UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
September 8, 1998
PICCOLI A/S, Plaintiff, against CALVIN KLEIN JEANSWEAR CO., WORLD APPAREL PRODUCTS CO., AZTECA PRODUCTION INTERNATIONAL, INC., INTEREXPORT MARKETING LTD., TRIGLOBAL INTERNATIONAL MARKET SERVICES, INC., and COBRA CORP. U.S.A., Defendants.
The opinion of the court was delivered by: KAPLAN
LEWIS A. KAPLAN, District Judge.
Piccoli A/S ("Piccoli"), a former exclusive distributor of Calvin Klein jeans in Scandinavia, alleges that its American counterpart, defendant Calvin Klein Jeanswear Co. ("Jeanswear"), conspired with Jeanswear's co-defendants to export Jeanswear's surplus jeans to Scandinavia and thus to destroy plaintiff's market. Piccoli asserts that Jeanswear's actions constituted breaches of contract and of the duty of good faith and fair dealing and that each defendant is liable for unjust enrichment, unfair competition, tortious interference with contractual relations, and violations of the Lanham Act and the Paris Convention. Jurisdiction is premised on the federal claims as well as alienage.
Jeanswear and defendant Azteca Production International, Inc. ("Azteca") move to dismiss the complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. Defendant World Apparel Products Co. ("World Apparel") moves for judgment on the pleadings on substantially the same grounds. For the reasons stated below, the motions are granted in part and denied in part.
The following facts are culled exclusively from the complaint, the truth of which is assumed for purposes of this motion.
In 1991, Calvin Klein Inc. ("CKI"), the beneficial owner of the Calvin Klein trademarks,
granted Piccoli an exclusive license to distribute Calvin Klein jeans in Scandinavia (the "CKI/Piccoli Agreement").
The CKI/Piccoli Agreement required Piccoli to purchase set amounts of jeans and to market, promote, and distribute them solely to upscale retailers.
Between 1991 and 1994, Piccoli successfully built relationships with upscale retailers and significantly increased sales "by making a substantial marketing effort, hiring additional skilled marketing personnel, spending thousands of hours and investing hundreds of thousands of dollars building and maintaining a distribution network."
In 1994, CKI granted Jeanswear an exclusive license to manufacture, distribute, and wholesale Calvin Klein jeans in North America (the "CKI/Jeanswear Agreement").
The CKI/Jeanswear Agreement prohibited Jeanswear from selling Calvin Klein products outside North America and also from selling to third parties whom it knew or should have known would sell the products outside North America.
In May 1995, CKI granted CK Jeanswear Europe, S.P.A. ("European") an exclusive license to manufacture, distribute, and wholesale Calvin Klein jeans in Europe (the "CKI/European Agreement").
A few months later, in August 1995, the CKI/Piccoli Agreement expired.
Piccoli then entered into an agreement with European which granted Piccoli another exclusive distributorship in Scandinavia (the "European/Piccoli Agreement").
The European/Piccoli Agreement imposed upon Piccoli essentially the same obligations as had the CKI/Piccoli Agreement.
In furtherance of those obligations, Piccoli expended "substantial time, money, and effort in promoting and trying to maintain the prestigious market for Calvin Klein jeans in Scandinavia."
Trouble arose in the summer of 1995 when the defendants began to export Jeanswear's excess inventory of Calvin Klein jeans to Denmark.
The exported jeans were sold "through different distribution channels, to lower-end stores, and [were] advertised using different marketing methods."
Not surprisingly, the majority of them ended up on the shelves of Scandinavian discount stores.
In February 1996, Piccoli complained about these imports to European, noting "that its complaints to New York 'have not been dealt with in a satisfactory' manner."
In March 1996, Piccoli began to receive letters from its upscale customers complaining of the imported jeans and canceling orders.
This led to a second Piccoli complaint to European.
At some point prior to June 10, 1996, CKI gave Jeanswear some form of notice concerning Piccoli's complaints.
In October 1997, Piccoli discussed with European the possibility of litigation against Jeanswear.
European, however, refused to participate in a suit against a fellow Calvin Klein distributor.
On December 18, 1997, Piccoli terminated the European/Piccoli Agreement after learning that European also was exporting Calvin Klein jeans into Scandinavia.
Piccoli contends that Jeanswear's products continue to appear in Scandinavian discount stores
and, as a result, that "virtually all of the retailers who in the past had regularly purchased Calvin Klein products from Piccoli [have] now either canceled orders or dropped the line altogether."
Contract Claims Against Jeanswear
A. Breach of Contract
Piccoli claims that by exporting its surplus jeans to Scandinavia, Jeanswear breached the clause in the CKI/Jeanswear Agreement prohibiting it from selling or distributing the jeans outside of North America. Though not a party to the CKI/Jeanswear Agreement, Piccoli asserts that it has standing to enforce that contract as a third party beneficiary.
Under New York law,
only an intended beneficiary of a contract may assert a claim as a third-party beneficiary.
A third party is an intended beneficiary where either (1) "no one other than the third party can recover if the promisor breaches the contract"
or (2) "the language of the contract otherwise clearly evidences an intent to permit enforcement by the third party."
Piccoli manifestly does not qualify as an intended third-party beneficiary under the first prong of the test. The CKI/Jeanswear Agreement explicitly states that CKI has the right "to be compensated for damages for breach of this Agreement and to enjoin the unlawful or unauthorized use of the Licensed Marks."
The complaint alleges also that European had the opportunity but refused to sue Jeanswear as a result of the alleged breach of contract.
Nor has Piccoli alleged facts sufficient to show that the CKI/Jeanswear Agreement "otherwise clearly evidences an intent to permit enforcement by [Piccoli]."
The requirement of an intent to permit enforcement by the third party is satisfied by demonstrating an intent to benefit that party.
Although a "party need not necessarily be specifically mentioned in a contract to be considered a third-party beneficiary,"
the parties' intention to benefit the third party nonetheless must be revealed "on the face of the agreement."
Piccoli contends that such an intention is implicit in the "Cooperation Clause" of the CKI/Jeanswear Agreement, wherein Jeanswear promised that it
"shall not export Articles from the Territory [the Americas] and shall not sell Articles to any third party which [Jeanswear] knows or has reason to know will export Articles from the Territory . . . [and] will cooperate with [CKI] with respect to prohibiting the diversion of Products into [CKI's] third party licensee's and distributors' territories."
Piccoli argues that the clear intent of this clause was to benefit not only CKI, but also CKI's exclusive distributors in other territories, and that the face of the contract therefore demonstrates an intention to benefit Piccoli.
Jeanswear responds that the CKI/Jeanswear Agreement not only does not evidence an intention to benefit third parties but, on the contrary, reveals an intention not to benefit anyone other than the signatories. Jeanswear draws this conclusion from a provision in the contract containing both non-assignment and inurement clauses:
"This Agreement is of a personal nature with respect to [Jeanswear] and, therefore, except as provided below, neither this Agreement nor the license or other rights granted hereunder may be sublicensed, assigned or transferred by [Jeanswear] except with [CKI's] prior written consent. . . . Except as otherwise provided herein, this Agreement shall inure to the benefit of and shall be binding upon the parties and permitted successors and assigns."
The prohibition on assignments and the specification that the contract inures to the benefit of and binds the parties except as otherwise indicated, Jeanswear argues, makes plain the parties' intention to preclude third-party enforcement.
Courts in this district have construed similar provisions as inconsistent with the existence of an intention to confer a benefit upon a third party. In Sazerac Co. v. Falk,38 for example, the court relied in part upon nearly identical provisions in concluding that the contract in question manifested the parties' intention not to benefit third parties.
Insofar as Sazerac stands for the proposition that the existence of a non-assignment clause alone suffices to preclude assertion of intended third-party beneficiary status, the Court cannot agree. After all, it is possible for parties to intend that a third party enjoy enforceable rights while at the same time intending to limit or preclude assignments. An inurement clause, when taken together with a prohibition of assignments, on the other hand, does suggest that the parties did not intend that third parties benefit from the contract. Language specifying that the benefit of a contract is to inure to the contract's signatories arguably is superfluous unless it serves to limit the category of beneficiaries.
This is the wisdom behind the maxim expressio unus est exclusio alterus. Accordingly, the Court holds that the CKI/Jeanswear Agreement was not intended to benefit third-party beneficiaries such as Piccoli.
Piccoli seeks to avoid the impact of the CKI/Jeanswear Agreement's plain language with arguments based on extrinsic evidence and reliance. Even if appropriately considered,
these arguments would not alter the Court's conclusion. According to Piccoli, the extrinsic evidence reveals that at the time the parties agreed to the CKI/Jeanswear Agreement, both were aware that Piccoli had possessed exclusive distribution rights in Scandinavia for years
and that CKI's global distribution network necessitated mutual respect of each distributors' territories,
and it was in CKI's own interest to secure protection of Piccoli's rights. These allegations, however, do not dilute the impact of the inurement and non-assignment clauses. Similarly, Piccoli's expenditure of "time, money, and effort in promoting and trying to maintain the prestigious market for Calvin Klein jeans in Scandinavia"
do not alter the plain meaning of the CKI/Jeanswear Agreement.
Piccoli cannot establish intended third-party beneficiary status because it is apparent from the face of the contract that the parties intended to limit to themselves the ability to enforce the agreement. Piccoli's breach of contract claim therefore is dismissed.
B. Breach of Duty of Good Faith and Fair Dealing
Piccoli next contends that Jeanswear breached its duty of good faith and fair dealing by exporting jeans to Scandinavia.
Jeanswear moves to dismiss this claim on the ground that no such duty existed.
It is well-settled under New York law that "an implied covenant of good faith and fair dealing is inherent to every contract."
Here, however, Piccoli can point to no contract between itself and Jeanswear.
Nor, in view of what has been said already, may it enforce the implied covenant in the CKI/Jeanswear Agreement on a third-party beneficiary theory.
Piccoli's attempt to extend the duty of good faith and fair dealing throughout the network of independent contracts forming the CKI distribution system also fails. In re Houbigant48 is instructive. There, the court rejected an argument that where "each of the various independent agreements are in fact part of a single unified agreement," the implied duty runs among all contracting parties, even in the absence of direct contractual relationships.
Here, the various contracts that Piccoli seeks to link are not even part of a single unified agreement.
Perhaps recognizing the infirmity of its good faith and fair dealing claim, Piccoli's motion papers attempt to relabel this contract claim as a tort claim. As remodeled, it asserts that Jeanswear breached not an implied covenant of good faith and fair dealing, as stated in the complaint, but, instead, a tort duty to respect the integrity of Piccoli's exclusive distribution territory.
Piccoli argues that this duty arises out of the CKI/Jeanswear Agreement and the circumstances surrounding it, such as the existence of CKI's other distribution contracts.
Even assuming that it were appropriately considered, this argument would be without merit.
Piccoli invokes a line of New York cases, beginning with Rich v. New York Central & Hudson Riv. R.R. Co.,52 which establishes that a contract in certain circumstances generates not merely contractual obligations but also a relationship which gives rise to other legal duties between the parties.
Such duties arise where "extraneous circumstances and conditions, in connection with [the contract], . . . establish such a relation as to make [the contract's] performance a legal duty, and its omission a wrong to be addressed."
How this rule advances Piccoli's cause is unclear, as Piccoli can point to no contract to which both it and Jeanswear are parties.
Piccoli seeks to rely instead on the CKI/Jeanswear Agreement and its circumstances. Piccoli offers no authority, however, for the proposition that the rule in Rich may be detached from its contract moorings in this manner. In the absence of such authority, the Court declines to take the view that New York law imposes legal duties running between non-contracting parties merely on the basis that the parties share similar roles in a series of contracts comprising a distribution network. Piccoli's claim for breach of the duty of good faith and fair dealing is dismissed.
Other Claims - All Defendants
In addition to its contract and federal law claims, Piccoli asserts that the defendants are liable for unjust enrichment, unfair competition, and tortious interference with business relations.
Defendant World Apparel contends, as a threshold matter, that these non-federal claims must be dismissed because, under New York's choice of law rules, this action is governed by Danish law. This argument is flawed, however, because no party has identified any conflict between New York and Danish law warranting the choice of law inquiry. Indeed, in the absence of a purported conflict it is not possible even to begin that inquiry, as "the first step in any case presenting a potential choice of law issue is to determine whether there is an actual conflict between the laws of the jurisdictions involved."
The Court therefore proceeds to the merits of defendants other arguments for dismissal.
A. Unjust Enrichment
In support of its unjust enrichment cause of action, Piccoli alleges that it "has invested six years of effort, thousands of hours and hundreds of thousands of dollars in creating a reputable and prestigious market for Calvin Klein jeans in Scandinavia, where the Calvin Klein name had been virtually unknown prior to Piccoli's efforts."
Piccoli alleges further that defendants "are unlawfully exploiting and free-riding on Piccoli's efforts by producing and selling [Jeanswear's] products in large volumes to discount stores in [Scandinavia.]"
As a result, "Piccoli's carefully-cultivated upscale market for Calvin Klein jeans has been ruined; approximately 90% of Piccoli's customers have canceled their orders and discontinued future business relations."
Piccoli thus contends that it is entitled to restitution of the profits attributable to defendants' sales in Scandinavia.
As a general matter, in order to state a claim for unjust enrichment claim under New York law "plaintiff must show that (1) defendant was enriched, (2) the enrichment was at plaintiff's expense and (3) the circumstances were such that equity and good conscience require defendant to make restitution."
Piccoli argues that its allegations are sufficient in light of the broad language of these three elements. But Piccoli fails to account for the nature of the unjust enrichment cause of action.
Unjust enrichment sounds in quasi-contract.
This is significant, particularly with regard to the third element of the claim, as a plaintiff, "in order to recover under a theory of quasi-contract, . . . must . . . prove that performance was rendered for the defendant, resulting in its unjust enrichment."
As the First Department stated in Kagan v. K-Tel Entertainment, Inc. :
"as reflected in the common law of the various states, to recover under a theory of quasi contract, a plaintiff must demonstrate that services were performed for the defendant resulting in its unjust enrichment. It is not enough that the defendant received a benefit from the activities of the plaintiff; if services were performed at the behest of someone other than the defendant, the plaintiff must look to that person for recovery."
In this case, the performance at issue is Piccoli's creation of demand in Scandinavia for Calvin Klein jeans, a performance indisputably not rendered for the defendants. On the contrary, Piccoli performed for its own benefit and perhaps the benefit of its customers and its contract partners, European and CKI. Defendants' actions in tapping into the demand created by Piccoli therefore cannot give rise to a claim for quasi-contractual relief.
B. Tortious Interference with Business Relations
Piccoli contends that by exporting Jeanswear's jeans to Scandinavia, defendants caused "a number of Piccoli's customers . . . to cancel orders for Calvin Klein jeans and to not place future orders that otherwise would have been made."
Piccoli does not allege, however, that defendants' conduct caused any of these customers to breach a contract with Piccoli. Thus Piccoli's cause of action is not one for tortious interference with contractual relations but, instead, for tortious interference with business relations.
Piccoli's tortious interference with business relations claim rests on the allegation that the defendants exported Jeanswear's surplus Calvin Klein jeans to "lower-end stores" in Scandinavia and that the presence of these jeans in lower-end stores caused Piccoli's exclusively upper-end clients to cease doing business with it.
Defendants argue, correctly, that such an indirect relationship cannot form the basis of a tortious interference claim.
"It is clear . . . that under New York law, in order for a party to make out a claim for tortious interference with prospective economic advantage, the defendant must interfere with the business relationship directly; that is, the defendant must direct some activities towards the third party and convince the third party not to enter into a business relationship with the plaintiff."
Here, the defendants' alleged conduct concededly was not directed towards any third party with whom Piccoli had an existing or prospective business relationship. In light of this failure to come within the limited scope of this cause of action, Piccoli has failed to state a claim for tortious interference with business relations.
C. Unfair Competition
"Under New York common law, the essence of unfair competition is 'the bad faith misappropriation of the labors and expenditures of another, likely to cause confusion or to deceive purchasers as to the origin of the goods.'"
Defendants contend that Piccoli's unfair competition claim should be dismissed not because it fails to allege these elements but because Piccoli lacks sufficient interest in the Calvin Klein mark to establish standing. Defendants argues also that the unfair competition claim is duplicative of Piccoli's breach of contract claim. These arguments are without merit.
Defendants contend first that Piccoli cannot have any actionable interest in the Calvin Klein mark because the CKI/European Agreement specifically reserved the right to initiate litigation for trademark infringement to CKI and because Piccoli's rights cannot exceed European's.
Even if European possessed such a right, defendants argue, it is plain from the face of the European/Piccoli Agreement that no such interest could have been transferred to Piccoli.
Defendants misconceive the nature of the standing requirement in this context. As the Second Circuit explained in Berni v. International Gourmet Restaurants of America,73 standing to assert a cause of action for unfair competition under New York law requires pleading of facts "supporting a colorable property or pecuniary interest."
Although it is clear from the contracts that Piccoli lacks an ownership interest in the Calvin Klein mark sufficient, for example, to support a suit for trademark infringement under Section 32 of the Lanham Act,
it is equally clear that Piccoli, at the time of the alleged injury, had a pecuniary interest in the mark resulting from its exclusive distributorship.
Piccoli therefore has standing to assert a claim of unfair competition.
Defendants contend next that the unfair competition claim should be dismissed as duplicative of the breach of contract action. The Court is not persuaded.
Defendants seek to analogize the present case to Tap Publications v. Chinese Yellow Pages (New York)77 and Silverstar Enterprises, Inc. v. Aday.78 Tap Publications dismissed a Lanham Act claim on the ground that it was nothing more than a claim for breach of contract where the crux of the underlying dispute was whether the defendant had licensed the disputed mark to a third party and whether that third party in turn properly had assigned its rights in the mark to the plaintiff.
Similarly, the plaintiff/licensee in Silverstar sued its licensors after learning that the licensors had granted a third party the right to use the mark in apparent violation of the plaintiff/licensee's contract rights.
The Silverstar court therefore dismissed the plaintiff's Lanham Act and unfair competition claims on the ground that they were nothing more than breach of contract claims.
Unlike the plaintiffs in Tap Publications and Silverstar Enterprises, Piccoli's right to relief for unfair competition does not rest entirely, or even largely, upon issues of contract interpretation. The essence of the claim is that defendants' action in selling Calvin Klein jeans into plaintiff's arguably exclusive territory was akin to misappropriation or passing off, traditional bases of unfair competition relief. While it is true that the various licensing agreements among CKI, European, Piccoli, and Jeanswear determine the scope of Jeanswear and Piccoli's respective territories, there is no claim that the defendants' alleged conduct was legitimate under those contracts or that Piccoli's interest in the mark deriving from these contracts is open to question. Moreover, there is no contract between plaintiff and the defendants in this case, and the Court has rejected Piccoli's attempt to establish its status as an intended third-party beneficiary of the contract governing Jeanswear's trademark rights. Thus, this dispute cannot "be determined by the principles of contract law" alone but, instead, is subject to principles such as the common law of unfair competition, which "establish marketplace rules governing the conduct of parties not otherwise limited."
For all of these reasons, defendants' motion to dismiss Piccoli's unfair competition claim is denied.
Lanham Act and Paris Convention Claims - All Defendants
Piccoli asserts that defendants' export of Calvin Klein jeans to Scandinavia, which allegedly deceived Scandinavian retailers and consumers as to the quality and origin of the jeans, violated Section 43(a) of the Lanham Act
as well as the prohibition against unfair competition contained in the International Convention for the Protection of Industrial Property (the "Paris Convention"),
as implemented by Section 44 of the Lanham Act.
Defendants argue that these claims must be dismissed because (1) the conduct alleged is not within the scope of the Lanham Act or the Paris Convention, (2) Piccoli lacks sufficient interest in the Calvin Klein mark to assert these claims, (3) the claims are duplicative of Piccoli's contract claim, and (4) the Paris Convention does not provide a right to relief distinct from the Lanham Act.
A. Extraterritorial Application of the Lanham Act
Piccoli's false designation of origin claim seeks to apply the Lanham Act to conduct, any deceptive effect of which occurred in Scandinavia. Defendants assert that the Act may not be so applied.
The issue before the Court in the first instance is one of statutory interpretation -- determination of whether Congress intended that the Lanham Act be applied to the conduct at bar. And while the case finds analogies in other federal statutes,
the question ultimately depends upon Congress' intention with respect to the Lanham Act.
There is little doubt that the Lanham Act has some extraterritorial effect. In Steele v. Bulova Watch Co.,88 the Supreme Court applied the statute to an American defendant's manufacture and sale of fake Bulova watches in Mexico where the defendant purchased component parts in the United States and some of the watches found their way into Texas with consequent damage to Bulova's goodwill in this country. And in Vanity Fair Mills v. T. Eaton Co.,89 the Second Circuit set forth three factors for courts to consider in determining whether extraterritorial application of the Lanham Act is appropriate:
"(i) whether the defendant is a United States citizen; (ii) whether there exists a conflict between the defendant's trademark rights under foreign law and the plaintiff's trademark rights under domestic law; and (iii) whether the defendant's conduct has a substantial effect on United States commerce."
It is undisputed that the first two Vanity Fair factors are present in this case, but there is considerable dispute concerning whether the substantial effect factor is met. Piccoli points to an array of allegations concerning the domestic conduct of the defendants, while defendants argue that conduct is distinct from effect and that there is no domestic effect here. The dispute is significant, for the absence of a substantial effect on domestic commerce would be fatal to a plaintiff's attempt to apply the Lanham Act to extraterritorial conduct regardless of whether the first two factors are satisfied.
A substantial effect on United States commerce clearly exists where a defendant's conduct results in consumer confusion or harm to the plaintiff's goodwill in the United States.
Some courts have concluded that a substantial effect on United States commerce exists also where "the defendant's activities are supported by or related to conduct in United States commerce."
Indeed, in Levi Strauss & Co. v. Sunrise International Trading, Inc.,94 a case quite similar to this one, the Eleventh Circuit upheld a preliminary injunction barring shipment of counterfeit jeans to foreign countries based on the fact that negotiations and arrangements for the shipments were made in the United States.
It is not clear, however, whether this second line of cases -- those finding a substantial effect on United States commerce on the basis of domestic conduct related to or supportive of deceptive actions abroad -- would be followed in this Circuit.
In Totalplan Corp. of America v. Colborne,96 the Circuit held that packaging in and shipment of goods from the United States were an insufficient basis for application of the Lanham Act. More recently, in Atlantic Richfield Co. v. Arco Globus International Co.,97 the Court of Appeals affirmed the dismissal of Lanham Act claims against a defendant who used colorable imitations of plaintiff's registered trademark to identify its own operations in Russia on the ground that the Lanham Act did not reach defendant's conduct despite the fact that the defendant conducted some business activities, although not allegedly infringing ones, in the United States. In doing so, it distinguished Bulova on the ground, inter alia, that " Bulova does not hold that a defendant's domestic activity, even if 'essential' to infringing activity abroad, is alone sufficient to cause a substantial effect on United States commerce."
While this comment strongly suggests that the Lanham Act does not reach conduct abroad unless it deceives U.S. consumers, there is other language in Atlantic Richfield that may point in the other direction. In summarizing its holding later in the opinion, the Court said:
"Where (i) an alleged infringer's foreign use of a mark does not mislead American consumers in their purchases or cause them to look less favorably upon the mark; (ii) the alleged infringer does not physically use the stream of American commerce to compete with the trademark owner by, for example, manufacturing, processing, or transporting the competing product in United States commerce; and (iii) none of the alleged infringer's American activities materially support the foreign use of the mark, the mere presence of the alleged infringer in the United States will not support extraterritorial application of the Lanham Act."
This passage thus arguably suggests that the Lanham Act is inapplicable only where none of the three enumerated circumstances exists and thus that it applies where any is present.
In this case, Piccoli alleges that the defendants engaged in an organized scheme pursuant to which Jeanswear sent promotional materials to prospective purchasers which invited them to come to its U.S. showrooms to view, negotiate for and purchase Calvin Klein jeans for unrestricted international distribution.
This domestic activity thus allegedly went somewhat beyond that at issue in Totalplan and surely was a use of the physical stream of American commerce that was essential to the alleged infringement.
Complaints ought not be dismissed at the pleading stage unless it is clear that plaintiff can prove no state of facts that would entitle it to relief. In all the circumstances, the Court is unable to reach such a conclusion at this stage of this lawsuit. Accordingly, the motion to dismiss the Lanham Act claim is denied, although the issue may be raised later on a fuller record.
B. Remaining Arguments
Defendants argue in the alternative that Piccoli lacks sufficient interest in the Calvin Klein mark to assert a false designation of origin claim. Defendants, however, confuse the interest necessary to establish standing in the context of a Section 32 trademark infringement claim with the level necessary to pursue a Section 43 false designation of origin claim. In the former case, the plaintiff must have an ownership interest in the mark but, in the latter, the plaintiff need show only potential commercial or competitive injury.
Piccoli's claim is of the latter variety. Piccoli's standing therefore is established by its pecuniary interest for the same reasons stated previously by the Court in the course of rejecting defendants' argument that Piccoli lacks standing to assert its unfair competition claim.
Defendants argue next that Piccoli's Lanham Act claim must be dismissed as duplicative of its contract claims. This argument is without merit for the reasons discussed above in the context of Piccoli's unfair competition claim.
Defendants are correct, however, in asserting that Piccoli's Paris Convention claim is duplicative of its Lanham Act claim and thus must be dismissed. In Vanity Fair, the Second Circuit held that the Paris Convention, as implemented by Section 44 of the Lanham Act, provides no additional substantive rights beyond those otherwise provided to domestic parties.
Courts in other jurisdictions have disagreed, contending that the Paris Convention creates a federal law of unfair competition applicable to international trademark disputes.
This Court, of course, is bound by Vanity Fair.
Liability of Defendants World Apparel and Azteca for Unfair Competition
The continuing vitality of Piccoli's unfair competition and Lanham Act claims raises an issue with respect to defendants World Apparel and Azteca, who have moved to dismiss Piccoli's claims not only on grounds common to all defendants but also on grounds specific to themselves.
Each contends that Piccoli has failed to allege facts sufficient to state unfair competition and Lanham Act claims against them.
Piccoli contends that it has alleged facts sufficient to establish Azteca's direct liability for unfair competition by alleging that Azteca manufactured and shipped Calvin Klein jeans to Scandinavia
and that an address label containing Jeanswear's address was obscured in one such shipment,
a fact presumably indicative of consciousness of guilt. Piccoli does not allege, however, that Azteca was responsible for obscuring the label giving Jeanswear's address. Rather, the complaint states merely that Azteca was the contractor on that shipment.
Piccoli's remaining allegations establish nothing more than that Azteca manufactured and shipped Calvin Klein jeans to Denmark. There is no allegation that Azteca's right to engage in this conduct was limited by any agreement or law, let alone that Azteca was aware of any such limitations. Piccoli's allegations clearly are insufficient to establish Azteca's direct liability for unfair competition. For the same reason, Piccoli's allegations concerning Azteca's direct liability for violating the Lanham Act also fails.
Piccoli appears to concede that World Apparel cannot be held directly liable for violating the Lanham Act or for unfair competition and rests instead upon a theory of co-conspirator liability that seeks to link World Apparel to the viable unfair competition and Lanham Act claims against Jeanswear.
Piccoli asserts that the other co-defendants, including Azteca, are likewise liable as co-conspirators regardless of whether they are directly liable as well. It therefore is necessary to examine the sufficiency of Piccoli's allegations of conspiracy.
Because Piccoli's substantive claim of unfair competition claim is asserted under New York law, the Court looks to New York law to determine whether World Apparel and Azteca may be liable as co-conspirators on that claim. The elements of a civil conspiracy under New York law are "'(1) the corrupt agreement between two or more persons, (2) an overt act, (3) their intentional participation in the furtherance of a plan or purpose, and (4) the resulting damage.'"
Significantly, in determining whether Piccoli has adequately alleged these elements, the Court applies the fair notice standard of FED. R. CIV. P. 8(a) rather than the stricter requirements of FED. R. CIV. P. 9(b).
Here, Piccoli has alleged the existence of a conspiracy among the defendants, including Azteca and World Apparel, to facilitate Jeanswear's allegedly improper exports.
No more is required.
Piccoli's Lanham Act claim, of course, is a matter of federal law, and thus it is federal law that will determine the adequacy of Piccoli's conspiracy allegations with regard to that claim. In the words of a leading commentator on trademark law, "the use of the word 'conspiracy' is merely another way of describing a concert of action and intent which will extend tort liability beyond the active wrongdoer to those who merely planned, assisted or encouraged his acts. Such 'conspirators' are, in civil law, called 'joint tortfeasors.'"
"all those who, in pursuance of a common plan to commit an act which is tortious, actively take part in it, or further it by cooperation or request, or lend aid or encouragement, or ratify and adopt the acts done, are as equally liable as the person who performs the tortious act itself."
Mere knowledge of the primary actor's wrongful conduct is insufficient to establish that a defendant is a joint tortfeasor.
"There must be a finding that the defendant and the direct infringer 'have an apparent or actual partnership, have authority to bind one another in transactions with third parties or exercise joint ownership or control over the infringing product.'"
Piccoli's allegations that all of the defendants, including World Apparel and Azteca, knowingly conspired with Jeanswear to effect the export of falsely designated Calvin Klein jeans to Scandinavia sufficiently assert both the requisite knowledge and control to satisfy this standard.
Jeanswear's motion to dismiss the complaint is granted in all respects except that it is denied as to Piccoli's Lanham Act and common law unfair competition claims. World Apparel's motion for judgment on the pleadings and Azteca's motion to dismiss are granted in all respects except that they are denied with respect to Piccoli's conspiracy allegations.
Dated: September 8, 1998
Lewis A. Kaplan
United States District Judge