An appropos court decision to start off this first day of October.
A New York district court has ruled against a U.S. importer of several well-known Russian candy brands who sued a competitor importing the same candy brands for trademark infringement. The court concluded that the company lacked standing to sue for registered trademark infringement and concluded that the importer’s sale of goods, because they were genuine goods, were protected by the exhaustion doctrine from claims of false designation of origin. See Krasnyi Oktyabr, Inc. v. Trilini Imports et al, Case No. 05-cv-05359, 2008 U.S. Dist. LEXIS 74125 (E.D.N.Y. September 25, 2008).
Krasnyi Oktyabr (“Red October”) is a Brooklyn-based importer and distributor of Russian candy sold under the brand names Krasnyi Oktyabr, Rot Front and Babayevsky. These brands of candy are produced by three separate Russian companies all of which are owned by the Russian holding company, Obeyediyonne Conditery (“United Confectioners”).
On April 9, 1996, Red October entered into a license agreement with Moscow Confectionary Factory of Krasnyi Oktyabr (“Red October Moscow”), one of the three United Confectioners subsidiaries, which granted Red October the “exclusive license” to use the Krasnyi Oktyabr mark in the U.S. Based on this exclusive right, Red October filed for and in 1999 and 2001 obtained U.S. trademark registrations for, respectively, the word mark KRASNYI OKTYABR and design mark KRASNYI OKTABYR, both for candy, chocolate, and toffee goods.
In April 2005, for reasons not entirely clear from the court’s opinion, Red October entered into another agreement with Rot Front, another one of the United Confectioners subsidiaries – supposedly acting on behalf of United Confectioners – wherein Red October agreed to assign its rights to the “Krasnyi Oktyabr” trademarks to Red October Moscow and which purported to grant Red October the exclusive right to sell the Krasnyi Oktyabr, Rot Front, and Babayevsky brands of candy to the “Russian Ethnic Market” in the United States.
On or about April 5, 2005, Trilini Imports (“Trilini”), a New-York based importer of Russian goods, began importing into the U.S. the same three brands of Russian candy sold by Red October – having purchased the goods from third party Russian distributors who had obtained the candy directly from United Confectioners. Trilini continued to sell the candy despite receiving notice from United Confectioners in September 2005 that Trilini was not allowed to sell the three brands of candy for which Red October had the exclusive right to sell in the United States.
In November 2005, Red October filed suit against Trilini alleging trademark infringement and the usual supplemental state and common law claims. Trilini filed its own counterclaims for abuse of process, fraud, anti-trust violations, and tortious interference with prospective business relations. On cross-motions for summary judgment, the district court ruled in favor of Trilini with respect to Red October’s claims and ruled in favor of Red October on Trilini’s counterclaims. The court also lifted the previously imposed injunction against Trilini preventing it from selling its imported candy.
In his opinion, U.S. District Court Judge David Trager concluded that Red October lacked standing to bring an action under Section 32 of the Lanham Act (15 U.S.C. §1114) for infringement of the registered “Krasnyi Oktyabr” trademarks because Red October could not show that United Confectioners had been damaged by Trilini’s actions, and thus could not be acting as a “legal representative” of United Confectioners in the case. Furthermore, even if Red October could prove that United Confectioners had been damaged by Trilini’s actions, Red October could not show why United Confectioners was unable to participate in the litigation. Red October attempted to argue that Trilini’s actions could hurt its exclusive rights to sell the candy in the United States; however, the court noted that in the very same agreement which gave Red October that exclusive right to sell, Red October not only assigned over to United Confectioners its rights to the Krasnyi Oktyabr marks, but also assigned all potential infringement claims arising from such marks. As such, Red October had nothing which proved that it had any kind of exclusive enforcement rights to the Krasnyi Oktyabr marks that would grant it standing to sue under §1114.
With respect to Red October’s claim for false designation of origin under Section 43(a) of the Lanham Act (15 U.S.C. § 1125(a)), while the court found that Red October did have standing to bring this claim, the court held as a matter of law that there was no likelihood of consumer confusion because the goods were genuine goods from United Confectioners, and thus were protected by the exhaustion doctrine (or first-sale doctrine) which protects a party from claims of trademark infringement for the unauthorized sale of genuine trademarked goods. Red October attempted to argue that Trilini’s imported candy was not genuine because it was not subjected to the same quality controls standards as the candy imported by Red October. However, the court found that Red October lacked any evidence of specific quality control standards that differed between its imported candy and Trilini’s imported candy.
The court then proceeded to summarily dismiss the remainder of Red October’s claims for common law unfair competition, deceptive trade practices under New York law (N.Y. Gen. Bus. Law § 349), false advertising under New York law (N.Y. Gen. Bus. Law § 350), dilution under New York law (N.Y. Gen. Bus. Law § 360-l), and tortious interference with prospective business relations. The court also dismissed Trilini’s counterclaims for abuse of process, fraud on the USPTO, violation of anti-trust laws, and tortious interference with prospective business relations -- all primarily due to the lack of any evidence proving the necessary elements on those claims.