Sterling Drug Inc. v. Bayer AG

• Citation: 792 F. Supp. 1357
• Decision Date: 15 May 1992
• Docket Number: No. 90 Civ. 3460 (RJW).,90 Civ. 3460 (RJW).
• Court: U.S. District Court — Southern District of New York
• Parties: STERLING DRUG INC., Plaintiff, v. BAYER AG, Bayer USA Inc., Mobay Corporation and Miles Inc., Defendants.

792 F. Supp. 1357

STERLING DRUG INC., Plaintiff, v. BAYER AG, Bayer USA Inc., Mobay Corporation and Miles Inc., Defendants.

No. 90 Civ. 3460 (RJW).

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

May 15, 1992.

COPYRIGHT MATERIAL OMITTED

Paul, Weiss, Rifkind, Wharton & Garrison, New York City (Lewis A. Kaplan, Daniel J. Leffell, Beth R. Lobel, David L. Goldberg, of counsel), Von Maltitz, Derenberg, Kunin, Janssen & Giordano, New York City, for plaintiff.

Cravath, Swaine & Moore, New York City (Francis P. Barron, Robert H. Baron, of counsel), Connolloy, Bove, Lodge & Hutz, Wilmington, Del. (John D. Fairchild, of counsel), Willian, Brinks, Olds, Hofer, Gilson & Lione, Chicago, Ill. (Jerome Gilson, of counsel), for defendants.

ROBERT J. WARD, District Judge.

In this action, plaintiff Sterling Drug Inc. ("Sterling") alleges that defendant Bayer AG ("AG") and its subsidiaries have made use of the trademark and trade name "Bayer" and the name "Bayer USA Inc." in a manner that violates Sterling's rights under two contracts between Sterling and AG, the Trademark Act of 1946, 15 U.S.C. § 1051 et seq. (the "Lanham Act"), the law of unfair competition and the New York Anti-Dilution Statute, N.Y.Gen.Bus.Law § 368-d. Sterling seeks a permanent injunction enjoining defendants' conduct, as well as monetary damages. By stipulation of the parties, the question of plaintiff's entitlement to injunctive relief was tried by the Court without a jury in a 12-day trial that began on July 1, 1991, with any monetary damages to be determined in a separate trial, if necessary.

The record before the Court consists of the evidence adduced by the parties during the trial as well as evidence submitted by the parties following the trial relating to the respective corporate reorganizations of Sterling and defendant Bayer USA Inc. ("Bayer USA"). Based on the entire record, the Court makes the following findings of fact and conclusions of law pursuant to Rule 52, Fed.R.Civ.P.

BACKGROUND

Sterling is incorporated under the laws of the State of Delaware and has its principal place of business in New York City. Sterling manufactures and sells prescription drugs, over-the-counter ("OTC") medicines and home and personal care products. Since 1918, Sterling has been the exclusive United States manufacturer of Bayer aspirin.¹ Bayer aspirin is Sterling's best known and largest selling OTC pharmaceutical product in the United States. During the past five years, Bayer aspirin sales have ranged between $137 and 160 million per year, accounting for 40 to 45 percent of Sterling's United States OTC sales. Sterling dedicates significant effort and investment to the promotion of the "Bayer" trademark. For example, Sterling spent between $40 and 60 million per year on promotion and advertisement of the Bayer trademark over the past five years.

AG is a German corporation and has its principal place of business in Leverkusen, Germany. AG, one of the world's largest corporations, manufactures and sells chemicals, healthcare products and imaging technologies. Since 1970, AG has owned the rights to the "Bayer" trademark and name throughout the world, except in the United States, Canada and certain parts of the Caribbean.²

Bayer USA is a Delaware corporation and a wholly owned subsidiary of AG. Defendant Mobay Corporation ("Mobay") is a New Jersey corporation engaged in the manufacture and sale of plastics and chemicals and a wholly owned subsidiary of Bayer USA. Defendant Miles Inc. ("Miles") manufactures and sells pharmaceuticals, diagnostic substances and medical diagnostic apparatus. Miles is a wholly owned subsidiary of Bayer USA incorporated under the laws of the State of Indiana.

I. Agreements Between Sterling and AG

Over the years Sterling and AG have had numerous disputes and entered into several agreements concerning the use of the "Bayer" trademark in this and other countries. See, e.g., n. 1 & 2, supra. Following is a description of the parties' formal and informal agreements that are relevant to this lawsuit.

A. The 1964 Agreement

In 1964, following a judicial determination that Sterling possessed absolute rights to the exclusive use of the Bayer trademark in the United States, Farbenfabriken Bayer A.G. v. Sterling Drug, Inc., 307 F.2d 210, 212 (3d Cir.1962), cert. denied, 372 U.S. 929, 83 S.Ct. 872, 9 L.Ed.2d 733 (1963), Sterling and AG, then called Farbenfabriken Bayer AG, executed an agreement relating to the use of the "Bayer" name and trademark (the "1964 Agreement"). Dx. 1001. The 1964 Agreement permitted AG to use its corporate name in the United States under certain narrowly specified circumstances. Under the agreement, AG's use of the corporate name was limited essentially to package inserts, packaging of non-pharmaceutical goods sold in bulk, letterheads, reports to shareholders, and institutional advertising of non-pharmaceutical and non-consumer goods. The agreement also expressly prohibited AG from using the word "Bayer" or the Bayer Cross in connection with aspirin or other analgesics or "in the course of trade in any other goods." 1964 Agreement at ¶ 2.

B. Modifications to the 1964 Agreement

AG informed Sterling by letter in 1970 that it planned to change its corporate name from Farbenfabriken Bayer AG to Bayer AG. The parties exchanged several letters in 1971 in connection with this name change, which resulted in modifications of the 1964 Agreement. Dx. 1009-11, 10014.

The modifications provided that AG would incorporate a United States subsidiary under a name other than "Bayer AG" and that the new subsidiary would be bound by the restrictions of the 1964 Agreement. Sterling also consented to the use of AG's new corporate name in the United States, but under more limited circumstances than had been permitted under the 1964 Agreement. For example, the 1964 Agreement permitted the use of the corporate name in certain institutional advertising, while under the 1971 modifications the new name was not permitted to be used in such advertising.

C. Agreements Regarding the Press

In or about May 1975, representatives of Sterling and AG met to discuss planned interviews of AG's new chairman, Herbert Gruenewald ("Gruenewald"), by the American press. Sterling consented to Gruenewald identifying himself as the chairman of Bayer AG, to his discussion of the business of AG throughout the world and to the plants, products and volume of business conducted by Mobay, then AG's only United States subsidiary. Dx. 1024. Gruenewald was subsequently interviewed by the New York Times, which published an article based on the interview. Dx. 1026.

Sterling and AG representatives met again to discuss relations with the press in or around the fall of 1976. At that time, Sterling consented to AG holding a single press conference in which AG would report its financial results, its business activities and plans for the future.³ Dx. 1889, pp. 10, 64-65. AG held such a press conference on or about March 22, 1977, which resulted in the publication of various news articles about AG. Dx. 1032.

D. The 1986 Agreement

1. Negotiations Leading to the Agreement

In or around the summer of 1983, AG learned of the existence of a firm in Detroit, Michigan, which was marketing disinfectants under the name "Bayer Chemical Manufacturing Corporation." AG, acting through a representative, paid $140,000 to purchase that company's trademark and trade name rights to use the name "Bayer" in or around December, 1983. Px. 42. At about the same time, AG also applied to the United States Patent Office to register the trademark "Bayer" for a variety of industrial chemicals and other products. Px. 41.

In or around January 1984, AG initiated discussions with Sterling concerning the resolution of what it described as a "gap" problem. Representatives of Sterling and AG met on or around January 18, and at this meeting AG revealed for the first time its purchase of Bayer Chemical Manufacturing Corporation's trademark rights. According to AG, Sterling had not been able to prevent the use of the "Bayer" name by companies operating outside of the pharmaceutical field and at the same time, AG was precluded from doing so by virtue of the restrictions on its use of the "Bayer" name in the United States under the 1964 Agreement.

Sterling, while not agreeing with AG's view that a "gap" problem existed, agreed to negotiate an expansion of AG's rights to use the "Bayer" name. The parties met numerous times over the next two years, exchanged drafts of an agreement, and discussed those drafts. The principal negotiators at these meetings were James H. Luther ("Luther"), Sterling's general counsel, and Volker Charbonnier ("Charbonnier"), a member of AG's legal department.

Initially, the negotiations focused on several alternative arrangements that would give AG increased rights to use the "Bayer" trademark. These alternatives included an option for AG to purchase Sterling's "Bayer" trademark; an exchange of Sterling's Glenbrook Laboratories, the division which produces Bayer aspirin, in return for Miles; or AG's acquisition of the right to use the "Bayer" name and the Bayer Cross in all product categories except pharmaceuticals. At a meeting that took place in or around January 1985, AG raised the possibility that its United States holding company, then called Rhinechem Corporation ("Rhinechem"), might change its name to allow it to be identified by the "Bayer" trade name. See Px. 57 at 4. Following this meeting, the parties circulated draft agreements that would permit such a name change.

Discussions reached an impasse in or around late September 1985. On or about October 31, 1985, senior management at AG wrote to John Pietruski, Sterling's chairman, proposing that the parties attempt to reach agreement on a "first major step" in resolving the two companies' concerns regarding the use of the "Bayer" name in the United States. Px. 110. This agreement would be limited to the use of the "Bayer"...