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EMPRESA CUBANA DEL TABACO v. CULBRO CORPORATION.

United States District Court, S.D. New York


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." See Windsurfing Int'l, Inc. v. AMF, Inc., 782 F.2d 995, 1003 n.12 (Fed. Cir. 1986). Accordingly, General Cigar will not be irreparably harmed by the failure to stay the injunction pending appeal. Harm to Cubatabaco

  General Cigar argues because Cubatabaco. cannot legally sell cigars in the United States that it has suffered no actual legal damages, or alternately that any injury to Cubatabaco. is not substantial. Cubatabaco argues conversely that it is harmed by being denied the right to exclusive control of the trademark after General Cigar's trademark was cancelled by the March 26 Opinion.

  While Cubatabaco's lack of any legal damages is a factor to be considered, it cannot be said that the inability of a party to control its trademark is an insubstantial injury. As Judge Learned Hand eloquently stated over 75 years ago:

[A merchant's] mark is his authentic seal; by it he vouches for the goods which bear it; it carries his name for good or ill. If another uses it, he borrows the owner's reputation, whose quality no longer lies within has own control. This is an injury, even though the borrower does not tarnish it, or divert any sales by its use; for a reputation, like a face, is the symbol of its possessor and creator, and another can use it only as a mask.
  Yale Elec. Corp. v. Robertson, 26 F.2d 972, 974 (2d Cir. 1928) (Hand, J.). In the preliminary injunction context, it has been repeatedly held that proof of lost sales is not necessary to establish irreparable harm. See, e.g., Ryan v. Volpone Stamp Co., Inc., 107 F. Supp.2d 369 404 (S.D.N.Y. 2000) ("The mere loss of control over [plaintiff's] reputation is what constitute[s] the irreparable harm.") (citing Church of Scientology Int'l v. Elmira Mission of the Church of Scientology, 794 F.3d 38, 43-44 (2d dir. 1986)); Optician Ass'n of America v. Independent Opticians of America. 920 F.2d 187, 196 (3d Cir. 1990) ("the most corrosive and irreparable harm attributable to trademark infringement is the inability of the victim to control the nature and quality of the defendants' goods. Even if the infringer's products are of high quality, the plaintiff can properly insist that its reputation should not be imperiled by the actions of another.") (quoting Processed Plastic Co. v. Warner Communications, Inc., 675 F.2d 852, 858 (7th Cir. 1982)). Accordingly, Cubatabaco. has shown that it would be significantly harmed by a stay.

  As a means of addressing any possible harm to Cubatabaco, General Cigar has approved that a stay be granted on the condition that it agree to pay a set amount of liquidated damages in the event that the judgment is affirmed. See Centaur Communications, Ltd. v. A/S/M Communications, Inc., 87-7008, slip op. at 3 (2d Cir. Jan. 29, 1987) (requiring, as a condition of stay of injunction pending appeal, that stay movant pay $10,000 as liquidated damages if appeal results in affirmance). Such a conditional monetary award has the purpose of "protect[ing] an enforceable judgment in favor of its winner, and protect[ing] the winner from any subsequent harm suffered through appellate delay." J. Perez & Cia v. United States. 747 F.2d 813, 815 (1st Cir. 1984) (Breyer, J.). However, because it is impossible to determine the amount of liquidated damages which would protect Cubatabaco. from the non-monetary harm of the loss of control over its mark, a conditional award of liquidated damages is inappropriate.

  Although Cubatabaco. opposes a stay, in the event that one is granted, it argues that General Cigar should be required to post a bond sufficient to secure Cubatabaco's rights to General Cigar's profits. However, because Cubatabaco. is not seeking and could not seek monetary damages, see Empresa Cubana v. Culbro Corp., 123 F. Supp.2d 203, 207 (S.D.N.Y. 2000), and because it has not yet been determined that Cubatabaco. is entitled to an accounting of profits based on a theory of unjust enrichment, a bond securing General Cigar's profits will not address the harm found to have been suffered by Cubatabaco.

 The Public Interest

  General Cigar argues that the public has an interest in continuing to purchase the General Cigar COHIBA, which General Cigar characterizes as "a very popular and well-received blend in its own right." Defendant's Mem. at 5. The injunction, however, does not prevent General Cigar from marketing the tobacco. blend used in its COHIBA cigars in another brand.

  Cubatabaco. argues that a stay would not serve the public interest, because the possibility of confusion which was found by the Court between the Cuban COHIBA and the General Cigar COHIBA would continue. In the March 26 Opinion, it was held that "[t]he purpose of the trademark law is to protect the public from confusion and deception which flows from the copying of marks, which, through their distinctiveness or exclusivity of use, identify the origin of the marked products." Empresa Cubana, 2004 WL 602295, at *29 (quoting W.E. Bassett Co. v. Revlon, Inc., 354 F.2d 868, 871 (2d Cir. 1966)); see also Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187, 193 (2d Cir. 1996) ("the trademark laws protect . . . the public's interest in not being misled.") (quoting Scarves by Vera, Inc. v. Todo Imports, Ltd., 544 F.2d 1167, 1172 (2d Cir. 1976)). Any interest of the public in purchasing an infringing product is greatly outweighed by the interest in "shield[ing] domestic consumers from fraud and deception in the marketing of products." Jose Armando Bermudez & Co. v. Barmudez Intern., 99 Civ. 9346, 2000 WL 1225792, at *5 (S.D.N.Y. Aug. 29, 2000).

  In addition, the proposals by General Cigar to include a disclaimer indicating that the General Cigar COHIBA has no connection to the Cuban COHIBA and to refuse to sell to any retailer who suggests any connection are insufficient to alleviate any confusion. The Second Circuit has held that disclaimers are "generally ineffective" and are therefore not "a favored way of alleviating consumer confusion." Charles of the Ritz Group Ltd, v. Quality King Distributors, Inc., 832 F.2d 1317, 1324 (2d Cir. 1987); see also Harley-Davidson, Inc. v. Grottanelli, 164 F.3d 806, 813 (2d Cir. 1999). Further, General Cigar has not provided "any evidence whatsoever to support its contention that the disclaimer would reduce consumer confusion." Charles. 832 F.2d at 1324. Accordingly, this factor weighs against a stay.

 Likelihood of Success on Appeal

  In light of the previous three factors, each of which weighs against a stay, and in particular the finding that General Cigar would not be irreparably harmed absent a stay, a very high likelihood of success on appeal must be shown in order for General Cigar to prevail on its Rule 62(c) motion.

  It is undoubtedly true that several of the 1egal issues considered in this case are issues of first impression. In particular, the famous marks doctrine has only been considered by a handful of courts, and only one federal district court has previously ruled explicitly on the level of fame necessary to find a trademark protectable under the doctrine. See Grupo Gigante, S.A. v. Dallo & Co., 119 F. Supp.2d 1083, 1089 (C.D. Cal. 2000). Nevertheless, the March 26 Opinion drew on a range of legal sources, including caselaw, leading treatises and international documents in an effort to fashion a fair legal standard by which to judge the unique facts of this case. Because of the novelty of the legal issues, the Court acknowledges that General Cigar has shown "a substantial possibility, although less than a likelihood of success" on appeal. Hirschfeld v. Board of Elections. 984 F.2d 35, 39 (2d Cir. 1992). However, in consideration of the minimal injury to General Cigar, the substantial injury to Cubatabaco. and the public interest in preventing consumer confusion between identical COHIBA brand names, a substantial possibility is insufficient to warrant a stay of the injunction pending appeal.

 Conclusion

  For the reasons stated above, General Cigar's motion for a stay of the injunction pending appeal is denied. However, a temporary stay of thirty (30) days from General Cigar's filing of a notice of appeal is granted in order for General Cigar to seek a stay pending appeal from the United States Court of Appeals for the Second Circuit.

  It is so ordered.

20040430

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