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Margel v. E.G.L. Gem Lab Ltd.

May 24, 2007

GUY MARGEL, EGL CERTIFICATE B.V.B.A, EUROPEAN GEMOLOGICAL LABORATORIES S.A. (PTY) LTD AND E.G.L. -- EUROGEM LABORATORIES (ISRAEL) LTD., PLAINTIFFS,
v.
E.G.L. GEM LAB LTD., NACHUM KRASNIANSKI, AND MARK GERSHBURG, DEFENDANTS.
E.G.L. GEM LAB LTD., NACHUM KRASNIANSKI, MARK GERSHBURG, AND SHAINDY JACOB, COUNTERCLAIM PLAINTIFFS,
v.
GUY MARGEL, EGL CERTIFICATE B.V.B.A, EUROPEAN GEMOLOGICAL LABORATORIES S.A. (PTY) LTD, E.G.L. -- EUROGEM LABORATORIES (ISRAEL) LTD., T.C.R. VAN SCHOONBEEK AND GUY BENHAMOU, COUNTERCLAIM DEFENDANTS.



The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge

OPINION AND ORDER

This action arises out of a dispute between Plaintiff and Counterclaim Defendant Guy Margel ("Margel"), the founder of the European Gemological Laboratories ("E.G.L."), an international network of gem grading laboratories, and three member laboratories of that network ("the Margel Labs"), and Defendant and Counterclaim Plaintiff E.G.L. Gem Lab Ltd. ("EGL-USA"), an independent laboratory which purchased all E.G.L. trademarks in the United States from Margel in 1986. Notwithstanding the purchase, Plaintiffs are said to be using the E.G.L. trademarks in advertising their services in U.S. trade publications and introducing foreign E.G.L. gem grading certificates into the United States. EGL-USA and certain of its officers have taken steps to prevent those activities. Further, Defendants have stopped paying a fee to Margel of $1.25 per gem grading certificate issued in the United States (the "certificate fees"). Margel claims that EGL-USA breached two contracts with him by not paying the certificate fees, and now moves for summary judgment on this peripheral claim.

RELEVANT FACTS*fn1

I. The 1986 Agreements

On January 1, 1986, Margel, Margel's New York laboratory, and EGLUSA's predecessor-in-interest entered into a number of agreements (the "1986 Agreements") transferring the assets of the New York laboratory to EGL-USA. The 1986 Agreements also transferred the U.S. trademarks for E.G.L. to EGL-USA, though Margel retained a license to use the trademarks in the Los Angeles area. Margel also signed a personal agreement under which he would provide EGL-USA with diamond grading certificates on demand, and would receive $1.25 per certificate issued by EGLUSA (the "certificate fees"). This personal agreement also stated that Margel agreed to "perform consulting services." Declaration of Guy Margel ("Margel Dec."), Exhibit C, GM000034. Between 1986 and 1997, EGL-USA received certificates from Margel and paid him the certificate fees. Margel did not, however, provide any consulting services.

II. The 1998 Agreements

In 1997, EGL-USA ceased paying Margel the certificate fees and filed suit for trademark infringement in this Court against Margel and his sub-licensee in Los Angeles, Robert Tashey. The dispute between Margel and EGL-USA was arbitrated pursuant to a clause in the 1986 Agreements, and the parties ultimately settled the matter in November 1998. This settlement took the form of two complimentary agreements: a Settlement Agreement and an Agreement in Principle (the "1998 Agreements").

The 1998 Agreements affirmed that Margel "[wa]s and remain[d] entitled" to the certificate fees, and included a $46,300 payment from EGL-USA to Margel for the fees not paid since 1997. Margel Dec., Exhibit E, EGLUSA01621, ¶ 1. Margel and Defendant and Counterclaim Plaintiff Nachum Krasniaski ("Krasniaski"), the President of EGL-USA, were required to implement a uniform quality assurance program in all EGL laboratories world-wide. Finally, Margel agreed to "transfer or surrender.any and all rights and claim to rights he may have to the license and use of the EGL marks.anywhere in the United States.." Id. at ¶ 4. EGL-USA ceased using certificates provided by Margel in and around 1999, but paid Margel the promised certificate fees until early 2004. No uniform quality assurance program was ever implemented.

III. The Margel Labs' Use of the E.G.L. Trademarks in the United States

There is no dispute that at least one of the Margel Labs, E.G.L. -- Eurogem Laboratories (Israel) Ltd., advertised in Rappaport Diamond Report, a trade publication in the United States, using the E.G.L. trademarks, and that other labs sought to advertise in New York Diamonds, a similar publication. It is also undisputed that the Margel Labs introduced their own gem grading certificates, using the E.G.L. trademark, into the United States, and that some of those certificates were provided to Coral Diamond Inc. ("Coral"), a Los Angeles diamond dealer.

EGL-USA presents Krasniaski's declaration that the company learned of the use of the trademarks in advertisements in late 2002. Krasniaski also declares that EGL-USA had been aware over the years of a very limited number of Margel Labs certificates entering the U.S., and believed them to be "single items that had been sold and resold in foreign commerce." Declaration of Sarah C. Hsia ("Hsia Dec."), Exhibit A. ("Krasniaski Dec.") ¶ 42. At some point shortly before 2003, however, EGL-USA noticed an allegedly significant rise in the number of such certificates in the U.S. market. Finally, EGL-USA maintains that it learned of large numbers of certificates provided to Coral by EGL Certificate B.V.B.A, the Belgian laboratory in which Margel maintains his office. EGL-USA presents copies of blank foreign E.G.L. certificates seized from Coral pursuant to a court order, and testimony from Nassir Jacobson ("Jacobson"), the owner of Coral, that EGL Certificate B.V.B.A provided Coral with blank E.G.L. certificates and allowed Coral to replicate the signature of T.C.R. van Schoonbeck ("van Schoonbeck"), the Executive Director of EGL Certificate B.V.B.A. Jacobson and van Schoonbeck both claim that the sole use of the certificates and signature was to replicate lost or damaged certificates originally created outside the United States.

Krasniaski declares that EGL-USA complained to both Margel and the director of the Israeli Margel Lab regarding the advertisements using the E.G.L. trademarks. Defendant and Counterclaim Plaintiff Mark Gershburg, the Chief Executive Officer of EGL-USA, makes a similar assertion. There is no evidence in the record as to whether EGL-USA complained to Margel or alerted him to the introduction of the certificates.

DISCUSSION

I. Summary Judgment ...


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