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SCAN-PLAST INDUS. v. SCANIMPORT AMERICA INC.

November 25, 1986

SCAN-PLAST INDUSTRIES, INC. and SPARRING/ELFA AB, Plaintiffs,
v.
SCANIMPORT AMERICA INC., AKSJESELSKASPET ELAS, and IMA AB, Defendants



The opinion of the court was delivered by: AMON

ORDER

 The annexed Report and Recommendation of United States Magistrate Carol Bagley Amon is hereby adopted as the Opinion of this Court. No objections were filed. Accordingly, the motion to dismiss of defendant Scanimport America is denied.

 SO ORDERED.

 REPORT AND RECOMMENDATION

 AMON, U. S. MAGISTRATE

 Plaintiffs Scan-Plast and Sparring/Elfa filed suit against defendants Scanimport, Aksjeselskaspet Elas and Ima AB seeking damages and injunctive relief for alleged violations of 15 U.S.C. § 1125(a) (the Lanham Act § 43(a)), § 349(a), New York General Business Law, the New York State Unfair Competition Law, 18 U.S.C. § 1961, et seq., the Racketeer Influenced and Corrupt Organizations Act (RICO); § 350, New York General Business Law and § 33.09(8), New York Arts and Cultural Affairs Law.

 The defendant Scanimport has moved to dismiss the complaint for failure to state a claim upon which relief can be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure or in the alternative for summary judgment pursuant to Rule 56. This case was referred to me by the Honorable Joseph M. McLaughlin for a Report and Recommendation on the motions. For the reasons set forth herein, the undersigned recommends that these motions be denied.

 I. STATEMENT OF THE CASE

 A. The Complaint

 According to the complaint, for the past twenty-five years plaintiff Sparring/Elfa has engaged in the manufacture of Elfa Wire Storage Systems and Elfa modules (Elfa products) which have been imported into the United States and distributed by plaintiff Scan-Plast under the trade name "Elfa". (paras. 9, 10). The Elfa wire storage systems are described as being composed of "interconnecting modules, such as frames, drawers and shelves of standardized sizes that may be assembled to form integrated units." (para. 11). It is alleged that in the past five years approximately $1,500,000 has been spent in the United States in promotion and advertising of Elfa, and that as of 1985, the Elfa products held a predominate position in sales in the United States and were widely recognized as the leading high quality wire storage system. (paras. 12; 14).

 Plaintiffs claim that Elfa's American customers commonly replace or add to their systems by seeking to purchase additional Elfa products which either interconnect with or match their present systems. (para. 13).

 The complaint further alleges that in late 1985 the defendants, who had not previously imported or sold any significant numbers of wire storage systems or modules in the United States, began the importation, distribution and sale in the United States of such systems and modules under the name "Norscan" in competition with the plaintiffs. (paras. 15 - 18). In so doing, it is alleged that the defendants used "false designations of origin, false descriptions and false representations" within the meaning of § 43(a) of the Lanham Act. (15 U.S.C. § 1125(a)). More specifically, plaintiffs allege that the defendants simulated and imitated the non-functional elements, trade dress and sales literature of the Elfa products, intentionally causing a likelihood of confusion among purchasers as to the source of the wire storage systems. (para. 20). Defendants are said to have copied Elfa's exact product dimensions, overall appearance, accessories, sales literature, brochures, product designations, color coding, number coding, *fn1" claim of originality, and emphasis on Scandinavian origin. (para. 20). Plaintiffs further claim that defendants' wire storage systems are sold in the same outlets which have long carried and continued to carry Elfa products. The complaint alleges that samples of Elfa products and sales literature are on display in the stores, and that when customers ask for Elfa they are instead provided with the Norscan products. The stores have an economic incentive to engage in this deceit, the plaintiffs maintain, because they can purchase the Norscan wire storage systems at wholesale more cheaply than the Elfa products and sell them at the same retail price. (para. 20(J)).

 The complaint states that the defendants have taken no measures to avoid consumer confusion, such as stating they are not affiliated with Elfa, or specifically identifying their products as copies of, replacements for, or as being compatible with the Elfa products. (para. 20(K)).

 The remaining causes of action under New York law for deceptive acts and practices (Second Claim), unfair competition (Third Claim), false advertising (Fifth Claim), and false representations of origin (Sixth Claim), are all predicated on the same factual allegations.

 Plaintiffs' fourth claim for relief, the RICO claim, relies on these allegations and alleges a scheme to defraud whereby the public, intending to purchase Elfa products, is wrongfully induced to purchase defendants' copies. (paras. 31, 32). According to the complaint, the mailings pursuant to this scheme constitute a "pattern of racketeering activity". (para. 35). The complaint further asserts that the defendants constitute an enterprise whose activities affect interstate commerce (paras. 36, 37) and that they conducted the affairs of the enterprise through a pattern of racketeering activity. (para. 40). Plaintiffs plead injury to their business as a result of the defendants' activities. (para. 42).

 B. Scanimport's Contentions

 The defendant Scanimport moves for dismissal of the complaint and for summary judgment contending that plaintiffs' allegations fail to make out a claim under any of the federal statutes cited, and that the court lacks jurisdiction to consider the state claims since they are pendent to the insufficient federal claims.

 In support of its motion, defendant offered the affidavit of Charles Costa, the chief officer and stockholder of Scanimport. Mr. Costa stated that the plaintiffs do not allege any patents, copyrights or registered trademarks in the Elfa wire basket storage system. He asserts that an unpatented article which has been marketed for twenty five years is in the public domain and can be copied. Appended to Costa's affidavit are photocopies of pages of brochures of other companies that deal in wire storage systems, submitted as evidence that neither party in this action possesses exclusive rights to manufacture, sell and distribute wire storage systems. (Affidavits, p. 7).

 Scanimport maintains that there is no false designation of origin since its brochure bears the name "Norscan" in bold white letters on the cover, and since its system is in fact manufactured in Norway as set forth in its brochure. (Affidavit pp. 3-4).

 Scanimport challenges the assertion that its system is confusingly similar to plaintiffs', noting that its product is shipped in containers and packages clearly labelled "Norscan". (Affidavit, p. 5). Scanimport asserts that the fact that the products appear identical is not actionable in the absence of mislabelling, confusingly similar names or copied packaging. (Affidavit, p. 6).

 Scanimport claims plaintiffs' RICO allegation is defective since it is predicated upon legally permissible activities. (Affidavit, p. 6). There can be no mail fraud, Scanimport maintains, where it had "a perfect right to sell, distribute, ...


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