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August 1, 2000


The opinion of the court was delivered by: Haight, Senior District Judge.


This action arises out of a dispute between a licensor and ex-licensee over the use of former Major League Baseball pitcher Nolan Ryan's name, likeness and signature in association with the sale of several products including stamps, coins, teddy bears, model trains and autographed items. Plaintiff Nolan Ryan brought this action under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), New York Civil Rights Law §§ 50-51, and applicable common law alleging, inter alia, trademark infringement and breach of contract. Plaintiff moves for a preliminary injunction enjoining and restraining Defendant from manufacturing, causing to be manufactured, selling, causing to be sold, licensing or otherwise exploiting any products bearing Nolan Ryan's image. Defendant cross-moves to dismiss the action in deference to the pending New York State Court action between the parties, or in the alternative pursuant to Rules 12(c) and 19(b) of the Federal Rules of Civil Procedure.


Plaintiff Nolan Ryan, a former Major League Baseball player, pitched seven no hitters during his career and continues to hold the record for most strikeouts. He was inducted into the Baseball Hall of Fame and voted by fans onto Baseball's All-Century Team. In light of his accomplishments and illustrious career, Ryan currently derives substantial revenue from endorsements, commercials, and the licensing of his name and image. Ryan is represented with respect to these matters by his agent Mattgo Enterprises, Inc. ("Mattgo"), a New York corporation. Matt Merola is the president of Mattgo. Neither Mattgo nor Merola are currently parties to this action.

Defendant Volpone Stamp Company, Inc. d/b/a Sport Stamps Collectors Association ("Volpone") is in the business of selling sports-related merchandise. Bernie Neumark is the president of Volpone.

In 1998 Ryan through Mattgo entered into a licensing agreement with Volpone (the "Master Agreement"). The Master Agreement was dated March 2, 1998 and was signed by Neumark for Volpone, Merola for Mattgo, and Ryan himself. (Defendant Notice of Motion, Exh. A). The Master Agreement granted Volpone exclusive rights to manufacture, sell, and sub-license numerous Nolan Ryan products, including, stamps, coins and medals, cards and all products with facsimile Nolan Ryan signatures. It also granted Volpone non-exclusive rights with respect to two styles of watches as well as plates and figurines. The Master Agreement was for a term of two years with an effective starting date of January 1998. In return Volpone promised to pay royalties equal to ten percent of its wholesale price and guaranteed minimum royalties of $150,000 the first year and $175,000 the second year to be paid according to a schedule outlined in the Master Agreement. The Master Agreement also provided that Ryan would personally sign an unlimited quantity of baseballs at $25 per item, and an unlimited quantity of cards, flats and stamps at $20 per item. Finally, in case of nonpayment of the minimum royalties, Volpone would have sixty days to cure any default, after which the Master Agreement would terminate and all licensing rights would revert to Mattgo.

On September 23, 1998, a second agreement was entered into expanding Volpone's rights (the "Train Set Agreement"). The Train Set Agreement, signed by Neumark for Volpone, Merola, and Ryan, granted Volpone an exclusive license for Nolan Ryan train sets. (Defendant Notice of Motion, Exh. A). This contract required royalty payments amounting to twelve percent of wholesale sales and guaranteed a minimum payment of $5,000 due on March 31, 1999. Absent a written extension, the license expired by its own terms on December 31, 1999.

On November 23, 1998, the third and final agreement between the parties was executed granting Volpone the license to manufacture, sell and sub-license Nolan Ryan Plush Teddy Bears (the "Teddy Bear Agreement"). This contract required royalty payments amounting to ten percent of wholesale sales and guaranteed a minimum payment of $5,000 due on June 30, 1999. The Teddy Bear Agreement also expired on December 31, 1999. (Defendant Notice of Motion, Exh. A).*fn1

The instant action arises out of a dispute that began in the Summer of 1999. In accordance with the Master Agreement and the Teddy Bear Agreement, Volpone delivered checks covering its minimum guarantee payments in late June 1999. Specifically, he tendered two checks payable to Mattgo in the amounts of $43,750 (the second quarterly minimum guarantee payment for 1999 under the Master Agreement) and $5,000 (the minimum guarantee payment due under the Teddy Bear Agreement). Although the payments were due no later than June 30, 1999, both checks were post-dated July 31, 1999. According to Merola, Mattgo accepted the post-dated checks as an accommodation to Neumark. Merola deposited the post-dated checks on August 2, 1999. The checks were returned for insufficient funds. Volpone claims that payment was deliberately stopped.

Sometime in July 1999, Ryan autographed numerous items, including baseballs and photos, for Volpone in accordance with the Master Agreement. Volpone then tendered two additional checks compensating Ryan according to the rates agreed upon. One of the two checks was made payable to Nolan Ryan in the amount of $38,035. The other check was made payable to the Nolan Ryan Foundation in the amount of $2,117; this check represented a nominal fee for the Foundation's services in facilitating the signing of the objects and delivery of the items to Volpone. Thereafter payment was stopped on both checks.

Volpone justifies its actions based on the belief that Plaintiff had breached the Master Agreement which granted Volpone exclusive rights to Ryan's name, image and facsimile signature with respect to several products. As early as April 15, 1999, Neumark sent a letter to Merola expressing concern that the Master Agreement had been breached or that other companies were selling unauthorized merchandise. (Neumark Aff., Exh. B).

Not surprisingly, the parties dispute what happened next. Merola claims that he asked Neumark to provide specific information regarding his allegations so that he could investigate. Neumark allegedly failed to provide further information or return Merola's calls. According to Neumark, Merola promised to make inquiries but never followed up or reported back to him.

Neumark sent another letter to Merola dated July 28, 1999 demanding a list of all licensing agreements Mattgo had made for Nolan Ryan products. (Neumark Aff., Exh. H). He also requested that Merola not deposit the outstanding checks until the matter was resolved. Merola did not heed his plea and deposited the checks on August 2, 1999. Nevertheless, as previously stated, Volpone never made good on any of the four checks tendered in June and July 1999. On August 9, 1999, Neumark informed Merola by letter that he had stopped payment on the checks made payable to Nolan Ryan and the Nolan Ryan Foundation because Merola disregarded his request not to deposit the checks made out to Mattgo. (Neumark Aff., Exh. H). He also reiterated his request for the list of licensing agreements Mattgo has made for Nolan Ryan products.

On August 10, 1999 counsel for Ryan wrote a letter to Volpone stating that its allegations concerning violations of the Master Agreement did not justify its failure to make the minimum guarantee payments. (Hyman Aff., Exh. A). Such failure to pay, the letter continued, constituted a breach of the licensing agreements, and, therefore, the letter was to serve as notice that the licensing agreements were terminated. The letter stated in no uncertain terms that Volpone was no longer authorized to "manufacture, cause to be manufactured, sell, market or otherwise distribute or promote any products bearing Nolan Ryan's name, photograph, signature, image, etc." Id. Plaintiff alleges that Volpone disregarded the termination letter and continued to manufacture and distribute Nolan Ryan merchandise.

On August 16, 1999, Volpone commenced an action against Ryan, Merola and Mattgo in New York State Supreme Court asserting claims of breach of contract and fraud. Plaintiff commenced the present action in this Court on August 24, 1999.

Believing that Defendant continued to market Nolan Ryan products even after the commencement of litigation by both sides to this dispute, counsel for Plaintiff sent another cease and desist letter dated October 7, 1999, this time addressed to counsel for Defendant. (Hyman Aff., Exh. B). Plaintiff alleges that Defendant has failed to comply and now moves for a preliminary injunction pursuant to Fed. R.Civ.P. 65(a) enjoining Volpone from continuing to manufacture, sell, distribute and otherwise market Nolan Ryan products. It also moves this Court to direct Defendant to certify its compliance and account for its sales and revenue relating to Nolan Ryan items.

Defendant cross-moves to dismiss the action in its entirety in deference to the action between the parties pending in the state court. Alternatively, Defendant moves to dismiss the complaint pursuant to Fed.R.Civ.P. 12(c) for lack of subject matter jurisdiction and pursuant to Fed. R.Civ.P. 19(b) for nonjoinder of indispensable parties. As a further alternative, Defendant moves to dismiss the first, second and, eighth causes of action pursuant to Rule 12(c) for failure to state a cause of action upon which relief can be granted.*fn2


Since it is a threshold matter and necessary prerequisite to my taking any action with respect to this case, I begin my analysis with Defendant's challenge to this Court's subject matter jurisdiction. As it currently stands, there are two alleged bases for this Court's jurisdiction over the instant action. The first basis arises under the laws of the United States relating to trademarks, namely section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), which pursuant to 28 U.S.C. § 1338 confers federal question jurisdiction. Pursuant to 28 U.S.C. § 1332, this Court also has jurisdiction of this matter on the basis of diversity of citizenship among the parties. Both are under attack by Defendant. Therefore, I will examine each in turn.

A. Federal Question Jurisdiction

28 U.S.C. § 1338(a) provides in pertinent part:

(a) The district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks. Such jurisdiction shall be exclusive of the courts of the states in patent, plant variety protection and copyright cases.*fn3
  The first claim of the complaint asserts a violation of the Lanham Act, and, therefore, this Court's subject matter jurisdiction seems a foregone conclusion. However, "[i]t is well-established that not every complaint that refers to the Copyright Act `arises under' that law for purposes of Section 1338(a)." Bassett v. Mashantucket Pequot Tribe, 204 F.3d 343, 347 (2nd Cir. 2000).*fn4 Where, as in the instant case, a plaintiff's claims straddle the line between trademark infringement and common law breach of contract, courts have long struggled to determine, as a threshold matter, what lies at the heart of the dispute: questions of federal law, state law questions of contract, or both. That struggle is evident from its description by Judges who have tackled the issue: "Whether a complaint asserting factually related copyright and contract claims arises under the federal copyright laws for purposes of Section 1338(a) poses among the knottiest procedural problems in copyright jurisprudence." Bassett, 204 F.3d at 347 (citation and internal quotations omitted); "The question of whether the breach of a contract licensing or assigning a copyright gives rise to a federal cause of action under the Copyright Act is a complex issue in a `murky' area." Schoenberg v. Shapolsky Publishers, Inc., 971 F.2d 926, 931 (2nd Cir. 1992); "Whether a case arises under the patent laws has been called one of the darkest corridors of the law of federal courts and federal jurisdiction." 13B C. Wright, A. Miller and E. Cooper, Federal Practice & Procedure § 3582, at 307 n. 11 (1984) (citation and internal quotations omitted).

The difficult analysis required in such cases has, not surprisingly, led to diverse results. Although it vastly simplifies the evolution of the body of law on this discrete point, it is sufficient to state that, until recently, the courts in this circuit were roughly divided into two camps. The first line of cases is descended from Judge Friendly's decision in T.B. Harms Company v. Eliscu, 339 F.2d 823 (2nd Cir. 1964), in which he formulated a standard for determining subject matter jurisdiction in cases like the present action as follows:

Mindful of the hazards of formulation in this treacherous area, we think that an action `arises under' the Copyright Act if and only if the complaint is for a remedy expressly granted by the Act, e.g., a suit for infringement . . . or asserts a claim requiring construction of the Act . . . or, at the very least, and perhaps more doubtfully, presents a case where a distinctive policy of the Act requires that federal principles control the disposition of the claim.

Id. at 828 (internal citations omitted). In contrast to the T.B. Harms face of the complaint test, the second line of cases applies an essence of the dispute test and looks beyond the complaint in an effort to determine whether the copyright or trademark claims are merely incidental to the contract action. This approach was crystallized in Schoenberg v. Shapolsky Publishers, Inc., 971 F.2d 926 (2nd Cir. 1992). In Schoenberg the Second Circuit announced a new three part test which purported to synthesize the approaches taken in T.B. Harms and subsequent cases which expanded on Judge Friendly's formulation:

A district court must first ascertain whether the plaintiff's infringement claim is only incidental to the plaintiff's claim seeking a determination of ownership or contractual rights under the copyright . . . If it is determined that the claim is not merely incidental, then a district court must next determine whether the complaint alleges a breach of a condition to, or a covenant of, the contract licensing or assigning the copyright. As we noted above, if a breach of a condition is alleged, then the district court has subject matter jurisdiction. But if the complaint merely alleges a breach of a contractual covenant in the agreement that licenses or assigns the copyright, then the court must undertake a third step and analyze whether the breach is so material as to create a right of rescission in the grantor. If the breach would create a right of rescission, then the asserted claim arises under the Copyright Act.

Id. at 932-933 (internal citations omitted). Although Schoenberg relied, at least in part, on T.B. Harms, the new standard was quite different from, if not contrary to, the approach endorsed by Judge Friendly.

This tortured history notwithstanding, or perhaps because of it, the Second Circuit has recently revisited the subject and clarified its position. In its opinion in Bassett v. Mashantucket Pequot Tribe, 204 F.3d 343 (2nd Cir. 2000), the Court of Appeals abrogated its reasoning in Schoenberg, declaring the essence of the dispute test "unworkable." Id. at 352. The Court of Appeals opted instead to reaffirm the standard as formulated by Judge Friendly in T.B. Harms, making clear that courts are to apply a face of the complaint test for the purposes of determining subject matter jurisdiction. In Bassett, the Court held that it did have subject matter jurisdiction "because the complaint alleges the defendants violated the Copyright Act and seeks the injunctive remedy provided by the Act." Id. at 355-356. The Court also noted that hybrid copyright/contract claims "characteristically arise where the defendant held a license to exploit the plaintiff's copyright, but is alleged to have forfeited the license by breaching the terms of the licensing contract and thus to infringe in any further exploitation." Id. at 347. Thus, with the exception of substituting trademark for copyright, the analysis in Bassett is readily applicable to the case at bar.

Cases in this district have already employed the various tests for subject matter jurisdiction in copyright cases to Lanham Act claims. See, e.g., TGI Friday's Inc. v. National Restaurants Management, Inc., 1992 WL 164445 (S.D.N.Y. 1992) (exercising subject matter jurisdiction under T.B. Harms where plaintiff alleged trademark infringement and sought remedies expressly granted by the Lanham Act); Foxrun Workshop, Ltd. v. Klone Manufacturing, Inc., 686 F. Supp. 86 (S.D.N.Y. 1988) (same). Applying T.B. Harms to the case at bar, and in accordance with the Second Circuit's decision in Bassett, it is clear that this Court has subject matter jurisdiction over Plaintiff's Lanham Act claim pursuant to 28 U.S.C. § 1338. The first claim asserted in the complaint is for trademark infringement. Pursuant to 15 U.S.C. § 1125, 1116 and 1117, Plaintiff seeks remedies expressly granted by the Lanham Act, including an injunction and money damages. "Where a complaint alleges a federally conferred right, such as a copyright, a trademark or a patent, then alleges violations of that right and requests remedies provided by federal statute, this should be enough to confer federal jurisdiction. The fact that such a claim arises in the context of a disruption of contractual arrangements and presents certain contract issues should not remove it from that jurisdiction." Daniel Wilson Productions, Inc. v. Time-Life Films, Inc., 736 F. Supp. 40, 43 (S.D.N.Y. 1990). Thus, Plaintiff's additional claims for breach of contract and violations of New York State statutory law notwithstanding, his assertion of a claim for infringement and prayer for remedies expressly granted by the Lanham Act is sufficient to confer subject matter jurisdiction upon this Court. Accordingly, Defendant's motion to dismiss this action for lack of subject matter jurisdiction with respect to the Lanham Act claim is denied.

B. Diversity Jurisdiction

This Court also has jurisdiction over this matter pursuant to 28 U.S.C. § 1332 on the basis of diversity. However, Defendant contests this Court's diversity jurisdiction, arguing that Merola and Mattgo are indispensable parties whose joinder as plaintiffs would defeat diversity.*fn5 As indispensable parties and in the absence of diversity of citizenship among the parties, Defendant argues that I must dismiss the action pursuant to Fed.R.Civ.P. 19(b). However, it is well-established that "[i]n cases where a district court has original jurisdiction, it may also exercise `supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy.' 28 U.S.C. § 1367(a)." Viacom International, Inc. v. Kearney, 212 F.3d 721, 726-27 (2nd Cir. 2000). "Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties." 28 U.S.C. § 1367(a). Defendant's motion to dismiss for failure to join indispensable parties is contingent on a finding that I lack subject matter jurisdiction over the matter based on the Lanham Act claim or that the Lanham Act claim must be dismissed for failure to state a cause of action, such that diversity would remain the only basis for jurisdiction.*fn6 Having found that this action arises, in part, under the federal trademark laws for purposes of establishing subject matter jurisdiction pursuant to 28 U.S.C. § 1338, I need not rely on diversity as a basis for this Court's jurisdiction.

If Mattgo and Merola are, in fact, necessary parties, they may be joined pursuant to Rule 19(a). However, before conducting a Rule 19 analysis, I must first address Defendant's alternative motion to dismiss the Lanham Act claim pursuant to Rule 12(c) for failure to state a cause of action, for if I were to dismiss the trademark claim on that basis, diversity of citizenship would become the sole basis for this Court's subject matter jurisdiction and Rule 19(b) might provide cause for dismissal.


The fact that this Court has subject matter jurisdiction does not necessarily mean that Plaintiff has stated a viable cause of action under the Lanham Act. Defendant has moved in the alternative to dismiss the Lanham Act claim pursuant to Fed.R.Civ.P. 12(c) for failure to state a cause of action. I now address the merits of that motion.

On a motion to dismiss under Rule 12(b)(6), or in this case under Rule 12(c),*fn7 the trial court's function "is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Geisler v. Petrocelli, 616 F.2d 636, 639 (2nd Cir. 1980); see Ricciuti v. N.Y.C. Transit Authority, 941 F.2d 119, 124 (2nd Cir. 1991). "[T]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). The district court should grant a Rule 12(b)(6)/12(c) motion "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)).

Consideration of a motion to dismiss for failure to state a claim upon which relief can be granted ordinarily focuses on the allegations contained on the face of the complaint. See Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2nd Cir. 1991), cert. denied, 503 U.S. 960, 112 S.Ct. 1561, 118 L.Ed.2d 208 (1992); Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2nd Cir. 1991). On a motion to dismiss, a district court must accept plaintiff's well-pleaded factual allegations as true, Papasan v. Allain, 478 U.S. 265, 283, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986), and the allegations must be "construed favorably to the plaintiff." LaBounty v. Adler, 933 F.2d 121, 123 (2nd Cir. 1991). However, a court may consider documents integral to plaintiff's allegations, even if they are not attached to the pleading or incorporated by reference therein, without converting the motion into one for summary judgment. See Cortec Industries, Inc., 949 F.2d at 47; see also, I. Meyer Pincus & Associates, P.C. v. Oppenheimer & Co., Inc., 936 F.2d 759, 762 (2nd Cir. 1991) (quoting 5 C. Wright & A. Miller, Federal Practice & Procedure § 1327, at 762-763 and n. 6 (1990)) ("when `plaintiff fails to introduce a pertinent document as part of his pleading, defendant may introduce the exhibit as part of his motion attacking the pleading.'"). "[A] Rule 12(b)(6) motion to dismiss need not be granted nor denied in toto but may be granted as to part of a complaint and denied as to the remainder." Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 115 (2nd Cir. 1982).

Plaintiff alleges that he terminated the licensing agreements with Defendant but that the Defendant ignored the termination and demands to cease and desist from engaging in any further manufacture, promotion, distribution or sale of Nolan Ryan products. Consequently, Plaintiff contends that the continued unauthorized production and sale of Nolan Ryan products is likely to cause confusion as to Nolan Ryan's authorization and sponsorship, or lack thereof, with respect to these products, and thus constitutes trademark infringement. Defendant argues that even if the licensing agreements were properly terminated, the production of the goods in question was authorized and did occur prior to termination. As a result, Defendant concludes that these are genuine goods and, therefore, there is no basis for consumer confusion.

Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(A) provides in pertinent part:

(a) Civil action

(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which —
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person . . . shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

"To make out a cause of action under the Act, plaintiff must establish three elements: 1) involvement of goods or services, 2) effect on interstate commerce, and 3) a false designation of origin or false description of the goods or services." Allen v. National Video, Inc., 610 F. Supp. 612, 625 (S.D.N.Y. 1985). There is no dispute that Plaintiff's allegations satisfy the first two elements. This case clearly involves various products featuring Nolan Ryan's name, likeness and signature that are sold nationally, if not worldwide, over the internet. The parties do, on the other hand, contest bitterly what is sufficient to establish the requisite likelihood of confusion.

Volpone invokes the genuine goods doctrine, arguing that since the goods in question were produced during the term of the license and since the goods were not altered or changed in any way, consumers received exactly what they expected. Defendant is correct that "[a]s a general rule, trademark law does not reach the sale of genuine goods bearing a true mark even though the sale is not authorized by the mark owner." Polymer Technology Corp. v. Mimran, 975 F.2d 58, 61 (2nd Cir. 1992). However, Defendant's reliance on this rule is misplaced.

As an initial matter, Volpone would have this Court focus only on the goods themselves. As Defendant states in its brief, the Nolan Ryan products "are manufactured and sold exactly as they had been during the term of the Agreements. There is no consumer confusion — consumers think that they are buying a commemorative object with a facsimile of Nolan Ryan's signature, and they are." (Memorandum of Law in Support of Defendant's Cross-Motion to Dismiss and in Opposition to Plaintiff's Motion for Preliminary Injunction, p. 10, n. 8). However, the scope of Section 43(a) of the Lanham Act is not so narrowly construed. "It has been indicated that § 43(a) of the Lanham Act is remedial in nature, and should be interpreted and applied broadly so as to effectuate its remedial purpose." Warner Bros., Inc. v. Gay Toys, Inc., 658 F.2d 76, 79 (2nd Cir. 1981); see also, Allen, 610 F. Supp. at 625. Volpone conveniently ignores that the statute by its very terms protects against confusion not only with respect to whether the goods are what they purport to be, but with respect to the origin, sponsorship, or approval of those goods by another person, in this case Nolan Ryan. See 15 U.S.C. § 1125(a). "The public's belief that the mark's owner sponsored or otherwise approved the use of the trademark satisfies the confusion requirement." Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200, 205 (2nd Cir. 1979); see also, Warner Bros., 658 F.2d at 79 (confusion can be premised on likelihood that public will be misled into believing that the defendant is distributing products "vouched for" or sponsored by the plaintiff); Mastercard International Inc. v. Sprint Communications Co., 1994 WL 97097 (S.D.N.Y. 1994) (holding that Sprint's unauthorized use of World Cup marks on calling cards conveyed the false impression that such use was "officially sanctioned by the World. Cup organization," thereby constituting a violation of the Lanham Act); Geisel v. Poynter Products Inc., 283 F. Supp. 261, 267 (S.D.N.Y. 1968) ("a `false representation', whether express or implied, that a product was authorized or approved by a particular person is actionable under Section 43(a)").

Plaintiff has clearly alleged in his complaint that "[Volpone] intended to suggest, and has falsely suggested, that [Volpone's] goods, services or commercial activities were endorsed, sponsored, authorized, or approved by plaintiff in a manner designed to mislead the public." (Complaint ¶ 28). Defendant relies on the fact that the products exhibit a genuine Nolan Ryan facsimile signature and likeness of Nolan Ryan. Although Defendant is correct that the public cannot be deceived in the sense that the products bear a forged signature or false likeness, there is a likelihood that consumers will assume that Nolan Ryan has authorized the use of his signature and likeness and sponsors, endorses or otherwise approves of these products. Volpone answers this contention by stating that Nolan Ryan did authorize and approve of these products, thereby making them genuine. However, simply because Nolan Ryan authorized the use of his name, signature and likeness in connection with Volpone's products in the past, does not make his endorsement irrevocable for all time.

Volpone concedes that its unauthorized sales of Nolan Ryan products subsequent to the alleged termination of the agreement might state a cause of action for breach of contract, but not infringement. However, in Baskin-Robbins Ice Cream Co. v. D & L Ice Cream Co., Inc., 576 F. Supp. 1055 (E.D.N.Y. 1983), the court held that "the continued use by the defendants of a licensed trademark after the Franchise Agreement had been terminated constitutes . . . trademark infringement as well as a breach of contract." Id. at 1060; see also, Romacorp, Inc. v. TR Acquisition Corp., 1993 WL 497969 (S.D.N.Y. 1993) (holding that continued use of trademark after termination of franchise for nonpayment of royalties constitutes Lanham Act violation); S & R Corporation v. Jiffy Lube International, Inc., 968 F.2d 371 (3rd Cir. 1992) (same). This principle is not limited to franchise agreements. It has been more generally applied in the licensing context. See, e.g., Dynamic Microprocessor Associates, Inc. v. EKD Computer Sales & Supplies Corp., 1997 WL 231496 (E.D.N Y 1997) (holding that ex-licensee's continued distribution of product after termination of license violated Lanham Act); Murjani International, Ltd. v. Sun Apparel, Inc., 1987 WL 15110 (S.D.N.Y. 1987) (defendants' distribution of clothing products bearing `COKE' and `COCA-COLA' marks after termination of agreements granting license to use those marks "would engender the false impression that the Coca-Cola Company is the manufacturer of these products and would thereby constitute a trademark infringement").

Although post-termination use of a mark alone does not make out a claim for trademark infringement without first creating the likelihood of consumer confusion, this is more often than not a distinction without a difference. As the Second Circuit has explained:

[a defendant's status as former licensee] increases the probability of consumer confusion. A licensee or franchisee who once possessed authorization to use the trademarks of its licensor or franchisor becomes associated in the public's mind with the trademark holder. When such party, as defendants here, loses its authorization yet continues to use the mark, the potential for consumer confusion is greater than in the case of a random infringer. Consumers have already associated some significant source identification with the licensor. In this way the use of a mark by a former licensee confuses and defrauds the public.

Church of Scientology International v. Elmira Mission of the Church of Scientology, 794 F.2d 38, 44 (2nd Cir. 1986) (finding likelihood of consumer confusion where local branch of international religious organization continued to operate after its license was terminated).

Defendant distinguishes the case at bar by arguing that since the goods sold after the alleged termination of the license were manufactured prior to that termination, they are genuine goods. Thus, Volpone concludes, it is unlike the continued operation of a franchise after termination, and there can be no consumer confusion with respect to those goods as a matter of law. However, the genuine goods defense to trademark infringement only arises where the first sale rule or exhaustion doctrine has already come into play. The exhaustion doctrine states that, "`with certain well defined exceptions, the right of a producer to control distribution of its trademarked product does not extend beyond the first sale of the product. Resale by the first purchaser of the original article under the producer's trademark is neither trademark infringement nor unfair competition.'" Rogers v. HSN Direct Joint Venture, 1999 WL 728651 *2 (S.D.N Y 1999) (quoting Sebastian, Int'l, Inc. v. Longs Drug Stores, Corp., 53 F.3d 1073, 1074 (9th Cir. 1995)).

Defendant erroneously concentrates on the date the goods were manufactured rather than whether their subsequent sale was authorized. As the court explained in Liz Claiborne, Inc. v. Mademoiselle Knitwear, Inc., 979 F. Supp. 224 (S.D.N.Y. 1997):

It is well settled that sale of genuine goods without authorization by the trademark holder generally will not constitute trademark infringement . . . Such cases, however, usually arise when the initial sale of the trademarked goods was authorized, and the second or subsequent sale is contested. At that juncture, the first sale is exhausted . . . The question of whether a good is genuine, however, presupposes the initial sale was authorized. As commented on in the Restatement: "Trademarked goods produced by a manufacturer under contract with the trademark owner are not genuine goods until their sale under the mark is authorized by the trademark owner. Thus, if the trademark owner rejects the goods, the manufacturer may not use the mark in reselling the goods to others." Restatement (Third) of Unfair Competition § 24, comment c (1995).

Id. at 230. Accordingly, a court faced with an infringement claim for unauthorized sales of a trademarked product must perform a two-part analysis. First, the court must consider whether the trademark owner authorized the first sale of the goods. Second, the court must consider whether the goods were genuine. If the initial sale was authorized, the court must undertake the second part of the analysis and determine whether, as a matter of fact, the goods which were later resold without authorization were genuine. If the goods were genuine, there is no violation of the Lanham Act despite the fact that the goods were resold without the trademark owner's consent. If the goods were not genuine, that is altered or not in keeping with the trademark owner's quality standards, a valid claim for trademark infringement is established. If the trademark owner did not approve the original sale, the goods cannot be considered genuine as a matter of law and infringement is established.

In Liz Claiborne, the plaintiff, an apparel designer, hired the defendant, Mademoiselle, as a contractor to manufacture merchandise on its behalf. A dispute arose over the defendant's authority to sell overruns, goods that met plaintiff's quality standards but exceeded the quantity ordered by a certain percentage. Defendant claimed that the goods were genuine and, thus, that the sale of such goods could not constitute trademark infringement, even if the sales themselves were unauthorized. However, the court disagreed, holding that "[i]f the first sale by Mademoiselle was not authorized, then the garments cannot be genuine for infringement purposes." Id. at 231.*fn8

Rogers v. HSN Direct Joint Venture, 1999 WL 728651 (S.D.N Y 1999) is even more on point. In Rogers, "HSNDI", the owner of a trademark used in association with a hair removal and body smoothing system, granted a license to a manufacturer ("MGI") to produce and sell the product. MGI also resold an inventory of the product it had purchased from one of HSNDI's other distributors. Two years later, HSNDI terminated the license. Refusing to heed HSNDI's letter to cease and desist, MGI continued to sell the product. MGI invoked the genuine goods doctrine as its defense. As does Volpone, MGI argued that the goods were genuine "because they were manufactured under a then-valid license, and because the goods conform[ed] to HSNDI's quality standards." Id. at *1.

The court held that the resale of goods purchased by MGI from HSNDI's distributor was protected by the first sale rule. Having determined that the original sale was authorized, a court must then determine whether the goods are genuine. Since there was no allegation that those goods had been altered, they were considered genuine as a matter of law. However, the exhaustion doctrine did not apply to the goods manufactured by MGI pursuant to the license. The court stated that "the `genuine product' doctrine does not allow MGI to sell this Product, because it applies only to resales when the original sale was authorized by the trademark holder." Id. at *2. In ...

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