The opinion of the court was delivered by: SCHEINDLIN
SHIRA A. SCHEINDLIN, U.S.D.J.
Plaintiffs (collectively, "Warner-Lambert") manufacture and distribute over-the-counter drugs, including HALLS brand cough drops and HALLS brand cough suppressant tablets. Plaintiffs' Memorandum at 2-3. Plaintiffs own three registered trademarks for HALLS. Id. at 3. Defendants are wholesale distributors of over-the-counter drugs and health and beauty products. Id. Plaintiffs contend that Defendants "knowingly sold, and continue to sell, products bearing Warner-Lambert trademarks with knowledge that such products are stale and do not comply with the quality control standards of" Warner-Lambert. Id. at 2. According to Plaintiffs, Defendants sell HALLS to their retailer customers in cartons and shipping trays that do not bear Warner-Lambert's freshness date
or manufacturing lot codes. Id. at 5-6. Warner-Lambert does not dispute, however, that the product is sold to consumers in its original packaging (individual bags). Warner-Lambert affixes the freshness date to the shipping containers that it sells to wholesalers and retailers. Pl. Reply Mem. at 3. On October 25, 1995, Warner-Lambert sued Defendants under the Lanham Act, New York state trademark laws, and New York common law. On October 26, this Court granted a temporary restraining order that enjoined Defendants from continuing to sell HALLS brand products in cartons not bearing Warner-Lambert freshness dates.
Plaintiffs now seek a preliminary injunction enjoining Defendants from the following: selling HALLS past Warner-Lambert's freshness date; selling HALLS that have been repackaged or relabeled in a manner that omits the freshness date and lot code; selling HALLS that have been repackaged in a way that combines products from different manufacturing lots into a single container; disposing of any HALLS (including the packaging and marks thereon) that have been relabeled, repackaged or will shortly be past their freshness date; disposing of any sales, marketing or promotional materials that were distributed (or prepared for distribution) to customers and relate to HALLS products; and disposing of documents that relate to purchases or sales of HALLS products.
In order to obtain a preliminary injunction in this Circuit, the applicant must demonstrate irreparable harm, and either (1) a likelihood of success on the merits of its case, or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of the hardships tipping decidedly in its favor. Polymer Technology Corp. v. Mimran, 37 F.3d 74 (2d Cir. 1994) (citing Coca-Cola Co. v. Tropicana Prods., Inc., 690 F.2d 312, 314-15 (2d Cir. 1982)). Irreparable injury means "injury for which a monetary award cannot be adequate compensation." Loveridge v. Pendleton Woolen Mills, Inc., 788 F.2d 914, 917 (2d Cir. 1986) (quoting Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979) (per curiam)). Consequently, "where money damages are adequate compensation a preliminary injunction should not issue." JSG Trading Corp. v. Tray-Wrap, Inc., 917 F.2d 75, 79 (2d Cir. 1990). A preliminary injunction is an extraordinary remedy, and one that should not be granted as a routine matter. Thus a party seeking such relief must show a likelihood of irreparable injury, not a possibility of irreparable injury. "Likelihood sets, of course, a higher standard than possibility." Id. at 79-80.
However, if a plaintiff can show that its claim of trademark infringement is likely to succeed, then irreparable harm is presumed. "In the preliminary injunction context, a showing of likelihood of confusion as to source or sponsorship establishes the requisite likelihood of success on the merits as well as risk of irreparable harm." Standard & Poor's Corp. v. Commodity Exchange, Inc., 683 F.2d 704, 708 (2d Cir. 1982), cited in Home Box Office, Inc. v. Showtime/The Movie Channel Inc., 832 F.2d 1311, 1314 (2d Cir. 1987). Therefore, the issue here is whether Warner-Lambert has demonstrated a likelihood of success on the merits.
III. Discussion of the Merits
A. Prevailing on a Trademark Infringement Claim Regarding Quality Control Procedures
The Second Circuit has held that no action for trademark infringement will "arise where the goods being sold are genuine goods bearing a true mark." Polymer, 37 F.3d at 78. Goods are not considered genuine if they "do not meet the trademark owner's quality control standards," and the sale of such goods constitutes trademark infringement. Id. Furthermore, "for this purpose the actual quality of the goods is irrelevant; it is the control of quality that a trademark holder is entitled to maintain." El Greco Leather Products Co. v. Shoe World, Inc., 806 F.2d 392, 395 (2d Cir. 1986). However, in applying this standard, the Polymer court examined the facts before it and decided, for several reasons, that no trademark infringement had occurred.
The court ruled against Polymer with respect to each alleged violation. First, the court found that Polymer itself had sold in the retail market a product bearing "an outside label with less information than that included on the outside labels on the professional kits." Id. at 79. Because Polymer could not prove that the defendant's actions violated the quality control procedures followed by Polymer itself, Polymer could not prevail on its trademark infringement claim for improper labeling. Id. Second, the court found that even if the defendant distributed some of Polymer's products without tamper-evident seals, there was no evidence that Polymer itself had "procedures in place to prevent its non-sealed kits from reaching the retail public." Id. Therefore, Polymer could not "now claim that its trademark was violated because [the defendant] allowed such product to reach that market." Id. Finally, the circuit court upheld the district court's finding that there was insufficient evidence that the defendant had broken down Polymer's kits and sold the solutions individually. Id. at 79-80. "In sum, Polymer had failed to prove that the district court abused its discretion in failing to accept Polymer's theory of trademark infringement based on [defendant's] alleged circumvention of Polymer's quality control efforts." Id. at 80.
Thus, in accordance with Polymer, it is first necessary to determine what Warner-Lambert's quality control procedures are, and then whether those procedures are pretextual. An evidentiary ...