The opinion of the court was delivered by: I. LEO GLASSER, Senior District Judge
This Court granted summary judgment to defendant CE
Distribution LLC ("CE" or "defendant") as to the claims filed
against it by plaintiff New Sensor Corporation ("New Sensor" or
"plaintiff") for trademark infringement and unfair competition
under the Lanham Act, 15 U.S.C. §§ 1051 et seq., and New York
State trademark laws, N.Y. Gen. Bus. Law § 360-m, in a memorandum
and order, familiarity with which is assumed. New Sensor Corp.
v. CE Distribution LLC, 303 F. Supp. 2d 304 (E.D.N.Y. 2004). The
Second Circuit affirmed this decision in a summary order,
familiarity with which is also assumed. New Sensor Corp. v. CE
Distribution LLC, 121 Fed. Appx. 407 (2d Cir. 2004). Pending
before the Court is CE's motion for sanctions under
15 U.S.C. § 1117, 28 U.S.C. § 1927 and the inherent power of the Court.
Defendant argues that plaintiff's lawsuit and the prosecution of an appeal from this Court's decision summarily dismissing the
complaint were frivolous. Plaintiff opposes the motion arguing
that it initiated this lawsuit in good faith after it conducted a
pre-litigation investigation which supported the allegations in
For the reasons set forth below, defendant's motion is granted.
Only the facts necessary for a determination of defendant's
motion are restated here. Plaintiff and defendant compete as
distributors of vacuum tubes used in electronic equipment. J.S.C.
Svetlana ("JSC") is a Russian corporation located in St.
Petersburg that manufactures vacuum tubes. In 1992, JSC entered
into a joint venture agreement with Svetlana Electron
Distributors ("SED"), pursuant to which SED had the exclusive
right to distribute JSC vacuum tubes throughout the world except
in the countries that comprised the former Soviet Union. Five
years later, in 1997, SED registered certain trademarks,
including one consisting of a stylized "S" plus the words
SVETLANA ELECTRON DEVICES (the "trademark"), with the United
States Patent and Trademark Office.
In 2000, when the joint venture between JSC and SED dissolved,
JSC entered into an agreement with PM of America, Inc. ("PMA") to
distribute its tubes in the United States. In July 2001, New
Sensor purchased the trademark from SED. According to New Sensor's President, Michael Matthews ("Matthews"), "as part
of the reason for the purchase," he "believed that consumers in
the United States associated the SVETLANA mark" with SED, a
belief grounded in his fifteen-years of experience in the vacuum
tube industry. (Declaration of Michael Matthews executed on March
1, 2005 ("Matthews Decl.") ¶ 3). The tubes that New Sensor
currently distributes under the SVETLANA mark are manufactured at
Xpo-pul, a factory in Saratov, Russia. New Sensor does not sell
tubes manufactured by JSC.
In September 2001, JSC and PMA filed an infringement action
against New Sensor and SED in the United States District Court of
Alabama alleging that New Sensor did not have rights in the
SVETLANA mark. (Matthews Decl. ¶ 4). New Sensor counterclaimed,
alleging that the plaintiffs were infringing New Sensor's
SVETLANA mark by selling vacuum tubes marked with SVETLANA. In
January 2003, the parties resolved the Alabama litigation and
entered into a settlement agreement with the following terms: New
Sensor had the exclusive rights to the SVETLANA mark; in order to
avoid confusion with New Sensor's SVETLANA-brand vacuum tubes,
JSC and PMA would not use the SVETLANA name or mark in connection
with the promotion or marketing of vacuum tubes, but would use
"SED-SPb,"*fn1 the name of JSC's Svetlana factory that
manufactured the vacuum tubes; and New Sensor released CE and other customers of JSC and PMA from
any claims arising out of the use of the SVETLANA mark in
connection with the sale of inventory manufactured by JSC and
purchased by CE (and other customers) before March 4, 2003.
(Matthews Decl. ¶¶ 5-6). "The purpose of this release was to
allow PMA (JSC's . . . U.S. distributor) to dispose of
SVETLANA-marked tubes already in its inventory at the time of the
agreement." (Id. ¶ 6). Following the settlement agreement, PMA
sent a letter to its customers, approved by New Sensor, which
informed them that tubes formerly branded SVETLANA would now be
sold under the Winged-C logo.
In the summer of 2003, CE's website discussed New Sensor's
acquisition of the SVETLANA mark and compared New Sensor's
SVETLANA vacuum tubes to those sold by CE. (Matthews Decl. ¶ 8).
According to Matthews, the website text "presented a negative
spin on New Sensor's acquisition of the SVETLANA mark." (Id.).
"In addition to several misleading statements in the text" of the
website, Matthews believed the following three statements were
false: (1) "If you want the tubes that you've come to know in the
past as `Svetlana,' the only way to be sure you're getting that
tube is to look for the [`Winged-C'] mark." Matthews believed
that this statement was false because the foreign manufacturer of
CE's tubes was not the only manufacturer of tubes previously
marketed under the SVETLANA brand, see Matthews Decl. ¶ 8(1);
(2) "Because of a change in ownership of the former American
distributor, JSC Svetlana recently lost its ability to sell
vacuum tubes bearing the `Svetlana' name." Matthews believed that
this statement was false because JSC's inability to use the
SVETLANA mark in the United States resulted from New Sensor's
purchase of the trademark and goodwill from SED and the
settlement agreement, not a change in ownership of JSC, see
id. ¶ 8(2); and (3) "The Xpo-Pul factory `Svetlana' tubes are
not the same Svetlana tubes that you have been accustomed to over
the year!" Matthews believed that this statement was false
"because it told the consumer that New Sensor's SVETLANA brand of
vacuum tubes is different than the SVETLANA brand of vacuum tubes
that had been sold by New Sensor's assignor, [SED], when in fact
there always has been only one brand, which New Sensor now owns,"
see id. ¶ 8(3). Against this background, New Sensor believed
that CE was attempting to trade on the good will associated with
the SVETLANA mark "and that CE might have been selling
SVETLANA-branded tubes not covered by the Alabama settlement."
(Id. ¶ 9).
After reviewing CE's website, Matthews sent a letter to CE's
President, Noreen Cravener ("Cravener"), in August 2003, in which
he set forth his concerns. (Matthews Decl. ¶ 10). Cravener
refused to change the text of the website as requested and "did
not offer any explanation for" her denial that CE had violated
the Alabama settlement. (Id. ¶ 11). Moreover, CE refused to change its website to refer to JSC's factory by its correct name,
SED-SPb. (Id. ¶ 12). Matthews also "believed that CE's
repetitive use of the mark on the website would serve to weaken
the strength of the SVETLANA mark in the marketplace." (Id.).
Matthews subsequently directed his counsel to send a letter to CE
setting forth its position, and in response, CE's counsel did not
deny that PMA had sold tubes to CE after January 14, 2003. (Id.
¶ 13). This purportedly gave Matthews "further reason to believe
that PMA's representations in the settlement agreement were
Matthews therefore asserts that at the time the complaint was
filed, New Sensor believed in good faith that "CE's statements on
[its] website were untruthful, that CE's use of the SVETLANA mark
was likely to cause confusion in the marketplace, and that PMA
had sold SVETLANA-marked tubes to CE after January 14, 2003, thus
invalidating the release of CE in the settlement agreement."
(Matthews Decl. ¶ 14). Matthews claims that "the most critical of
New Sensor's claims against CE concerned what [he] believed were
the false statements on CE's website text." (Id. ¶ 15).
CE seeks to recover attorney's fees under of the Lanham Act,
which provides, in pertinent part, that "[t]he court in
exceptional cases may award reasonable attorney fees to the prevailing party." 15 U.S.C. § 1117(a).*fn2 The Second
Circuit has held that the standard for the award of attorney's
fees to a prevailing defendant is the same as to a prevailing
plaintiff. Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187,
194-95 (2d Cir. 1996) ("Nothing . . . indicates that a different
standard should apply for prevailing plaintiffs and prevailing
defendants."). The prevailing party must make a showing of "fraud
or bad faith" on the part of its opponent to obtain fees.
Conopco, Inc., 95 F.3d at 195. "Fraud" or "bad faith" can be
established in different ways, including where "plaintiff brought
suit in bad faith without an investigation of the merits of his
claim"; "plaintiff's claims had no real substance"; or "plaintiff
filed suit as a competitive ploy." See, e.g., 17 PLI
Trademark Law Prac. Guide § 17:3:6 (2004) (citations omitted).
Courts in this judicial district have held that "bad faith" has
been established where a party has met one or more of these
prerequisites. Plaintiff's pursuit of patently frivolous claims is
circumstantial evidence of bad faith. Compare IMAF, S.p.A. v.
J.C. Penney Co., Inc., 810 F.Supp. 96, 100 (S.D.N.Y. 1992)
with Yeshiva Univ. v. New Eng. Educ. Inst., Inc.,
631 F. Supp. 146, 149 (S.D.N.Y. 1986) ("there is no precedent for
awarding defendants attorney's fees where the plaintiff's claim
on the merits is not only advanced in good faith, but actually
presented a close question for the jury"). Courts in this circuit
have also held that bad faith may be found where a lawsuit is
utilized for ulterior motives, including business advantage and
inhibiting competition. See, e.g., Mennen Co. v. Gillette
Co., 565 F.Supp. 648, 657 (S.D.N.Y. 1983) (awarding attorney
fees under § 35(a) where there was "a substantial overtone in
this case to warrant an inference that this suit was initiated as
a competitive ploy"), aff'd, 742 F.2d 1437 (2d Cir. 1984).
Finally, a case may be found to be "exceptional" for purposes of
recovering attorney's fees where the defendant demonstrates that
the plaintiff harbored a harassing purpose in instituting the
action. See Universal City Studios, Inc. v. Nintendo Co.,
797 F.2d 70, 77 (2d Cir.) (awarding attorney's fees in part because
plaintiff brought suit for coercive purpose of joining in
defendants' profits), cert. denied, 479 U.S. 987 (1986);
Diamond Supply Co. v. Prudential Paper Prods. Co.,
589 F. Supp. 470, 476 (S.D.N.Y. 1984) (attorney's fees awarded to a defendant
because plaintiff's action was "patently baseless" and constituted "bad faith
In support of its motion, CE relies heavily on Viola
Sportswear, Inc. v. Mimun, 574 F. Supp. 619 (E.D.N.Y. 1983). In
that case, plaintiff entered into an exclusive licensing
agreement with defendants to manufacture and sell children's
Sasson jeans. Viola, 574 F. Supp. at 619. Subsequent to this
agreement, defendants sent one ten dollar pair of such jeans to a
third-party as part of a group of production samples that were
sold before plaintiff obtained the exclusive right to sell. Id.
at 619-20. Plaintiff asserted that defendants' conduct ran afoul
of the licensing agreement. Id. at 619. In finding that
plaintiff's claims had no merit and were asserted in bad faith,
this Court pointed to plaintiff's failure to investigate the
facts prior to filing the complaint. The deposition of
plaintiff's corporate president conclusively established that
plaintiff had no concrete information upon which to base its
lawsuit. Id. at 620. "He candidly admitted" in his deposition
that he never reviewed the complaint before it was filed, he
never possessed any evidence upon which a reasonable person might
have formed the belief that the allegations in the complaint were
accurate, he only knew of the single pair of jeans, and thus had
no proof that defendants engaged in a nationwide conspiracy, and
he acknowledged that the jeans in question may have been manufactured and sold prior to the execution of the exclusive
licensing agreement. Id. Discovery further revealed that none
of the defendants had manufactured, sold or offered plaintiff's
jeans for sale after it obtained an exclusive license to
manufacture and sell the jeans. Id. This Court noted the
extensive litigation which followed, including discovery that
revealed that plaintiff's claims were baseless. In awarding fees
to the defendant, this Court held that the phrase "exceptional"
would "surely ...