WarnerVision Entertainment Inc. v. Empire of Carolina Inc.

• Decision Date: 12 February 1996
• Docket Number: No. 95 Civ. 9386 (HB).,95 Civ. 9386 (HB).
• Citation: 915 F. Supp. 639
• Parties: WARNERVISION ENTERTAINMENT INC., Plaintiff, v. EMPIRE OF CAROLINA INC., Empire Industries Inc. and Empire Manufacturing Inc. (formerly Buddy L Inc.), Defendants.
• Court: U.S. District Court — Southern District of New York

915 F. Supp. 639

WARNERVISION ENTERTAINMENT INC., Plaintiff, v. EMPIRE OF CAROLINA INC., Empire Industries Inc. and Empire Manufacturing Inc. (formerly Buddy L Inc.), Defendants.

No. 95 Civ. 9386 (HB).

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

February 12, 1996.

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Robert C. Faber, Charles P. LaPolla, Ostrolenk, Faber, Gerb & Soffen, LLP, New York City, for plaintiff.

Charles A. Laff, Judith L. Grubner, Laff, Whitesel, Conte & Saret, Ltd., Chicago, IL, Alexandra D. Malatestinic, Darby & Darby P.C., New York City, for defendants.

OPINION AND ORDER

BAER, District Judge:

Plaintiff has moved by Order to Show Cause for a preliminary injunction and recall order barring defendants from marketing toy vehicles under the unregistered trademark REAL WHEELS and related trade dress. Defendants have similarly moved for a preliminary injunction barring plaintiff's use of the REAL WHEELS mark and trade dress in the toy vehicle market. For the reasons that follow, plaintiff's motion is granted and defendant's motion is denied.

I. Background

Plaintiff WarnerVision Entertainment Incorporated (WarnerVision) obtained rights to the REAL WHEELS trademark and trade dress by assignment from its parent company, Atlantic Recording Corporation (Atlantic) on January 19, 1995. In August 1994, Atlantic began to develop the REAL WHEELS mark and logo for use on a line of children's video cassettes formerly sold under the mark LIVE ACTION VIDEO FOR KIDS. Mockups of the REAL WHEELS mark and logo were presented to professional buyers during the fall of 1994 with promotional literature distributed between October and December 1994. This led up to shipment of videos bearing the mark on December 22, 1994 with a street date for retail sales to begin January 18, 1995. Such sales have continued to date.

On January 3, 1995, Atlantic filed several applications with the United States Patent and Trademark Office (PTO) to register the REAL WHEELS mark for a variety of products, including video cassettes, toy vehicles, bed linens and other children's products. The application for video cassettes has been initially allowed and is currently in the opposition period.

Plaintiff currently sells video cassettes in numerous toy store chains, such as Toys `R' Us, as well as in music stores, such as Tower Records. The video cassettes are sold both by themselves and with a small toy related to the video packaged in a separate box and shrink-wrapped together with the video cassette. For example, the video entitled "There Goes A Boat" has a toy boat attached to the packaging of the video. The REAL WHEELS mark and logo is not on the toy box and no toy vehicles are sold on their own, independent of the videos, under the mark. The toys are essentially a premium used to entice purchasers to buy the video, rather than part of the actual product for sale. Therefore, I conclude that WarnerVision has used the mark and logo only in the video cassette market.

The defendant Empire Manufacturing Inc. obtained the rights to the product line, trademark and trade dress developed by Buddy L Inc. in July 1995 following the latter firm's bankruptcy. Empire Manufacturing, along with defendant Empire Industries Inc., is a wholly owned subsidiary of defendant Empire of Carolina Inc. For the sake of convenience, I will refer to the defendants collectively as Empire. Buddy L began to develop the REAL WHEELS mark and conducted a trademark search in August 1994, although it may have decided to use the mark in May or June of that year. Buddy L made sales presentations using mockups of the mark and logo from October to December 1994 and presented the mark at trade fairs in January and February 1995. In December 1994, Buddy L received an order from Toys `R' Us, although it apparently went unfilled. The total number of sales presentations made in the United States was five. On January 6, 1995, Buddy L filed an intent-to-use application with the PTO to register the REAL WHEELS mark for toy vehicles.

Buddy L's development of its mark stopped at some point in February 1995 due to financial difficulties. In March, Buddy L filed for bankruptcy and, as previously noted, its relevant assets were purchased by Empire in July. On August 15, 1995, Empire began to sell toy vehicles under its REAL WHEELS mark and logo and has continued to market them to date. These toys are sold through large toy chains such as Toys `R' Us. On October 20, 1995, Empire obtained the rights to an intent-to-use application filed by Thomas Lowe Ventures, Inc. (TLV) on September 23, 1994 to register the mark REAL WHEELS in connection with toy vehicle wheels. Both Buddy L's and TLV's applications have been initially rejected by the PTO.

WarnerVision first learned of Buddy L's use of the REAL WHEELS mark in February 1995 and sent a cease and desist letter. The parties dispute whether Buddy L ever responded to this letter, but knowing of the financial difficulties at Buddy L, WarnerVision did not follow up. When WarnerVision learned of Empire's product line on the market in September 1995, it again sent a cease and desist letter. The parties exchanged correspondence and WarnerVision brought suit on November 13, 1995 seeking, inter alia, preliminary injunctive relief.

II. Discussion

Plaintiff seeks a preliminary injunction under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and related state law grounds. To obtain a preliminary injunction, a moving party must establish "(1) irreparable injury and (2) a likelihood of success on the merits or a sufficiently serious question going to the merits and a balance of hardships tipping decidedly in the moving party's favor." Laureyssens v. Idea Group, Inc., 964 F.2d 131, 135-36 (2d Cir.1992). In trademark cases, "a showing of likelihood of confusion as to source or sponsorship establishes the requisite likelihood of success on the merits as well as risk of irreparable harm." Home Box Office, Inc. v. Showtime/The Movie Channel, Inc., 832 F.2d 1311, 1314 (2d Cir.1987) (citations omitted).

Preliminarily, defendants argue that plaintiff's motion should be denied because plaintiff delayed in bringing suit and therefore cannot establish irreparable injury. Although unreasonable delay can negate a showing of irreparable harm, see Citibank N.A. v. Citytrust, 756 F.2d 273 (2d Cir.1985), I do not find that WarnerVision delay was unreasonable in this case. Plaintiff first learned of defendants' use of its mark in February 1995 and immediately sent a cease and desist letter. I find that plaintiff's lack of direct follow up is excusable given the industry knowledge that Buddy L was going into bankruptcy. WarnerVision continued to monitor the market and contacted Empire in September when it learned of the new products on the market. Plaintiff maintained contact with defendant in an effort to resolve the dispute for the next two and one half months until it filed suit. See CBS Inc. v. Liederman, 866 F.Supp. 763, 766 (S.D.N.Y. 1994), aff'd, 44 F.3d 174 (2d Cir.1995). The Second Circuit recently noted that cases finding delay unreasonable drew the inference that "the owner of the mark or right had concluded that there was no infringement but later brought an action because of the strength of the commercial competition." Tom Doherty Assocs. v. Saban Entertainment, Inc., 60 F.3d 27, 39 (2d Cir.1995). The facts here do not support such an inference.

A. Section 43(a) of the Lanham Act

Section 43(a) of the Lanham Act prohibits the "false designation of origin" by the use of trademarks or trade dress in connection with goods or services. 15 U.S.C. § 1125(a); see Banff, Ltd. v. Federated Dep't Stores, Inc., 841 F.2d 486, 489 (2d Cir.1988). This section protects both registered and unregistered marks. Id. Thus, plaintiff's mark and logo may receive protection even though they are unregistered.

To establish a claim under § 43(a) of the Lanham Act, a plaintiff must prove (1) that it has ownership rights to the trademark and trade dress, Windows User, Inc. v. Reed Bus. Pub. Ltd., 795 F.Supp. 103, 106-07 (S.D.N.Y.1992), "(2) that its mark is distinctive and (3) that a likelihood of confusion exists between its product and the defendant's." Paddington Corp. v. Attiki Importers & Distributors, Inc., 996 F.2d 577, 582 (2d Cir.1993).

1. Ownership Rights

The first party to adopt and use a mark in commerce obtains ownership rights. See Ford Motor Co. v. Summit Motor Prods., Inc., 930 F.2d 277, 292 (3d Cir.), cert. denied, 502 U.S. 939, 112 S.Ct. 373, 116 L.Ed.2d 324 (1991); La Societe Anonyme des Parfums LeGalion v. Jean Patou, Inc., 495 F.2d 1265, 1271 (2d Cir.1974). The parties dispute which company first adopted the mark, but I find it unnecessary to resolve this issue at this point because clearly WarnerVision made prior use of the mark in commerce and is the senior user.

As a preliminary matter, Empire claims that it has prior rights pursuant to the assignment of rights to an intent-to-use application for the mark REAL WHEELS for toy wheels filed by TLV. Empire is correct that under 15 U.S.C. § 1057(c) an applicant can use the date of filing an intent-to-use application to establish ownership rights. However, Congress made such rights "contingent on the registration of a mark on the principal register." Id. As TLV's application has been rejected and thus no registration has issued, Empire may not rely on it here. See Talk To Me Prods. Inc. v. Larami Corp., 804 F.Supp. 555, 559-60 (S.D.N.Y. 1992), aff'd, 992 F.2d 469 (2d Cir.1993); Windows User, 795 F.Supp. at 107-08.

Use in commerce as defined in the Lanham Act "means the bona fide use of a mark in the ordinary course of trade." 15 U.S.C. § 1127. Actual sales of the goods, while sufficient to establish use, are not necessary. See New England Duplicating Co. v. Mendes, 190 F.2d 415, 417-18 (1st Cir. 1951). Rather, the test is whether the mark was used "in a way...