The opinion of the court was delivered by: Denise Cote, District Judge
This case involves a dispute over the rights to use the name DE BEERS in connection with gemstones, jewelry, and other luxury goods in the United States market. DE BEERS, of course, is one of the most famous brands in the world and -- in the minds of American consumers, who were exposed to the "A Diamond Is Forever" advertising campaign featuring the name DE BEERS --- is inextricably linked to diamonds. Oddly, however, the entities that made DE BEERS so famous are not parties to this litigation. Indeed, for reasons discussed below, very little evidence has been submitted regarding who these entities are and what role they play in the diamond trade.
De Beers LV Limited ("DBLV") and De Beers LV Trademark Limited ("DBLV TM"), the plaintiffs in this matter, are two British companies that claim to have received rights from the De Beers Group ("DBG") -- which apparently is a consortium of companies that includes De Beers Consolidated Mines Limited ("Consolidated") of South Africa and De Beers Centenary AG ("Centenary") of Switzerland -- to exploit the DE BEERS mark in the United States. One of the plaintiffs has registered DE BEERS with the United States Patent and Trademark Office ("PTO") in connection with luxury retail store services. Plaintiffs have opened two such stores in America which, at present, sell diamond jewelry and watches under the DE BEERS name. More such stores are on the way.
These companies have sued Marvin Rosenblatt ("Rosenblatt") and his company DeBeers Diamond Syndicate Inc. ("Syndicate") under the Lanham Act and New York law for infringement both of the registered mark and of what they assert is the famous mark DE BEERS. The defendants have applied to register DeBeers Diamond Syndicate as a trademark in order to sell diamonds under that name over the Internet, where they have paved the way by registering dozens of domain names with the name DeBeers. Following a bench trial conducted on May 30-31, 2006, this Opinion presents the Court's findings of fact and concludes that the defendants' activities will create confusion with plaintiffs' registered mark DE BEERS. The plaintiffs have not shown, however, that they are entitled to relief under the famous marks doctrine.
Plaintiffs filed this action on June 1, 2004, alleging trademark infringement in violation of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); unfair competition under New York common law; and trademark dilution in violation of New York General Business Law § 360-1. In their answer, defendants raised the affirmative defenses of failure to join necessary parties, unclean hands, priority of use of the mark, and lack of standing. Defendants moved to join Consolidated, Centenary, and De Beers Trademarks Ltd. ("Trademarks") as counterclaim defendants. They alleged Shearman Antitrust Act violations and requested a declaratory judgment against plaintiffs and the counterclaim defendants. Plaintiffs moved to strike defendants' affirmative defenses of unclean hands and lack of standing. They also moved to dismiss the counterclaims. In an Opinion of May 18, 2005, the motion to dismiss the declaratory judgment counterclaim was denied; the motion to dismiss the Shearman Antitrust Act counterclaim was granted; the motion for joinder was denied; the motion to strike the affirmative defense of unclean hands was granted; and the motion to strike the affirmative defense of lack of standing was denied. De Beers LV Trademark Ltd. v. Debeers Diamond Syndicate Inc., No. 04 Civ. 4099 (DLC), 2005 WL 1164073 (S.D.N.Y. May 18, 2005). Plaintiffs filed an amended complaint on December 30, 2005, adding a claim for violation of Section 32 of the Lanham Act, 15 U.S.C. § 1114, based on DBLV TM's ownership of a registered mark in DE BEERS for use in "retail store services featuring luxury consumer products."
The trial was conducted without objection in accordance with the Court's customary practices for the conduct of non-jury proceedings. The parties filed a Joint Pretrial Order and proposed findings of fact and conclusions of law on March 15. The parties also served affidavits containing the direct testimony of most of their witnesses, as well as copies of all the exhibits and deposition testimony which they intended to offer as evidence in chief at trial.
With its Pretrial Order submissions, plaintiffs presented declarations constituting the direct testimony of Pierre Mallevays ("Mallevays"), former director of acquisitions for LVMH-Moët Hennessy Louis Vuitton ("LVMH") and its chief negotiator during the creation of plaintiffs through a venture with DBG; Guy Leymarie ("Leymarie"), chief executive officer of DBLV; Amanda Fogg ("Fogg"), legal counsel and secretary for DBLV and DBLV TM; Alyce Alston, chief executive officer of DBLV US, Inc., a wholly owned subsidiary of plaintiff DBLV; Lynn Diamond ("Diamond"), executive director of the Diamond Promotion Service, a unit of J. Walter Thompson U.S.A., Inc. ("JWT"), an advertising firm; Joan Parker ("Parker"), consultant to DBLV; Benedict Bird, a partner in the law firm Linklaters; Stuart Jennison ("Jennison"), a legal assistant at the law firm Jennison & Schultz, P.C.; Merida Lopez ("Lopez"), Mario Ortiz ("Ortiz"), and David Vanegas ("Vanegas"), paralegals at the law firm Fross Zelnick Lehrman & Zissu, P.C.; and Philip Johnson ("Johnson"), chief executive officer of Leo J. Shapiro Associates, Inc., a market research and consulting firm. With the exceptions of Jennison, Ortiz, and Vanegas, who defendants chose not to cross-examine, and Bird, whose testimony was rendered irrelevant by a ruling before trial, each of these witnesses appeared at trial and was cross-examined.
Defendants offered the testimony of defendant Rosenblatt; and Thomas Scheer ("Scheer"), a friend of Rosenblatt and an owner of Jarai & Scheer, a diamond dealer. Both witnesses appeared at trial and were cross-examined. Defendants also subpoenaed Caroline Amand ("Amand"), client director for Landor Associates, a branding firm. Amand testified at trial and was cross-examined.
Excerpts from the deposition testimony of the following individuals were offered and received into evidence at trial. Plaintiffs offered excerpts from the depositions of Caryl CapeciCossart ("Capeci-Cossart"), former employee of advertising agencies JWT and N.W. Ayer ("Ayer"); Christine M. Herring, a budget and accounts executive at the Diamond Trading Company, the sales and marketing arm of DBG; Carl Marcus ("Marcus"), chairman and founder of Capetown Diamond Corp.; and Rosenblatt. Defendants offered excerpts from the depositions of Stephen C. Butcher ("Butcher"), president of website design company VickeryHill.com; Capesci-Cossart; Leymarie; and Fogg.
The following constitutes many of the Court's findings of fact. Additional fact finding appears during the presentation of the Conclusions of Law.
Plaintiffs DBLV and DBLV TM were formed as limited companies under the laws of the United Kingdom on November 30, 2000. DBLV is owned in equal parts by an affiliate of DBG*fn1 and by a subsidiary of luxury goods purveyor LVMH.*fn2 DBLV TM is wholly owned by DBLV.
Pursuant to the joint shareholder agreement signed by DBG and LVMH on January 16, 2001, DBLV was created to engage in the "production and marketing of diamond jewellery and associated products under the De Beers brand name." These "associated products" were to include "goods usually sold by luxury goods retailers." In the shareholder agreement, DBG agreed that neither it nor its affiliated companies would compete with DBLV in the manufacture or sale of diamond jewelry or other luxury goods to consumers.
DBG and LVMH are equal shareholders in DBLV, and each appoints half of its directors. The company is run and managed by officers who are independent of DBG, LVMH, and their affiliates. DBG and LVMH are entitled to share in the revenue stream of DBLV. They have committed to make equal financial contributions to the company, but since DBG also contributed the rights in the DE BEERS mark described below, it is entitled to a greater share of the profits in excess of a set amount until another designated amount of profits is achieved, at which point they again split the profits equally.
The Transfer of Rights in DE BEERS
Plaintiffs trace their claim to the DE BEERS name to DBG members Consolidated and Centenary. On January 12, 2001, Consolidated and Centenary assigned the rights in DE BEERS worldwide (except in Southern Africa) to De Beers Intangibles Limited ("Intangibles"), which is also a part of DBG. On January 15 -- the day before the shareholder agreement was executed -- Intangibles assigned all of its rights to use DE BEERS in the United States to its wholly owned subsidiary Trademarks. The agreement stated that Trademarks would hold the rights "subject to any license granted to third parties."
The parties intended that Intangibles and DBLV would enter into a global brand license agreement (the "GBL") that would provide DBLV with the right to exploit the DE BEERS name in connection with gemstones and jewelry, among other products, throughout the world (except in Southern Africa). A draft of the GBL was attached to the shareholder agreement. Because DBG had already registered its mark in most parts of the world, there was no need also to assign the rights necessary to apply for trademark registration in most jurisdictions. Since, as explained below, DBG does not operate in the United States, it had not obtained any trademark registrations in the name DE BEERS in this country, and it was necessary to assign DBLV TM intellectual property rights so that that entity could apply for registration. DBG did not wish to assign those rights in connection with either gemstones or jewelry, however, explaining to its joint venture partner that these rights were just too close to its core business. Therefore, to prepare for the registration applications in the United States, on January 16, Trademarks signed an agreement assigning to DBLV TM*fn3 all rights to use the DE BEERS mark within the United States except in connection with gemstones and jewelry (the "Assignment").*fn4
The GBL was not signed until approximately six months later, on July 27, 2001. According to its terms, Intangibles granted DBLV a license to use DE BEERS worldwide (except in Southern Africa) in connection with jewelry, watches, writing instruments, leather goods, perfumes, cosmetics, glassware, cutlery, clothing, footware, and certain other specified products. The GBL stated that Intangibles' "primary purpose" in licensing the rights was "to build the DE BEERS brand for diamonds and diamond jewellery." As part of the GBL, Intangibles warranted that "neither it nor any of its Affiliates own rights in the [DE BEERS] Trade Marks or any goodwill attaching thereto ... which are not being licensed under this Agreement." These documents, which should be read together as part of an integrated transaction among related entities, conveyed to plaintiffs any rights Intangibles possessed to exploit the DE BEERS mark in connection with luxury goods, including gemstones and jewelry.
The creation of this enterprise was widely reported. A page-one story in the Business Section of New York Times on January 17, 2001, trumpeted, De Beers, the South African diamond mining powerhouse that has made its name an international emblem of elegance and extravagance, and LVMH-Moet Hennessy Louis Vuitton, the French luxury retailer that has harnessed the brand power of some of the world's finest goods, are joining forces....[T]hey were creating a new company that would open stores in the world's most fashionable cities to sell diamond jewelry branded with the De Beers name already so widely associated with the precious stones."*fn5
Two days earlier, the International Herald Tribune had also run a lengthy article about the partnership of these two giants and their intention "to set up De Beers stores across the world that would make the ... company the Dior of the diamond business."
In September 2002, Intangibles transferred to DBLV the ownership of various Internet domain names, including debeers.com, debeers.biz, and debeersdiamonds.com. In 2005, these sites cumulatively received an average of 8.6 million hits each month, with approximately 60% coming from within the United States.
Registration of the DE BEERS Mark
Under the shareholder agreement, DBLV was required to register DE BEERS as a trademark in the United States "as soon as practicable" after the agreement was signed. On January 16, 2001, DBLV TM filed eleven intent-to-use applications with the PTO for "retail store services," as well as for a variety of goods such as flatware, watches, clocks, perfumes, cosmetics, toiletries, luggage, purses, clothing, eyewear, stationery, glasswear, and smokers' articles. Having only a license but not an assignment of the name DE BEERS for use in connection with gemstones and jewelry, however, DBLV TM did not submit an application to register DE BEERS in connection with gemstones and jewelry.
On June 18, 2001, the PTO determined that "retail store services" was "unacceptable as indefinite" and requested that DBLV TM specify the goods that would be sold. On December 14, 2001, DBLV TM refined its application to identify "[r]etail store services featuring luxury consumer products." The PTO again objected that the description was insufficiently specific: "[A]pplicant must specify the type of luxury goods, such as clothing, jewelry, fragrances, stationery, smoking articles, luggage, and china." On September 16, 2002, counsel for DBLV TM made a written request to the PTO that the agency reconsider its objection on the ground that the products offered in the retail stores "will be of a wide range and will change from time to time." Counsel for DBLV TM noted that DBLV TM would be competing with luxury retailers such as Cartier, which had been allowed to register its mark for "retail consumer goods and mail order services" without further specifying the goods to be offered. On October 12, 2004, the PTO published the mark DE BEERS for "retail store services featuring luxury consumer products."
Meanwhile, the plaintiffs chose a location for their first store in the United States, worked on the construction of the store, and opened it on Fifth Avenue in Manhattan on June 23, 2005. With that opening, DBLV TM filed an allegation of use with the PTO. On September 23, 2005, the trademark registration for luxury retail store services issued.
Fame of the DE BEERS Mark
The DE BEERS name has been used in advertising in the United States from the 1930s to promote the purchase of diamond jewelry generally. Ayer, who designed the ad campaigns for DBG until 1995, began placing ads on television in the 1970s, featuring the DE BEERS name and diamond jewelry. As of 1980 and 1981, when defendant Rosenblatt incorporated Syndicate, advertising prominently displaying the name DE BEERS in connection with diamonds was also appearing in major magazines such as Time, Vogue, and The New Yorker. During the 1980s, advertisements featuring the DE BEERS name and diamond jewelry appeared in about 85 magazines per year. The Ayer advertisements -- which often featured the tagline "A Diamond Is Forever" and, in later years, silhouettes of women and men with diamond jewelry -- are now widely regarded as some of the most successful marketing efforts of the 20th Century.
In 1995, DBG switched its account from Ayer to JWT. JWT continued to advertise the DE BEERS name and diamond jewelry on television and in magazines and newspapers. Ayer and then JWT also worked through an in-house unit called the Diamond Promotion Service to help members of the diamond trade, including retailers, develop promotions to sell diamonds. DBG also engaged in an advertising campaign around the turn of the millennium in 1999 and 2000 (the "Millennium Campaign"). The advertisements pictured diamond jewelry and prominently featured the DE BEERS name and the "A Diamond Is Forever" slogan. In addition to its paid advertising campaigns, DBG received a substantial amount of unsolicited press coverage. Between 1996 and 2000, such coverage steadily increased. In 1996, approximately 237 articles about DE BEERS*fn6 appeared in United States newspapers and magazines; by 2000, this number had grown to approximately 644. On occasion, the press referred to DBG and various of the De Beers Group companies as part of a "syndicate." Sixty such mentions appeared in United States publications between 1973 and 2004. Eleven of these articles contained the phrase "De Beers diamond syndicate."
This decades-long and expensive advertising campaign achieved strong public awareness for the name DE BEERS and its association with diamonds. In early 2000, about a year before the execution of the joint venture enterprise documents, DBG hired Leo J. Shapiro & Associates ("Shapiro") to survey consumers' awareness of the DE BEERS name in this country. Shapiro carries out a wide-ranging monthly survey of consumer behavior that also includes inquiries on behalf of a single corporate client. Questions about DE BEERS were incorporated into the April and May 2000 surveys. The survey uses a probability sample of the continental United States population. It is administered by telephone, and interviewers ask to speak with heads of household over 18 years of age. Half of the respondents are male, and half are female. The survey results introduced by plaintiffs are based on the answers given by 900 respondents over the two-month period. Although the survey data was gathered in 2000, the report submitted by plaintiffs was compiled by Johnson, Shapiro's CEO, in January 2006.
The Shapiro survey showed that, unprompted, over 50% of respondents were familiar with the DE BEERS name, and that over one-quarter associated DE BEERS with diamonds. Awareness was even higher among consumers with household incomes of over $70,000 annually. Among those respondents who, through prompting or not, were familiar with DE BEERS and associated it with diamonds, about 60% believed that DE BEERS diamonds were of a higher quality.*fn7
The brand DE BEERS has been identified by Brandweek and Adweek magazines as one of America's "superbrands." In the 2001 survey, DE BEERS diamonds was ranked 144th on the list of America's superbrands, above Campbell's soup and Hallmark greeting cards.
During 2005, the plaintiffs spent close to $4 million on advertising promoting the name DE BEERS. In November 2005, DBLV arranged for Vogue, W, and Vanity Fair, magazines in which it regularly advertised, to send an e-mail survey to their readers in the New York City area. Very few readers responded to the survey, but a sizeable majority of those who did respond were aware of DE BEERS as a company.
The Success of the Plaintiffs' Business
Before opening their Manhattan store, the plaintiffs had previously launched stores in London, Paris, and Tokyo. They now have a second store in the United States, a branch in Beverly Hills, California. DBLV intends to open as many as 18 additional DE BEERS stores in the United States in the next few years.
The Manhattan store's current product offering consists of diamond jewelry and watches, but DBLV plans to begin selling other luxury goods as well. None of the DBLV stores purchase their diamonds exclusively from DBG affiliates. Instead, they purchase their gemstones on the open market, competing with other retailers for higher quality diamonds. DBLV's stores do not offer loose diamonds for sale, although they sell them when asked. They do allow customers to select a diamond and match it with a setting of their choice, however, and that happens not infrequently.
In its first week alone, thousands of people visited the New York store each day. In the half year in which they were open in 2005, the two American stores had total sales of close to $5 million.
Defendant Rosenblatt is the president, sole shareholder, and sole employee of defendant Syndicate.*fn8 His family has been connected with the diamond trade for three generations, always using some variation of the family name as its business name. Rosenblatt began working for his family's diamond business, located at 580 Fifth Avenue in Manhattan, in the mid-1950s. As a family business, it bought and sold diamond jewelry and loose diamonds, principally providing consignment merchandise to New York dealers and retailers. It did not sell to the public. Indeed, the public did not even have access to the floor on which its office was located.
In September 1981, after his father had died and when he was about 40 years of age, Rosenblatt formed DeBeers Diamond Syndicate, a Delaware corporation.*fn9 He decided that he wanted to reorient the family business toward the consignment of higher quality diamonds, and expected that his choice of the company's name would help to convey that intention. Rosenblatt asserts that he chose the name DeBeers because of what he describes as its "mythological association with diamonds." No one in his family, nor anyone associated with Syndicate, has the surname DeBeers or any other connection with the name DE BEERS. He testified that he added syndicate to the name because of its "cheeky" evocation of "a shadowy cartel that controlled the industry."
Rosenblatt understood that the name DE BEERS had powerful connotations. He and his fellow members of the New York City diamond trade used the name DE BEERS and the word syndicate to refer interchangeably to the cartel that they believed controlled the world's supply of rough diamonds. Rosenblatt's family in fact knew at least two "sightholders," that is, individuals who bought rough diamonds from the DE BEERS syndicate during the "sights" that were held in London for a week at a time, roughly ten times a year.
Syndicate was incorporated in Delaware, but had no other business address than the family business office at 580 Fifth Avenue in Manhattan.*fn10 Rosenblatt added the name of his new company to his office door, where it appeared along with his family name. A family friend who worked in the diamond trade testified that Rosenblatt's use of the DeBeers name provoked laughter in the industry because "it was a gutsy thing to do."
Although Rosenblatt asserts that Syndicate bought, consigned, and sold loose diamonds, he has not offered any documents confirming even a single commercial transaction under the corporate name. He has not shown that the corporation had business cards, filed tax returns, had a separate telephone listing, or conducted any business whatsoever. Indeed, he has not shown how a customer would have understood that any single transaction was being conducted through Syndicate as opposed to the Rosenblatt family business. What is clear is that Rosenblatt soon abandoned any interest in the corporation.
In 1986, Rosenblatt's mother died and he moved to Europe. By 1986, the corporation had become inoperative as a matter of law for its failure to file annual reports and non-payment of taxes. By the early 1990s, Rosenblatt had even given up the lease on his offices at 580 Fifth Avenue.
Learning that DBG and LVMH intended to launch a line of jewelry and open luxury retail stores employing the name DE BEERS in the United States, in late 2001, Rosenblatt decided to resurrect his corporation, but this time to use it to sell polished, certificated diamonds over the Internet at "very competitive prices."*fn11 He believed that the use of the name DeBeers would allow his company to succeed where other internet diamond ...