to dismiss is granted in part and denied in part. Defendants' motion for Rule 11 sanctions is denied.

I. Facts

In considering defendants' motion to dismiss under Rule 12 (b) (6) the allegations of the complaint must be taken as true, Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972), and the complaint must be construed favorably to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). Plaintiff alleges that the named defendants conspired to submit documents to the United States Customs Service which fraudulently stated that Rolex U.S.A. was not owned or controlled by the Swiss owner of the Rolex trademark. The purported aim of this conspiracy was to gain the protection of section 526 of the Tariff Act of 1930, 19 U.S.C. § 1526 (1982).

Under section 526, the owner of a registered trademark can prevent the importation of products bearing the trademark. To employ section 526 the trademark owner must record the trademark with the United States Customs Service. 19 U.S.C. 1526(a). Should someone other than the owner of the U.S. mark attempt to import the trademarked goods, the Customs Service may seize the goods and hold them forfeit. 19 U.S.C. 1526(b). Section 526, however, only protects trademark owners who are United States citizens, or corporations or associations created or organized within the United States. 19 U.S.C. 1526(a). Moreover, the Customs Regulations promulgated to enforce section 526 provide that the restrictions on the importation of articles bearing the recorded trademark do not apply when the foreign and domestic trademark owners are under common ownership or control. 19 C.F.R. § 133.21(c)(2).

Plaintiff alleges that Rolex U.S.A., a corporation organized under the laws of the State of New York, and Montres Rolex, S.A. ("Montres Rolex"), a Swiss corporation, are under common ownership and control. In their filings with Customs, however, defendants denied any connection between Rolex U.S.A. and the Swiss holders of the trademark. Plaintiff asserts that defendants made these representations with knowledge that they were false in order to gain the protection of section 526.

According to the complaint, the plaintiff Mr. Shaw "has been" an importer of watches including genuine Rolex watches. On January 13, 1985, Mr. Shaw sought to import eight genuine Rolex watches. Customs seized the watches pursuant to 19 C.F.R. 133.21 in reliance on defendants' fraudulent recordation of the Rolex trademark. On August 8, 1985, plaintiff was indicted in the United States District Court of Maryland (Crim.No. R-85-0423) for alleged violations of the trademark protection granted to Rolex Watch U.S.A. under section 526.

Plaintiff alleges that subsequent to the indictment he was hospitalized for treatment of Ramsey Hunt Syndrome, a painful nervous disorder. After five months, during which plaintiff suffered severe emotional and physical distress together with the loss of business good will and of potential business in Rolex watches, the indictment was dismissed.

Sometime thereafter, Mr. Shaw requested the permission of Rolex U.S.A. to import the seized watches pursuant to 19 C.F.R. § 133.21(c)(6). At the ensuing meeting Rolex U.S.A. reasserted its exclusive right to import Rolex watches, and refused to grant Mr. Shaw the right to import the eight seized watches.

II. Discussion

A. Antitrust Claims

Plaintiff asserts that the conspiracy to submit falsified documents to Customs constitutes a conspiracy to restrain trade and an attempt to monopolize trade in Rolex watches in violation of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 & 2. Plaintiff also alleges a combination in restraint of trade and a monopolization of trade in Rolex watches. Defendants request that the antitrust claims be dismissed on two related grounds. First, defendants assert that plaintiff lacks antitrust standing. Second, defendants contend that plaintiff has failed to allege an antitrust violation. I turn first to the legal sufficiency of the antitrust allegations, since plaintiff cannot have antitrust standing if he does not allege a cognizable antitrust violation.²

Defendants take issue with two of the premises which form the basis of plaintiff's allegation of antitrust violations. First, plaintiff has alleged a conspiracy between companies that are under common ownership and control. Defendants reply that the Sherman Act does not recognize a conspiracy between commonly owned and controlled companies. Second, plaintiff bases his monopoly and attempted monopoly claims upon a product market that consists solely of Rolex watches. Defendants respond that a product market consisting solely of a single branded product cannot form the basis of a § 2 claim.

Defendants assert that Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984), bars plaintiff's combination and conspiracy claims. In Copperweld the Supreme Court held that the joint activities of a parent company and its wholly owned subsidiary cannot constitute a combination or conspiracy in violation of § 1 of the Sherman Act. 467 U.S. at 776, 104 S.Ct. at 2744. The Court noted that the Sherman Act treats unilateral activity differently from concerted activity. Id. at 767-69, 104 S.Ct. at 2739-41. Under the Sherman Act, the conduct of a single firm acting alone is governed by § 2 and does not constitute a violation unless it threatens actual monopolization. Concerted activity, however, is governed by § 1 and is unlawful regardless of whether it poses a threat of monopolization. This distinction imposes a stricter standard on the conduct of concerted activity. The Court reasoned that Congress created this heightened standard to offset the increased anticompetitive risks posed by "two or more entities that previously pursued their own interests ... combining to act as one for their common benefit." Id. at 769, 104 S.Ct. at 2740. Elevating substance over form, the Court concluded that a parent and its wholly owned subsidiary should be considered one firm for purposes of the Sherman Act. Id. at 771, 104 S.Ct. at 2741.

According to the complaint, Rolex U.S.A. is under common ownership and control with the alleged co-conspirators, but it is not a wholly owned subsidiary. In Copperweld, the Court expressly declined to decide whether a conspiracy between a parent and an affiliated company it does not completely own violates § 1. 467 U.S. at 767, 104 S.Ct. at 2739. Nonetheless, under the Copperweld rationale the relationship between Rolex U.S.A. and Montres Rolex cannot support a finding of liability under § 1.

As articulated in Copperweld, Congress's purpose in enacting § 1 was to prevent the anticompetitive effect of previously separate and competing entities combining to act as one for their common benefit. 467 U.S. at 768-72, 104 S.Ct. at 2740-42. As stated in the complaint, however, Rolex U.S.A. and Montres Rolex never were separate, competing entities. Plaintiff has alleged that from Rolex U.S.A.'s incorporation in 1948 until 1977, Rolex U.S.A. was the wholly owned subsidiary of Montres Rolex. Complaint ¶ 24. The complaint further alleges that in 1977 the defendants added an additional corporate layer to separate Rolex U.S.A. from the Montres Rolex companies. Id. at ¶ 26. Therefore, because the concerted behavior alleged in the complaint does not threaten to bring two previously competing entities together as one, the alleged § 1 violation is inadequate as a matter of law.

Plaintiff's allegations of an attempt to monopolize and a successful monopolization of the market for Rolex watches in violation of § 2 are also inadequate. A valid claim for monopolization or attempted monopolization must define the relevant product market. See United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1703-04, 16 L.Ed.2d 778 (1966); Nifty Foods Corp. v. Great Atlantic & Pacific Tea Co., Inc., 614 F.2d 832, 840 (2d Cir.1980). Plaintiff asserts that Rolex watches constitute a product market unto themselves. Complaint ¶¶ 51-57. This definition of the relevant product market, however, cannot support a claim under § 2.

It is well established that the relevant product market includes all products that are reasonably interchangeable. See Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 1524, 8 L.Ed.2d 510 (1962); United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 395, 76 S.Ct. 994, 1007, 100 L.Ed. 1264 (1956); Nifty Foods, 614 F.2d at 840; Yoder Bros., Inc. v. California-Florida...