United States District Court, S.D. New York
May 12, 2005.
BRIAN JORDAN & CREATIVE GROUP MARKETING, L.L.C., Plaintiff,
CAN YOU IMAGINE, INC. AKA CYI, INC. & HPI HONG KONG LTD., Defendants.
The opinion of the court was delivered by: ANDREW PECK, Magistrate Judge
OPINION & ORDER
Presently before the Court in this diversity breach of contract
action over the parties' rights to sell the toy, "Airzooka," is
defendants' motion for a preliminary injunction to enjoin
plaintiffs and third party defendants (collectively,
"plaintiffs") from interfering with defendants' business
relationships with their customers during the pendency of this
action. (Dkt. No. 30: Notice of Motion for Preliminary
Injunction.) Specifically, defendants seek to enjoin plaintiffs
"from misusing Defendants' confidential information and from
interfering with Defendants' business relationships with their
customers during the pendency of this action, and from contacting
and threatening Defendants' customers with false and misleading
statements regarding Defendants' Product." (Dkt. No. 31: Defs.
P.I. Br. at 4.) The parties have consented to my decision of the
preliminary injunction motion pursuant to 28 U.S.C. § 636(c).
(Dkt. No. 43.) For the reasons discussed below, defendants' motion is
GRANTED to the extent of preliminarily enjoining plaintiffs
from using defendants' royalty reports to identify and contact
customers, but DENIED to the extent defendants seek to enjoin
plaintiffs from sending "cease and desist" letters to defendants'
The Parties' License Agreements
The parties' relationship began with a November 27, 2001
License Agreement (Dkt. No. 32: Benjamin Aff. Ex. A: 11/27/2001
License Agreement), which was replaced by the August 4, 2003
License Agreement at issue in this lawsuit (Benjamin Aff. Ex. E:
8/4/03 License Agreement).
The 2003 License Agreement was between defendants CYI, Inc. and
HPI Hong Kong Ltd. (collectively, "CYI") as licensee, and
plaintiff Creative Group Marketing ("Creative" or "CGM") as
licensor and plaintiff Brian Jordan as "inventor." (Benjamin Aff.
Ex. E: 8/4/03 License Agmt., p. 1.) Plaintiff Creative as
licensor granted CYI the exclusive right to manufacture and
distribute the Airzooka toy. (Id. ¶ 1.1(a).)*fn1 The
License Agreement, however, allowed both CYI and also Creative to
"advertise, sell and distribute" the product on the internet.
(8/4/03 License Agmt. ¶ 1.5.)
The License Agreement provided that if CYI "terminates this
Agreement or breaches the Agreement and does not cure the breach
so LICENSOR [Creative] terminates the agreement, [CYI] agrees to
transfer the Patent covering the License Device to the INVENTOR
[Jordan], as well as the trademark." (8/4/03 License Agmt. ¶
1.7.) The License Agreement required the contracting parties to
"notify each other of any suspected infringement by any third
party of the rights in and to the Licensed Item(s) . . ." (8/4/03
License Agmt. ¶ 6.) The Agreement provided for suit to be brought
by CYI or by Creative, with whoever brings suit required to pay
the cost thereof. (Id.) The Agreement did not, per se, require
either party to bring such a suit, but it does provide that: "If
the LICENSOR [Creative, or], INVENTOR [Jordan] . . . fail to
prosecute the third party infringer and such third party
adversely affects the sales of the COMPANY [CYI], all royalties
and payments shall cease upon [CYI's] 30-day notice in writing to
The License Agreement provided that Creative could terminate
the Agreement "at any time for non-payment of Advances, Royalties
or Minimum Royalties" or "upon any other breach of this
Agreement" by CYI, with notice and cure provisions. (8/4/03
License Agmt. ¶ 8.1.) "Upon expiration or termination of this
Agreement by LICENSOR [Creative]: (i) all rights granted to the
COMPANY [CYI] hereunder shall immediately and automatically
revert back to the INVENTOR [Jordan], and the COMPANY [CYI] shall
cease the manufacture, distribution, sale, promotion, advertising
and marketing of the Licensed Item." (8/4/03 License Agmt. ¶
Finally, the License Agreement provided that CYI, Creative and
Jordan "shall keep the terms of this Agreement and any royalty
reports or other information submitted pursuant to this Agreement
confidential and shall not disclose such information to any other
person, firm, corporation or entity . . ." (8/4/03 License Agmt.
¶ 21.) Termination of the License Agreement
In February 2004, CYI discovered a potentially infringing
product being sold by a third party, and notified plaintiffs.
(Benjamin Aff. ¶¶ 5(a)-(b).) Neither plaintiffs nor defendants
decided to pursue the infringer. (Benjamin Aff. ¶¶ 5(c)-(d).)
Claiming that the third party's activity damaged CYI's sales, CYI
ceased to pay royalties, which are being held in escrow by CYI's
counsel. (Benjamin Aff. ¶¶ 5(e)-(f).)
The relationship between Creative and CYI went down-hill from
there; Creative terminated the License Agreement, alleging that
CYI failed to sell product to Creative, failed to obtain
insurance covering Creative, and failed to provide evidence of
the third party's effect on sales despite Creative's
investigation that showed no sales by the third party. (Dkt. No.
39: Ahlert Aff. ¶¶ 5-11 & Ex. 8.)
Creative and Jordan entered into a new license agreement with
third party defendant Gary Alhert and his company, Universal Toys
("UT"), to market the Airzooka. (Ahlert Aff. ¶ 13.)
Jordan and Creative sued CYI on or about June 21, 2004, for:
breach of contract, failure to transfer intellectual property
rights to plaintiffs, unpaid royalties and punitive damages.
(Dkt. No. 1: Compl. 1st-4th Causes of Action.) CYI counterclaimed
against plaintiffs, and asserted third party claims against
Ahlert and UT, for patent infringement, unfair competition and
trademark infringement, breach of contract, and tortious
interference with business relations. (Dkt. No. 6: Answer &
Counterclaims ¶¶ 28-80; Dkt. No. 36: Amended 3d Party Compl. ¶¶
32-70.) Plaintiffs' Communications With Defendants' Customers
In June 2004 and again in February 2005, plaintiffs wrote to
some of CYI's customers, stating that: CYI's license was no
longer in effect, CYI was no longer authorized to sell the
Airzooka, and purchase of the Airzooka from CYI violates
Creative's intellectual property rights and "may result in legal
action taken against" the customer. (See Dkt. No. 32: Benjamin
Aff. ¶¶ 6(a)-(d) & Exs. G-I.) Creative's letters also advised the
customer to purchase the Airzooka through Ahlert's company, UT.
(Benjamin Aff. Exs. H-I; see also Benjamin Aff. ¶ 7 & Ex. J,
concerning Creative's acquisition of the Airzooka.com web site
and its notice thereon that CYI is no longer the authorized
source for the Airzooka.)
CYI's vice president and general manager, Barry Benjamin,
opines that Creative wrote to customers by using CYI's customer
lists from the royalty reports:
The only source of Defendants' customer list that
Plaintiffs acquired and shared with Third Party
Defendant UT [Ahlert's company, Universal Toys] is
from Defendants. Plaintiffs improperly shared the
confidential customer list with UT to enable UT to
target Defendants' customers. Such misuse of
Defendants' confidential information has materially
(Benjamin Aff. ¶ 6(e).)
Creative and Ahlert, however, claim that they identified
customers through an Internet search or from customers contacting
plaintiffs. (Dkt. No. 39: Ahlert Aff. ¶¶ 14-15; Dkt. No. 38:
Melville Aff. ¶¶ 6-7, 10.) Thus, Ahlert stated:
14. Plaintiffs have identified parties who have
previously purchased Airzooka products by searching
the Internet and responding to communications
directed to Plaintiffs inquiring about the product. 15. In accordance with its rights as the sole owner
of the intellectual property associated with the
Airzooka, Plaintiffs have informed such parties of
the rights of the Plaintiffs, and their intention to
protect the rights of Plaintiffs in the product.
(Ahlert Aff. ¶¶ 14-15.) Universal Toys' General Manager Melville
6. As a result of our ownership of the Airzooka.net
Internet domain, many prospective purchasers
contacted us. Additionally, the former owner of the
Airzooka.com Internet domain had been unreliable and
many former customers of theirs contacted us for
product, or adjustment of prior orders.
7. We therefore had a list of former and prospective
purchasers of the product. Additionally an Internet
search of the name "Airzooka" yielded many sellers of
the product, all of which had previously purchased
from CYI and/or HPI. This information was all in the
. . . .
10. . . . [I]n an effort to promote the sale of the
Airzooka product, we have contacted the prospective
customers whose names came into our possession in
lawful fashion. Such contact has been lawful,
truthful and accurate, to the effect that CYI and HPI
are no longer licensed to sell the product and Unreal
Toys, as Licensee of the Plaintiffs, is so licensed,
and that any purchase of the product should be in
accordance with the lawful license.
(Dkt. No. 38: Melville Aff. ¶¶ 6-7, 10.)*fn2
"[A] preliminary injunction may be granted when the party
seeking the injunction establishes that `1) absent injunctive
relief, it will suffer irreparable harm, and 2) either a) that it
is likely to succeed on the merits, or b) that there are
sufficiently serious questions going to the merits to make them a
fair ground for litigation, and that the balance of hardships
tips decidedly in favor of the moving party.'" No Spray Coalition, Inc. v. City of New
York, 252 F.3d 148, 150 (2d Cir. 2001) (per curiam) (quoting
Otokoyma Co. v. Wine of Japan Import, Inc., 175 F.3d 266, 270
(2d Cir. 1999)); accord, e.g., Moore v. Consolidated
Edison Co., No. 03-9281, 124 Fed. Appx. 39, 40, 2005 WL 481571
at *1 (2d Cir. Mar. 1, 2005); Merrill Lynch Inv. Managers v.
Optibase, Ltd., 337 F.3d 125, 129 (2d Cir. 2003); Bronx
Household of Faith v. Board of Educ. of City of New York,
331 F.3d 342, 348-49 (2d Cir. 2003); Motorola Credit Corp. v.
Uzan, 322 F.3d 130, 135 (2d Cir. 2003); Marshall v. National
Ass'n of Letter Carriers, 03 Civ. 1361, 2003 WL 22119882 at *1
(S.D.N.Y. Sept. 15, 2003) (Peck, M.J.), report & rec. adopted,
03 Civ. 1361, 2004 WL 2202574 (S.D.N.Y. Sep. 30, 2004) (Swain,
Because the requested scope of the injunction is quite limited
it is not to enjoin plaintiffs' sale of the Airzooka or even
enjoin plaintiffs from contacting defendants' customers, but is
only to enjoin plaintiffs from using defendants' royalty reports
to contact defendants' customers the Court will grant the
injunction to preserve the status quo, although CYI has not
presented a particularly strong case.*fn4 The 2003 License Agreement refers to the product as the "Air
Bazooka" and requires defendants on termination to transfer that
trademark back to Jordan. (8/4/03 License Agmt. ¶ 17.) CYI
claims, however, that it developed the separate trademark
"Airzooka" and is not required by the License Agreement to give
that to Creative or Jordan even on termination of the License
Agreement. (Dkt. No. 31: Defs. P.I. Br. at 20.) Thus, in CYI's
view, on termination of the License Agreement, Jordan would sell
the "Air Bazooka" but not under the name it is known by, the
"Airzooka," which trademark (but not product) would remain with
CYI. (Id.) Plaintiffs, in contrast, claim that because the
product was being marketed as the Airzooka under the 2001 License
Agreement, implicit in the 2003 License Agreement is that the
"Airzooka" trademark reverts to Jordan on termination.
CYI's counterclaims involve a Lanham Act claim for plaintiffs'
use of the trademark Airzooka. (See page 4 above.) Accordingly,
CYI satisfies the likelihood of irreparable injury in the absence
of a preliminary injunction requirement by the legal presumption
of likelihood of irreparable injury if success on the merits can
be shown. See, e.g., New Kayak Pool Corp. v. R & P Pools,
Inc., 246 F.3d 183, 185 (2d Cir. 2001); Fun-Damental Too Ltd.
v. Gemy Indus. Corp., 111 F.3d 993, 999 (2d Cir. 1997); Tough
Traveler, Ltd. v. Outbound Prods., 60 F.3d 964, 967-68 (2d
Cir. 1995); Hasbro, Inc. v. Lanard Toys, Ltd., 858 F.2d 70,
73 (2d Cir. 1988).
As to the merits of defendants' trademark counterclaim, the
Court need not go through a full-blown Polaroid analysis. See
Polaroid Corp. v. Polaroid Elec. Corp., 287 F.2d 492, 495 (2d
Cir.), cert. denied, 368 U.S. 820, 82 S. Ct. 36 (1961). Suffice
it to say that plaintiffs are using the identical "Airzooka" mark
as CYI's trademark, for the identical product (albeit, according
to CYI, of lower quality). (See Dkt. No. 31: Defs. P.I. Br. at
21-25; Dkt. No. 32: Benjamin Aff. ¶¶ 10-12.) The issue thus will turn on whether plaintiffs have the right to
the Aizooka trademark on termination of the License Agreement.
The parties have not presented sufficient information for the
Court to be able to say that CYI (or Creative, for that matter)
is likely to succeed on the merits on this claim (or on the issue
of which party breached the License Agreement). There are,
however, sufficiently serious questions going to the merits of
these claims and counterclaims to make them a fair ground for
The remaining issue, therefore, is whether the balance of
hardships tips decidedly in favor of CYI as the moving party. If
CYI were trying to enjoin plaintiffs from selling the Airzooka,
or contacting CYI's customers by any means, the Court could not
say (on this record, at least) that the balance of hardships
would tip in favor of CYI. It is the limited nature of the
injunction sought preventing plaintiffs from using CYI's
royalty reports to learn the identity of and contact CYI's
customers that allows the Court to find the balance tips in
Plaintiffs claim that they have been able to contact customers
through internet searches (and when customers contact plaintiffs
through the two Airzooka web sites). (See pages 5-6 above.) If
plaintiffs are to be believed, they have not mis-used the royalty
reports, have no need to use the royalty reports going forward,
and accordingly, they will not be harmed by entry of a
preliminary injunction against such use of the royalty reports.
CYI is dubious of plaintiffs' claims to have learned of CYI's
customers through the internet. (See page 6 & n. 2 above.) The
Court notes, however, that a "Google" search for the word
Airzooka turned up 39,100 "hits", i.e., internet references, to
Airzooka. The Court did not review all of them, but a cursory
look revealed many stores selling the Airzooka. Thus, plaintiffs
can sell their version of Airzooka and/or send "cease and desist" letters
to sellers of CYI's Airzooka, based on internet research. There
is little reason for plaintiffs to need to use CYI's royalty
reports going forward.
The Court therefore enjoins plaintiffs from, using CYI's
royalty reports in order to identify and contact CYI's customers.
To the extent CYI also seeks to enjoin plaintiffs from sending
"cease and desist" type letters (see Dkt. No. 31: Defs. P.I.
Br. at 25-26; see also Dkt. No. 32: Benjamin Aff. Exs. G-I),
the motion is DENIED. Plaintiffs' position in this lawsuit is
that it has terminated CYI's license to sell the Airzooka. (See
page 4 above.) The parties have not submitted sufficient proof on
this motion as to who will prevail on the breach of contract
claim and counterclaim. The Court will not on this record
prohibit either side from telling customers their position on who
has the right to sell the Airzooka. Let "freedom of information"
prevail. Any harm from lost or transferred sales can be addressed
in this case through monetary damages. See, e.g., Lopes v.
International Rubber Distrib., Inc., 309 F. Supp. 2d 972, 980
(N.D. Ohio 2004); Biagro Western Sales, Inc. v. Helena Chem.
Co., 160 F. Supp. 2d 1112, 1135 (E.D. Cal. 2001).
Plaintiffs ask the Court to impose an "appropriate bond to
protect the Plaintiffs against the harm which would be caused by
the inability to continue unfettered sales of the product." (Dkt.
No. 40: Plfs. P.I. Opp. Br. at 5.) The Court notes that the
injunction CYI requested, and the injunction the Court is
granting, does not prevent plaintiffs' sales of the Airzooka.
Indeed, since plaintiffs have claimed that they have not to date
used CYI's royalty reports, plaintiffs have not shown that they
would suffer any harm from the injunction. The Court therefore
finds that no bond is needed. See, e.g., Doctor's Assocs., Inc. v. Stuart,
85 F.3d 975, 985 (2d Cir. 1996) (District Court has wide
discretion in the bond amount required to secure a preliminary
injunction and can even dispense with a bond); Masefield AG v.
Colonial Oil Indus., Inc., 05 Civ. 2231, 2005 WL 911770 at *8
(S.D.N.Y. Apr. 18, 2005) (Leisure, D.J.) ("District courts in the
Second Circuit are vested with wide discretion in determining the
amount of the bond that the moving party must post. Indeed, in
cases where the non-movant has not shown a likelihood of harm,
the district court may properly set no bond.") (citations
omitted); Emons Indus., Inc. v. Liberty Mutual Ins. Co.,
749 F. Supp. 1289, 1299 (S.D.N.Y. 1990) (Leisure, D.J.) (amount of
bond is in court's discretion); Bronson v. Crestwood Lake
Section 1 Holding Corp., 724 F. Supp. 148, 159 (S.D.N.Y. 1989)
("Since `there has been no proof of likelihood of harm to the
party enjoined,' this Court dispenses with the security
requirement of Fed.R.Civ.P. 65(c).").
For the reasons set forth above, plaintiffs and third party
defendants (and all those in active concert with them) are
preliminarily enjoined from using defendants' royalty reports to
identify and/or contact defendants' customers. The injunction
does not prevent plaintiffs and third party defendants from
sending truthful "cease and desist" type letters to, or otherwise
contacting, customers learned of through lawful means other than
via defendants' royalty reports. This serves to preserve the status quo. The parties shall settle the form of
injunction within three business days of this Opinion and Order.