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ALLERGY ASTHMA TECH. v. I CAN BREATHE

April 10, 2002

ALLERGY ASTHMA TECHNOLOGY, LTD., PLAINTIFF,
V.
I CAN BREATHE, INC. AND ADRIEN J. BLEDSTEIN, DEFENDANTS I CAN BREATHE! INC., COUNTERCLAIMANT, V. ALLERGY ASTHMA TECHNOLOGY, LTD., COUNTERCLAIM DEFENDANT



The opinion of the court was delivered by: Milton I. Shadur, Judge

FINDINGS OF FACT AND CONCLUSIONS OF LAW

In this litigation stemming from the total deterioration of the once amicable business relationship between Allergy Asthma Technology, Ltd. ("Allergy Asthma") on the one hand and I Can Breathe! Inc. ("I Can Breathe") and its President and sole shareholder Adrien Bledstein ("Bledstein") on the other, this Court has conducted a bench trial of Allergy Asthma's claims and I Can Breathe's counterclaim. What follows in accordance with Fed. R. Civ. P. ("Rule") 52(a) are the resulting findings of fact ("Findings") and conclusions of law ("Conclusions"). To the extent (if any) that the Findings as stated may be deemed conclusions of law, they shall also be considered Conclusions. In the same way, to the extent (if any) that matters later expressed as Conclusions may be deemed findings of fact, they shall also be considered Findings. In both of those respects, see Miller v. Fenton, 474 U.S. 104, 113-14 (1985).

Findings of Fact*fn1

1. Allergy Asthma is a Delaware corporation with its principal place of business in Morton Grove, Illinois. In August 1999 Allergy Asthma purchased the assets (including the name) of an existing Illinois corporation with the identical name. Among the products that Allergy Asthma sells and that its predecessor sold are facial masks that cover the nose and mouth of the wearer (St. ¶ 1, 2, 4).

2. I Can Breathe is an Illinois corporation with its principal place of business in Chicago. It too sells facial masks that cover the nose and mouth of the wearer (St. ¶¶ 5, 7). Its President, sole director and sole shareholder is Bledstein, who is herself an asthmatic (St. ¶ 6).

3. Allergy Asthma and I Can Breathe are competitors in the sale of (a) multi-purpose facial masks, which filter dust, pollen, mold and other airborne irritants, and (b) cold-weather facial masks, which serve a similar filtering function but also warm and moisturize air breathed in sub-freezing temperatures (Bledstein). By any measurement — e.g., in terms of sales volume, number of employees or number of products — Allergy Asthma is much larger than I Can Breathe. Allergy Asthma sells many products in addition to facial masks, while I Can Breathe's facial masks are its only significant products (P. Exs. 1, 2; Bledstein and Krugman).

4. I Can Breathe! ® is a trademark registered with the United States Patent and Trademark Office ("PTO") and Illinois Secretary of State for I Can Breathe facial masks (D. Exs. 148, 149). I Can Breathe's multi-purpose masks are made of silk, and its cold-weather masks are silk-lined. Both types of masks have adjustable ear loops and a piece of wire to seal the mask under the eyes (St. ¶ 28; D. Exs. 5, 147). In addition, I Can Breathe masks contain a patented feature (invented by Bledstein, who designed the masks for use by herself and others having respiratory difficulties) that keeps the fabric from collapsing against the wearer's nose and mouth. I Can Breathe is Bledstein's exclusive licensee of the patent (St. ¶ 6). Each I Can Breathe mask has a sewn-in label identifying both the trademark and the patent (D. Exs. 1, 2; P. Ex. 4).

5. Allergy Asthma facial masks are dissimilar from I Can Breathe facial masks in several important respects:

(a) Allergy Asthma's facial masks are made of a material known as Pristine polyester and contain no silk. Allergy Asthma never sold any masks containing silk except during the time that it was selling I Can Breathe masks (St. ¶ 14).
(b) Allergy Asthma's facial masks are sold under the name "AllerTech ®," a name that is not registered for facial masks with the PTO (D. Ex. 152).
(c) Allergy Asthma's facial masks are not patented and contain no label (P. Ex. 3). Pristine polyester is patented for use in mattresses and pillow covers (U.S. Patent No. 6,277,770), not for facial masks (P. Ex. 43).
(d) Allergy Asthma's facial masks do not contain a wire to seal the mask against airborne irritants, nor do they contain the patented feature of I Can Breathe facial masks, thus creating the potential (or indeed the actuality) that a person wearing the Allergy Asthma mask will have the mask sucked against the wearer's mouth and nostrils when he or she inhales (D. Exs. 5, 147; P. Ex. 3; Bledstein).

There are however several characteristics that the masks have in common: Allergy Asthma's masks are shaped to look like I Can Breathe masks and are advertised to function like I Can Breathe masks (D. Ex. 5; P. Exs. 1, 2; Bledstein).

6. At all relevant times:

(a) Both Allergy Asthma and I Can Breathe contracted out (and continue to contract out) the manufacturing of their facial masks (Krugman and Bledstein).
(b) Both Allergy Asthma and I Can Breathe sold (and continue to sell) their masks to wholesale and retail customers (id.)
(c) All of I Can Breathe's retail sales were and are solely by mail order (id.).

7. Allergy Asthma was I Can Breathe's principal wholesale customer for several years ending in early 2000 (St. ¶ 13). All of their transactions were documented solely by the exchange of purchase orders and invoices, with no other written agreements or contracts between the companies (St. ¶ 10). Despite Bledstein's requests on numerous occasions that Allergy Asthma use the "I Can Breathe! ®" brand name, the latter's catalog and website referred to I Can Breathe as "ICB ™", though there is no such registered trademark (Bledstein and Krugman).

8. In 1996 Allergy Asthma's President Krugman attempted without success to persuade I Can Breathe to grant Allergy Asthma an exclusive irrevocable license of I Can Breathe's patent (D. Ex. 151). Thereafter Allergy Asthma continued to be a nonexclusive purchaser of (though it was the principal customer for) I Can Breathe's patented masks. Early in 1999 I Can Breathe made clear to Allergy Asthma that other retailers in addition to Allergy Asthma would be listed on I Can Breathe's website (D. Ex. 153; Bledstein).

9. During the entire period that I Can Breathe sold silk and silk-lined facial masks to Allergy Asthma, it was Allergy Asthma's responsibility to package the masks for resale. I Can Breathe masks are intended primarily for a vulnerable population with respiratory problems. Relatedly, I Can Breathe needs to protect itself against possible product liability claims brought by consumers who have not been adequately informed as to the proper care and use of I Can Breathe masks. For those reasons, I Can Breathe provided Allergy Asthma with a number of suggested package inserts that described the products, provided care instructions and included information for appropriate use (Bledstein).

10. Allergy Asthma never expressed (and indeed never experienced) dissatisfaction with I Can Breathe facial masks (Bledstein). When in late 1999, without I Can Breathe's knowledge, it nonetheless decided to shift to masks made from Pristine polyester (Krugman; see Finding 14)*fn2 — masks that were much cheaper and of lower quality, and lacking a number of the advantages provided by I Can Breathe masks, Allergy Asthma ordered from a printer package inserts for facial masks that it marketed under the name "AllerTech ®'s (Krugman) and that, when used in the sale of those masks, conveyed materially misleading information (D. Ex. 22):

(a) Allergy Asthma's order for package inserts for an "AllerTech ®" multi-purpose facial mask showed Pristine polyester as the fabric content but stated that the mask should be hand washed "in cool water with a mild detergent formulated for silk." To the contrary, in contrast to silk, Pristine polyester fabric is designed to be machine-washed in hot water (P. Exs. 5, 43 at P 295-96).
(b) Allergy Asthma's order for package inserts for an "AllerTech ®" cold weather mask described the contents as "polar fleece with a silk lining" (P. Ex. 5; D. Ex. 28). That was totally false as to the Pristine polyester masks.
(c) When those package inserts were delivered to Allergy Asthma, copies were included in all packages of masks shipped by Allergy Asthma (both its I Can Breathe masks remaining on hand and its newly obtained Pristine polyester masks) (D. Exs. 22, 28; Krugman).

At the same time Allergy Asthma, without so advising Bledstein, discarded the package inserts that she had delivered to Allergy Asthma for proposed inclusion with I Can Breathe facial masks — rather than including those inserts in the packages containing such masks (or at a minimum conferring with Bledstein to resolve any objections that Krugman had to the form or content of such inserts) (Krugman and Bledstein). By omitting any I Can Breathe package insert from packages of I Can Breathe masks, and by inserting information relating to Pristine polyester masks instead (information that was materially misleading when the package contained an I Can Breathe mask), Allergy Asthma deceived facial mask consumers, a particularly vulnerable population, and created a risk to I Can Breathe of product liability (Bledstein).

11. In mid-December 1999, following a successful effort to obtain catalog and website listing of facial masks by Retired Persons Services, the retail pharmacy unit of AARP,*fn3 Allergy Asthma shipped to RPS' telecenter some samples of I Can Breathe facial masks. As indicated by Finding 10, those samples were accompanied by an insert that represented the fabric content as including Pristine polyester, when in fact the masks were made of silk and contained no Pristine polyester (P. Ex. 11A; D. Ex. 92; Krugman).

12. In late December 1999 RPS began to advertise I Can Breathe facial masks in RPS' catalog and on its website (P. Ex. 11A; D. Ex. 89)

(a) RPS denominated the multi-purpose silk facial masks as Product No. M6214 and the silk-lined cold weather facial masks as Product No. M6142 (P. Ex. 12; D. Exs. 89-91).
(b) In fact the products pictured in RPS' catalog and on its website were I Can Breathe facial masks, and the text described I Can Breathe masks. Allergy Asthma furnished the pictures and text to RPS (P. Ex. 12; D. Exs. 89-91; Krugman and Bledstein).
(c) When Allergy Asthma then stopped shipping I Can Breathe facial masks to RPS and shipped only Pristine polyester masks (see Finding 14), Allergy Asthma took no steps to alert RPS to the fact that the previously-furnished pictures and text now depicted and described different (and more expensive and higher quality) products from the ones that Allergy Asthma was now providing for sale by RPS.
(d) Accordingly, throughout the period that RPS was a customer of Allergy Asthma, RPS falsely (though innocently, for the fault was Allergy Asthma's) continued to advertise I Can Breathe masks by picture and description (P. Ex. 12; D. Exs. 89-91).

13. At all relevant times until October 2000, Allergy Asthma's catalog (and, for much of that period, Allergy Asthma's website) advertised I Can Breathe silk and silk-lined facial masks for sale (P. Ex. 1; D. Exs. 138-39):

(a) All of the products pictured and described there were I Can Breathe facial masks, with the silk multi-purpose mask being denominated Product No, D2700 and the silk-lined cold weather mask being ...

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