United States District Court, S.D. New York
February 2, 2005.
WORLD BOOK, INC., Plaintiff,
INTERNATIONAL BUSINESS MACHINES CORP. Defendant.
The opinion of the court was delivered by: RICHARD OWEN, Senior District Judge
OPINION & ORDER
Plaintiff World Book, Inc. is the publisher of the World Book
Encyclopedia. Defendant IBM is the well-known technology company.
World Book commenced the instant action following the alleged
unauthorized distribution of electronic versions of its
encyclopedia by IBM in the United Kingdom. World Book claims such
distribution resulted in infringement of its trademarks, breach
of contract, and common law misappropriation.
In May of 1996, World Book and IBM entered into a Base
Agreement ("BA") which established basic terms and conditions of
the parties' relationship and provided for the creation of future
transaction documents. In 1999, the parties executed a Joint
Development Agreement ("JDA") wherein World Book gave IBM a
license to distribute products including CD versions of its
encyclopedia ("Multimedia Products"). World Book reserved for
itself certain distribution rights and, in turn, granted IBM
exclusive distribution rights. This grant included, among other
things, the right to distribute and sublicense copies of the
Multimedia Products through limited distribution channels. IBM's
license permitted it to "use, execute, reproduce, display,
perform, transfer, distribute and sublicense" the Multimedia
Products provided such was in accordance with the terms of the
BA, the JDA, and other transaction documents between the parties.
Under all of the above agreements, World Book's trademarks
remained under the ownership of World Book.
In 1999, IBM authorized its subsidiary, Lotus Development (UK)
Ltd to enter into a distribution agreement in the United Kingdom
with Time Group (the "Time Agreement"), the product at all times
continuing to bear World Book's authentic, genuine trademark.
World Book alleges that the Time Agreement failed to require Time
Group to observe alleged distribution restrictions that were
imposed on IBM in the JDA. The Time Agreement allegedly allowed
Time Group to use distributions channels in the United Kingdom
that were reserved for World Book.*fn1
After unsuccessful attempts to persuade IBM to stop this
distribution, World Book filed the instant action alleging: (1)
trademark infringement under § 32 of the Lanham Act,
15 U.S.C.A. § 1114, (2) breach of contract, (3) common law misappropriation,
and (4) an "accounting." World Book seeks compensatory damages
and disgorgement. By agreement of the parties, New York law
governs the JDA. (BA §§ 12.5, 12.7).
In deciding a motion for judgment on the pleadings under
F.R.C.P. 12(c), the Court accepts the allegations in the
complaint as true and draws all reasonable inferences in favor of
the non-moving party. See D'Aslession v. New York Stock
Exchange, 258 F.3d 93, 99 (2d Cir. 2001). A court should not
dismiss a complaint under Rule 12(c) "unless it appears beyond
doubt that the plaintiff can prove no set of facts in support of
his claim which would entitle him to relief." Id. However,
while the pleading standard is a liberal one, "bald assertions
and conclusions of law will not suffice to state a claim."
Tarshis v. Riese Org., 211 F.3d 30, 35 (2d Cir. 2000). In
deciding the motion, the Court may also consider written
instruments attached as exhibits as well as documents that are
incorporated by reference or heavily relied upon. See Chambers
v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002).
Since the alleged unauthorized distribution of the Multimedia
Products occurred only in the United Kingdom, World Book's Lanham
Act claim must, but does not, plead the required elements for
extraterritorial imposition of that Act. Accordingly, before the
Court now is to what extent Atlantic Richfield Co. v. Arco
Globus International Co., 150 F.3d 189 (2d Cir. 1998) is
applicable. It provides:
Where (i) an alleged infringer's foreign use of a
mark does not mislead American consumers in their
purchases or cause them to look less favorably upon
the mark; (ii) the alleged infringer does not
physically use the stream of American commerce to
compete with the trademark owner by, for example,
manufacturing, processing, or transporting the
competing product in United States commerce; and
(iii) none of the alleged infringer's American
activities materially support the foreign use of the
mark, the mere presence of the alleged infringer in
States will not support extraterritorial application
of the Lanham Act. The presence of a foreign
infringer, without more, simply does not call into
play any purpose of that Act.
Id. at 193-94.
World Book attempts to distinguish Atlantic Richfield by
arguing that subsequent decisions have qualified its reach.
Plaintiff cites Piccoli A/S v. Calvin Klein Jeanswear Co.,
19 F.Supp.2d 157 (S.D.N.Y. 1998), as interpreting Atlantic
Richfield to hold that where a defendant's domestic conduct
materially supports its foreign infringing activity, a
substantial effect can be found. This principle, however, is not
nearly so general. As the Court pointed out:
Piccoli alleges that the defendants engaged in an
organized scheme pursuant to which Jeanswear sent
promotional materials to prospective purchasers which
invited them to come to its U.S. showrooms to view,
negotiate for and purchase Calvin Klein jeans for
unrestricted international distribution. This
domestic activity thus allegedly went somewhat beyond
that at issue in Totalplan [Totalplan Corp. of
America v. Colborne, 14 F.3d 824 (2d Cir. 1994)
(packaging in and shipment of goods from the United
States)] and surely was a use of the physical stream
of American commerce that was essential to the
Piccoli, 19 F.Supp.2d at 171. Here, however, the only
domestic activity plaintiff alleges to have occurred in
connection with the unauthorized distribution is the mere
authorization of that activity. The defendants in Piccoli who
actively pursued foreign sales through the domestic shipment of
promotional materials went far beyond merely
authorizing foreign distribution. If this Circuit in Totalplan
found the packaging and shipment of the infringing goods from the
United States insufficient to meet the substantial effects test,
then a fortiori the mere domestic authorization of foreign
activity is insufficient.
World Book argues alternatively that its Lanham Act claim
should not be dismissed since the allegedly infringing goods were
not "genuine" under a definition it created, which is that while
they are in fact their goods, they were no longer subject to
their quality controls. To support this, World Book cites El
Greco Leather Prods. Co., Inc. v. Shoe World, Inc., 806 F.2d 392
(2d Cir. 1986): "One of the most valuable and important
protections afforded by the Lanham Act is the right to control
the quality of the goods manufactured and sold under the holder's
trademark . . . [T]he actual quality of the goods is irrelevant;
it is the control of quality that a trademark holder is entitled
to maintain." Id. at 395.
I see three problems with World Book's "quality control"
argument. First, World Book did not plead this theory in its
complaint it was first raised in its brief and so it need not
be considered. See, e.g., Wright v. Ernst & Young LLP,
152 F.3d 169, 178 (2d Cir. 1998) (a party may not amend its complaint
through statements made in motion papers). Next, even if World
Book had asserted this "loss of quality control theory" of
liability in its complaint, the pleading would still fail to
state a claim. At the outset, there is no claim or assertion by
World Book that these goods their goods are not "up to
snuff." A Lanham Act claim based on a "loss of quality control"
theory requires a showing by the mark holder that "(i) it has
established legitimate, substantial, and nonpretextual quality
control procedures, (ii) it abides by those procedures, and (iii)
[sales are non-conforming]*fn2 and that such non-conforming
sales will diminish the value of the mark." Warner-Lambert
Company v. Northside Development Corporation, 86 F.3d 3, 6 (2d
Cir. 1996). But these three Warner-Lambert factors are also
absent. Finally, World Book also fails to explain how an alleged
loss of quality control automatically satisfies the substantial
domestic effects requirement of Atlantic Richfield.
Accordingly, the first cause of action is dismissed.
IBM next moves to dismiss World Book's breach of contract and
misappropriation claims on grounds that they are time-barred
under a two-year limitations period set forth in the BA. Section
Neither party will bring a legal action against the
other more than two years after the cause of action
arose. This does not apply to actions brought to
enforce INDEMNIFICATION AND LIABILITY or intellectual
BA § 12.5 (emphasis in original).
World Book contends that its contract and misappropriation
claims are exempt from the two-year limitations because both "are
related to World Book's intellectual property rights and
brought with World Book's Lanham Act claim to enforce these
rights." Mem. Opp'n at 22 (emphasis supplied). But those
violations allegedly flowed from an improper authorization to
distribute the Multimedia Products a contract violation not
an invasion of intellectual property rights. Accordingly, the
two-year contractual limitation period controls and both the
contract and misappropriation claims are time-barred.
World Book's misappropriation claim also fails for the same
reason as its Lanham Act claim, viz., failure to plead
substantial effects on domestic commerce. "[T]he
essence of unfair competition under New York common law is `the
bad faith misappropriation of the labors and expenditures of
another, likely to cause confusion or to deceive purchasers as
to the origin of the goods.'" Jeffery Milstein, Inc. v. Greger,
Lawlor, Roth, Inc., 58 F.3d 27, 34 (2d Cir. 1995) (emphasis
supplied) (quoting Rosenfeld v. W.B. Saunders, A Division of
Harcourt Brace Jovanovich, Inc., 728 F.Supp. 236, 249-50
As for World Book's final "cause of action," the accounting
requested is a remedy, available on a showing of Lanham
violations undertaken in bad faith; it is not an independent
cause of action. It is dismissed.
Given the foregoing, IBM's motion for judgment on the pleadings
is granted and the action is dismissed in its entirety.