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Wathne Imports, Ltd v. Prl Usa

October 18, 2012


Plaintiff appeals from the order of the Supreme Court, New York County (Charles E. Ramos, J.), entered March 6, 2012, which, insofar as appealed from, granted defendants' motion in limine to preclude plaintiff's expert from testifying as to a particular measure of damages for lost profits for sales of handbags bearing the "Polo Sport" trademark, and from the order of the same court and Justice, entered February 29, 2012, which granted, in effect, the same relief.

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

Wathne Imports, Ltd. v PRL USA, Inc.

Decided on October 18, 2012

Appellate Division, First Department

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Angela M. Mazzarelli,J.P. David B. Saxe Leland G. DeGrasse Rosalyn H. Richter Sheila Abdus-Salaam, JJ. Index 603250/05


Plaintiff Wathne Imports Ltd. is a privately held family business that has been a licensee of defendants PRL USA Inc., The Polo/Ralph Lauren Company L.P. and Polo Ralph Lauren Corporation (collectively, Polo) since 1984, manufacturing and selling products bearing Polo/Ralph Lauren brand trademarks, doing business under the name "Polo Ralph Lauren Handbag and Luggage Company." On November 23, 1999, Wathne and Polo entered into an amended license agreement under which Polo granted Wathne the exclusive license through December 31, 2007 to manufacture and sell handbags in the United States and Canada bearing the marks "Polo by Ralph Lauren," "Ralph (Polo Player Design) Lauren," "Ralph Lauren" (including "Collection" and "Blue Label"), "Polo Sport," "Lauren/Ralph Lauren" and "Polo Jeans Co." If Polo discontinued one of those trademarks, the agreement required it to provide Wathne with a replacement mark of "substantially equivalent market value." The amended license agreement also gave Wathne a non-exclusive right to sell the merchandise outside the U.S. and Canada with Polo's consent, which right Polo could terminate upon 180 days' written notice.

Wathne alleges that Polo breached the license agreement by, inter alia, discontinuing the use of the "Polo Sport" mark in 2001 without replacing it with a substantially equivalent mark.

In their in limine motion, defendants asked the trial court to preclude plaintiff's use of its expert at trial and to exclude any testimony and evidence regarding alleged lost profits from international sales. The court granted defendant's motion by precluding plaintiff from establishing its lost profits through the testimony and reports prepared by plaintiff's damages expert, to the extent the expert used Coach, Inc., as a comparable in calculating the growth rate that Wathne could have achieved in its handbag sales. The court also precluded plaintiff from relying on international sales in calculating its lost profits claim.

Plaintiff's designated damages expert was Glenn Newman, an experienced CPA who was a partner at ParenteBeard LLC and was accredited by the American Institute of Certified Public Accountants in certified financial forensics. At his deposition and in his expert report, Newman analyzed, inter alia, Wathne's damages arising from the discontinuance of the Polo Sport mark. To do so, he determined the average of the actual gross sales from Polo Sport handbags during the period 1998 to 2000, and then compared the available data from other companies selling handbags -- specifically, Coach and J. Tod's s.p.a. -- as benchmarks for determining the growth rate in the handbag industry since then. Newman explained that he used Coach's and J. Tod's figures because no other companies publicly reported handbag sales. Newman concluded that sales of Polo Sport-branded handbags would have grown throughout the license period, noting that it was a period when people were buying more handbags, as shown by Coach's handbag sales, which had grown at a rate of 30% a year, a figure he verified by cross-checking against J. Tod's handbag sales during that period. Newman extrapolated that, had Polo not discontinued the Polo Sport brand in 2001, Wathne's revenues between 2001 and 2007 would have grown at a compounded annual growth rate of 25%, and using that growth rate, Newman projected that Polo Sport sales should have been $341.3 million between July 1, 2001 and December 31, 2007. He then calculated lost profits on Polo Sport sales of $82.6 million.

Although Newman stated in his expert report that Wathne and Coach had comparable distribution channels, he acknowledged during his deposition that Coach operated out of its own 259 retail stores, while Wathne sold to outlet stores and department stores and did not operate any retail stores of its own. He also acknowledged the sales projections Wathne made in February 1998 and April 2000, in which it stated that "the business continue[d] to decline in Polo Sport" during the preceding periods; according to Newman, market segmentation had affected Wathne's sales results. Newman explained that he took these factors into account in forming his damage assessment.

In their in limine motion, defendants' expert asserted that Newman's damages estimate was grossly overstated, in view of Wathne's actual profits in the previous years, and suggested that the assumptions upon which Newman based his calculation were "aggressive and speculative." Defendants also retained an industry expert, Victor Lipko, who challenged Newman's premise by asserting that Coach's and Tod's handbags were not competitive with plaintiff's; however, Lipko acknowledged that he did not know of any publicly ...

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