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LANVIN INC. v. COLONIA

June 12, 1990

LANVIN INC., PLAINTIFF,
v.
COLONIA, INC., DEFENDANT/THIRD-PARTY PLAINTIFF, V. LANVIN PARFUMS S.A., THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by:  Edelstein, District Judge: Background
  Battle Fowler, New York City, Betsy L. Anderson and W. Bruce Johnson, of counsel, for Lanvin, Inc.

Fulbright Jaworski & Reavis McGrath, Marc S. Dreier, Donald J. Lough, and Joyce Kanciper, of counsel, Felfe & Lynch, New York City, Marius J. Jason, of counsel, for Colonia, Inc.

OPINION & ORDER

An Order to Show Cause was brought before this court requesting a Temporary Restraining Order and a Preliminary Injunction pursuant to Rule 65 of the Federal Rules of Civil Procedure. The Order to Show Cause was returned unsigned and instead, the court held a hearing on the Preliminary Injunction issue. Defendant seeks to preliminarily enjoin plaintiff from distributing its products without defendant, alleging that it will suffer irreparable harm if the relief sought is denied.

For the reasons stated below, defendant has not met the burden required to obtain a preliminary injunction. Accordingly the defendant's motion is denied.

THE PARTIES

Plaintiff, Lanvin Inc., is a Delaware corporation with its principal place of business located in New York, New York. It is the exclusive licensee of the trademarks "Lanvin" and "Arpege" for various fragrances and toiletry products (the "Licensed Products") in the United States.

Third-Party Defendant, Lanvin Parfums S.A., is a French corporation with its principal place of business located in Paris, France. It owns the "Lanvin" and "Arpege" trademarks referred to above. It and its affiliates manufacture fragrance products and the essential oils used in such products, for distribution through distributors and/or licensees worldwide.

Defendant, counterclaim plaintiff and third-party plaintiff, Colonia, Inc. ("Colonia") is a Connecticut corporation with its principal place of business located in Connecticut. Colonia is in the business of manufacturing, marketing and distributing various brands of fine fragrances.

THE INSTANT SUIT

On or about January 8, 1981, Lanvin Inc. entered into a License Agreement (the "License Agreement") and a Supply Agreement (the "Supply Agreement") with a predecessor of Colonia. Pursuant to the terms of the two agreements, Lanvin Inc. granted to that predecessor the exclusive rights to use Lanvin's trademarks in connection with fragrances and toiletries in the U.S. (the "Territory") from January 1, 1981 through November 30, 1995. License Agreement Arts. 1(a), 1(c), 1(d), 1(e), 2(b), 3. That party, for its part, agreed to purchase fragrance essence from Lanvin to be used as the basis for the manufacture of Licensed Products by that party in the U.S. for distribution in the Territory. License Agreement Art. 13(c) at 19; Supply Agreement Art. 5.

In or about December 1983, Colonia succeeded to its predecessor's rights and duties under the two agreements.

Lanvin Inc. commenced the instant action on August 8, 1989 by filing a Complaint alleging that Colonia materially breached the License Agreement by selling substantial quantities of Lanvin's Licensed Products under such circumstances that Colonia would have or should have reasonably expected that the Licensed Products would be resold outside of the Territory. Lanvin claimed damages of over $2 million.

Article 2(c) of the License Agreement provides that while Colonia may utilize other distributors to distribute and sell Licensed Products "in the Territory," Colonia "shall remain primarily responsible and liable for the fulfillment of all its obligations under the Agreement," and all such distributors shall "undertake to take no action inconsistent with "the obligations imposed on [Colonia] under this Agreement." Article 2(i) provides, in relevant part, that Colonia:

  (i) . . . and its Distributors, if any, shall
  refrain from selling Licensed Products to vendees
  under such circumstances that the resale of those
  Licensed Products outside of the Territory may
  reasonably be expected to result and shall
  cooperate fully with [Lanvin Inc.] and its
  Affiliates and their Licensees to prevent or
  reduce the likelihood of such resales. Any sale of
  Licensed Products by [Colonia] or its Distributors
  shall be deemed not for export outside the
  Territory if the seller has in good faith no
  reason to believe that export outside the
  Territory of the Licensed Products sold is
  probable.

On August 28, 1989 Colonia served an Answer and Counterclaims denying Lanvin's allegation and counterclaiming for $5 million in damages. For its First Counterclaim, Colonia alleged that Lanvin had no right to terminate without first providing Colonia with 60-days' notice and an opportunity to cure.

Colonia's Second Counterclaim alleges that Lanvin sold substantial quantities of the Licensed Products under such circumstances that Lanvin would have or should have reasonably expected that the products would be exported into the Territory. The Third Counterclaim alleges that Lanvin failed to provide Colonia with new Licensed Products. The Fourth Counterclaim alleges that Lanvin wrongfully terminated the License and Supply Agreements.

On September 7, 1989, Colonia also served a third-party complaint against Lanvin Parfums, S.A., claiming that company should guaranty any liability Lanvin Inc. may have to Colonia.

The parties subsequently exchanged documents. No depositions have yet been taken.

THE INSTANT MOTION

Colonia brought on the instant motion by Order to Show Cause on February 28, 1990, requesting a Temporary Restraining Order and a Preliminary Injunction pursuant to Rule 65 of the Federal Rules of Civil Procedure. The Order to Show Cause was returned unsigned and a three-day evidentiary hearing was held.

With its motion, Colonia served an Amended Answer and Counterclaims, which is substantially similar to its original Answer and Counterclaims served in August 1989 except that it adds a Fifth Counterclaim alleging irreparable harm. Colonia now demands, in addition to the $5 million in compensatory damages and punitive damages requested, an injunction to reestablish the License Agreement between Lanvin and Colonia, and an injunction against Lanvin's distributing Lanvin products, except through Colonia, until November 30, 1995. The same injunctive demands are made in an Amended Third-Party Complaint against Lanvin Parfums S.A.

Lanvin's position is that Colonia has not shown irreparable harm; that Colonia is unlikely to succeed on its claims, including its claim that the termination of Colonia was wrongful; that Colonia has not presented serious questions going to the merits; and that the balance of hardships does not tip decidedly in Colonia's favor.

Colonia sells 20 different brand names of fragrances. These include: Gucci, Camp Beverly Hills, Balmain, Charles Jourdan, Maja, Pavlova, Ivoire, Vent Vert, Silences, L'Innocent, Jolie Madame, Un Jour, Votre, Payot, Jenny, Replique, Tabac, Carrera, Dallas, Jacomo, and 4711. Colonia's business grew from $12 million in sales in 1983 to $50 million in 1989.

Colonia's president and chief executive officer, Lawrence Pesin, testified that the fragrance industry is characterized by new promotional activity, with consumers responding to new brands and the introduction of new products. Colonia's growth was based on Colonia's introduction of two new brands from Gucci and one from Camp Beverly Hills. Pesin further testified that, consistent with the way the fragrance market works, all of the profits Colonia has made since 1983 have been generated by its new brands.

Pesin testified that Lanvin has not introduced a new brand since its relationship with Colonia began in 1983. Because of Colonia's introduction of new products, the proportion of its overall sales represented by Lanvin has declined. Sales of Lanvin products constituted approximately 10 percent of Colonia's business in 1989.

One of the fragrances Colonia sells, 4711, is a famous fragrance manufactured by Colonia's German parent corporation, itself called "4711." In 1989 that company had $300 million in revenues and eight manufacturing subsidiaries worldwide.

Another of the fragrances sold by Colonia, Gucci No. 3, a prestige fragrance, was Colonia's biggest selling brand in 1989. Another Colonia fragrance, Jenny, started in 1989, is also a prestige fragrance.

Following the termination by Lanvin, Colonia launched a new fragrance called "Only," associated with the Spanish singer Julio Iglesias. "Only" had a significant impact because it gave Colonia entry and strength in stores that Colonia had been attempting to grow in over the years. Although the fragrance was not available until the last four months in 1989, it contributed over 10 percent of all Colonia's sales in 1989. Colonia also launched a "21 Club" fragrance in 1989.

Colonia is the exclusive licensee of Graceland Enterprises, licensor for a perfume called "Moments," associated with Elvis Presley's widow, Priscilla. Colonia intends to launch "Moments" in 1990.

In or about July 1988, Colonia sent to Kapustin the "Colonia, Inc. Sales Recap by Corporate Number," Plaintiff's exh. 16. That document purports to show all Arpege sales made by Colonia to its customers in the first six months of 1988, including the comparative differences between 1988 and 1987.

In or about March 1989, Colonia provided Kapustin with several additional sales documents for 1988. One was the "Corporate Ranking by Gross Dollars," Plaintiff's exh. 14, which purports to provide all the customers for all "Arpege "-labelled products sold by Colonia in 1988. The document lists a total of 1,288 customers. The customer with the largest total purchases in 1988 was J.C. Penney, with purchases of $774,691.10, constituting 17.2 percent of Colonia's total sales of Arpege in 1988. Osco Drug, Inc., another retailer, was fifth with $103,478. Page 27 of the documents indicates that the 1,288 customers listed account for 100 percent of Colonia's Arpege sales in 1988, amounting to $4,503.592. Plaintiff's exh. 14.

Another document Colonia sent to Lanvin, the "Product Ranking By Gross Dollars/Arpege," Plaintiff's exh. 15, provides the relative product rankings, by product number, for all the different "Arpege"-labelled products sold by Colonia in 1988. The fourth entry on page 1, Arpege Eau de Toilette 1-oz. spray, carries product number 85199, with total sales of $334,625.

Colonia also sent Royalty Statements to Lanvin for every quarter in 1988, and for December 1988 through February 1989. Plaintiff's exhs. 17 and 18. The portion of sales reported in the Royalty Statements that is attributable to sales of Arpege-labelled products corresponds with the figures in the "Corporate Ranking by Gross Dollars," plaintiff's exh. 14, and the "Product Ranking By Gross Dollars," plaintiff's exh. 15.

In early 1989, Lanvin announced that it was going to be purchased by Midland Bank. A director of Midland Bank, Leon Bressler, became Lanvin's chairman and chief executive officer. Also in early 1989, Lanvin announced that it was taking a more aggressive stance with respect to unauthorized transshipments ("gray-marketing") of Lanvin's "Arpege" products. Plaintiff's exh. 6. Prior to that time, Lanvin products manufactured by Colonia had been found outside the Territory on several occasions, and Lanvin revealed complaints from several of its distributors regarding the products.

  In September 1988, Lanvin sent to Colonia a letter enclosing
an advertisement from a British newspaper advertising Arpege
product allegedly "Imported from USA." Plaintiff's exh. 8 at 2.
The ad stated: "by special arrangement we can sell direct to
you — world famous guaranteed genuine designer perfume — the
real thing. No extra overheads, no middle men. Plaintiff's exh.
8 at 2. Lanvin told Colonia that Lanvin was "extremely
concerned by such an occurrence" and was:

    . . under great pressure from our United Kingdom
  retailers and distributor to solve the problem,
  i.e. to stop what we consider to be parallel
  imports from the United States. . . . [T]he
  ...

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