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FINANCIAL MATTERS v. PEPSICO

November 17, 1992

FINANCIAL MATTERS, INC. et al. Plaintiffs
v.
PEPSICO, INC. and MONSIEUR HENRI WINES, LTD. Defendants.


Owen


The opinion of the court was delivered by: RICHARD OWEN

Owen, District Judge

 Financial Matters, Inc. ("FMI") and Modern Classic Marketing, d/b/a Stolichnaya Import company, move for a preliminary injunction against PepsiCo and Monsieur Henri Wines. PepsiCo and MHW cross-move for an injunction against plaintiffs. At issue are the trademark rights in "Stolichnaya" vodka.

 On this record, the following appears. In 1973 PepsiCo entered into an agreement with Sojuzplodoimport ("SPI"), the Soviet state-controlled bureaucracy that controlled all agricultural exports from the U.S.S.R., to export Pepsi-Cola syrup to the Soviet Union, and to receive in return the exclusive right to import Stolichnaya Vodka into the United States. SPI received trademark registration for the Stolichnaya mark in the United States in 1967. In 1969, SPI purported to assign all its rights in the mark to Kraus Bros. & Co.; SPI designated MHW, Kraus' subsidiary, as SPI's representative in its trademark application. PepsiCo acquired Kraus and MHW in order to secure its right to import the Stolichnaya Vodka. The mark became incontestable in 1974 on the filing of the requisite affidavit of continuous use. PepsiCo also owns the mark "Stoli."

 Upon its acquisition of the Stolichnaya import rights, PepsiCo set up a system for approving potential suppliers, establishing quality specifications, assisting distilleries in improving their product, testing the final product, and rejecting unsuitable shipments. *fn1" PepsiCo was thus instrumental in creating a domestic American product of consistently high quality and uniform characteristics. Since 1972, PepsiCo and MHW have expended over $ 100 million to popularize Stolichnaya vodka in the U.S.. *fn2" PepsiCo approved only seven distilleries in the USSR to produce and export Stolichnaya vodka to the U.S., and imported Stolichnaya vodka has come from these same seven distilleries over the past twenty years of PepsiCo's control. *fn3"

 In 1983, PepsiCo assigned to SPI the Stolichnaya trademark registration, as well as its pending application to register Stoli. In June, 1991, SPI reassigned to PepsiCo all of its right, title and interest in and to the said marks. That agreement was amended on February 6, 1992, after the dissolution of the USSR, by deleting paragraph 8, which had conferred a right upon the now-defunct Soviet government to request the reassignment of the marks back to SPI at will.

 In August, 1991, the USSR patent office cancelled SPI's registration in Russia for Stolichnaya on the ground that Stolichnaya had come to identify a type rather than a brand of vodka in the USSR. An opinion by the patent office clarifying that decision notes that under Russian law, the ownership and validity of rights in marks outside Russia is independent of such rights in Russia, and that the cancellation of the mark in Russia should not affect rights outside Russia. Furthermore, pursuant to Article 6(3) of the International Convention for the Protection of Industrial Property, the "Paris Convention," to which both the U.S. and Russia are signatories, a mark duly registered in one country is independent of marks registered in other countries, even including the country of origin.

 When the USSR collapsed in December 1991, SPI became a private joint stock company which succeeded to the same rights as its governmental predecessor; these rights were confirmed by the statements of various Russian government officials and trade representatives of the Russian Federation in the United States. PepsiCo, MHW and SPI have continued their business relationship virtually unchanged. *fn4"

 Plaintiffs, however, base their claim for a preliminary injunction on Russian decree No. 213, of November 16, 1991, which gives export rights to each entity for its own products. That decree, however, does not purport to grant any import rights into any other country. In June, 1992, the Terek, a vodka distillery in the Republic of North Ossetia, one of twenty autonomous regions within the Russian Republic, executed an agreement with FMI, agreeing to sell Stolichnaya vodka to FMI for resale anywhere in the world, including the United States. *fn5" Basing their right in large part on Decree No. 213, FMI and the Terek are now disputing PepsiCo and MHW over who presently possesses the valid right to the importation and distribution if Stolichnaya vodka.

 In October 1992, the deputy Prime Minister of North Ossetia issued a decree stating that all rights to trademarks and any sales of Stolichnaya belong only to the Terek and the other Russian liquor-making factories. That statement declares that SPI had no rights in the mark as of 1991, when it purported to transfer its rights to PepsiCo.

 FMI argues that even if SPI did have authority to transfer the marks back to PepsiCo in 1991, paragraph 8 of the PepsiCo assignment obligated PepsiCo to return the mark to its rightful Russian owners. The North Ossetian government claims to be the exclusive legal successor of the USSR for the purposes of the agreement between SPI, and PepsiCo, and demands the return of the mark, with the Terek factory claiming the right to it.

 FMI argues that ownership of a trademark is acquired through ownership of the goodwill associated with the trademark. They argue that PepsiCo cannot own the goodwill of the Stolichnaya marks, because PepsiCo's compliance with state liquor laws precludes it from controlling the goodwill associated with the marks and has forced it to abandon the marks, and also because PepsiCo has admitted that the goodwill of the marks is either "in the bottle" or in its "Russian-ness" and that they are merely a foreign outpost of that goodwill. However, I conclude that plaintiffs fundamentally misperceive U.S. trademark law. PepsiCo has satisfied the Lanham Act's requirement of registration and continuous use. The registrations have achieved incontestable status under Section 15 of the Lanham Act, 15 U.S.C. § 1065, and PepsiCo is conclusively presumed to have the right to exclusive use of the marks. Park and Fly v. Dollar Park ' N Fly, 469 U.S. 189, 196, 83 L. Ed. 2d 582, 105 S. Ct. 658 (1985). Indeed, PepsiCo has been using the mark continuously for over twenty years, and has built up a multi-million dollar business. PepsiCo has popularized the vodka through expenditures of over $ 100 million. Not only was PepsiCo the first user of the mark; it is undisputed that plaintiffs have never used or registered the mark in the U.S. The underlying right to a mark depends upon its actual use. Basile, S.p.A. v. Basile, 899 F.2d 35, 37 n. 1 (D.C. Cir. 1990). PepsiCo need not be the manufacturer, importer or distributor of the goods sold under its mark in order for the mark and PepsiCo's ownership of it to be valid. A trademark owner may delegate the responsibility of daily control over the qualify of the product to a reliable party if it wishes, without relinquishing a mark. See Premier Dental Products Co. v. Darby Dental Supply Co., Inc., 794 F.2d 850, 856 (3d Cir.), cert. denied, 479 U.S. 950, 93 L. Ed. 2d 385, 107 S. Ct. 436 (1986). Indeed, § 5 of the Lanham Act, 15 U.S.C. § 1055 provides that use by a related company inures to the benefit of the trademark registrant. The public need not know the name of the trademark owner, so long as consumers associate the mark with a single source. Premier Dental Products, 794 F.2d at 856, citing Coty Inc. v. LeBlume Import Co., Inc., 292 F. 264, 267 (S.D.N.Y.), aff'd 293 F. 344 (2d Cir. 1923).

 FMI next alleges that PepsiCo acquired its trademark through deception, by falsely representing that it was the unconditional owner of the marks, when it never actually had such rights because after 1977 it no longer qualified as an owner for a trademark associated with a liquor product, and because its rights were conditional. Plaintiffs fail, however, to bring this case within the fraud defense to incontestable registrations, § 33(b)(1) of the Lanham Act, 15 U.S.C. § 1115 (b)(1). PepsiCo did have the right to own the marks; the Trademark Office does not record or preserve transfer agreements or assignments. Rather, it is arguably plaintiffs who might well he accused of ...


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