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GENIN, TRUDEAU & CO. v. INTEGRA DEV. INTL.

February 15, 1994

GENIN, TRUDEAU & CO., LIMITED, Plaintiff,
v.
INTEGRA DEVELOPMENT INTERNATIONAL, and ZAK DESIGNS, INC., Defendant.


PLUNKETT


The opinion of the court was delivered by: PAUL E. PLUNKETT

This lawsuit involves a license to manufacture and distribute products called "Splashies," which are apparently water-filled vinyl placemats. According to Plaintiff Genin, Trudeau ["Genin"], it entered into an oral contract with Integra, the developer of Splashies, for an exclusive one-year license to manufacture and distribute the products. However, Integra allegedly broke this oral contract by subsequently entering into a written exclusive licensing agreement with Defendant Zak Designs. This matter is before us today for ruling upon the Defendants' motions to dismiss the Amended Complaint. For the reasons stated below, the motions are granted in part and denied in part.

 Background1

 Genin is a Delaware corporation with its principal place of business in New Jersey. It is in the business of licensing, manufacturing, and distributing housewares and gift items, including products similar to Splashies.

 Defendant Integra is an Illinois corporation with its principal place of business in Illinois. Integra is in the business of developing, marketing, and distributing Splashies. However, it does not posses the means to manufacture its products. Terry Pantaleo is the President of Integra and Don Perrin is the Vice President.

 Defendant Zak Designs is a Washington corporation, but the complaint is silent as to its principal place of business. Like Plaintiff Genin, Zak is in the business of licensing, manufacturing, and distributing certain products.

 Prior to December 24, 1992, Integra and Genin began talking about an exclusive license on the Splashies. On December 23, 1992, Integra terminated its license with the prior licensee.

 On December 24, 1992, Genin and Integra entered into an oral agreement to give Genin the exclusive right to manufacture and sell all products covered by Integra's patents and trademarks in exchange for an up front payment and a royalty thereafter. The agreement was to last between January 4, 1993 and December 31, 1993, was renewable at the discretion of the parties, and included a post-termination noncompete clause for a period of eighteen months.

 The parties exchanged drafts of the agreement, the final draft of which is attached to the Amended Complaint as Exhibit E. However, Integra was involved in litigation with the prior licensee and requested that the parties delay execution of the agreement pending settlement of that lawsuit. Genin and Integra agreed that execution of the draft would be treated only as a formality and to abide by the terms of the agreement. Thus, Genin and Integra began to implement the agreement, and Genin took several steps in reliance upon it. Letters were sent to customers, and Integra suggested that Genin issue a press release.

 Apparently, Integra subscribes to Samuel Goldwyn's adage that "a verbal contract isn't worth the paper its written on." When resolution of the lawsuit with the prior licensee appeared imminent, Integra began negotiations with Defendant Zak Designs concerning an exclusive license on the Splashies. On April 3, 1993, Integra settled the lawsuit with the prior licensee, and the suit was dismissed. The next day, Integra and Zak signed an agreement giving Zak an exclusive license to distribute Integra's products. Soon thereafter, Zak began to do so.

 Genin, apparently left in the lurch, has filed a five-count Complaint. Counts I, II, and III name Defendant Integra. Count I is for specific performance of the oral licensing agreement. Count II is labeled "Breach of Agreement." Count III claims promissory estoppel. Count IV, against both Defendants, claims Zak's distribution of the Splashies constitutes trademark infringement. Count V, against Integra, seeks a declaration that one of Integra's patents, No. 4,738,888 entitled "Serving Mat," is invalid, apparently filed because Genin continues to manufacture the product under the auspices of the oral licensing agreement, and fears an Integra claim for patent infringement.

 Discussion

 On a motion to dismiss, the court views the allegations of the complaint as true, along with reasonable inferences therefrom, and views these in the light most favorable to the plaintiff. Dawson v. General Motors, 977 F.2d 369, 372 (7th Cir. 1992); Powe v. Chicago, 664 F.2d 639, 642 (7th Cir. 1981). A complaint should not be dismissed with prejudice unless it appears beyond doubt that the plaintiff is unable to prove any set of facts consistent with the complaint which would entitle the plaintiff to relief. Bartholet v. Reishauer A.G., 953 F.2d 1073, 1078 (7th Cir. 1992). Unless otherwise provided by Rule 9 of the Federal Rules of Civil Procedure, facts need not be plead with particularity. Leatherman v. Tarrant County Narcotics and Intelligence Unit, 122 L. Ed. 2d 517, 113 S. Ct. 1160, 1163 (1993). However, we need not credit conclusions of law. See Reichenberger v. Pritchard, 660 F.2d 280, 282 (7th Cir. 1981); Mescall v. Burrus, 603 F.2d 1266, 1269 (7th Cir. 1976). See also 5A Charles Wright and Arthur Miller, Federal Practice and Procedure, § 1357 at 311-18 (2d ed. 1990). Nevertheless, a plaintiff must allege sufficient facts to outline the cause of action, proof of which is essential to recovery. Ellsworth v. Racine, 774 F.2d 182, 184 (7th cir. 1985), cert. denied, 475 U.S. 1047, 89 L. Ed. 2d 574, 106 S. Ct. 1265 (1986) (citations omitted).

 We begin with the trademark claim in Count IV. Though Genin indicates in a footnote in its Response Brief that it will seek leave to withdraw this claim, Count IV is at present a pending Count so we address its merits herein. Zak makes several interesting arguments in support of its motion to dismiss Count IV, including some discussed in respect to other Counts. However, we need reach only one at this point.

 Zak argues that because the products it produced for Integra were genuine goods approved by the owner of the mark, there can be no action for trademark infringement. Though the simplicity of Zak's argument is compelling, this issue is far from that easy. Despite it's oversimplification of the issue, however, Zak's argument is essentially correct.

 For obvious reasons, the general rule is that no claim for infringement will lie for the manufacture or distribution of genuine goods. This is especially true where the alleged infringer is an authorized user of the mark.

 Sasson Jeans, Inc. v. Sasson Jeans, L.A., 632 F. Supp. 1525 (S.D.N.Y. 1986) involved unauthorized sales in the United States of surplus blue jeans manufactured overseas under license. In Sasson, the court recognized that the heart of the Lanham Act claim was potential confusion by the consumer as to the origin or source of the goods. 632 F. Supp. at 1527 (citation omitted). The court ruled that there was no trademark infringement because the jeans were "genuine," that is, their production was authorized by contract, they were labeled with the trademark with the intent that they be sold in the United States, and they were sufficiently similar that they could not give rise to the confusion section 1114 of the Lanham Act was intended to prevent. Sasson, 632 F. Supp. at 1528-29. See also Monte Carlo Shirt v. Daewoo Int'l (America) Corp., 707 F.2d 1054, 1058 (9th Cir. 1983) (surplus shirts were "the genuine product, planned and sponsored by Monte Carlo and produced for it on contract for future sale"); Ballet Makers v. United States Shoe Corp., 633 F. Supp. 1328, 1334-35 (S.D.N.Y. 1986) (subsequent licensee's use of trademark does not infringe prior licensee's rights when goods are "genuine" and owner approved both goods for U.S. distribution); Diamond Supply Co. v. Prudential Paper Prod. Co., 589 F. Supp. 470, 475 (S.D.N.Y. 1984) (paper products were produced under contract and "identical or qualitatively equivalent" so no infringement.)

 In some limited circumstances, however, the manufacture of apparently genuine, authorized goods may lead to trademark infringement. For example, where a licensee with a limited distribution territory sells genuine, but inferior quality goods outside of its ...


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