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MONSANTO CO. v. HASKEL TRADING

June 30, 1998

MONSANTO COMPANY and THE NUTRASWEET COMPANY, Plaintiffs, against HASKEL TRADING, INC., et al., Defendants.


The opinion of the court was delivered by: GLEESON

AMENDED MEMORANDUM AND ORDER1

 JOHN GLEESON, United States District Judge:

 This action alleges trademark infringement and other wrongdoing in violation of the Lanham Act and New York statutory and common law. On August 11, 1997, the plaintiffs moved for summary judgment and for an order adjudging certain defendants in contempt of a Temporary Restraining Order issued by this Court on January 13, 1997. On October 7, 1997, the defendants cross-moved for summary judgment and for leave to file an amended answer. On October 15, 1997, the defendants filed an additional motion seeking an order returning much of what was seized pursuant to several seizure orders this Court issued, as well as modification of a preliminary injunction I entered on March 14, 1997.

 For the reasons set forth below, all parties' motions for summary judgment and the plaintiffs' motion for an order holding defendants in contempt are denied. The defendants' motion for leave to file an amended answer is granted. The defendants' motion for an order returning much of what was seized pursuant to the seizure orders is granted. With respect to the defendants' request for modification of this Court's March 14 preliminary injunction, a hearing is necessary on the defendants' claim of unreasonable delay by the plaintiffs.

 BACKGROUND

 Monsanto Company ("Monsanto") is a manufacturer and distributor of the artificial sweetener known as Equal. Monsanto markets and sells Equal in packages bearing the federally registered trademarks "NutraSweet" and "Equal," trademarks which are owned by Monsanto's subsidiary The NutraSweet Company ("NutraSweet"). According to the plaintiffs, since 1992 they have spent more than $ 110 million in advertising and promoting the Equal product, with net sales of over $ 600 million during that period.

 The plaintiffs market Equal in two distinct channels of commerce: retail sales and institutional sales. The product is packaged differently for each channel: the institutional cartons contain 2000 packets of Equal; the retail cartons contain 50 to 100 packets.

 The plaintiffs allege that, after an investigation that began in 1996, they discovered that defendants Ely and Cheski Baum, acting on behalf of defendants Haskel Trading ("Haskel") and Wholesale X-Change ("Wholesale"), were repackaging sweetener from the plaintiffs' institutional cartons into retail boxes constructed by the defendants. Because the price-per-packet of Equal is lower for the institutional boxes than for the retail boxes, the defendants were able to resell the repackaged product at a higher price than they paid for it. The retail boxes the defendants constructed were similar in all material respects to the plaintiffs' retail boxes. The boxes carried the words "Distributed by: The NutraSweet Company." They made no mention of the defendants' role as repackagers.

 In addition to their reboxing operation, the defendants also repackaged Equal packets into clear plastic packages. Unlike the boxes, the plastic packages contained paper inserts stating that the sweetener had been repackaged by the defendants. *fn2" Because the plastic packages were transparent, the paper inserts identifying the defendants as repackagers could be seen from outside the package.

 On January 13, 1997, the plaintiffs filed a complaint alleging, inter alia, that the defendants' reboxing operation violated the Lanham Act. On three different occasions thereafter, the plaintiffs, acting pursuant to orders issued by this Court, seized evidence of the defendants' repackaging operations. On March 12, 1997, the plaintiffs filed a First Amended Complaint, which named, inter alia, Ely and Cheski Baum, Haskel, and Wholesale as defendants. On March 14, 1997, by consent of the parties, I entered a preliminary injunction enjoining the defendants from, inter alia, dealing with packaging "bearing a copy or colorable imitation of the Equal and/or NutraSweet trademarks."

 On August 11, 1997, the plaintiffs filed the instant motion for summary judgment. Although the plaintiffs state that they seek to hold the defendants liable for repackaging the Equal product in the clear plastic containers (on the ground that the paper insert does not indicate the defendants' role as repackagers prominently enough), that claim is not at issue here. Rather, the plaintiffs have moved for summary judgment only with respect to the defendants' reboxing operation. Specifically, they seek injunctive and monetary relief for trademark infringement in violation of Section 32 of the Lanham Trademark Act ("Lanham Act"), 15 U.S.C. § 1114, for false descriptions and representations in commerce under Section 43 of the Lanham Act, 15 U.S.C. § 1125, and for injury to business reputation and dilution of their mark in violation of New York General Business Law § 368-d. The plaintiffs also seek compensatory and punitive damages for unfair competition in violation of New York common law and compensatory damages under a theory of unjust enrichment. As noted above, plaintiffs' August 11 motion seeks an order holding the defendants in contempt of the Temporary Restraining Order I entered on January 13, 1997.

 On October 7, 1997, the defendants' cross-moved for summary judgment and for leave to file an amended answer. On October 15, 1997, the defendants filed an additional motion seeking an order returning much of what was seized pursuant to the seizure orders I issued, as well as modification of the March 14 preliminary injunction.

 DISCUSSION

 I. The Motions for Summary Judgment

 A. The Summary Judgment Standard

 Summary judgment must be granted where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). In determining when material facts are in dispute, all ambiguities must be resolved and all inferences drawn in favor of the non-moving party. See Local 74, Serv. Employees Int'l Union v. Ecclesiastical Maintenance Servs., 55 F.3d 105, 108 (2d Cir. 1995).

 The initial burden is upon the moving party to demonstrate the absence of any genuine issues of material fact. See Gallo v. Prudential Residential Servs., Ltd., 22 F.3d 1219, 1223 (2d Cir. 1994). "When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts. In the language of the Rule, the nonmoving party must come forward with 'specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986) (citations omitted). The non-moving party cannot survive a properly supported motion for summary judgment by resting on his pleadings "without 'any significant probative evidence tending to support the complaint.'" Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986) (quoting First Nat'l Bank of Arizona v. Cities Service Co., 391 U.S. 253, 290, 20 L. Ed. 2d 569, 88 S. Ct. 1575 (1968)).

 B. The Lanham Act Claims

 1. The Proper Defendants

 Before addressing the substance of the parties' claims, I first must determine who the proper defendants are. Ely Baum and Wholesale do not deny their participation in the reboxing operation. Cheski Baum and Haskel, however, do. In addition, Cheski and Haskel argue that the plaintiffs may not pierce the corporate veil in order to hold Ely and Cheski liable for any Lanham Act violations that may have occurred.

 The plaintiffs have submitted documentary evidence tending to suggest that Cheski and Haskel participated in the reboxing operation. For example, the plaintiffs have submitted a copy of an invoice sent to Cheski for services performed in connection with designing copies of the plaintiffs' boxes. See, e.g., Ex. M(4). The plaintiffs also have submitted a letter, signed by Ely on Haskel letterhead, which suggests that Ely played a role in the management of Haskel. See, e.g., Ex. U(11). In response to this evidence, Cheski states in an affidavit that, although Haskel is his company, neither he nor Haskel have any relationship with Wholesale. See C. Baum Aff. at PP 5-6. Accordingly, genuine issues of fact exist with respect to the role of Cheski and Haskel in the reboxing operation. The plaintiffs' request that I find as a matter of law that Cheski and Haskel participated in the reboxing operation is therefore denied.

 Cheski also has argued that the plaintiffs may not pierce the corporate veil in order to hold him or his brother liable for any Lanham Act violations. However, "while a corporate officer is not necessarily individually liable for torts committed on behalf of the corporation, personal liability for trademark infringement and unfair competition is established 'if the officer is a 'moving, active conscious force behind [the defendant corporation's] infringement."" Bambu Sales, Inc. v. Sultana Crackers, Inc., 683 F. Supp. 899, 913 (E.D.N.Y. 1988) (citation omitted); see also Project Strategies Corp. v. National Communications Corp., 948 F. Supp. 218, 224 (E.D.N.Y. 1996). As stated above, Ely has not denied his participation in the reboxing operation. Accordingly, he can be held personally liable for any violation the plaintiffs may establish. Cheski's role in the operation, however, remains disputed. Whether Cheski may be held personally liable for any such violation therefore must await trial.

 Since the role of Cheski and Haskel is not yet clear, in discussing the substance of the parties' claims, I shall use the term "defendants" with the understanding that resolution of the issue of whether that term includes Cheski and Haskel must await trial. Given that, in filing the instant motion, the plaintiffs have moved for summary judgment with respect to their claims against Cheski, Ely, Haskel, and Wholesale only, however, the term "defendants" does not include the remaining defendants sued by the plaintiffs.

 2. The Plaintiffs' Claims

 In passing the Lanham Act, Congress recognized that "every product is composed of a bundle of special characteristics" and that "the consumer who purchases what he believes is the same product expects to receive those special characteristics on every occasion." Societe Des Produits Nestle S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 636 (1st Cir. 1992). Accordingly, the Lanham Act outlaws the unauthorized use of a trademark in such a manner as is likely to cause consumer confusion, mistake, or deception. *fn3" Although the original Lanham Act prohibited the use of a trademark in such a manner as to cause consumer confusion, mistake, or deception regarding the "source of origin" of the product only, courts have interpreted the most recent version of the Act to prohibit the use of a trademark so as to cause consumer confusion of any kind. See United States v. Hon, 904 F.2d 803, 807 (2d Cir. 1990) (noting that "Congress's 1962 amendment of the 'likely to confuse' language in the Lanham Act 'evinced a clear purpose to outlaw the use of trademarks which are likely to cause confusion, mistake, or deception of any kind, not merely . . . as to source of origin'" (citation omitted)), cert. denied, 498 U.S. 1069, 112 L. Ed. 2d 851, 111 S. Ct. 789 (1991).

 In the instant case, the plaintiffs offer two alternative theories of the defendants' liability under the Lanham Act. According to the plaintiffs, the defendants' reboxing operation violates the Lanham Act because it creates the likelihood of confusion regarding the quality of the boxes the defendants construct or, alternatively, because it creates the likelihood of confusion regarding the source of those boxes. I will begin by discussing the plaintiffs' arguments regarding quality.

 a. Quality

 The Lanham Act outlaws the use of a trademark in such a way as to confuse consumers as to the quality of the products they are purchasing. Confusion as to quality can occur in more than one way. For example, the Lanham Act outlaws the placement of an unauthorized trademark on an article that is of a lower quality than is the real product because such placement confuses the purchaser as to the quality of the product being purchased. See, e.g., Societe Des Produits Nestle, 982 F.2d at 636. In other words, the Lanham Act prohibits such unauthorized use of a trademark because it might lead the purchasers of goods to believe, falsely, that the product they are purchasing came from the trademark holder and therefore that it is of the same quality as the "real thing."

 The Second Circuit also has recognized that the distribution of the trademark holder's goods, bearing the trademark holder's mark, can violate the Lanham Act if the goods "do [] not meet the trademark holder's quality control standards." Warner-Lambert Co. v. Northside Development Co., 86 F.3d 3, 6 (2d Cir. 1996). The trademark holder in Warner-Lambert had a policy of selling its cough drops within twenty-four months after their manufacture in order to ensure freshness. The Second Circuit held that where a drug store, despite that policy, sold the same cough drops more than twenty-four months after their manufacture, it violated the Lanham Act. See id. at 5-6. In support of its conclusion, the Second Circuit ...


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