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TACTICA INTERNATIONAL v. ATLANTIC HORIZON INTERNATIONAL

April 27, 2001

TACTICA INTERNATIONAL, INC., PLAINTIFF,
v.
ATLANTIC HORIZON INTERNATIONAL, INC., ROBERT FERREIRA, ALICE RICAFORT, TAYLOR GIFTS, INC., ELYSEE COSMETICS, LTD., ELYSEE BEAUTY PRODUCTS, LTD., AND PATRICK BOUSFIELD, DEFENDANTS.



The opinion of the court was delivered by: Shira A. Scheindlin, United States District Judge.

    OPINION AND ORDER

Tactica International, Inc. ("Tactica") seeks a preliminary injunction pursuant to Rule 65 of the Federal Rules of Civil Procedure enjoining defendants, Atlantic Horizon International, Inc. ("AHI"), Robert Ferreira, Alice Ricafort, Taylor Gifts ("TG"), Elysee Cosmetics, Ltd. ("Elysee"), Elysee Beauty Products, Ltd. ("Elysee Beauty"), and Patrick Bousfield, from infringing upon Tactica's trademark, trade dress, and/or patent rights in the sale, distribution, or advertising of various beauty related products. Tactica further seeks to prohibit AHI, Ferreira, and Ricafort from engaging in unfair competition, disclosing, revealing or using Tactica's confidential information, misappropriating Tactica's trade secrets, and interfering with Tactica's contractual relations with certain third-parties. Tactica's claims are brought pursuant to Section 43(a) of the Lanham Act, 15 U.S.C. § 1114(1) and 1125(a), 35 U.S.C. § 271, and New York common law. For the reasons set forth below, Tactica's application is partially granted.

I. INTRODUCTION

Although Tactica has brought multiple claims against numerous defendants, this dispute boils down to one question: Who owns the trademark rights for the CELLULIFT and TOUCH'N'GO names in the United States? From 1996 to September 2000, Tactica and Elysee worked together to develop and distribute various beauty-related products in the United States and other parts of the world. Two such products were CELLULIFT, a massage system designed to hide the appearance of cellulite, and TOUCH'N'GO, a permanent hair removal system. At the time Elysee and Tactica began to do business together in 1996, Elysee did not sell any products in the United States. Tactica has been selling health and beauty products in the United States since 1992. During their business relationship all CELLULIFT and TOUCH'N'GO products sold in the United States were sold by Tactica under its IGIA brand name. There is no written agreement governing their business relationship.

After their relationship soured, Bousfield, Elysee's Director, approached Ferreira, a former employee of Tactica, and asked him whether his company, AHI, would be interested in becoming Elysee's exclusive mail order catalogue distributor of TOUCH'N'GO and CELLULIFT 2 in the United States.*fn1 AHI agreed and has been working with Elysee since December 2000. Elysee has engaged another company, Retail Distributors, Inc., to be its exclusive United States retail distributor for these products.

In January 2001, AHI displayed TOUCH'N'GO and CELLULIFT 2 at a Housewares Show in Chicago. It was at this show that Tactica first became aware that the TOUCH'N'GO and CELLULIFT 2 products were being sold and marketed in the United States under the Elysee brand name.

I. PROCEDURAL HISTORY

On February 16, 2001, Tactica filed a Complaint against AHI, Ferreira, Alice Ricafort, and TG. Four days later Tactica filed an Order to Show Cause for a Preliminary Injunction and Temporary Restraining Order ("TRO"). The Court signed a TRO prohibiting defendants from intentionally infringing Tactica's trademark and patent rights and scheduled a preliminary injunction hearing. The hearing began on March 30, 2001, and continued the following week on April 3 and 4.*fn2 On the first day of the hearing, Tactica filed an Amended Complaint, naming Elysee, Elysee Beauty, and Bousfield as additional defendants to this action.*fn3

III. FINDINGS OF FACT

A. Parties

Since 1992 Tactica has been in the business of marketing, distributing and selling various personal-care beauty products in the United States and other parts of the world. See Tr. at 41 (Testimony of Ramchandani, President of Tactica). Tactica is run by Ramchandani, and Avi Sivan, Chief Executive Officer ("CEO"). Tactica markets its products under the name IGIA Direct and is the owner of the federally registered trademark, IGIA.

Elysee, a company organized and existing under the laws of the United Kingdom, is also in the business of developing and distributing personal-care beauty products. See Declaration of Patrick Bousfield in Opposition to Plaintiff's Motion for a Preliminary Injunction ("Bousfield Decl.") ¶ 2. Like Tactica, Elysee markets and distributes its products worldwide. See id. ¶ 3.

Ferreira began working for Tactica as a shipping clerk in mid-1996. See Affidavit of Robert R. Ferreira in Opposition to Plaintiff's Motion for a Preliminary Injunction ("Ferreira Aff.") ¶ 20. In April 1997, Ferreira was promoted to shipping manager, whose primary function was to coordinate shipments from overseas vendors to and from Tactica's fulfillment house. See id. ¶¶ 23, 27. Ricafort worked at Tactica as an accounts receivable clerk from mid-1996 through January 1999. See Affidavit of Alice Ricafort in Opposition to Plaintiff's Motion for a Preliminary Injunction ("Ricafort Aff.") ¶ 2. Her duties were limited to dealing with accounts receivable, and on occasion, accounts payable. See id. ¶¶ 3, 5. Both Ferreira and Ricafort signed Confidentiality and Non-Compete Agreements while at Tactica. See Plaintiff's Exhibits ("Pl. Exs.") 54 and 55. Ferreira and Ricafort resigned from Tactica in October 1998 and January 1999, respectively. See Ferreira Aff. ¶ 30; Ricafort Aff. ¶ 2. Six months after Ferreira resigned from Tactica he founded AHI, a distributorship originally designed to distribute medical supplies to the Middle Eastern market. See Ferreira Aff. ¶¶ 33, 34. In recent months, AHI has begun to expand its product line to include personal-care beauty products. See id. ¶ 34.

TG is a mail order catalog business which sells various beauty-related products through print catalogues and its website — www.taylorgifts.com. See Affidavit of Mark F. Wills, Director of Operations and Purchasing for Taylor Gifts, in Opposition to Plaintiff's Motion for a Preliminary Injunction ("Wills Aff.") ¶ 2. Until July 2000, TG purchased the TOUCH'N'GO and CELLULIFT products from Tactica. See id. ¶ 4. TG currently orders these products directly from Elysee. See id.

B. The Development of CELLULIFT and TOUCH'N'GO

1. CELLULIFT

CELLULIFT is a massage system consisting of a suction system and rollers that knead the thighs or arms in order to reduce the appearance of cellulite. See Tr. at 46 (Ramchandani); Pl. Exs. 47-48. In February 1997, Ramchandani and Sivan attended a trade show in Germany, see Tr. at 47-48 (Ramchandani), 386 Sivan), where they observed a massage system manufactured by the Phillips Company, known as Cellesse. See Tr. at 47-48 (Ramchandani); Pl. Ex. 15. They purchased the product and brought it back to the United States. See Tr. at 47-48 (Ramchandani), 386 (Sivan). They began experimenting with the product and brainstorming about how they could improve upon it. See Tr. at 47-48 (Ramchandani), 386 (Sivan). Tactica came up with the idea of using a cream with the product, as well as adding a suction and heating mechanism. See Tr. at 48-49 (Ramchandani). Tactica conveyed its ideas and a brochure for Cellesse to Bousfield.

In October 1997, Bousfield visited Tactica's offices to discuss the idea of developing a massage system.*fn4 See Tr. at 211 (Bousfield); Bousfield Decl. ¶ 23. At the meeting, Tactica and Elysee decided to jointly develop the product. Sivan suggested the name CELLULIFT and everyone agreed.*fn5 In March 1998, Tactica filed an "intent-to-use" application for the CELLULIFT name with the Patent and Trademark Office ("PTO"). See Declaration of Avi Sivan on Behalf of Tactica International, Inc. ("Sivan Decl.) ¶ 11; Pl. Ex. 10. Tactica has also filed trademark applications for the CELLULIFT name in Australia, New Zealand, Israel, and the European Union. See Pl. Ex. 31. Because Bousfield assumed Tactica would be Elysee's exclusive United States distributor of CELLULIFT, he did not object to Tactica's application in the United States. See Tr. at 105, 181 (Bousfield). Tactica also filed a utility patent application for a "CELLULITE MASSAGE SYSTEM WITH GEL DISPENSER" on November 24, 1998. See Declaration of Catherine Voorhees on Behalf of Tactica International, Inc. ¶ 3; Tr. at 55-56 (Ramchandani). In a fax dated March 1, 1999, Bousfield indicated that he would send Tactica copies of the original drawings for CELLULIFT in order to facilitate the process. See Pl. Ex. 25.

Once the idea for CELLULIFT was conceptualized, Aole Boysen, Elysee's design engineer, created general assembly drawings, outlining the make-up and components of CELLULIFT. See Def. Exs. 7 and 8. Pre-production models were prepared and shown to Tactica at a meeting in the United Kingdom in April 1998. At that meeting problems relating to the rollers, suction and vibration of CELLULIFT were discussed. See Tr. at 221-22 (Bousfield). In addition, there were discussions relating to the shape of the handle because Sivan was concerned that the handle was too big for a woman's hand. See Tr. at 217-18 (Bousfield); 388 (Sivan). Subsequent to the meeting, the final drawings were forwarded to a manufacturing company in Hong Kong, Grandeur Development, and production of CELLULIFT commenced. See Tr. at 102-03 (Bousfield). All development costs were borne by Elysee, who in turn recovered its costs, as well as a profit, through its selling price. See Tr. at 85-86, 142, 238-39 (Bousfield); Def. Ex. 27. Elysee worked directly with Grandeur and oversaw the manufacturing process.

Sometime in May or June 1998, Elysee caused the first shipment of CELLULIFT to Tactica. See Tr. at 92 (Bousfield). Between July and October 1998, a New Jersey company called Clinical Research Laboratories ("CRL") performed a clinical study on the product. See Pl. Ex. 25. This trial was funded by Tactica.*fn6 See Tr. at 92 (Bousfield). At the end of 1998 Tactica hired the law firm of Hall, Dickler, Kent, Friedman & Wood, LLP to seek approval of CELLULIFT before the Food and Drug Administration ("FDA"). See Sivan Decl. ¶ 46; Pl. Ex. 22-24. Elysee did not contribute to the costs of this representation. See Sivan Decl. ¶ 46.

In January 1999, Elysee began to sell CELLULIFT under its brand name outside the United States. See Tr. at 146 (Bousfield); Def. Ex. 27. In total, Elysee has sold 225,000 units, 150,000 of which were sold to Tactica.*fn7 See Tr. at 99; 243 (Bousfield). Besides selling CELLULIFT in the United States, Tactica also arranged for shipments of CELLULIFT branded with the IGIA mark to countries around the world, including Germany, Turkey, Australia, and New Zealand. See Tr. at 182 (Bousfield). Tactica would arrange for these shipments through Elysee or directly through Grandeur. See Tr. at 182-89 (Bousfield); Pl. Ex. 29. Bousfield was aware that shipments of CELLULIFT arranged by Tactica were branded with the IGIA mark. See Tr. at 185 (Bousfield).

2. TOUCH'N'GO

Towards the end of 1996, Elysee began to work with Tactica to introduce the ELYSEE Hair Remover into the United States. See Tr. at 78-79 (Bousfield). At Elysee's direction, this product was manufactured by Grandeur and shipped to Tactica for sale in the United States. See Tr. at 78-79 (Bousfield). In early 1997, Tactica was sued in the United States by a small company in the cosmetics business who owned the trademark ELYSEE. See Tr. at 206 (Bousfield). Without making any changes to the product, the name was changed to the IGIA Hair Remover. See Tr. at 80, 205-06 (Bousfield).

After experiencing problems with the connectivity of the tweezers attached to the IGIA Hair Remover, Tactica marketed a new hair removal product, IGIA Sure, which was supplied by KMC, a California corporation. See Tr. at 62, 70, 301 (Ramchandani), 208 (Bousfield); Pl. Exs. 2 and 56. Unlike the IGIA Hair Remover, the IGIA Sure contained a set of tweezers that were gold plated and connected completely. See Tr. at 381 (Sivan). In light of the favorable response from consumers, Tactica approached Elysee with the IGIA Sure and suggested creating a similar product, the IGIA Gold. See Tr. at 208 (Bousfield), 382 (Sivan).

Sometime in 1998, the idea for TOUCH'N'GO was born. In 1998, both Tactica and Elysee became aware of products using a new technology — a galvanic current — to remove unwanted hair. See Tr. at 106-07 (Bousfield), 382-83 (Sivan). These products included the RIO, manufactured by a company called Dezac, and the DERMAPEN, manufactured by Beauty Co. See Tr. at 106-07 (Bousfield), 382-83 (Sivan). Unlike the previous products which used the radio frequency method to remove hair, a product using galvanic current provides a consumer with permanent hair removal. See Tr. at 107 (Bousfield), 383 (Sivan). Tactica provided articles relating to the galvanic method to Elysee, information relating to the RIO hair removal product, and had many meetings with Elysee relating to this technology. See Tr. at 208-09 (Bousfield), 383-84 (Sivan).

Tactica and Elysee were excited about the possibility of developing a galvanic hair removal product incorporating the use of pads and tweezers. However, they were also aware of patents covering parts of this process. See Tr. at 107-08 (Bousfield), 383 (Sivan); Def. Ex. 40. In light of the success of Elysee's previous hair removal products, Bousfield met with Herbert Lee Cole, the patent holder, during the summer of 1998, and worked out a licensing agreement with Elysee. See Tr. at 107-08 (Bousfield). A written agreement was signed in February of 1999. See Def. Ex. 40. Tactica is not a party to this agreement.

After Bousfield met with Cole, Elysee had Boysen, its designer, develop drawings for TOUCH'N'GO. See Tr. at 108 (Bousfield); Def. Ex. 9. In November 1998, Bousfield visited Tactica's offices in New York with two rough, non-working mock-ups of TOUCH'N'GO. See Bousfield Decl. ¶ 11; Sivan Decl. ¶ 9. On December 17, 1998, Elysee faxed a letter to Tactica containing the selling points for the "NEW IGIA HAIR REMOVER PROPOSED NAME: TOUCH'N'GO" for Tactica's review. See Pl. Ex. 4. On that same day, Tactica sent a fax to Elysee informing Bousfield that a trademark search revealed that the name TOUCH'N'GO was available for use in connection with the hair removal product. See Pl. Ex. 9. Tactica and Elysee then confirmed their discussions and mutually agreed to proceed with the name TOUCH'N'GO. See Tr. at 116, 193 (Bousfield), 288-89 (Ramchandani). On April 29, 1999, Tactica filed an "intent-to-use" application for the name TOUCH'N'GO with the PTO. See Sivan Decl. ¶ 17; Pl. Ex. 10. Elysee had no objection to Tactica's application. See Tr. at 131 (Bousfield).*fn8

Elysee decided to have TOUCH'N'GO manufactured by the Newford Company, Ltd. in Hong Kong. See Tr. at 108 (Bousfield). Relying on the drawings provided by Elysee, Newford prepared the final engineering specifications and tooling for TOUCH'N'GO. See Def. Ex. 11. During the development period, Tactica was kept aware of the features and progress of the product. See Tr. at 109 (Bousfield). All costs associated with the production of TOUCH'N'GO were borne by Elysee, who in turn recovered its costs, as well as a profit, through its selling price.*fn9 See Tr. at 110-113 (Bousfield); 278 (Ramchandani).

Unlike CELLULIFT, the first shipment of TOUCH'N'GO was not to Tactica. See Tr. at 118, 148 (Bousfield); Def. Ex. 29. Elysee caused TOUCH'N'GO to be shipped by Newford under the name Elysee Electro to England, France, Australia, Scandinavia, Holland and Belgium. See Tr. at 118 (Bousfield). Before making its first shipment to Tactica, Elysee shipped and sold approximately 10,000 units of TOUCH'N'GO, mostly to the United Kingdom. See Tr. at 152-53 (Bousfield).

Tactica began receiving shipments of TOUCH'N'GO in November 1999. See Tr. at 118 (Bousfield). All TOUCH'N'GO products shipped to Tactica bore the name IGIA TOUCH'N'GO. See Tr. at 174 (Bousfield). Prior to shipping IGIA TOUCH'N'GO to the United States, Tactica and Elysee decided jointly to retain CRL to perform a clinical trial. See Tr. at 119 (Bousfield). On April 16, 1999, Elysee faxed a letter to Marc Shaffer of CRL, indicating that the cost of the testing would be borne equally by both Elysee and Tactica. See Pl. Ex. 8; Def. Ex. 19. However, the entire cost of the testing, $30,000, was paid by Elysee. See Def. Exs. 20-25.

The last shipment of IGIA TOUCH'N'GO to Tactica occurred on July 25, 2000. See Tr. at 152 (Bousfield); Def. Ex. 31. In total, 26,000 units of the IGIA TOUCH'N'GO were shipped to Tactica. Elysee has caused approximately 55,000 units of the Elysee Electro TOUCH'N'GO to be shipped elsewhere in the world. See Tr. at 149 (Bousfield).

C. The Packaging for Tactica's CELLULIFT and IGIA TOUCH'N'GO

The brand name Elysee is not mentioned anywhere on the packaging for the CELLULIFT or IGIA TOUCH'N'GO sold to or on behalf of Tactica. The manual included with the IGIA TOUCH'N'GO states that the product "is manufactured to the exclusive UK design of IGIA Direct. . . ." Pl. Ex. 14.*fn10 Consumers are directed to send all comments or complaints to IGIA Direct, see Pl. Ex. 14, and any consumer who contacts IGIA Direct is sent a gift of appreciation by Tactica. See id.; Tr. at 71 (Ramchandani). The manual also states that the "TOUCH'N'GO Hair Removal System is a registered trademark of IGIA Direct Inc." Pl. Ex. 14.

The manual included with Tactica's CELLULIFT also directs consumers to address any complaints or comments to IGIA Direct. The first page of the manual reads:

IGIA has developed a unique multi-function massager — featuring such advanced features as specifically contoured motorised rollers, Active Air suction, deep heat and vibro massage. This technique is unique to the IGIA CELLULIFT. . . .

Pl. Ex. 17. Bousfield admitted that he wrote this passage. See Tr. at 259-60 (Bousfield).

D. Tactica's Marketing and Promotion of CELLULIFT and IGIA TOUCH'N'GO

Before actually receiving shipments of CELLULIFT and IGIA TOUCH'N'GO, Tactica began to "presell" these products. Tactica's method of promotion is a three-step process. It first runs print advertisements. If this is successful, Tactica then runs television advertisements. If it is deemed to be profitable, Tactica will then produce an infomercial. See Tr. at 50-51 (Ramchandani).

1. CELLULIFT

Starting in May 1998, Tactica began to run print advertisements for CELLULIFT. See Pl. Ex. 46.*fn11 In total, Tactica has spent $1,558,567.00 on print advertising for CELLULIFT in the United States. See id. These advertisements have run in national magazines such as First for Women, Soap Opera Update, Woman's World, Mademoiselle, Redbook, Elle, Vogue, Mirabella, Cosmopolitan and many others. See id. During this year, Tactica's advertisements for CELLULIFT have been limited to Skymall, Woman's Own and Valassis. See id. In addition, Tactica has spent additional monies on "co-op" advertising — advertising contained in department store supplements. See Sivan Decl. ¶ 50. Tactica has spent approximately $3 million on television advertisements and produced an infomercial for CELLULIFT. See Sivan Decl. ¶¶ 42, 50; Tr. at 391 (Sivan). For the weeks ending August 8, 1998 and November 2, 1998, Tactica's infomercial for CELLULIFT was respectively ranked as the number five and fourteen direct response spot. See Pl. Exs. 53 and 57.*fn12 Tactica also advertises CELLULIFT on its website — www.IGIA.com.

As Tactica no longer has a supplier for CELLULIFT, it is only selling residual stock left over from Elysee. See Tr. at 319-21 (Ramchandani). Tactica intends to use the CELLULIFT name, or some variation thereof, ...


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