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EMPRESA CUBANA DEL TABACO v. CULBRO CORPORATION.

April 30, 2004.

EMPRESA CUBANA DEL TABACO, d.b.a. CUBATABACO, Plaintiff, -against- CULBRO CORPORATION and GENERAL CIGAR CO., INC., Defendants


The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge

OPINION

Defendants General Cigar Holdings, Inc. and General Cigar Co., Inc. (collectively "General Cigar") have moved pursuant to Fed.R.Civ.P. 62 (c) for a stay of the permanent injunction entered against it by this Court on March 26, 2004. See Empresa Cubana v. Culbro Corp.. 97 Civ. 8399, 2004 WL 602295 (S.D.N.Y. Mar. 26, 2004) (the "March 26 Opinion"). For the following reasons, the motion is denied, although a temporary stay is granted to permit any further application to the Court of Appeals.

 Prior Proceedings

  The proceedings in this case prior to the entry of the March 26 Opinion are laid out in detail in grnpresa Cubana.2004 WL 602295, at *2-*3, familiarity with which is presumed. The March 26 Opinion cancelled General Cigar's COHIBA trademark and permanently enjoined General Cigar from using the mark in connection with any product or service. See id. at *54.

  On April 12, 2004, General Cigar filed the instant motion. After submission of briefs, the motion was argued on April 21, 2004, at which time the motion was deemed fully submitted. Discussion

  Federal Rule of Civil Procedure 62(c) provides, in relevant part:
When an appeal is taken from an interlocutory or final judgment granting . . . an injunction, the court in its discretion may suspend. . . an injunction during the pendency of the appeal upon such terms as to bond or otherwise as it considers proper for the security of the rights of the adverse party.
  Rule 62(a) also permits a stay pursuant to a court order "after . . . entry [of final judgment] and until an appeal is taken." Fed.R.Civ.P. 62(a). General Cigar's motion for a stay is technically premature because no judgment has been entered and no notice of appeal been filed. See Nikon, Inc. v. Ikon Corp., 89 Civ. 6044, 1992 WL 398440, at *3 (S.D.N.Y. Dec. 18, 1992). However, in light of the imminent filing of the entry of final judgment and the representations of both parties of their intent to appeal, the motion for stay pending appeal will be considered. See Davila v. State of Texas, 489 F. Supp. 803, 810 (S.D. Tex. 1980) (considering a Rule 62(c) motion when the "judgment is just now being delivered to the Clerk for entry.").

  "To determine whether a stay of an order pending appeal is appropriate, a court must evaluate the following factors: (1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in `the proceeding; and (4) where the public interest lies." Rodrigiez ex rel. Rodriguez v. DeBuono, 175 F.3d 227, 234 (2d Cir. 1999) (quoting Hilton v. Braunskill, 481 U.S. 770, 776 (1987)).

  As to the first factor, the Second Circuit considered the appropriate formulation "used to describe the degree of likelihood of success that must be shown," Mohammed v. Reno, 309 F.3d 95, 100 (2d Cir. 2002), and settled on one used by the District of Columbia Circuit: "The necessary `level' or `degree' of possibility of success will vary according to the court's assessment of the other [stay] factors." Id. (quoting Washington Metropolitan Area Transit Commission v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir. 1977). The Mohammed court also quoted approvingly the following

  formulation from the Sixth Circuit: "The probability of success that must be demonstrated is inversely proportional to the amount of irreparable injury plaintiff will suffer absent the stay. Simply stated, more of one excuses less of the other." Id. (quoting Michigan Coalition of Radioactive Users, Inc. v. Griepen-trog, 945 F.2d 150, 153 (6th Cir. 1991)). Accordingly, the issue of the likelihood of success will be considered last in order to make a determination in light of the other factors. Irreparable Injury to General Cigar

  General Cigar argues that it would be irreparably harmed by the failure to stay the injunction because its trademark would be substantially devalued by the time the appeal is decided because all of the goodwill that it has developed over the past seven years in its "Red Dot" COHIBA would be lost. According to General Cigar, the most important consumers for any cigar brand are those who purchase cigars regularly, and who are loyal to a single brand. Were the "Red Dot" COHIBA to be pulled from the market, those consumers would switch to another brand. If General Cigar ultimately prevailed on its appeal, General Cigar argues that these former customers would be difficult if not impossible to regain. At oral argument, plaintiff Empresa Cubana del Tabaco. ("Cubatabaco") argued anecdotally that many of the cigar brands created before the Cuban Revolution were unavailable for many years once Fidel Castro took power, see Empresa Cubana v. Culbro Corp., 213 F. Supp.2d 247, 256-57 (S.D.N.Y. 2002), but that the consumers of those brands nonetheless returned to those brands in significant numbers once they again became available.

  In the context of a preliminary injunction, loss of goodwill as well as market share has been held to constitute irreparable harm. See, e.g., Reuters. Ltd, v. United Press Int'l, Inc., 903 F.3d 904, 907-08 (2d Cir. 1990) (loss of customers and goodwill from termination of product may constitute irreparable injury); Stein Industries, Inc. v. Jarco. Industries. Inc., 934 F. Supp. 55, 58 (E.D.N.Y. 1996) ("loss of a product's market amounts to irreparable harm because the market share is not easily recovered.").

  General Cigar, however, cites no case in support of the proposition that the loss of goodwill in a defendant's infringing trademark or that loss of market share in an infringing product constitutes irreparable harm cognizable on a motion to stay pending appeal. The court in Golden Door. Inc. v. Odisho, 437 F. Supp. 956 (N.D. Cal. 1977), a case cited by General Cigar, did recognize that a defendant using an infringing mark in good faith had built up local goodwill, and that accordingly the defendant "should be given an opportunity to retain it to the extent possible." Id. at 968. However, the court's consideration of the goodwill developed by the defendant did not form the basis for a stay. Instead, the Golden Door court allowed the defendant to inform the public of their former infringing name for a two year period. Id.

  Other courts have held, in the context of requests to stay injunctions in patent cases, that loss of market share is not irreparable harm, even if it cannot be easily regained were the injunction to be reversed on appeal. See Howes v. Medical Components. Inc., 741 F. Supp. 528 (E.D. Pa. 1990) ("the loss of market share is always the inevitable result of this type of injunction, and [defendant] has not offered any evidence to show that the harm that it will suffer is any more severe than the loss of its sales of [its infringing product]."); see also Itron, Inc. v. Benghiat, 2003 WL 22037710, at *12 (D. Minn. Aug. 29, 2003) (finding no irreparable harm where defendant "has not suggested that an injunction would destroy its business, but merely that it would lose some market share and suffer other harm.").

  Further, the degree to which the existing goodwill derives from General Cigar's promotional efforts has not been established. In the March 26 Opinion, it was found that General Cigar sought to "exploit the popularity, familiarity, brand recognition and overall success of the Cuban Cohiba." Empresa Cubana, 2004 WL 602295, at *10. To some undetermined extent, then, the goodwill General Cigar is concerned about losing derived from its infringement of Cubatabaco's trademark. In reversing the denial of injunction in a patent infringement case, the Federal Circuit held, despite a finding of no bad faith on the part of the infringer, that "[o]ne who elects to build a business on a product found to infringe cannot be heard to complain if an injunction against continuing infringement destroys the business so elected." ...


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