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Patsy's Italian Restaurant, Inc. v. Banas

August 28, 2007

PATSY'S ITALIAN RESTAURANT, INC. AND PATSY'S BRAND, INC., PLAINTIFFS,
v.
ANTHONY BANAS D/B/A PATSY'S, PATSY'S PIZZERIA, AND PATSY'S BAKERY & CAFÉ AND ANTHONY & PATSY'S INC., DEFENDANTS.
PATSY'S ITALIAN RESTAURANT, INC., PLAINTIFF AND COUNTERCLAIM DEFENDANT,
v.
ANTHONY BANAS D/B/A PATSY'S AND PATSY'S PIZZERIA TRATTORIA IMPAZZIRE, ALLAN ZYLLER D/B/A PATSY'S AND PATSY'S PIZZERIA TRATTORIA IMPAZZIRE, AL & ANTHONY'S PATSY'S, INC., I.O.B. REALTY, INC., PATSY'S, INC. AND BSZ REALTY CORP., DEFENDANTS AND COUNTERCLAIM PLAINTIFFS.



The opinion of the court was delivered by: Dora L. Irizarry, U.S. District Judge

OPINION & ORDER

For over six decades, plaintiffs' and defendants' restaurants, both of which include "Patsy's" in their names, have co-existed on the island of Manhattan. The restaurants have successfully kept the risk of confusion to a minimum by identifying plaintiffs' restaurant, known for its traditional Italian fare, as "Patsy's Italian Restaurant," and defendants' restaurants, known for their coal oven fired, thin crust pizzas, as "Patsy's Pizzeria." The only blip on the radar of the parties' peaceful coexistence was a suit filed by plaintiff Patsy's Brand, Inc. ("Patsy's Brand") in 1999, relating to the restaurants' individual efforts to sell pasta sauces in jars for retail distribution.

The instant litigation arose with defendants' decision to increase their number of franchise locations (totaling five at the time), by expanding Patsy's Pizzeria beyond the island of Manhattan. Towards that end, defendants Anthony Banas ("Banas") and Anthony & Pasty's, Inc. (collectively, the "Staten Island defendants") opened a Patsy's Pizzeria at 1949 Richmond Avenue, Staten Island, New York in July 2005. Soon thereafter, on February 17, 2006, plaintiffs Patsy's Italian Restaurant, Inc. ("Patsy's Italian Restaurant") and Patsy's Brand (collectively, the "plaintiffs") brought suit against Banas, asserting claims of (1) federal service mark and trademark infringement under § 32 of the Lanham Act, 15 U.S.C. § 1114, (2) injury to business reputation under § 360-1 of the General Business Law of the State of New York, and (3) common law trademark infringement and unfair competition (06-CV-00729).*fn1

After the Staten Island Patsy's Pizzeria closed in September 2006, the parties commenced settlement negotiations. During the course of those discussions, plaintiffs discovered that a restaurant bearing the name "Patsy's Pizzeria" was about to open at 407 Jericho Turnpike, Syosset, New York. Patsy's Italian Restaurant then brought suit against defendants Banas, Allan Zyller ("Zyller"), and Al & Anthony's Patsy's, Inc. on October 30, 2006, asserting claims of (1) federal service mark infringement under § 32 of the Lanham Act, 15 U.S.C. § 1114, (2) unfair competition and false designation of origin under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), (3) injury to business reputation under § 360-1 of the General Business Law of the State of New York, and (4) common law trademark infringement and unfair competition (06-CV-05857).*fn2 In addition, Patsy's Italian Restaurant filed an application for an order pursuant to Fed. R. Civ. P. 65, enjoining defendants during the pendency of this action from opening the Syosset restaurant under the PATSY'S mark. The court granted the temporary restraining order on October 30, 2006, but amended it on November 9, 2006 to allow the Long Island defendants to open their restaurant, so long as the words "Trattoria Impazzire" did not appear on any of the advertising, signs or menus associated with the restaurant. On November 27, 2006, the Long Island defendants filed an answer and counter-claim seeking cancellation of Patsy's Italian Restaurant's Registration Nos. 3,009,836 and 3,009,866, and a declaration pursuant to Fed. R. Civ. P. 57 and 28 U.S.C. § 2201(a) et seq. that they have not infringed upon plaintiffs' trademark rights. On November 30, 2006, the court consolidated the two civil actions for all purposes.

Presently before the court are defendants' (1) motion for partial summary judgment pursuant to Fed. R. Civ. P. 56, requesting correction of the United States Patent and Trademark Office's ("PTO") Principal Register, and dismissal of plaintiffs' service mark infringement claims (Count One in both civil actions); and (2) motion for summary judgment pursuant to Fed. R. Civ. P. 56 on all of plaintiffs' remaining claims in both civil actions. For the reasons set forth below, the court grants defendants' motion to correct the register with respect to the restoration of I.O.B.'s U.S. Trademark Registration No. 2,213,574 for PATSY'S PIZZERIA for restaurant services, but denies defendants' motion with respect to the cancellation of Patsy's Italian Restaurant's U.S. Trademark Registration No. 3,009,836 for PATSY'S PR, and Registration No. 3,009,866 for PATSY'S, "not including pizza," both for restaurant services. Defendants' motions for partial summary judgment on the service mark infringement claims, and for summary judgment on plaintiffs' remaining causes of action are denied.*fn3

Background

1. The Restaurants

In 1933, Pasquale ("Patsy") Lancieri opened a pizzeria-style restaurant in East Harlem (1312 2nd Avenue) under the name "Patsy's Pizzeria," and often referred to as simply, "Patsy's." (Grandinetti Decl. Ex. 1, Arles Dep. 12, Jan. 20, 2007; Ex. 34, Joseph Scognamillo Decl. ¶ 10, July 29, 1998; Ex. 35, Joseph Scognamillo Dep. 54, Oct. 19, 1999; Ex. 16, Sal Scognamillo Dep. 22, Jan. 12, 2007.) See also Patsy's Brand, Inc. v. I.O.B. Realty, Inc., et al., 317 F.3d 209, 212 (2d Cir. 2003). With the exception of limited periods during which the restaurant was under renovation, Patsy's Pizzeria has been in continuous operation, serving at least pizza, since 1933. (Grandinetti Decl. Ex. 1 at 14-16, 33-39, 41-42; Ex. 2.) On May 21, 1996, I.O.B. obtained a U.S. Trademark for a non-stylized rendition of PATSY'S in connection with restaurant services (Registration No. 1,975,110). I.O.B. obtained an additional U.S. Trademark on December 29, 1998 for a non-stylized rendition of PATSY'S PIZZERIA in connection with restaurant services (Registration No. 2,213,574). The PTO cancelled both marks on May 27, 2003. (Grandinetti Decl. Ex. 18 at TTAB 1-261; Ex. 20 at TTAB 2-104.)

Plaintiffs' "Patsy's Italian Restaurant" is a family-owned Italian restaurant located at West 56th Street. It offers a more complete Italian-style menu than that of a typical pizzeria, and has been in continuous operation since 1944. (Grandinetti Decl. Ex. 16 at 21-22.) In 1993, plaintiff formed an affiliated company known as Patsy's Brand for the purpose of selling pasta sauces in jars for retail distribution. See Patsy's Brand, Inc., 317 F.3d at 213. Patsy's Brand then began manufacturing and distributing its pasta sauces in 1994. Id. Since that time, Patsy's Brand obtained U.S. Trademark Registration No. 1,874,789 for a stylized rendition of PATSY'S PR SINCE 1994 and U.S. Trademark Registration No. 2,777,068 for a non-stylized rendition of PATSY'S, both to be used in connection with their pasta sauces.*fn4 (Grandinetti Decl. Ex. 26; Ex. 27.) Patsy's Brand also obtained U.S. Trademark Registration No. 2,845,063 for a non-stylized rendition of PATSY'S to be used in connection with olive oil, extra virgin oil, cheese, roasted peppers, and processed eggplant in International Class 29, and cheese ravioli, manicotti, lasagna, pasta, vinegar, and pastries, namely, tiramisu, in International Class 30. (Grandinetti Decl. Ex. 28.)

Patsy's Italian Restaurant and Patsy's Pizzeria have received much praise in the print media and on television, and its principals appear regularly on national and regional television shows and radio programs. Moreover, each restaurant contends that celebrities, including particularly Frank Sinatra, often frequented both restaurants. (Grandinetti Decl. Ex. 1 at 37-38; Salvatore Scognamillo Decl. Ex. 1; Ex. 5.)

In 1991, I.O.B. purchased Patsy's Pizzeria. (Grandinetti Decl. Ex. 3; Ex. 4, Isa ("John") Brija Dep. 12, Dec. 28, 2006.) See also Patsy's Brand Inc. v. I.O.B. Realty, Inc., et al., No. 99 Civ. 10175, 2001 WL 170672, at *1 (E.D.N.Y. Feb. 21, 2001).*fn5 Soon thereafter, between 1994 and 1996, I.O.B. licensed Nick Tsoulos to open five franchise locations in Manhattan under the names "Patsy's Pizzeria" or "Patsy's." Patsy's Pizzeria's franchise operations now encircle plaintiffs' lone restaurant on West 56th Street with locations in Greenwich Village at 67 University, Murray Hill at 509 3rd Avenue, the Upper West Side at 61 West 74th Street, Chelsea at 318 West 23rd Street, and the East Side at 206 East 60th Street. (Grandinetti Decl. Ex. 2.) John Brija ("Brija"), an officer of I.O.B., testified that he routinely conducts quality inspections of Tsoulos's franchises. (Grandinetti Decl. Ex. 4 at 86-100.) Although the original East Harlem Patsy's Pizzeria and the franchise locations are primarily known for their coal oven fired, thin crust pizzas, the menus also include items such as appetizers, soups, salads, pasta dishes, calzones, and a few traditional Italian dishes. (Grandinetti Decl. Ex. 2.)

In 1998, I.O.B. entered into a Cross-License Agreement with Patsy's Inc., which remains in effect until March 10, 2018. (Grandinetti Decl. Ex. 7.) The Cross-License Agreement grants Patsy's Inc. a license to use the "Patsy's System," a proprietary system for developing, opening and operating Italian pizzerias, and I.O.B.'s proprietary marks. (Id.) The Agreement further grants Patsy's Inc. the right to sublicense these rights to third parties. (Id.)

2. Defendants' Expansion into the Outer Boroughs

In July 2005, the Staten Island defendants opened a restaurant named "Patsy's Pizzeria since 1933" and "Patsy's Pizzeria, Restaurant, Bakery, Café" ("Staten Island Patsy's Pizzeria") at 1949 Richmond Avenue, Staten Island, New York, with the permission of John Brecevich ("Brecevich"), an officer of I.O.B. (Grandinetti Decl. Ex. 8, Anthony Banas Dep. 14, Jan. 16, 2007; Ex. 9, Giovanni ("John") Brecevich Dep. 8-13, Dec. 28, 2006; Sayour Decl. Ex. 15.) Brecevich orally instructed Banas to operate the restaurant like a "regular Patsy's Pizzeria," serving Italian food, and in particular, coal oven fired, thin crust pizza, under the "Patsy's" name. (Grandinetti Decl. Ex. 9 at 14, 16-17, 34.) In addition, Brecevich gave Banas recipes for the pizza and a copy of a "Patsy's Pizzeria" menu from which to copy the logo, approved the menu Banas had created for the Staten Island Patsy's Pizzeria, and performed site visits both during the construction phase and after the restaurant had opened. (Grandinetti Decl. Ex. 8 at 41-42, 58.) In October 2005, the Staten Island defendants opened a bakery and café in connection with the Staten Island Patsy's Pizzeria, despite the fact that I.O.B. had not granted the Staten Island defendants permission to do so under their trademarks. (Grandinetti Decl. Ex. 8 at 15, 49; Ex. 9 at 14-15.) The bakery closed soon thereafter, in January 2006, while the Staten Island Patsy's Pizzeria remained open until September 2006. (Grandinetti Decl. Ex. 8 at 15.)

In late 2005 or early 2006, the Long Island defendants began discussions with I.O.B. regarding the possibility of a Patsy's Pizzeria on Long Island (the "Long Island Patsy's Pizzeria"). (Id. at 85-86; Ex. 10, Allan Zyller Dep. 19-24, Jan. 18, 2007.) I.O.B. granted the Long Island defendants permission to open a Patsy's Pizzeria at 407 Jericho Turnpike, Syosset, New York, and BSZ Realty signed a twenty-year lease for that location. (Grandinetti Decl. Ex. 9 at 29-31; Ex. 10 at 20-21.) After the court amended the temporary restraining order, the Long Island Patsy's Pizzeria opened for business in November 2006, serving an assortment of appetizers, salads, heroes, calzones, pasta dishes, and traditional Italian dishes such as Eggplant Parmigiana and Chicken Marsala, in addition to coal oven fired, thin crust pizzas. (Grandinetti Decl. Ex. 10 at 27-28; Sayour Decl. Ex. 14.) Brecevich and Brija performed regular site visits, and, on at least one occasion, Brija taste-tested the pizza. (Grandinetti Decl. Ex. 10 at 20, 25, 28-32.) Defendants assert that, in an effort to establish a joint venture, Patsy's Inc. and the Long Island defendants engaged in discussions regarding Patsy's Inc.'s role in the Long Island Pizzeria. Defendants submitted a one-page document that allegedly constitutes a "memorialization" of their initial agreement. (Grandinetti Decl. Ex. 9 at 29-31; Ex. 10 at 19, 49-50; Ex. 11.) However, the document is undated and is signed only by Zyller as the President of Al & Anthony's Patsy's Inc. (Grandinetti Decl. Ex. 11.)

There is some dispute with respect to whether I.O.B. or Patsy's Inc. entered into a franchise agreement with either the Staten Island defendants or the Long Island defendants. Defendants contend that I.O.B. did not enter into a franchise agreement with the Staten Island defendants at the time I.O.B. orally gave them permission to open the Staten Island Patsy's Pizzeria because Patsy's Inc.'s Franchise Offering Circular had expired. (Grandinetti Decl. Ex. 8 at 28-29, 71-72; Ex. 9 at 8-14, 30; Ex. 10 at 23.) However, I.O.B. and the Staten Island defendants allegedly reached an oral agreement that the Staten Island Patsy's Pizzeria would be franchised upon reinstatement of Patsy's Inc.'s franchise license. (Id.) Defendants further contend that the February 16, 2006 letter from defense counsel to plaintiffs' counsel, stating that the Staten Island Patsy's Pizzeria is a franchise of I.O.B., was based on a misunderstanding of the agreement to franchise the restaurant in the future.

(Sayour Decl. Ex. 6.) With respect to the Long Island Patsy's Pizzeria, Patsy's Inc. and the Long Island defendants allegedly engaged in a joint venture while Patsy's Inc. was in the process of securing a new Franchise Offering Circular. (Grandinetti Decl. Ex. 9 at 13-14, 29-31; Ex. 10 at 23; Ex. 12; Ex. 13.)On December 20, 2006, Patsy's Inc. received its approved Franchise Offering Circular from the New York State franchising authority. (Grandinetti Decl. Ex. 14.)Sometime thereafter, Brecevich, as Vice President of Patsy's Inc., Zyller, as President of Al & Anthony's Patsy's Inc., and Banas, as Vice President of Al & Anthony's Patsy's Inc., appear to have signed the Offering Circular, thereby forming a franchise for the Long Island Patsy's Pizzeria. (Grandinetti Decl. Ex. 15.)*fn6 However, it is unclear when the parties signed the Offering Circular because the document is undated. (Id.)

3. Proceedings before the Patent and Trademark Office & the "Tomato Sauce Litigation"

The parties' protracted and convoluted dealings with the PTO lie at the heart of the instant litigation. A detailed rendition of these proceedings is provided below in chronological order: In October 1998, I.O.B. filed a petition with the Trademark Trial and Appeal Board ("TTAB") of the PTO seeking to have Patsy's Brand's 1995 registration for the mark PATSY'S PR SINCE 1994 (stylized) for sauces cancelled (Registration No. 1,874,789). The petition received Cancellation Proceeding No. 92/028,142. (Grandinetti Decl. Ex. 18 at TTAB 1-002-006.) On September 30, 1999, Patsy's Brand responded by bringing suit against Patsy's Inc., I.O.B., its controlling officers, Brija and Brecevich, and its franchise operator, Tsoulos, in the United States District Court for the Southern District of New York (the "tomato sauce litigation"). The complaint alleged service mark infringement, trade dress infringement, unfair competition and false advertising. See Patsy's Brand, Inc., 2001 WL 170672, at *2. Also on September 30, 1999, Patsy's Italian Restaurant filed a trademark application for the mark PATSY'S PR for restaurant services. (Grandinetti Decl. Ex. 19 at USPTO 3-067.) One month later, in October 1999, Patsy's Brand further responded by filing a petition seeking to have I.O.B.'s Registration Nos. 1,975,110 and 2,213,574 for the PATSY'S and PATSY'S PIZZERIA marks, both to be used in connection with restaurant services, cancelled. The petition received Cancellation Proceeding No. 92/029,614. (Grandinetti Decl. Ex. 20 at TTAB 2-003-009.) In June 2000, the TTAB consolidated Cancellation Proceedings 92/028,142 and 92/029,614 (collectively, the "Cancellation Proceedings"), and stayed the Cancellation Proceedings pending disposition of the "tomato sauce litigation." (Grandinetti Decl. Ex. 18 at TTAB 1-113-117; Ex. 20 at TTAB 2-022-026.)

On February 15, 2000, the PTO issued an Office Action refusing Patsy's Italian Restaurant's application for PATSY'S PR for restaurant services based on U.S. Trademark Registration Nos. 1,874,789, 1,975,110 and 2,213,574. (Grandinetti Decl. Ex. 19 at USPTO 3-009-012.) The first registration is owned by plaintiffs, while the second two registrations were then owned by I.O.B. In the Office Action, the PTO provided plaintiff with the opportunity to "respond to the refusal to register by submitting evidence and arguments in support of registration." (Id. at USPTO 3-012.) On April 13, 2001, Patsy's Italian Restaurant filed an additional trademark application for the mark PATSY'S for restaurant services, "not including pizza." (Grandinetti Decl. Ex. 21 at USPTO 4- 055.) The PTO responded with an additional Office Action on August 13, 2001, refusing Patsy Italian Restaurant's application for PATSY'S, "not including pizza," based on U.S. Trademark Registration Nos. 1,874,789, 1,975,110 and 2,213,574. (Id. at 4-010.) Again, plaintiff was provided the opportunity to "respond to the refusal to register by submitting evidence and arguments in support of registration," as provided by statute. (Id. at 4-013.)

On April 18, 2001, the United States District Court for the Southern District of New York entered judgment for Patsy's Brand in the tomato sauce litigation, granting permanent injunctive relief. The injunction not only prohibited use of the defendants' tomato sauce label, but also cancelled I.O.B.'s Registration No. 1,975,110 for the mark PATSY'S to be used in connection with restaurant services, and permanently enjoined the defendants from listing or identifying their businesses as "Patsy's" alone, or as "Patsy's Restaurant," in any telephone directory, sign or advertisement." (Grandinetti Decl. Ex. 22.)

Following the District Court's judgment, and Amended Final Judgment dated October 4, 2001, Patsy's Brand filed a request to reinstate the Cancellation Proceedings on October 15, 2001. (Grandinetti Decl. Ex. 18 at TTAB 1-169-176; Ex. 20 at TTAB 2-064-071.) I.O.B. did not file a response to Patsy's Brand's motion. However, on October 26, 2001, I.O.B. filed a timely Notice of Appeal to the United States Court of Appeals for the Second Circuit from the District Court's April 18, 2001 judgment and October 4, 2001 amended judgment.

On September 4, 2002, the TTAB granted Patsy's Brand's request to reinstate the Cancellation Proceedings "as conceded," and issued an entry of judgment, granting Patsy's Brand's petition for Cancellation No. 92/029,614. The judgment further stated that I.O.B.'s "Registration No. 1,975,110 [for the mark PATSY'S in connection with restaurant services] will be cancelled in due course." (Grandinetti Decl. Ex. 18 at TTAB 1-177-178; Ex. 20 at TTAB 2-072-073.) On September 6, 2002, Patsy's Italian Restaurant received a Notice of Suspension from the PTO for its applications for the marks PATSY'S PR and PATSY'S, "not including pizza," both to be used in connection with restaurant services. Each notice informed Patsy's Italian Restaurant that the refusal of its applications based upon I.O.B.'s registrations was "withdrawn as these marks were cancelled on September 4, 2002." (Grandinetti Decl. Ex. 19 at USPTO 3-062; Ex. 21 at USPTO 4-053.)

On January 16, 2003, the Second Circuit entered judgment modifying the injunction, but otherwise affirming the District Court's judgment. See Patsy's Brand, Inc., 317 F.3d, at 212. In that decision, the Second Circuit found that the injunction exceeded its scope, requiring three modifications: (1) the suit pertained to labels for sauces, not restaurant services, and therefore struck down the provision of the order enjoining the defendants from listing or advertising their restaurant in a telephone directory, sign or advertisement as "Pastsy's" or "Patsy's Restaurant;" and for the same reasoning (2) deleted the provision canceling the defendant's registration for the service mark PATSY'S for restaurant services (Registration No. 1,975,110).*fn7 Id. at 221. The Second Circuit left open the question of whether I.O.B. could continue its use of the PATSY'S PIZZERIA mark (Registration No. 2,213,574). However, the Second Circuit stated in dicta:

The restaurants [Patsy's Italian Restaurant and Patsy's Pizzeria] have coexisted with similar names for decades. Indeed, that circumstance has inured to the benefit of [Patsy's Brand] by affording it the opportunity to use the dominant feature of [the Patsy's Italian Restaurant] name, "Patsy's," in its sauce labeling, despite the prior use of that same feature in the name of [I.O.B.'s] restaurant. Having secured that benefit in a suit concerned with its recent decision to market pasta sauce, [Patsy's Brand] cannot use this litigation to restrict the way the Defendants have been identifying their restaurant business for several decades. Whether or not such relief might be warranted in a suit concerned with restaurant services is beyond the scope of this litigation. Although we conclude that the injunction should be confined to the marketing of pasta sauce and food products and should not reach Defendants' restaurant business, we suggest to both sides that henceforth they would be well advised to minimize the risk of confusion by identifying their restaurants by their complete names: "Patsy's Italian Restaurant" and "Patsy's Pizzeria."

Id. at 221. I.O.B. thereafter filed a petition for rehearing, which was decided on March 27, 2003. The order further modified the District Court's injunction by adding the following provision:

This injunction does not prohibit the Defendants from using the name PATSY'S PIZZERIA on take-out boxes into which hot pizza, cooked in the Defendants' own pizzerias and sold in such pizzerias (not in grocery stores, supermarkets, or other retail stores), is placed so that a ...


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