Internet Library of Law
and Court Decisions

Gray Goods - Internet Library of Law and Court Decisions - Updated November 3, 2008

Court holds that unauthorized internet reseller of plaintiff’s tanning products is not guilty of trademark infringement as a result of its use of plaintiff’s trademarks in the meta tags of a website at which such products are sold, and as search engine keywords triggering the display of a link to such a website.  In reaching this result, the Court rejected plaintiff’s claim that such use of its marks causes actionable ‘initial interest confusion’ by directing those searching for plaintiff’s site to that of the defendant.  To sustain such a claim, holds the court, defendant’s conduct must be deceptive.  Plaintiff failed to meet this burden because defendant’s site does indeed offer plaintiff’s products for sale, and thus, its use of plaintiff’s mark in the site’s meta tags is not deceptive, but rather accurately describes the contents of defendant’s site.  This was true, held the Court, notwithstanding the fact that S & L offered plaintiff’s competitors products for sale on its site as well.

The Court also dismissed trademark dilution claims arising out of defendant’s use of plaintiff’s marks.  The Court held that, under the circumstances, defendant’s use of plaintiff’s marks in the meta tags of its site, and as search engine key words, constituted a permissible nominative fair use of those marks.  To establish that a use of a trademark qualifies as a permissible nominative fair use, the defendant must ‘do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder.’  Notably, the Court reached this result because plaintiff failed to submit adequate evidence as to the impact this use of its marks had on the listing of defendant’s site in search results for plaintiff’s mark.  The Court left open the possibility that such a use of plaintiff’s mark may not qualify as a nominative fair use if in fact it caused defendant’s site to appear at or near the top of search engine results for plaintiff’s mark, and thereby suggested that plaintiff sponsored or endorsed defendant’s site. 

The Court denied so much of defendant’s motion for summary judgment which sought dismissal of copyright infringement claims arising out of its use of electronic renderings of plaintiff’s products to promote the sale of such products on its web site.  Issues of facts as to whether defendant copied such images from plaintiff’s web site, or created its own, precluded an award of summary judgment.  In allowing this claim to proceed to trial, the Court rejected defendant’s argument that its alleged use of plaintiff’s images was protected as a fair use.  Notwithstanding the fact that defendant’s use did not effect the potential market for plaintiff’s images – which plaintiff does not offer for sale – the Court rejected defendant’s fair use argument, pointing to the fact that its use was commercial, and copied plaintiff’s image, which was a creative work, in its entirety.

Finally, the Court rejected plaintiff’s claim for intentional interference with contractual relations, which arose out of prohibitions contained in contracts with plaintiff’s distributors precluding their resale of plaintiff’s products to Internet resellers such as defendant.  Defendant obtained plaintiff’s products from tanning salons, to whom the distributors were permitted to sell such products.  Because there was no evidence either that such tanning salons were acting as defendant’s agent in purchasing goods from plaintiff’s distributors, or that defendant directly purchased such goods from the distributors in breach of the prohibitions contained in their agreements, this claim failed.

Court denies defendants’ motion to dismiss and allows plaintiff Philip Morris USA Inc. (“Philip Morris”) to pursue trademark infringement claims arising out of defendants’ alleged distribution into the US of gray market cigarettes from their websites.  The Court rejected defendants’ argument that plaintiff’s trademark infringement claims should be dismissed because the disclaimers on defendants’ websites adequately disclosed that the cigarettes offered for sale are ‘gray market’ goods – goods manufactured by Philip Morris for different markets - and that the defendants’ websites are not affiliated with or sponsored by Philip Morris.  These disclaimers did not warrant dismissal because they failed to disclose that the ‘gray market’ cigarettes offered for sale by defendants were ‘materially different’ from those intended for the US market.  As such, consumers may be confused and led to believe they were purchasing a product they would not in fact receive.

The Court also rejected defendants’ motion to dismiss on the ground that the Court lacked personal jurisdiction over the defendants.  The Court held the complaint’s allegations that defendants shipped gray market goods into New York in violation of the Lanham Act were sufficient to establish that a New York federal court could exercise personal jurisdiction over the defendants.  Notably, defendants did not seek to challenge these factual assertions, or offer evidence as to either their lack of contact with the forum  or their actual location.

Finally, the Court denied that branch of defendants’ motion to dismiss which asserted that service of the complaint by fax and email pursuant to Fed. Rule Civ. Pro. Rule 4(f)(3) violated Due Process.

Court holds that unauthorized reseller of plaintiff Standard Process Inc.’s products can use Standard Process’ trademark on its website, and in the website’s meta tags, to advertise the sale of such products.  The Court held that consumers were not likely to be confused by such conduct, because defendant’s site featured a prominent disclaimer that advised consumers that defendant is “not an authorized seller” of plaintiff’s products, “purchases Standard Process supplements from authorized third parties for resale, and is in no way affiliated with, authorized, sponsored or related to Standard Process Inc.”  In reaching this result, the Court rejected plaintiff’s argument that the use of its marks in the meta tags of defendant’s site was barred by application of the “initial interest confusion” doctrine, because the consumer who came to defendant’s site was presented with an opportunity to purchase actual Standard Process products. 

Finally, the Court rejected plaintiff’s claim that defendant was improperly selling ‘gray market’ goods which were ‘materially different’ from those plaintiff intended for sale in this market.  Plaintiff grounded this argument on the fact that authorized resellers are required to have a one-on-one consultation with the consumer before sale of the products, which consultation does not take place when the consumer purchases the product from defendant’s website.  The Court rejected this argument, because the products being resold were in fact the same as those offered by Standard Process, and because consumers were not likely to be confused, as they knew they were not receiving a one-on-one consultation prior to purchase.

Quick Hits

Court denies defendant Labarbera’s motion to dismiss tortuous interference with contract, civil conspiracy and deceptive and unfair trade practice claims advanced by plaintiff Merle Norman Cosmetics as a result of defendant’s sale of plaintiff’s cosmetic products on the Internet.  Plaintiff claimed that defendant obtained the products at issue from a studio – named here as Jane Doe – which by contract was prohibited from reselling Merle Norman Cosmetics on the Internet.  Defendant denied that allegation, claiming she obtained the cosmetics from another source.  Plaintiff “conceded … that if Labarbera’s source is a flea market, than she can make the sales in question without committing a tort.”  However, for the purpose of the instant motion, the Court accepted plaintiff’s contentions as to the source of the goods defendant sold.

Defendant argued that plaintiff’s claims were barred by application of the First Sale doctrine which, inter alia, permits a party who has lawfully acquired a copyrighted work to resell it free from claims of copyright infringement.  The Court held that this doctrine had not been extended to tort claims such as that at bar, and accordingly denied defendant’s motion.  Said the Court “the point at this early stage of this litigation is that the First Sale Doctrine has not been accepted as a complete defense to tortuous interference and civil conspiracy claims.  Therefore, the Court will deny the motion to dismiss …”.

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