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Bongo Apparel, Inc. v. Iconix Brand Group, Inc.

Other Lower Courts

January 2, 2008

Bongo Apparel, Inc., Plaintiff,
v.
Iconix Brand Group, Inc. f/k/a CANDIE'S INC., and IP HOLDINGS, LLC, Defendants.

Editorial Note:

This case is not published in a printed volume and its disposition appears in a table in the reporter.

COUNSEL

For Plaintiff: Blank Rome LLP (Laurence S. Shtasel, Stephen J. Meyer)

For Defendant: Morrison Cohen LLP (Malcolm I. Lewin, Ethan R. Holtz)

OPINION

Bernard J. Fried, J.

The instant action arises out of various disputes relating to the execution and performance of two license agreements, granting plaintiff Bongo Apparel, Inc. (BAI), use of the "BONGO" fashion brand trademark (the Bongo mark) in the design, manufacture, distribution, and sale of certain jeans wear and active wear. Defendant Iconix Brand Group, Inc. (Iconix), formerly known as Candie's Inc. (Candie's), the alleged owner of the Bongo brand, and defendant IP Holdings, LLC (IPH), its wholly-owned subsidiary, now move, pursuant to 3211 (a) (1), (a) (5), and (a) (7), to dismiss the first through thirteenth causes of action in plaintiff's amended complaint.

Iconix, a Delaware corporation headquartered in New York, is the owner of numerous fashion brands, including the Bongo brand. Iconix allegedly is in the business of licensing and marketing these fashion brands to various manufacturers and retailers through its subsidiary, IPH, a Delaware limited liability company headquartered in Delaware. IPH is the actual owner and licensor of certain trade names and trademarks associated with these fashion brands, including the Bongo mark.

According to plaintiff's amended complaint, in January of 2004, Neil Cole, the Chief Executive Officer and President of Iconix, approached James Tate, a vice president of non-party TKO Apparel Licensing, Inc. (TKO), to ascertain whether TKO would be interested in acquiring the license to use the Bongo mark in connection with the design, manufacture, distribution and sale of certain types of women's jeans wear and active wear (the Articles). TKO allegedly was then in the business of acquiring brand licenses for the purpose of designing, manufacturing and selling apparel. At the time, the license to produce the Articles was held by non-party Unzipped Apparel, LLC. (Unzipped), another wholly-owned subsidiary of Iconix. Unzipped was then being managed by non-parties Hubert Guez and Sweet Sportswear, LLC (Sweet). Cole allegedly was dissatisfied with the Guez/Sweet management, and wanted TKO to execute a new license to acquire use of the Bongo mark. Cole also allegedly wanted TKO to assume management responsibility for the Bongo product line over the next six months, at which time the Guez/Sweet management agreement was to expire.

On June 9, 2004, following extensive negotiations, IPH and TKO executed the license agreement, which granted TKO, with certain exceptions, "the exclusive right and license" to use the Bongo mark for production and sale of the Articles between August 2, 2004 and December 31, 2007 (the License Agreement) ( see Meyer Affirm., Exh. B). The License Agreement required TKO, as licensee, to meet certain minimum sales targets and make various royalty payments, as set forth in the agreement. In turn, IPH, as licensor, agreed that it w[ould] not compete with Licensee through ... any ... entity that it owns or controls (with the exception of the co-existence of Unzipped through no later than January 31, 2005) in the design, manufacture, sale or distribution of Articles during the Term  (id., Section 12.1 [d]). Additionally, in Section 5.3 of the License Agreement, the parties agreed that, if, as a direct result of willful actions or deliberate inactions of the Manager of Unzipped or Licensor, or any of their respective Affiliates, the market share of the Business and the ability of Licensee to perform during the first Year of this Agreement is actually damaged, a fair reduction in Minimum Net Sales will be discussed to reflect this occurrence (id.).

Plaintiff alleges that, prior to execution of the License Agreement, and in order to assuage Tate's expressed concerns about (a) obtaining cooperation from Guez during the discussed six-month transition period, and (b) retaining the current sales staff of Unzipped, Cole made certain representations and warranties to Tate that served as inducement for, and subsequently became part of, the License Agreement. Specifically, Cole allegedly represented that he would make all efforts to effect a smooth transition, and agreed to the inclusion of the following "Smooth Transition" clause in their agreement:

[t]he Parties will work together in good faith and use commercially reasonable efforts to minimize any discounts, deductions, set-offs or other claims made by purchasers of Articles that arise from transactions or other business conducted by any Manager or licensee of the BONGO jeans wear business prior to the Term arising from the transfer of the License hereunder. The Parties will use all commercially reasonable efforts to effect a smooth transition of the BONGO jeans wear business, including facilitating discussions and the transfer of information to factories, agents, retailers and other business partners who are involved in the BONGO jeans wear business. It is the goal of the Parties that there be no material detrimental impact on the business, its market share or its goodwill, resulting solely from the transition of the business by Licensor to Licensee.

( id., Section 1.5). Cole also represented that he would make efforts to maintain staff integrity during the transition, and agreed to the inclusion of certain incentive provisions, to encourage key sales people, such as Gary Bader, the then-President of Sales at Unzipped, to remain with the Bongo brand through the discussed six-month transition period (id., Section 12.1[i-j]).

Plaintiff alleges, however, that almost immediately after execution of the License Agreement, defendants began to renege on their key promises and breach these provisions of the agreement. Specifically, plaintiff alleges that, despite the discussion of a six-month transition period, Cole began pressuring TKO to take over the management of the Bongo mark from Guez right away. Plaintiff further alleges that, despite the License Agreement's Smooth Transition clause, and over Tate's vehement objections, in early August of 2004, Cole unilaterally terminated Guez as manager of Unzipped. Cole also allegedly interfered with Bongo's production by contacting Sweet's factories and financiers to inform them of the impending termination. Additionally, in October 2004, following a disagreement with Bader regarding Cole's plans to start shipping Bongo brand merchandise to Kohl's Department Stores (Kohl's), Cole allegedly embarked on a campaign to harass and intimidate Bader into resigning.

The complaint alleges that, as a result of Cole's actions, BAI, an affiliate of TKO, was forced to execute an agreement with Iconix in September 2004, to assume the immediate management of Unzipped (the Management Agreement). Additionally, Cole's interference with Sweet's financiers allegedly caused them to stop funding production of the Bongo line and to begin liquidating Sweet's obligations. As a result, BAI was forced to advance Iconix a $2.5 million loan in order to keep the Bongo brand alive. Plaintiff alleges that the ensuing disruptions and production delays forced BAI not only to pay higher production and freight costs to produce and ship Bongo goods, but to lower its prices. BAI alleges that, notwithstanding its attempts to salvage its customer relationships, the ensuing turmoil caused it to lose the confidence of many of Unzipped's customers, leading them to cancel orders. BAI further alleges that Cole's decision to ship Bongo merchandise to Kohl's, damaged Unzipped's relationship with its largest customer, JC Penney, and, combined with the foregoing production delays, caused JC Penney to begin pulling its business from the Bongo brand. Plaintiff alleges that the resulting losses caused further damage to BAI, which, by assignment dated November 10, 2004, had assumed all of TKO's rights and obligations under the License Agreement.

Allegedly, to help ameliorate some of these problems, in late 2004, Cole approached Tate about developing and adding a young men's Bongo line to BAI's current business. To induce BAI to take on this new Bongo line, Cole allegedly represented to Tate that two other experienced business figures, Kenneth Cole and Charles Mamiye, would be executing licenses to produce other products under the Bongo mark. Believing that the introduction of these additional products would create more exposure, and enhance the prospects for a new Bongo line, Tate allegedly agreed to enter into the new license. On December 15, 2004, however, the day on which this second license agreement was to be executed, Tate allegedly learned that Mamiye might not be executing its proposed license and expressed his concerns to Cole. After receiving assurances from Cole that Mamiye would be acquiring the license, BAI executed the second license agreement, which granted BAI the exclusive right to use the Bongo mark in connection with the design, manufacture, and distribution of men's jeans wear and active wear (the Men's License Agreement) ( see id., Exh. C).

Plaintiff alleges that, as part of the Men's License Agreement, Iconix agreed to develop and place national or institutional advertising for the new Men's Bongo line, from royalties paid by BAI. Plaintiff alleges, however, that in breach of this provision of their agreement, defendants failed to begin fulfilling this contractual obligation until late 2005. Subsequently, BAI also discovered that Mamiye had not executed a license agreement to produce other Bongo products, as had been promised by Cole.

In addition to the various license breaches, BAI alleges that, by January 2005, Iconix also had breached its Management Agreement with BAI, by becoming delinquent in paying the monthly management fees due to BAI under that agreement. Plaintiff further alleges that, by March and/or April of 2005, defendants had become delinquent in paying back the $2.5 ...


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