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Microban Products Co. v. API Industries, Inc.

United States District Court, S.D. New York

May 8, 2014

MICROBAN PRODUCTS CO., Plaintiff,
v.
API INDUSTRIES, INC., d/b/a ALUF PLASTICS, INC., Defendant.

OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge.

For seven years, the parties to this litigation had a business arrangement by which Defendant Aluf Plastics manufactured special trash bags using antimicrobial compounds it purchased from Plaintiff Microban Products, and then used the Microban name and trademarks to co-brand and market those trash bags. Unfortunately, over the past 12 months, the relationship has soured - in no small part because Aluf purchased and took possession of over 100, 000 pounds of antimicrobial compounds from Microban, but refused to pay for those materials unless and until its licensing agreement with Microban, which expired by its terms in the summer of 2014, was extended indefinitely.

Microban seeks two things in this litigation: the money it is owed from Aluf and control over its trademarks. In lieu of moving for a preliminary injunction, Microban now moves for summary judgment on its claims for trademark infringement, trademark dilution, unfair competition, goods sold and delivered, account stated, and breach of contract under New York State law; and for trademark infringement under the Lanham Act, 15 U.S.C. §§ 1114(1)(a), 1125(a)(1); it also moves for a permanent injunction barring Aluf from improperly using the Microban marks to co-brand Aluf's trash bags. For the reasons discussed below, Microban's motion for summary judgment is granted, as is its motion for a permanent injunction.

BACKGROUND[1]

A. Factual Background

1. The Parties

Microban Products Company ("Microban" or "Plaintiff") is a North Carolina corporation with its principal place of business in Huntersville, North Carolina. (Compl. ¶ 1). Among its other businesses, Microban develops, manufactures, and sells proprietary antibacterial, antifungal, and antiviral chemical additives (the "Microban Compounds"). (Pl. 56.1 ¶ 1). API Industries, Inc., doing business as Aluf Plastics, Inc. ("Aluf" or Defendant"), is a New Jersey corporation with its principal place of business in Orangeburg, New York. ( Id. at ¶ 15). Aluf manufactures industrial liners and other plastic products for commercial and consumer use, including plastic trash bags. ( Id. at ¶ 16; Def. 56.1 ¶ 34).[2]

2. Microban's Marks

Microban owns or holds various federally registered trademarks or service marks, as well as unregistered marks (taken together, the "Microban Marks"), related to the development, manufacture, and sale of the Microban Compounds. (Pl. 56.1 ¶ 1). The Microban Compounds can be incorporated into various polymeric, textile, or other materials in order to imbue those materials with durable antimicrobial qualities; as relevant here, those qualities can prevent algae and other organisms from growing on plastic trash bags. ( Id. at ¶ 2).

The Microban Marks at issue here, attached as Exhibit A to the Declaration of Stephen Kreps, are valid and subsisting, unrevoked, uncanceled, and incontestable. (Kreps Decl. Ex. A; Pl. 56.1 ¶ 4). Microban has used the Microban Marks for over 15 years, and has invested millions of dollars in creating, maintaining, and promoting the goodwill associated with the Marks. (Pl. 56.1 ¶¶ 5-7). As a result, Plaintiff avers, the Microban Marks are favorably recognized and relied upon, within various industries and among the consumer public, as indicating high quality antimicrobial goods and services. ( Id. at ¶ 8).

3. Microban's Licensing Agreement with Aluf

Microban regularly enters into licensing agreements with third parties pursuant to which Microban grants exclusive or non-exclusive licenses to use the Microban Marks as a co-brand in marketing or selling goods that incorporate the Microban Compounds. Indeed, Microban earns significant revenue from this practice. (Pl. 56.1 ¶¶ 10-11).

Of note here, on or about March 1, 2006, Microban[3] entered into a license and supply agreement with Aluf (the "Agreement"). (Pl. 56.1 ¶ 17). The Agreement granted Aluf a "non-exclusive, non-transferable right and license to use the [Microban] Trademark as a co-brand in the marketing and sale of the Products" in Canada and the United States (the "Trademark License"). ( Id. at ¶ 18). Under the terms of the Agreement, Aluf agreed to purchase 75, 000 pounds of a customized Microban Compound at a fixed price of $8.00 per pound in "Agreement Years 1 through 3, " and 100, 000 pounds of the same in "Agreement Years 4 through 6" (the "Minimum Purchase Requirement"); Year 6 ended in 2014. ( Id. at ¶¶ 22-23).

The Minimum Purchase Requirement functioned as a "take or pay provision, " such that if Aluf did not meet the Minimum Purchase Requirement, it was obligated to remit a discounted price as liquidated damages. (Pl. 56.1 ¶ 24). Initially, the "take or pay" provision provided for a penalty comprising 100% of the Minimum Purchase Requirement. (Compl. Ex. A § 10). However, in a subsequent amendment to the Agreement, the parties negotiated for a penalty that comprised 62.5% of the Minimum Purchase Requirement. (Rosenberg Decl. ¶ 13).[4]

The Agreement became exclusive as of April 1, 2007, and the Trademark License contained therein was only valid during the term of the Agreement. (Pl. 56.1 ¶¶ 20-21). The Agreement terminated on June 30, 2013, after having been extended three times. ( Id. at ¶¶ 22-23; Compl. Ex. A). The Agreement did not provide for a sell-off period for Aluf's existing inventory, nor for any right for Aluf to use the Microban Marks after the Agreement terminated.

4. The Parties' Business Arrangement

Per the practices established by the Agreement, Aluf would provide Microban with the base resin, which Microban would combine with various antimicrobial chemicals to make the finished Microban Compound, which would then be returned to Aluf in the form of pellets. (Pl. 56.1 ¶ 25; Def. 56.1 ¶ 37). Aluf then incorporated the Microban Compound into garbage bags for retail, commercial, health care and food service applications. (Compl. Ex. A § 4). Prior to the Agreement's expiration, Aluf used the Microban Marks as a cobrand in connection with the sale and promotion of Aluf's goods, including on Aluf's website, marketing materials, and product packaging. (Pl. 56.1 ¶ 26).[5]

5. Aluf's May 2013 Order

As the termination date of the Agreement approached in 2013, Aluf had not yet met the Minimum Purchase Requirement of Microban Compound for that year. (Pl. 56.1 ¶ 27). In fact, Aluf already had Microban Compound in its inventory at the beginning of 2013. (Def. 56.1 ¶ 44; Pl. 56.1 Response ¶ 44).[6] Nonetheless, Aluf elected to purchase the entire Minimum Purchase Requirement for that year, approximately 100, 000 pounds, on May 31, 2013. (Pl. 56.1 ¶ 28).[7]

After Microban received the resin from Aluf, it manufactured the Microban Compound in four batches between June and July 2013. (Pl. 56.1 ¶ 29).[8] Each batch was invoiced when it was picked up by Aluf from Microban's compounding facility; the last batch was invoiced to Aluf on July 31, 2013. ( Id. at ¶¶ 29, 30, 32).[9] The total invoiced amount was $800, 876. ( Id. at ¶ 34). Aluf remitted $50, 000 on its invoice, but has not paid the remaining $750, 876. ( Id. at ¶¶ 36-37). At no time, however, has Aluf objected to the quality, quantity, or conformance of the Microban Compound it received. ( Id. at ¶ 35).

6. The Termination of the Agreement and Subsequent Communications

The Agreement terminated on June 30, 2013, and has not since been renewed. (Compl. Ex. A). Despite Microban's efforts to the contrary, since June 30, 2013, including since the commencement of this action in January 2014, Aluf has not changed the way it uses the Microban Marks as a co-brand on its website, marketing materials, or product packaging. (Pl. 56.1 ¶¶ 38-39). Instead, Aluf has engaged in a campaign of extortion culminating in the instant lawsuit.

On September 17, 2013, Microban's Director of Business Development notified Aluf of its past-due payments. (Pl. 56.1 ¶ 40). The next day, Martin Ayrovainen, Aluf's Chief Financial Officer, promised to call a Microban representative; he did not dispute the amount owed, or the fact that Aluf's right to continue to use the Microban Marks had expired. ( Id. at ¶¶ 41-42). Specifically, Ayrovainen wrote:

As you know, Aluf now literally has years' worth of Microban [product] and I heard recently that our use of the Microban trademark does not come close to covering that same time frame. This is concerning to say the least.

( Id. ¶ 42 (emphasis added)).

Ayrovainen wrote several weeks later, on October 1, 2013, to inquire as to "how long [Aluf] could continue to use the [Microban Marks], " writing:

[M]ight there be anything to report on the trademark use side? The ability to market our products with the Microban trademark is important... I am concerned that Aluf's outside auditors will ask me to write down the value of our Microban inventory. Not just because we have over a year of inventory, but also because generic antimicrobials seem to be much less expensive on a per-pound basis than the amount Aluf is being asked to pay for Microban.

( Id. at ¶ 43).[10] Microban responded the next day by letter, stating:

Aluf has no right to use the trademark after [June 30, 2013], and absent a new license, any such use is prohibited. We specifically communicated this to Aluf during the negotiations this summer. This is all completely irrelevant, however, to the issue at hand. Aluf is seriously in arrears on a balance of $750, 876. Until this is paid in full, we cannot entertain any discussions of extending the trademark license.

( Id. at ¶ 44).

Steven Kreps, the Chief Financial Officer of Microban, wrote Ayrovainen on October 25, 2013, to demand that Aluf pay its arrearages and "cease and desist from any further use of the Microban trademark and name, including on your website, marketing materials, and product packaging." (Pl. 56.1 ¶ 45). Aluf did no such thing. By November 8, 2013 letter to Aluf's outside counsel, Microban's outside counsel reiterated Kreps's demands for payment and for Aluf to cease its infringement of the Microban Marks. ( Id. at ¶ 46). Again, Aluf did no such thing.

Aluf's position has remained constant: it will only pay for the Microban product it purchased if Microban agrees to extend the Trademark License, at no additional cost, for as long as it takes for Aluf to sell its inventory of trash bags. (Pl. 56.1 ¶ 53; Def. 56.1 ¶¶ 49-50). Aluf estimates that this could take up to three years. (Rosenberg Decl. ¶ 24). Conversely, Microban alleges that Aluf's continued use of the Microban Marks as a co-brand prevents it and its affiliates from granting new and/or exclusive licenses to any third party with respect to trash bags, and damages Microban's reputation and goodwill. (Pl. 56.1 ¶ 47).[11]

B. Procedural History

Microban initiated this action on January 6, 2014. (Dkt. #1). Plaintiff concomitantly moved for a temporary restraining order ("TRO"), seeking to restrain Aluf from further using the Microban Marks. United States District Judge Laura Taylor Swain, who was then assigned to the case, denied Microban's application for a TRO on January 7, 2014, following oral argument. (Dkt. #3). Judge Swain found that Microban had failed to demonstrate that it would suffer irreparable harm during the pendency of its contemplated motion for a preliminary injunction. ( Id. ).

Ultimately, the case was reassigned to the undersigned on January 8, 2014. That day, Plaintiff notified the Court that it intended to move for summary judgment and a permanent injunction on an expedited basis, in lieu of moving for a preliminary injunction.

Pursuant to the briefing schedule set forth at a January 16, 2014 premotion conference (Dkt. #11), Plaintiff's motion for summary judgment was filed on January 31, 2014 (Dkt. #20), Defendant's opposition was filed on March 3, 2014 (Dkt. #25), and the motion was fully submitted as of the filing of Plaintiff's reply on March 10, 2014 (Dkt. #30). Also pursuant to the Court's instructions, Defendant answered and filed various counterclaims on January 22, 2014 (Dkt. #13); Plaintiff answered those counterclaims on February 12, 2014 (Dkt. #24).[12]

DISCUSSION

A. Plaintiff's Motion for Summary Judgment

1. Applicable Law

Plaintiff has moved for summary judgment and a permanent injunction as to the claims asserted in its Complaint. Under Fed.R.Civ.P. 56(a), summary judgment may be granted only if all the submissions taken together "show[] that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law." See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).

The moving party bears the initial burden of demonstrating "the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323. A fact is "material" if it "might affect the outcome of the suit under the governing law, " and is genuinely in dispute "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248; see also Jeffreys v. City of New York, 426 F.3d 549, 553 (2d Cir. 2005) (citing Anderson ). The movant may discharge this burden by showing that the nonmoving party has "fail[ed] to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322; see also Selevan v. N.Y. Thruway Auth., 711 F.3d 253, 256 (2d Cir. 2014) (finding summary judgment appropriate where the non-moving party fails to "come forth with evidence sufficient to permit a reasonable juror to return a verdict in his or her favor on an essential element of a claim" (internal quotation marks omitted)).

If the moving party meets this burden, the nonmoving party must "set out specific facts showing a genuine issue for trial" using affidavits or otherwise, and cannot rely on the "mere allegations or denials" contained in the pleadings. Anderson, 477 U.S. at 248, 250; see also Celotex, 477 U.S. at 323-24; Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009). The nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts, " Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (internal quotation marks omitted), and cannot rely on "mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment, " Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir. 1986) (quoting Quarles v. General Motors Corp., 758 F.2d 839, 840 (2d Cir. 1985)). Furthermore, "[m]ere conclusory allegations or denials cannot by themselves create a genuine issue of material fact where none would otherwise exist." Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010) (quoting Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995) (internal quotation marks and citations omitted)).

2. Discussion

Microban alleges two general categories of claims: those concerning Aluf's failure to pay, and those concerning Aluf's putative infringement of the Microban Marks. As to the former, Microban alleges that it should receive immediately the $750, 876 it is owed, under one or more of the theories of breach of contract, goods sold and delivered, or accounts stated under New York State law. (Pl. Br. 8-10). Aluf does not contest that it owes this amount, nor does it substantively respond to many of the arguments Microban makes in this regard. Instead, Aluf premises its entire defense on what it deems its "absolute" right to use the Microban Marks indefinitely; this argument, of course, relates to Microban's second set of claims, for trademark infringement. ( See, e.g., Def. Opp. 4-5). In other words, while Aluf does not contest that it owes Microban such a substantial sum, it conditions its willingness to pay on its ability to use the Microban Marks for an indeterminate additional period of time, without paying any additional fees to Microban. In light of this defense strategy, the Court will first address Microban's trademark infringement claims.

a. Microban Is Entitled to Summary Judgment on Its Trademark ...


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