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BLUE BELL INC. v. WESTERN GLOVE WORKS

March 22, 1993

BLUE BELL INC., Plaintiff,
v.
WESTERN GLOVE WORKS LTD., Defendant.


SWEET


The opinion of the court was delivered by: ROBERT W. SWEET

Sweet, D. J.

 Plaintiff Blue Bell, Inc. ("Blue Bell") has moved for an order vacating that part of an arbitral award, dated September 30, 1992, (the "Award") against its licensee Western Glove Works Ltd. ("Western Glove") which did not permit it to terminate its license agreement with Western Glove. Western Glove has responded in part with a cross motion to confirm the Award. For the reasons set forth below the cross-motion to confirm is granted and the motion to vacate is denied.

 The Facts

 Blue Bell, Inc. is a division of VF Corporation, a Delaware corporation which manufacturers and licenses Wrangler (R) and Lee (R) jeans among other products. One of its most successful jeanswear products is the Wrangler Prorodeo model, which it has distinguished from the competition by trademark and distinctive trade dress since 1955. Trademarks used to sell the Prorodeo include an image of a cowboy roping calf (the "Cowboy Mark"), a brown patch sewn onto the right rear pocket of each garment (the "Wrangle (R) patch"), and a bright yellow tradedress label, showing the Cowboy Mark, which is inserted into the rear pocket at the point of sale and serves to identify each garment to a potential customer in the store (the "pocket flasher"). In the past three years, U.S. sales of jeanswear bearing the Cowboy Mark have exceeded $ 355 million and Canadian sales have grossed more than $ 7.9 million. During the same period, Blue Bell has spent more than $ 32 million in advertising and promoting its Cowboy mark jeanswear in the U.S. and more than $ 500,000 in Canada.

 Blue Bell sold its Wrangler jeanswear in Canada through a wholly-owned subsidiary, Blue Bell Canada, Inc. ("Blue Bell Canada"), until losses led the company to scale down its Canadian operations. On October 21, 1988, Blue Bell sold all of its capital stock in its Canadian subsidiary to Western Glove, an established Canadian apparel manufacturer which manufactured garments under its own private label and under license from Calvin Klein. Blue Bell and Western Glove simultaneously entered into an exclusive licensing arrangement (the "License Agreement" or the "Agreement"). Pursuant to the License Agreement, Blue Bell supplied Western Glove with all of the specifications needed to manufacture Wrangler jeans and with authority to sell those jeans under the full range of trademarks and trade dress; in return, Western Glove agreed to pay royalties as a flat fee or as calculated as a percentage of net sales of the licensed products if above a certain threshold, promised not to use Blue Bell patterns or trademarks to make any non-Wrangler products, and promised to immediately report in writing any attempt by any third party to imitate Wrangler trademarks, trade dress, or design features. Article 4 of the License Agreement also entitled Western Glove to purchase certain American-made products from Blue Bell at a discount of 33% from the list wholesale price through October, 1990 and 20% thereafter, unless the parties negotiated otherwise.

 The License Agreement provided for binding arbitration in Article 22:

 
Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, . . . shall be settled by arbitration in accordance with the Rules of the American Arbitration Association (including supplementary procedures of international arbitration). Arbitration shall be conducted in the English language at New York, New York, United States of America, and the award of the arbitrators shall be final and enforceable.

 The License Agreement provided for termination in Article 13. Article 13.7 allowed Blue Bell to terminate the Agreement should Western Glove "become affiliated, directly or indirectly, with any competitor of Licensor [Blue Bell]." Article 13.2 allowed either party to terminate by giving ninety days' written notice to the other for any material breach, "such termination to be effective unless the other party remedies the breach or default specified in the notice before the end of such ninety (90) days."

 From 1988 to 1990, Western Glove manufactured its licensed Canadian jeanswear out of the original Blue Bell Canadian plant in Renfrew, Ontario, which it subleased from Blue Bell. In 1990, Western Glove terminated its sublease on the Renfrew plant and transferred operations to a plant in Winnipeg, where Western Glove was headquartered and where it had always produced Western Glove jeanswear under its own "private label". Blue Bell alleges that the motive for moving production of the Wrangler jeans to Winnipeg was solely to facilitate Western Glove's planned "knock-off" of the Prorodeo model. Western Glove alleges that the operation of the Renfrew plant was too expensive to continue, and that these expenses were responsible for the losses suffered by Blue Bell Canada.

 Once operations were consolidated in Winnipeg, Blue Bell alleges that Western Glove took actions which amounted to a breach of the license agreement. The first breach occurred when Western Glove continued to order American-made merchandise from Blue Bell with purchase orders listing the price at the 33% discount for nearly a year after the end of October, 1990. Blue Bell did not catch the error and billed Western Glove at a 33% discount, pursuant to the prices listed on Western Glove's purchase orders, until October, 1991. Western Glove knew it was taking an excessive discount, and passed the discount on to its customers by not levying price increases scheduled to go into effect in 1991.

 Western Glove's second infraction was more serious and involved an alleged copying of the patterns, trademarks and trade dress of the Wrangler Prorodeo jeans. By March, 1991, G.A. Boulet, Inc. ("Boulet"), a Canadian boot company based in Quebec, was ordering jeans manufactured by Western Glove to sell under its own "Boulet" label as a promotional item to spur sales of its Western-style boots. Blue Bell alleges that Boulet specifically asked Western Glove to develop for them a "Wrangler-style" Jean, and that in producing the Boulet Jean, Western Glove copied two of the patterns originally supplied by Blue Bell for the production of its Prorodeo model. Blue Bell also alleges that Western Glove supplied Boulet with & "pocket flasher" trade dress directly copied from and confusingly similar to the Wrangler Cowboy Mark.

 In November, 1991, John Neal ("Neal"), Blue Bell's then-Director of Western Retail Marketing and Licensing saw an advertisement for "Boulet Rodeo Jeans" which appeared in the program of the Canadian Finals Rodeo next to an ad for Wrangler Prorodeo jeans. Noting the similarity between the trade dress labels, Neal ordered a pair of the Boulet Rodeo Jeans. Upon receipt, he checked "CA" number, a manufacturer's unique identification required by the Canadian government, which proved that the Boulet Rodeo jeans were manufactured by Western Glove. Neal wrote a letter dated January 22, 1992, requesting that Western Glove "stop attaching the Wrangler look-alike back pocket tag on the Boulet jean and remove any and all tags already attached," and stated that Western Glove was violating the License Agreement.

 By this time (in October, 1991), Blue Bell had caught Western Glove's continuing, now unauthorized use of the 33% discount. In December, 1991, Blue Bell's credit department invoiced Western Glove for $ 232,000, the amount which Blue Bell calculated it was owed for the difference between the 33% rate and the 20% rate (the "December 1991 invoice"), and had informed Western Glove that as of January 1, 1992, Blue Bell intended to bill Western Glove for merchandise at wholesale list prices, not the 20% provided for by the License Agreement. The companies now scheduled a meeting to discuss the issues of the discount and the Boulet jeans. On February 6, 1992, after two Blue Bell officers met with Western Glove officers in Canada, Blue Bell was left with the impression that all Boulet Rodeo jeans were being taken off the market, and that Western Glove would pay the December, 1991 invoice.

 Prior Proceedings

 On March 26, 1992, Blue Bell served a demand for arbitration on Western Glove. Five of the eight "claim and controversies" to be arbitrated concerned the Boulet Rodeo Jean, one concerned Western Glove's "willful and repeated taking of 33% discounts after October 22, 1990," one concerned Western Glove's applications for registration in Canada of other American Blue Bell trademarks, and one was whether the License Agreement "is or should be terminated." On April 1, 1992, Blue Bell secured a temporary restraining order (the TRO) from this Court against the manufacture, distribution, or sale of jeanswear with counterfeit imitations of Blue Bell's trademarks and trade dress by Western Glove. The next day Western Glove complied with the TRO by ordering a recall of the Boulet Rodeo jeans. On April 17, 1992, the TRO was vacated and a preliminary injunction was entered on consent on the same terms as the TRO.

 Pursuant to the arbitration clause in Article 22 of the License Agreement, the parties arbitrated their dispute in New York from June 29 to July 2, 1992. All papers were considered fully submitted on July 24, 1992, and the Arbitrator rendered his award on September 30, 1992. Blue Bell does not contest the ...


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