of Lozza (USA) from mid-1989 and thereafter. The brochure is marked with the name "Lozza (USA)" and recites some the history of Lozza (USA) and its connection with Lozza SpA. There is nothing which appears in exhibit 80 which violates the terms of the March 31, 1987 agreement or which in any way infringes any trademark of Fratelli Lozza (USA).
76. Plaintiff's claim (in its complaint) that it has a trademark in the words "Italian Design" or "Family Tradition in Frame Making" is unsupported by any evidence in the case and this court finds that Fratelli Lozza in fact has no trademark in those expressions.
77. Plaintiff does have a contractual right to use the terms "Italian Design" and "Family Tradition in Frame Making" as part of the March 31, 1987 contract.
78. Exhibit 81 is a promotional catalog printed and distributed by Lozza (USA). It was produced in mid-1989. Exhibit 81, which uses the mark Lozza (USA) on the back page along with the inscription "Lozza (USA) is the sole exclusive distributor of Lozza SpA, Italy". On the front page there is a statement "The Visionary Company Lozza (USA)". While there is reference inside the catalog to Lozza, Italy and the use of the word "Lozza" alone, those words are used in a context which makes it clear that the reference to Lozza Italy is a reference to the Lozza (USA) parent company Lozza SpA.
79. While use of the terms "Lozza" or "Lozza Italy" in the Lozza (USA) brochures should have been avoided and should be avoided in the future, given the nature of the March 31, 1987 agreement, the context of their use in Exhibit 81 is at most a de minimis violation of the March 31, 1987 memorandum of agreement. Nor does it constitute an infringement of any Fratelli Lozza mark or a disparagement of any Fratelli Lozza product, trademark, or business interest.
80. Exhibit 82, a June 23, 1989 letter was prepared and sent to various customers of Lozza (USA) in response to a rumor in the industry that the Fratelli Lozza sales representatives were saying that they (Fratelli Lozza) were the real Lozza and Lozza (USA) was the fake one and that Lozza (USA) was not related to the factory.
81. Exhibit 82 was sent in conjunction with a photocopy of the May 28, 1987 joint press release which was prepared in conjunction with the March 31, 1987 agreement and which is Exhibit 11 in this case.
DISCUSSION AND CONCLUSIONS OF LAW
Plaintiff's first cause of action alleges that the defendant Lozza (USA) "almost immediately breached" the March 31, 1987 agreement (Exhibit 9) by offering for sale and selling eyeglass frames which were not marked in accordance with the agreement, specifically the sale of eyeglass frames marked solely "Lozza" without the accompanying term "USA". In fact there is no evidence any such sales occurred until late 1988 or early 1989. As of January 1988, on the other hand, the plaintiff was obligated to cease use of the name "Linea by Lozza" as a part of its obligations under the March 31, 1987 agreement. This the plaintiff failed to do.
Thus, it was the plaintiff that went into breach of the agreement in the first instance and the plaintiff that has continuously breached the agreement from January 31, 1988 until 1990, by its use of the trademark "Linea by Lozza" which trademark it had agreed to abandon as of January 31, 1988 and which trademark it was judged to have abandoned by the April 16, 1990 decision of the Trademark Trial and Appeals Board. (See Finding No. 45)
Furthermore, subsequent to the March 31, 1987 agreement plaintiff Fratelli Lozza has been using the product markings "Fratelli Lozza since 1878". The March 31, 1987 agreement permits Fratelli Lozza to use the name "Fratelli Lozza" in connection with the designation "Tradition in Frame Making" or "Italian Design in Eyewear". The agreement does not authorize the use of the phrase "Since 1878". In fact that is an inaccurate representation since Fratelli Lozza of course never existed prior to 1986 despite the fact that its ownership and management has been very much involved for many years with the tradition in frame making and the use of Italian design in eyewear given the background of Mario Lozza in the Lozza family.
The two breaches by the plaintiff Fratelli Lozza undermine its ability to obtain equitable relief in this court, given the equitable premise that one who seeks equity may not invoke such relief if it has unclean hands. Broadcast Music, Inc., v. Hearst/ABC Viacom Entertainment Servs., 746 F. Supp. 320, 329 (S.D.N.Y. 1990); Cullman Ventures, Inc. v. Columbian Art Works, Inc., 717 F. Supp. 96, 135 (S.D.N.Y. 1989).
In any event this court has found that any breach of the March 31, 1987 agreement by defendant Lozza (USA) was minimal in its impact both in view of the fact that only a limited number of frames were mislabeled and the fact that there is no substantial evidence that marketplace confusion was caused by the mismarking as opposed to being caused by virtue of the fact that two businesses with very similar names and products were operating in the same market. In other words, Lozza (USA)'s breach was not sufficiently substantial to defeat the purpose of the entire transaction such that the March 31, 1987 agreement ought to be rescinded. Lipsky v. Commonwealth United Corp., 551 F.2d 887, 895 (2d Cir. 1976).
In fact, in order for plaintiff to be entitled to the equitable relief of recision and the injunctive relief of effectively foreclosing defendants from any reentry into the marketplace, it would have to show that Lozza (USA)'s breach was so "willful, or if not willful so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract." Septembertide Pub., B.V. v. Stein & Day, Inc., 884 F.2d 675, 678 (2d Cir. 1989) (citing Callanan v. Powers, 199 N.Y. 268, 284, 92 N.E. 747, 752 (1910); Canfield v. Reynolds, 631 F.2d 169, 178 (2d Cir. 1980)). The plaintiff has failed to present this court with any evidence suggesting that the mislabeling of products which occurred briefly in 1989 was anything but an inadvertent mistake which was corrected once it was brought to the attention of the defendants, Lozza SpA and Lozza (USA).
With regard to the third cause of action plaintiff has also failed in its burden of proof. There is simply no credible evidence before the court tending to show that the defendant, Lozza (USA)'s promotional material constituted an infringement of any of plaintiff's marks. With regard to the "Fratelli Lozza" mark or Fratelli Lozza's right to use the terms "Italian Design" and "Family Tradition in Frame Making" in conjunction with the name "Fratelli Lozza", this court cannot conclude that any of the defendant's promotional material constituted an infringement. To the extent that the plaintiff claims that defendant's use of the name "Lozza" in the promotional materials distributed by the defendant Lozza (USA) constituted an infringement, this court simply cannot agree. The promotional materials made it clear that they were being distributed by Lozza (USA) and Lozza (USA) made its connection to Lozza SpA clear. The use of the term "Lozza" standing alone in that material was done in a context where it would be clear to any ordinary reader that the reference to Lozza was in connection with Lozza (USA) or Lozza SpA and certainly bore no connection to Fratelli Lozza or any of its products.
The claim that the distribution of the June 1989 letter constituted slander and disparagement of the plaintiff is undercut by the fact that the distribution was done in reaction to actions of Fratelli Lozza and the distribution was done concurrently with distribution of the jointly agreed upon press release (Exhibit 11) which release made it clear what was going on between the two companies. Judgment is rendered in favor of the defendant on the first and second causes of action and the court declines to grant any relief to plaintiff.
THE DEFENDANTS' COUNTERCLAIMS
On the basis of the clear provisions of the March 31, 1987 agreement (Exhibit 9), the April 16, 1990 decision of the Trademark Trial and Appeals Board, and the withdrawal by plaintiff of its second and fourth causes of action, the defendants are entitled to relief on the counterclaim. This court hereby ORDERS that the plaintiff, Fratelli Lozza (USA) Inc., is prohibited from the use of the trademark "LINEA BY LOZZA".
The use by Fratelli Lozza of the terms "SINCE 1878" in the display of its name and on its promotional literature and all of its printed forms, stationery, catalogs and advertising is false and deceptive in view of the fact that Fratelli Lozza has only been in existence since 1986 or 1987. While the March 31, 1987 agreement gave Fratelli Lozza the right to use the terms "Italian Design", "Family Tradition in Frame Making" and other expressions of similar import, the agreement specifically did not authorize the use of the phrase "Since 1878." In view of the fact that Lozza SpA has been in the business of Italian framemaking since 1878, it seems clear to the court that the use of the term "Since 1878" has a tendency to deceive the purchasing public and to confuse it in ways that were not authorized by the agreement and are in violation of the Lanham Federal Trademark Act of 1946. Lozza SpA has succeeded on the merits of its counterclaim in demonstrating a tendency to deceive and there appears to be no adequate remedy at law. Accordingly, this court ORDERS Fratelli Lozza to cease using the term "SINCE 1878" on products, promotional materials or in advertisements.
Finally, defendants urge sanctions against plaintiff and plaintiff's counsel pursuant to Fed. R. Civ. P. 11. While plaintiff has failed to prevail in this litigation, the court accepts the representation of plaintiff's counsel that discovery uncovered documents which substantially undermined a claim (the Linea by Lozza claim) which plaintiff previously believed to be sound. The court does not have sufficient evidence before it to conclude that plaintiff or its counsel were objectively unreasonable in pursuing any claim at all, although the claims turned out to be thin, indeed. Defendant's request for the imposition of Rule 11 sanctions is DENIED.
1.) Plaintiff's second and fourth causes of action are DISMISSED.
2.) Plaintiff's request for relief under the first and third causes of action are DENIED.
3.) Defendant's request for relief under its counterclaim is GRANTED. Plaintiff is permanently enjoined from using the term "Since 1878" on its products, promotional materials or advertisements.
4.) Defendants' request for the imposition of Rule 11 sanctions is DENIED.
Dated at Burlington, Vermont, this 6th day of April, 1992.
Fred I. Parker
U.S. District Judge*