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The Oneida Group Inc. v. Steelite International U.S.A. Inc.

United States District Court, E.D. New York

May 10, 2017

THE ONEIDA GROUP INC., Plaintiff,
v.
STEELITE INTERNATIONAL U.S.A. INC., TABLEWERKS INC., RICHARD ERWIN, STEVEN LEFKOWITZ and ANTHONY DELOSREYES, Defendants.

          Milbank Tweed Hadley & McCloy, LLP Attorneys for the Plaintiff Christopher J. Gaspar, Esq., Mark C. Scarsi, Esq., Ashlee Lin, Esq., Kristin L. Yohannan, Esq., Ryan N. Hagglund, Esq., Nathaniel T. Browand, Esq., of Counsel

          Gordon & Rees LLP Attorneys for the Defendants Steelite International U.S.A., Inc., Steven Lefkowitz, and Anthony DeLosReyes Howard Shipley, Esq.John G. Ebken, Esq., Thomas L. Allen, Esq., Paul Eastgate, Esq., Peter G. Siachos, Esq., of Counsel

          Moses & Singer Attorneys for the Defendants David M. Rabinowitz, Esq., Shari Ann Alexander, Esq., Of Counsel

          MEMORANDUM OF DECISION AND ORDER

          ARTHUR D. SPATT UNITED STATES DISTRICT JUDGE.

         This action centers on whether certain dishes obtained trade dress protections under the Lanham Act or New York State law, and whether two parties ever entered into an exclusive distribution contract for those dishes.

         The Plaintiff Oneida Group, Inc. (the “Plaintiff” or “Oneida”) brought this action against the Defendants Steelite International U.S.A. Inc. (“Steelite”), Tablewerks Inc. (“Tablewerks”), Richard Erwin (“Erwin”), Steven Lefkowitz (“Lefkowitz”), and Anthony DeLosReyes (“DeLosReyes”) (collectively, the “Defendants”). Oneida sought damages and injunctive relief, alleging trade dress infringement under the Lanham Act, 15 U.S.C. § 1125(a) and New York common law; unfair competition under New York common law; trade secret misappropriation in violation of the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. § 1836; New York state common law pertaining to misappropriation of trade secrets; Ohio state laws pertaining to misappropriation of trade secrets, Ohio Rev. Code § 1333.61 et seq.; breach of contract, and tortious interference with business relations.

         Oneida initially moved for a temporary restraining order, a preliminary injunction, and expedited discovery. The Court referred Oneida's motion to Magistrate Judge A. Kathleen Tomlinson for a report and recommendation (an “R&R”). Judge Tomlinson did an outstanding job under these very expeditious circumstances. On February 28, 2017, Judge Tomlinson issued an R&R recommending that the Court issue a temporary restraining order pending resolution of Oneida's motion for a preliminary injunction. Judge Tomlinson followed up her initial R&R with a full written opinion on March 14, 2017. Following that ruling, the Court held a five day hearing from April 10, 2017 through April 14, 2017 to resolve Oneida's motion for a preliminary injunction.

         This decision is rendered following a five day preliminary injunction hearing, and the benefit of multiple memoranda from each party. For the following reasons, Oneida's motion for a preliminary injunction is denied; the temporary restraining order is vacated; and Oneida's motion for expedited discovery is granted.

         I. THE HEARING

         The Court will not engage in a detailed recitation of all of the evidence presented over the course of the five day hearing. Knowledge of the underlying facts is presumed. The Court notes that the hearing transcript (“Tr.”) spans over nine hundred pages, and dozens of exhibits were entered into evidence. However, for the purposes of the instant motion, the Court will review the relevant portions of the testimony presented during the hearing.

         A. The Plaintiff's Case

         1. Corrie Byron

         Corrie Byron (“Byron”) is the President of Food Service and International at Oneida. Byron testified that Oneida has been in business for over a century. It sells tabletop products, including dinnerware, drinkware, flatware and banquetware. As to dinnerware, one of its most promoted lines is the Sant' Andrea line including the Botticelli design and the Nexus design. Byron leads a team of approximately twenty-six sales persons.

         The Court notes that later testimony revealed that these plates are manufactured by Royal Porcelain in Thailand. Royal Porcelain makes the plates and sells them to Tablewerks. Oneida would place orders for the Sant' Andrea dishes with Tablewerks, and Tablewerks sold the dishes to Oneida.

         Byron testified that customers recognize these two plates by the patterns on the plates. The plates are premier dinnerware and considered to be luxury brands. The customers of the Oneida Sant' Andrea line are hotels, cruise lines and fine dining establishments, including Royal Caribbean Cruise Line, Hilton hotels, Hyatt Hotels, and Garden Bringer. The plates are primarily not sold directly to the customers by Oneida. The plates are typically sold by Oneida through dealers and distributors, but in some situations, Oneida will sell directly to an end user.

         Byron testified that she has been in personal contact with most of these ultimate customers, and that there is a lot of confusion in the market due to the current situation. There are twenty-six members in Oneida's sales team and fifteen people are in the Sant' Andrea products group.

         Botticelli is the number one product in Oneida's sales. The Botticelli pattern was launched in the market fifteen or sixteen years ago. It is its largest product and it consummates eight million dollars in Oneida's total sales of sixteen million dollars. The Oneida sales for fiscal year 2014 was $16, 175, 000 and $16.6 million for the year 2015. In 2016, the Sant' Andrea dinnerware represented close to 15% of the total Oneida food service sales.

         Also introduced in evidence was the Oneida Food Service Cost Structure (Pl.'s Ex. 61). The investment in the Sant' Andrea line was approximately $48 million dollars over a period of nineteen years. The average annual investment was in excess of $2.5 million dollars.

         In 2016, Oneida paid $2, 109, 715 in commissions. This money is paid to sales agents as commissions to promote Oneida's products. The Sant' Andrea products represent 16% of the Oneida total food service sales. In addition to dinnerware, Oneida also supplies knives, forks, spoons, glassware and banquetware. However, the sale of dinnerware drives the sales of other food service products. Oneida had investments of approximately $1, 380, 000 with Royal Porcelain, the manufacturer of the Sant' Andrea products, for tooling costs.

         Also, Oneida furnishes dinnerware catalogs to explain its line and promote sales of its products. Oneida printed these catalogs every year for the last nineteen years. The catalogs include the Botticelli dinnerware. Oneida also issues printed sales promotional material for a television line. The Sant' Andrea Botticelli dinnerware won an award in February 2014. In addition, another award was given to the Sant' Andrea Botticelli design from the Club and Resort Company.

         On December 13, 2016, Byron received a letter from Steelite related to its acquisition of Tablewerks. (Pl.'s Ex. 2). The letter stated that:

Steelite [had] acquired substantially all assets, intellectual property, and other rights of Tablewerks . . . . Please be advised that . . . Steelite intends to self-distribute all product produced by Royal Porcelain under the Royal Porcelain back-stamp. While we are advised that there is no contractual relationship between [Oneida] and/or its affiliates [], on the one hand, and Tablewerks and/or Royal Porcelain on the other, in an effort to facilitate a seamless transition, Steelite is prepared to accommodate [Oneida] . . . .

(Id.) Steelite's CEO went on to say that Steelite would fulfill all existing purchase orders, and honor the current pricing terms, not object to Oneida's sale of its current Royal Porcelain inventory; respect Oneida's intellectual property such as the “Sant' Andrea” name and back-stamp; and asked that Oneida similarly honor Steelite's intellectual property. (Id.). The letter ended by stating that Steelite was “open to any dialogue concerning the [matter] . . . .” (Id.).

         This was a “shock” to Byron. Within twenty-four hours of the receipt of this letter, Oneida started receiving customer questions and experienced customer confusion. In response, Byron sent an e-mail to Oneida's dealers, distributors and end users. (Defs.' Ex. G). In this communication to its customers, Oneida advised them that Tablewerks had been purchased by “another smaller supplier, ” but that “[e]ven prior to this event, Oneida had been working on a transition of both design and manufacturing capability due to what we saw as the diminished innovation and protected design portfolio being offered.” (Id.). Byron described a “very minor adjustment to our supply chain . . . with zero disruption to product or services . . . .” (Id.).

         After the Steelite December 13, 2016 letter, in February and March 2017, Oneida's sales decreased over one million dollars. After the issuance of the Temporary Restraining Order, some sales have come back, but overall, Oneida sales are still down.

         Oneida attended a NAFEM trade show (the “trade show”) from February 9, 2017 to February 11, 2017, in Miami, Florida, . At the trade show, Steelite had a booth and presented the full line of Sant' Andrea products, with a place card that stated “supply will be available in Spring.” Byron was questioned as to the effect on Oneida's business if Steelite is able to sell these Sant' Andrea products made by Royal Porcelain as Steelite's own products. Byron responded:

A. I believe this truly would have a devastating effect on the business. This dinnerware is the leading category, in importance, to our customers. The Sant' Andrea one is the most prominent brand and luxury line. If that were compromised, the rest of the categories and brands that we sell will be at risk.
Q. Would you describe this as a major impact? Or some other type of impact; minor impact?
A. Oh, truly a devastating impact. It's a very serious business issue, which is why we reallocated all of our business resources.
Q. Has it been a disruption to Oneida's business since mid-December?
A. Absolutely. In nearly every way possible. Every function has been impacted.
Q. Which functions do you mean?
A. Sales team, redirecting our time, customer service calls, product supply focused on finding a new alternative of supply that we thought was a staple part of our business. The entire leadership team has actually gone off the other two businesses to focus solely on food service for a vast majority of their projects.

(Tr. at 137-38).

         Byron reiterated that Oneida ordered its products through Tablewerks who had a relationship with Royal Porcelain, the manufacturer. Never before has Oneida had a one million dollar drop off in sales of Sant' Andrea products. Oneida had a mutually exclusive relationship with Tablewerks for nineteen years.

         On cross-examination, Byron testified that she started working for Oneida in July 2016. Previously, she worked for a food service business which didn't involve dinnerware. After receipt of the Steelite letter, there was dialogue between Oneida and Steelite and a mediation in an attempt to resolve their problem. Also, Steelite continued to supply products to Oneida for a short period of time.

         It was brought out that the Oneida sales of Sant' Andrea products prior to the Steelite takeover were $17.7 million in 2012; $16.9 million in 2013; and $15.2 million in 2014. Further, even prior to the Steelite letter, Oneida was investigating the development of a product similar to Botticelli but at a lower cost, and from an alternative manufacturer in China. Oneida had been in contact with Royal Caribbean Cruise Line about supplying the cruise line with those “Botticellilike” products. Oneida has received one or two samples of this new product, and the project is still ongoing. After Byron received the Steelite letter, another group at Oneida began investigating potential alternative sources of supply.

         Byron was also asked about Oneida's purported “contract” with Tablewerks. It was brought out that the only signature on Plaintiff's Exhibit 6 entitled “Business Requirements For All Vendors Of Oneida, ” is on a page captioned “Code of Conduct.” There is no signature by Tablewerks on the page captioned “Vendor/Supplier Acknowledgment Form.” The document further stated that “if a vendor fails to sign and return these forms, they (Oneida) will not continue doing business with Oneida Limited.” These were two different forms.

         Steelite has continued to supply products to Oneida. At the time of the acquisition, Oneida's Sant' Andrea inventory was expected to last two to five months.

         2. Daniel Hoffman

         Portions of the video deposition testimony of Daniel Hoffman (“Hoffman”) were read into the record. Hoffman started working for Marriott International in 1997 and is still an employee of that organization. He is the Director of the Food and Beverage Program and oversees sixteen hotels. Hoffman works with contractors and vendors. Hoffman testified that Marriot began purchasing Botticelli in 2001, and began purchasing Nexus in 2009. In his opinion, both products are unique, recognizable and immensely popular. Although Hoffman believed that the Botticelli design is distinctive, he admitted that it was similar in some ways to a product offered by Tuxton, a competitor of Oneida.

         Hoffman had stated in his original declaration, that was submitted to the Court in support of Oneida's motion and relied upon by Judge Tomlinson, that Botticelli and Nexus were “synonymous” with Oneida. However, in his deposition, Hoffman amended his declaration to say that Botticelli and Nexus are “marketed by” Oneida. (Tr. at 258).

         3. Paul Gebhardt

         Paul Gebhardt (“Gebhardt”) also testified by deposition. He is presently employed by Oneida, which was founded in 1850 and incorporated in 1980. From 2003, Gebhardt was the Oneida Senior Vice President of Design and Advertising.

         Gebhardt testified that Oneida owns the Sant' Andrea trademark, and that Queensberry Hunt designed the Botticelli and Nexus patterns. However, Gebhardt said that Oneida had collaborated on the designs.

         B. The Defendants' Case

         1. John Miles

         John Miles (“Miles”) is the CEO of Steelite. He has been an employee of Steelite since November 1996. Miles held various positions with the company and became CEO in June 2016. Steelite is an international manufacturer, designer and producer of tableware products and trades actively in one hundred forty countries. The company, in the tableware industry and food service business, sells to hotels and restaurants. Steelite believes transparency in manufacturing is imperative with regard to the identity of a product's manufacturer, namely, to tell customers where the item is manufactured. Miles said that is why Steelite purchases products directly from manufacturers.

         Miles also testified that Royal Porcelain was founded thirty-five years ago, based in Thailand, about sixty-three miles north of Bangkok, employs almost a thousand people, and is the preeminent manufacturer of porcelain products and especially food service products. Tablewerks was also the sole importer and distributor of Royal Porcelain food service products in the United States. Steelite is an exclusive distributor for several other factories, so that Tablewerks and Steelite were competitors.

         Introduced into evidence were two United States Design Patents for Botticelli with the inventors listed as David Queensberry (“Queensberry”), Martin Hunt and John Horler-who are all members of the Queensberry Hunt design team. Both patents were assigned to Tablewerks by an agreement with Queensberry Hunt. One of the patents expired during Steelite's due diligence. There are also pending copyright applications for the designs that Oneida marketed as Botticelli and Nexus.

         In the summer of 2016, Steelite acquired all the assets of Tablewerks for the sum of $10 million dollars, including the exclusive distribution rights of Tablewerks in the United States. There was also a distribution license between Steelite and Royal Porcelain in which Steelite acquired the exclusive distribution rights for all Royal Porcelain products in the United States relating to the food service business. There was a transfer of the intellectual property in “Belisa, ” which Oneida had marketed as Botticelli, from Tablewerks to Steelite. Based on these two patents and the agreements, Miles stated that Steelite acquired all the intellectual property rights held by Tablewerks. Miles stated that going forward, “Steelite” and “Royal Porcelain” would be stamped on the dishes and packages of the products previously known as Botticelli and Nexus.

         On December 13, 2016, the day after its acquisition of Tablewerks was completed, Steelite informed Oneida by letter of its purchase of Tablewerks and advised Oneida that it was open to any dialogue concerning this matter. Further, Steelite agreed not to use Oneida's trade names and also agreed not to show Oneida's former products before the NRA show in May 2017.

         Thereafter, Steelite supplied three months of product to Oneida. Steelite initially sold to Oneida $550, 000 worth of product and additional orders for $650, 000, $38, 000, $20, 000 and one small order. Also, after this law suit commenced, Oneida placed additional orders and Steelite filled them. As a result of this litigation, Steelite has not attempted to sell its products to any company other than Oneida.

         Steelite avers that is has been unable to sell and distribute Royal Porcelain products, for which it paid $10 million dollars to acquire distribution rights.

         On cross-examination, Miles testified that the actual purchase price of Tablewerks was more than $12 million dollars. Steelite doesn't typically register trade dress or file copyright applications for its products.

         In the future, Steelite intends to sell the Botticelli product as Belisa, and the Nexus product as Vortex, to prior Oneida customers. Steelite has already contacted those customers. However, its operation has been barred by the provisions of the Temporary Restraining Order dated March 14, 2017.

         In a Distribution and License Agreement, in evidence as Defs.' Ex. JJ, Royal Porcelain represents that it has trade dress rights to its products which it assigned to Steelite.

         2. ...


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