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Krasnyi Oktyabr, Inc. v. Trilini Imports

March 29, 2007


The opinion of the court was delivered by: Trager, J.


Plaintiff Krasnyi Oktyabr ("Red October" or "plaintiff") commenced this action against Trilini Imports, et al. ("defendants") alleging trademark infringement in violation of Section 32(1) of the Lanham Act, 15 U.S.C. § 1114 and Section 43(a) of the Lanham Act, 15 U.S.C. § 1125. Red October also asserts state law claims for unfair competition, injurious falsehood, anti-dilution and tortious interference. Pursuant to Rule 12(b)(1), defendants move to dismiss Red October's action for lack of standing as to the two Lanham Act causes of action. In addition, defendants move pursuant to Rule 12(b)(6) to dismiss Red October's entire action for failing in all counts to state a claim upon which relief could be granted.

Red October filed its complaint on November 15, 2005 and concurrently filed an application for a temporary restraining order, to which it attached exhibits consisting of letters, affidavits, and its contractual agreements concerning the trademarks at issue ("the exhibits"). Its electronic filing of these documents linked the exhibits to the complaint. Whether or not the exhibits were meant to be attached to the complaint, they will be considered for the purposes of this motion to dismiss. Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993) (noting that documents attached to the complaint as an exhibit or incorporated in it by reference and "documents either in plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit" may be considered for Rule 12(b)(6) purposes (citing Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991), cert. denied, 503 U.S. 960 (1992))); see also Greene v. WCI Holdings Corp., 956 F. Supp. 509, 512 (S.D.N.Y. 1997). The following facts are taken from the complaint and the exhibits.


Plaintiff is a Brooklyn-based importer and distributor of high-end Russian grocery items, including Russian candy marketed under the Krasnyi Oktyabr, Rot Front and Babeyevsky trademarks.

Complaint ("Compl.") ¶¶ 2, 4. Defendants are also New York-based importers and distributors of Russian goods. Compl. ¶¶ 5-8, 26.

Obeyediyonne Conditery ("United Confectioners") is a Russian holding company which owns and runs Moscow Confectionary Factory of Krasnyi Oktyabr ("Red October Moscow"), Rot Front and Confectionary Concern Babayevsky ("CCB"), the manufacturers, respectively, of the Krasnyi Oktyabr, Rot Front and Babeyevsky brands of candy. Compl. ¶¶ 2, 4. Within the former republics of the Soviet Union, the candies made by United Confectioners' companies have a reputation as premium products. Compl. ¶¶ 15, 21; Kachura Aff. ¶ 4.

On April 9, 1996, Red October entered into a licensing agreement with Red October Moscow granting Red October the exclusive right to sell Krasnyi Oktyabr chocolate and confectionary products to the "Russian ethnic market" in the United States. Nosenko Aff. ¶ 2. In late 1999, Red October obtained a United States trademark for "Krasnyi Oktyabr" from the United States Patent and Trademark Office. Compl. ¶ 18. Acting on behalf of United Confectioners, on April 5, 2005, Rot Front entered into an additional licensing agreement with Red October, granting Red October the exclusive right to sell the Krasnyi Oktyabr, Rot Front and Babeyevsky brands of candy to the U.S. Russian ethnic market. Nosenko Aff. ¶ 3. Pursuant to this agreement, Red October assigned the Krasnyi Oktyabr trademark to Red October Moscow in exchange for the exclusive right to use and enforce the trademark. Nosenko Aff. ¶ 4.

Red October alleges that, starting around April 5, 2005, defendants began to import and sell Krasnyi Oktyabr, Rot Front and Babayevsky chocolate bars and confections in the United States at a below-market prices. Kachura Aff. ¶¶ 12, 17. Red October Moscow, Rot Front and CCB have informed Red October that they did not sell the goods directly to defendants, so Red October surmises that defendants bought the goods second- or third-hand on the gray-market. Kachura Aff. ¶ 17. Red October alleges that the goods being sold by defendants appear indistinguishable from the actual goods for which Red October holds exclusive distribution rights for the U.S. Russian ethnic market, but, because they are not subject to Red October's quality controls, they are likely to be stale or sold after their expiration date. Compl. ¶ 26; Kachura Aff. ¶ 17. Red October additionally claims that defendants' sale of low quality goods bearing the Krasnyi Oktyabr, Rot Front and Babeyevsky trademarks will damage the brands' reputation as premium-quality goods. Kachura Aff. ¶¶ 17-18.

On May 26, 2005 and again on September 19, 2005, Red October sent cease and desist letters to defendants. Compl. ¶ 27. Red October alleges that one defendant advised plaintiff's counsel that in order to avoid detection of the disputed conduct, he could create a new company with which to import and sell the gray market goods in dispute (Compl. § 30); that defendants did in fact create a new company for that purpose (Compl. §§ 28, 31); and that defendants continue sell Krasnyi Oktyabr, Rot Front and Babeyevsky candy (Compl. §§ 26, 37). Red October further alleges that several of its customers have declined to purchase candy from them because the customers had already purchased from defendants. Kachura Aff. ¶¶ 14-15.


(1) Plaintiff's Standing Under the Lanham Act

Defendants move to dismiss Red October's trademark infringement claim under Section 32 of the Lanham Act, 15 U.S.C. § 1114, and false designation of origin and importation, unregistered trade dress claim under Section 43 of the Lanham Act, 15 U.S.C. § 1125, for inter alia, lack of standing.

"Because standing is challenged on the basis of the pleadings, we accept as true all material allegations of the complaint, and must construe the complaint in favor of the complaining party." Connecticut v. Physicians Health Servs. of Connecticut Inc., 287 F.3d 110, 114 (2d Cir. 2002) (citing United States v. Vazquez, 145 F.3d 74, 81 (2d Cir. 1998) (internal quotations omitted). Red October's complaint alleges facts sufficient, pursuant to Fed. R. Civ. P. 12(b)(1), to establish standing in order to bring its claims under both Section 32 and Section 43 of the Lanham Act.

(a) Plaintiff's Standing under Section 32 of the Lanham Act

Defendants move to dismiss Red October's claim under section 32 of the Lanham Act, in part, for lack of standing pursuant to Fed. R. Civ. P. 12(b)(1). "The Lanham Act (15 U.S.C. § 1114(1)) provides that an action for trademark infringement may only be brought by the 'registrant,' and further defines that term [in 15 U.S.C. § 1127] to include the legal representatives, predecessors, successors and assigns of the registrant." DEP Corp. v. Interstate Cigar Co. Inc., 622 F.2d 621, 622 (2d Cir. 1980). Red October claims standing under Section 32 both as exclusive licensee of the trademarks at issue and as the designated legal representative of the trademark owners. Defendants aver that Red October cannot be considered a registrant as defined by 15 U.S.C. § 1127.

a. Exclusive License

First, Red October alleges that pursuant to its two separate licensing agreements with United Confectioners, one entered into on or about April 9, 1996, and the other on or about April 5, 2005, it obtained an exclusive license from United Confectioners to sell three separate brands of candy manufactured in Russia ("Krasnyi Oktyabr", "Rot Front" and "Babayevsky") in the "Russian ethnic market" in the United States. Compl. ¶ 14. Red October attaches copies of both licensing agreements to its complaint. Nosenko Aff. ¶¶ 2, 4. In unique situations, an exclusive licensee maybe considered an assignee pursuant to 15 U.S.C. § 1127's definition of registrant. See Fin. Inv. Co. v. Geberit AG, 165 F.3d 526, 531-32 (7th Cir. 1998). "[A] truly exclusive licensee, one who has the right even to exclude his licensor from using the mark . . . is equated with an assign[ee] since no right to use [the mark] is reserved to the licensor, and the licensee's standing drives from his presumed status as assignee." Id. (citing 3 Jerome Gilson, Trademark Protection & Practice § 8.16[1][b] (1997)). "However, those cases finding standing for de facto assignees are the exceptions that prove the rule - namely, that only the registrant of a trademark or its legal representatives, predecessors, successors, and assigns have standing to sue for trademark infringement under § 1114." Calvin Klein Jeanswear Co. v. Tunnel Trading, No. 98 Civ. 5408, 2001 WL 1456577, at *4 (S.D.N.Y. Nov 16, 2001) (collecting cases). Moreover, "[w]here a licensing agreement does not grant the licensee a property interest in the mark or otherwise assign to the licensee the registrant-licensor's ownership rights, the licensee, even if exclusive, cannot enforce the mark under § 1114." Id. at *4.

In the present case, pursuant to the April 5, 2005 licensing agreement, which is the relevant one for the purpose of evaluating the alleged trademark infringement, it is clear that Red October does not have the right to exclude United Confectioners from any trademark that Red October is licensed to use. Paragraphs 2.2 and 2.3 of the April 5, 2005 agreement grant Red October the right to use the trademarks of, and the exclusive right to distribute, United Confectioners' products ("Krasnyi Oktybr", "Rot Front" and "Babayevsky") to the "Russian Ethnic Market" for the duration of the contract. Paragraph 2.2 of the agreement specifies:

According to the terms of the present agreement the Distributor has the right for import to the USA of products of the trademarks stated in paragraph 2.3 of the present agreement, and has the right to distribute designated products on the territory of the USA exclusively in the areas determined by the present agreement, by which its exclusive rights as the Distributor are confirmed by the present on the designated territory and designated selling enterprises.

However, ¶ 2.1 of the agreement specifically bars Red October from selling United Confectioners' goods in "American sales networks or other sales networks which are not specially oriented to the Russian-speaking consumers." In addition, ¶ 2.13 of the agreement specifies that in the event United Confectioners decides to sell its products to selling networks in the United States that are outside the Russian ethnic market, Red October has the primary right to participate in such sales. The language from ¶ 2.13 reads as follows:

In case the Company [United Confectioners] makes a decision about supplying of the products of the Company to the selling networks in the territory of the USA the Distributor has the primary right for participation with the Company in the joint supply of the products of the Company to the selling networks in the territory of the USA.

¶ 2.13 makes clear that United Confectioners has retained the ownership in all of its trademarks and even the discretion to license these trademarks to other parties that may potentially sell them outside the Russian ethnic market in the United States. Therefore, Red October's tenuous status as exclusive licensee does not provide it with standing to sue as a registrant under Section 32 of the Lanham Act.*fn1

b. Legal Representative

In the alternative, Red October alleges in its complaint that it is required by the licensing agreements to protect the disputed trademarks and enforce its rights to the trademarks as United Confectioners' agent. Compl. ¶ 20. 15 U.S.C. § 1127 defines registrant to include the legal representatives of the registrant. Despite the plain language of the statute, plaintiff has cited no case and this court has found none within the Second Circuit in which a court recognized a plaintiff's standing based on its status as a legal representative of the trademark holder. However, some district courts, including one within the Second Circuit, have in dicta recognized that the legal representatives of a trademark holder may have standing to bring a claim under Sections 32 and 43 of the Lanham Act. "A licensee may be considered a legal representative where the agreements between the parties expressly provide the licensee with a right and duty to sue on all issues relating to the trademark." Visa U.S.A., Inc. v. First Data Corp., No. C 02-01786, 2005 U.S. Dist. LEXIS 37276, at *13-14 (N.D. Cal. Aug. 16, 2005) (finding that the plaintiff lacked standing because it did not have the exclusive right to enforce the trademark); see also Silverstar Enterprises, Inc. v. Aday, 537 F. Supp. 236 (S.D.N.Y. 1982). In Silverstar, the court recognized that the plaintiff could conceivably have had standing as a legal representative under the Lanham Act if plaintiff was not suing the party who itself designated plaintiff as its legal representative. Silverstar, 537 F. Supp. 236, ...

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