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AEROGROUP INT'L, INC. v. MARLBORO FOOTWORKS

February 4, 1997

AEROGROUP INTERNATIONAL, INC., Plaintiff,
v.
MARLBORO FOOTWORKS, LTD., LAURENCE D. KOPLAN, STEVEN GOLDBERG, GREDICO FOOTWEAR LTD., TOWN SHOES LTD., BATA INDUSTRIES LTD, GOLDPORT ENTERPRISES, INC., MARLBORO FOOTWORKS LTD. (TAIWAN), MASATERU UEHARA, FREDERICK ATKINS, INC., WEISS & NEUMAN SHOE CO., MELVILLE CORPORATION, SHOE CARNIVAL, INC., and NATIONAL INDEPENDENT RETAILERS, INC., Defendants.



The opinion of the court was delivered by: COTE

 DENISE COTE, District Judge:

 Plaintiff Aerogroup International, Inc. ("Aerogroup") has brought this action against Marlboro Footworks Ltd. ("Marlboro"), an American buying agent, and certain of its American and Canadian customers, alleging that the defendants have infringed its intellectual property rights in its Aerosoles shoes. Marlboro and one of its Canadian customers, Bata Industries Ltd. ("Bata"), have moved to dismiss this action insofar as it seeks to reach Canadian sales for lack of subject matter jurisdiction. *fn1" At issue is the extraterritorial reach of the Lanham Act and the Patent Act. This Court finds that the Lanham Act applies to Marlboro's actions in Canada, but that it does not provide subject matter jurisdiction over Bata for its Canadian sales. *fn2" Moreover, this Court holds that Aerogroup's patent claims do not extend to Canadian sales.

 I. Background

 A. Procedural History

 On April 17, 1996, Aerogroup filed this action alleging violations of several provisions of the Lanham Act, 15 U.S.C. §§ 1114(1), 1120, 1125(a), and 1125(c); the Patent Act, 35 U.S.C. § 271; and the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c) ("RICO"). Plaintiff also brought various state-law claims. *fn3" On October 21, 1996, after a hearing on Aerogroup's motion for a preliminary injunction against Marlboro and two individual defendants, Steven Goldberg and Laurence D. Koplan, Aerogroup and these three defendants consented to a conversion of the hearing to a full trial on the merits. Thereafter, in an opinion delivered on the record, this Court granted in part and denied in part Aerogroup's motion. The permanent injunction reflecting this ruling was signed on November 15, 1996. Neither the October 21 Opinion nor the November 15 Order addressed the extraterritorial effect of the Lanham Act on Marlboro's Canadian sales. Instead, the Court invited the parties to address this issue through post-trial submissions, which the parties have done.

 Three of the defendants are Canadian customers of Marlboro. On December 24, 1996, this Court granted the motions of defendants Town Shoes and Gredico to dismiss the action against them for lack of personal jurisdiction. *fn4" Bata, the remaining Canadian defendant, has moved to dismiss the action against it on the grounds of lack of personal jurisdiction and subject matter jurisdiction and pursuant to the doctrine of forum non conveniens. At trial, this Court found that Marlboro had infringed the Aerosoles trademark if American law were to apply to sales of certain shoes by Bata in Canada.

 While Aerogroup and Bata have not engaged in discovery, both parties have submitted evidence in connection with Bata's motions. In addition, Aerogroup has had complete discovery of Marlboro, the company through whom Bata ordered the infringing shoes, except for some additional discovery which may be needed to finalize the amount of damages.

 B. Aerogroup

 Since 1985 Aerogroup (or its predecessor) has designed, manufactured, imported, marketed and sold at wholesale and retail shoes of various types including the Aerosoles shoe. Aerosoles are manufactured in factories throughout Europe and Sri Lanka and sold in large quantities throughout the United States, Canada, and other parts of the world. Aerogroup claims the following intellectual property rights in connection with its Aerosoles shoe: (1) a United States registered trademark which includes the name "Aerosole" in stylized letters with a twisting line underneath that curves back and forth three times ("Aerosoles Trademark"); (2) a United States registered waffle design trademark which includes a "plurality of diamond or rhombic recessed patterns on the sole of a women's" shoe ("Waffle Trademark"); (3) a pending United States trademark which includes the image of a shoe being twisted on a vertical axis to denote flexibility ("Twisted Shoe"); (4) a United States patent on the waffle sole ("Waffle Patent"); and (5) trade dress which includes a combination of the above items of intellectual property.

 Aerosoles have been sold in Canada since 1987, and since 1991 the Canadian sales have totaled approximately $ 100 million. Aerosoles are advertised in Canada in magazines, billboards, bus shelters, and point-of-sale advertisements. On April 4, 1991, Aerogroup filed for a Canadian trademark registration for its Aerosoles Trademark, for "footwear namely women's casual shoes, comfort shoes, non-athletic shoes and fashion sneakers." The mark was registered on June 10, 1994. The Canadian trademark is the same in appearance as the American registration. Earlier, on July 31, 1990, Aerogroup registered a Canadian industrial design patent for a shoe sole with a waffle pattern. The industrial design drawings do not directly correspond to the current configuration of the waffle sole.

 C. Marlboro

 Marlboro, which was founded in 1987, is a buying agent which arranges for the production of footwear through its agents overseas and sells it to customers in the United States and Canada. The shoe designs Marlboro presents to its customers are frequently "knock offs" of other shoe designs. Since 1994, Marlboro has engaged in an active campaign to "knock off" Aerosoles. With the exception of the sole, however, Aerogroup does not contend that any feature of its shoe designs is protectable. Instead, it has challenged through this lawsuit what it contends are the infringements of its shoe sole and its trade dress. Marlboro is responsible for the design of the sole on its Aerosoles knock offs. With respect to the trade dress for Marlboro's shoes, while customers usually choose to place their own private label names on the shoes they order from Marlboro and also choose the trade dress, such as the design for the shoe box and sock liner label for the shoes, Marlboro designed the principal trade dress of which Aerogroup complains: the stylized use of the name Air Supply.

 Marlboro has used the name Air Supply for almost a decade, usually on shoe samples, and occasionally for a shipment of shoes when a customer has chosen to order private label shoes from Marlboro using that name. From approximately 1993 to January 1996, one Marlboro customer had exclusive use of the name as its private label brand name for shoes. Aerogroup has complained of none of these prior uses.

 In 1995, however, Marlboro ordered shoe boxes from its overseas agent with a design for the name Air Supply that knocked off Aerosoles' trade dress. By using Aerosoles-like trade dress to display its knock offs of Aerosoles shoes at the August 1995 Las Vegas shoe show display, Marlboro hoped to draw attention to how close its knock offs were to the original Aerosoles. *fn5"

 In early 1996, after the customer who had had exclusive use of the name Air Supply for several years went out of business, Marlboro allowed its other customers to use the Air Supply trade dress that Marlboro had created to knock off the Aerosoles trade dress. Those customers include Town Shoes, Bata, and Weiss & Neuman, who used this trade dress on the shoe boxes and sock liners for their Aerosoles knock off shoes.

 With respect to the sales to Bata, Marlboro placed orders for the shoes with a Taiwanese factory representative who arranged for the manufacture of the shoes in China. The shoes were shipped directly from China to Canada, and Marlboro was paid a commission based on the factory cost per pair of shoes, an arrangement referred to as first cost basis. When a customer buys shoes on a first cost basis it assumes all of the risks.

 Marlboro asserts that it has sold Bata 50,580 pairs of shoes bearing the Air Supply logo in the trade dress which this Court found infringing. The total price of these shoes -- paid directly to the factory by Bata -- is $ 485,475. Marlboro was paid a commission of $ 41,265.38. *fn6" As to Marlboro's other Canadian customers, Marlboro sold 2,166 pairs of Air Supply shoes bearing an infringing trade dress to Town Shoes, for which Town Shoes paid the factory $ 14,918, and paid Marlboro $ 1,491.80. Marlboro sold 17,889 pairs of Easy Step shoes to Gredico, for which Gredico paid the factory $ 121,692, and paid Marlboro $ 9,735.36. Aerogroup has not claimed that the trade dress associated with any of the Easy Step shoes infringed its rights. Its sole claim, which the Court rejected insofar as it was made against Marlboro at trial, related to a single magazine advertisement by Gredico.

 D. Bata

 Bata is incorporated and has its principal place of business in Ontario, Canada. Bata has no offices, employees, property, or bank accounts in the United States. Bata is not licensed to do business in the United States and is not a member of any footwear trade associations in the United States.

 The Bata entity which is a defendant in this case has two divisions, the "Retail Division" and the "Norimco Division." *fn7" The Retail Division, which is the one that sells the allegedly infringing, shoes, operates retail shoe stores which are all located in Canada. The Retail Division has no sales agents in the United States, does not solicit sales in the United States, and earns no revenue from activities in the United States. The Retail Division has not advertised in the United States the "Air ...


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