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
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
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
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
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
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.
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.
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