Penn. dilution is broader than federal dilution; former licensee might not own marks despite its registrations

I.M. Wilson, Inc. v. Otvetstvennostyou “Grichko,” No. 18-5194, 2020 WL 6731109 (E.D. Pa. Nov. 13, 2020)

The OG parties are Russian and Czech entities that manufacture and sell ballet and pointe shoes under the name GRISHKO.

In the early 1990s, Grishko and I.M. Wilson partnered to distribute Grishko-branded products in the United States via an exclusive licensing agreement. Around that time, Mr. Grishko wrote two letters that allowed I.M. Wilson to register the GRISHKO house mark, the ownership of which, among other things, is currently contested here. The partnership lasted until the music stopped in 2016, when Grishko terminated the exclusive licensing agreement. The exclusivity arrangement officially ended in March 2018 and Grishko began directly selling to U.S. customers.

IMW then sued; a preliminary injunction in its favor was subsequently vacated after the court found that “[e]njoining the defendants from selling GRISHKO-branded products in the U.S. in no way rectifies the irreparable harm the Court found to be caused by Mr. Grishko’s communications,” which had interfered with IMW’s relationships with its distributors by claiming that IMW didn’t have the rights it claimed.

This opinion deals with the OG parties’ counterclaims: (1) Lanham Act and common law claims arising from I.M. Wilson’s use of disputed marks and trade dress, (2) claims arising from the parties’ since-terminated licensing agreement, and (3) claims arising from I.M. Wilson’s actions while this litigation was pending.

Grishko produces several lines of pointe shoes, each bearing unique model names, and it’s applied to register certain of them at the PTO.

Mr. Grishko purportedly gave IMW permission to register the Grishko mark in the US based on the understanding that I.M. Wilson would own the registration so long as that I.M. Wilson remained in an exclusive relationship with Grishko. He signed the following statement, which reads in full: “I agree that I.M. Wilson, Inc. is the owner of the Trademark, GRISHKO and its goodwill in the United States of America. I further consent to the use of my name in that trademark.” The PTO wanted more, and so he signed another document: “In addition to the consent to I.M. Wilson, Inc. that I previously granted on August 5, 1992, I hereby grant I. [sic] Wilson, Inc. the right to register the trademark GRISHKO in the U.S. patent and trademark office.”

Some years later, the USPTO declined to register Mr. Grishko’s applications for the marks GRISHKO and NICOLAY GRISHKO due to the existence of IMW’s registration. As a result, the parties allegedly reached an agreement that IMW wouldn’t renew that registration upon its expiration, so it expired in 2004. In 2007, IMW applied to register GRISHKO in connection with “ballet slippers; dance shoes; dance tights; dance leotards; and dance dresses.” It eventually submitted the August 1992 and March 1993 documents to support its application, which then succeeded in 2009; IMW now owns seven federal registrations consisting of or incorporating the GRISHKO name, four of which are now incontestable.

Mr. Grishko’s cancellation proceeding is suspended pending the outcome of this litigation.

Grishko alleged that, after their agreement terminated, IMW subsequently began using a third-party Chinese manufacturer to produce its shoes, which has allegedly caused widespread consumer confusion as to the source of IMW’s products, constituting trademark and trade dress infringement, trademark dilution, and unfair competition.

In addition, Grishko alleged that IMW falsely advertised itself as the “Exclusive Distributor for North America,” not just the US, while there was an exclusive distributor in Canada and a nonexclusive arrangement in Mexico. IMW allegedly continues to advertise online that it is the exclusive U.S. distributor of Grishko-branded pointe shoes even though the exclusive licensing arrangement has been terminated. IMW also allegedly made false statements to U.S. dance retailers. Specifically: “[Grishko] began a major campaign to undercut us and you, our valued retailers, through their trademark-infringing sales via grishkoshop.com .... You may have received a letter from Nikolay Grishko on I.M. Wilson’s GRISHKO letterhead containing unfortunate and misleading claims.” When the court granted the preliminary injunction, IMW notified retailers that Grishko was enjoined from selling GRISHKO-branded products in the United States before the injunction formally took effect.

Trademark/trade dress counterclaims: The court couldn’t resolve ownership of the house mark or model marks at this stage. The first writing was ambiguous as to whether it was irrevocable. “The Court would not ordinarily expect an agreement irrevocably transferring the ownership of a valuable mark—particularly one’s own surname—to be concluded in two lines of text.” The agreement was so short that it was silent on the issue of consideration, which IMW argued was “in exchange for its ongoing efforts to invest in and develop the U.S. market for Grishko products.” But that wasn’t evident, just as it wasn’t evident that it was a temporary assignment for registration purposes only as Grishko argued. Ambiguity also inhered in the fact that IMW “drafted the document and presented it to Mr. Grishko in English—not his native language.” This couldn’t be resolved on a motion to dismiss.

So too with the model marks, “sole mark,” and trade dress, though IMW argued that they were necessarily transferred in order to ensure that the assignment of the main mark wasn’t naked/without associated goodwill. In particular, the court wasn’t persuaded that acquiring the main mark’s goodwill necessarily included the model marks:

I.M. Wilson cites exclusively to case law from the 1980s for the general proposition that trademarks must be owned by a single source. Defendants rely on the USPTO Manual that suggests that trademarks can have multiple owners and a case holding that evidence is capable of “decoupl[ing] the product marks from the famous house mark” where product marks have independent significance. Suffice it to say, neither effort wins the day yet.

One case did conclude that the goodwill symbolized by certain trademarks did not include the transfer of unregistered product marks and trade dress. Hetronic Int’l, Inc. v. Hetronic Germany GmbH, No. CIV-14-650-F, 2019 WL 3003679, at *31 (W.D. Okla. Mar. 22, 2019). And Callman’s treatise distinguishes goodwill that follows the house mark and that which is associated with the model marks. The treatise explains that “an exclusive transfer of a trademark apart from the business organization can only be done with respect to product marks. House marks are inseparable from the organization.” The court characterized this as “quite the opposite of I.M. Wilson’s argument,” but the question is: what is transferred? The quoted Callman language addresses a transfer of a single product mark out of a business organization versus an attempted transfer of the house mark without the business; it doesn’t directly address what happened here.

Anyway, ownership of the model marks, sole mark, and trade dress is contested! The court pointed out that a schedule listing all the marks to be transferred would have been a lot more probative of intent.

Also, Grishko could plead ownership/first use in the US by relying on IMW’s licensed use. “Because Grishko introduced all but one of the model marks while I.M. Wilson was acting as its licensee, I.M. Wilson’s use of the marks were on behalf of, and so for the benefit of, Grishko.” IMW argued that the second writing was a pure transfer, not a license, but that was contested.

And the incontestable registrations could be challenged because of Grishko’s possible prior rights and the allegations of fraud on the PTO in using the allegedly outdated/revoked consents in 2007, which were sufficient to survive a motion to dismiss. However, the court cautioned that it would be hard to prove fraud on the PTO. The party against whom fraud is alleged enjoys “considerable room for honest mistake, inadvertence, erroneous conception of rights, and negligent omission.” And, “even were Grishko to prevail on the fraud theory, at most, the marks would revert to an unregistered status but still be the property of I.M. Wilson” unless Grishko further proved that it was the owner.

Also, “[s]witching to an arguably inferior manufacturer without more does not rise to misrepresentation sufficient to warrant cancelling the registration.”

Grishko also sufficiently pled the existence of a protectable trade dress. It provided specifics and photos, and while some of the elements were not unique (“use of pink satin for the exterior of the pointe shoes made of an unremarkable shade of pink”), it did plead that Grishko was the only manufacturer that places a “unique identification number that can be used to identify the specific individual who inspected” the shoe, and spelled out other components and their locations. While certain aspects of the alleged trade dress could be seen as inherently functional—including the unique inspector identifier number and the placement and orientation of the size and width markings—other aspects were plausibly “inherently aesthetic (i.e., the pink satin trim, white inner sole, stitch patterns, and diamond sole mark)”—and thus nonfunctional. The trade dress as a whole was plausibly nonfunctional.

And Grishko adequately alleged secondary meaning. While IMW argued that its allegations about sales and advertising didn’t show that the trade dress had independent secondary meaning, Grishko did enough for a motion to dismiss.

Since likely confusion was also pled, trademark infringement counterclaims survived. So too with false designation of origin. “Should a dancer wearing an allegedly harmful shoe—but believing it to be a Grishko—suffer an injury, so too would Grishko’s business and reputation. Section 43(a) of the Lanham Act is designed to reach this type of conduct.”

Pennsylvania trademark dilution: The state law requires state fame, but did not specify whether “niche” fame sufficed. Because a pre-2006 federal court had reasoned that federal fame allows niche fame, and reasoned that the state would do the same thing, the court here concluded that state law—which wasn’t amended after the TDRA was enacted—still allows for niche fame. Thus, dilution was properly alleged. I don’t think this is a great idea. There’s still no reason to think that Pennsylvania wanted niche fame; it just got dragged along with the Third Circuit’s interpretation of the federal law, which Congress deemed wrong. Pennsylvania’s legislature shouldn’t be forced to correct that mistake too. (Insert your own comment about the Pennsylvania legislature.)

 Compare Componentone, L.L.C. v. Componentart, Inc., No. 02: 05CV1122, 2007 WL 4302108, at *1 (W.D. Pa. Dec. 6, 2007) (reaching the opposite result; noting that “niche market fame” was a “creature of judicial construction of federal law” and does not appear in the Pennsylvania anti-dilution statute). Rejecting that case, the court here reasoned that it was still bound by the Third Circuit’s old interpretation of Pennsylvania law, since state courts haven’t spoken. (The court acknowledged that “this issue is unlikely to reach a Pennsylvania state court given removal jurisdiction, and the fact that parties often plead both federal and state law trademark claims.” To me this is extra reason not to stick with the mistake!) “In the 14 years since the TDRA, Pennsylvania has chosen not to reform its state anti-dilution law to conform with the federal standards. …. Principles of federalism restrain this Court from reading in a stricter standard than the law currently provides.”

Anyway, Grishko sufficiently alleged fame in the performing arts community and among dancers. It alleged that its marks and trade dress were recognized by Pennsylvania’s premier professional ballet company—the Pennsylvania Ballet—in addition to the “American Ballet Theatre, West Ballet, and other organizations throughout the United States.”

False advertising: Grishko alleges that IMW’s “exclusive North American distributor” claims harmed its relationship with distributors in Canada and Mexico and impacted its ability to enter into new exclusive distribution and licensing agreements worldwide, and that it continues to advertise online as the exclusive wholesale distributor for Grishko-branded products.

IMW argued that Grishko only pled injury to its reputations with retailers, not that consumers withheld trade from it, and that it wasn’t plausible that advertisements in the U.S. directed to U.S. consumers harmed Grishko’s worldwide reputation. No:

I.M. Wilson incorrectly attempts to cabin the scope of “consumers” within the meaning of the Lanham Act. “[N]othing in the language of § 43(a) specifically requires a false representation be intended to influence the ultimate consumer, whoever that might be.” The relevant “purchasing public” varies according to the specifics of the industry.… Grishko sells goods through retail relationships as well as through wholesaling.

Grishko alleged that IMW’s marketing necessarily diverted sales away from Grishko because “[c]onsumers and retailers viewed I.M. Wilson as the sole purveyor of Grishko-branded products.” This was enough to allege statutory standing.

And a false statement made in the US is cognizable under §43(a) even if the economic harm occurs outside the US.

So too with the allegedly false claim of being the exclusive distributor after the parties’ relationship ended.

Litigation-related allegations: Grishko alleged defamation because IMW told retailers that Grishko was (1) undercutting and undermining retailers; (2) no longer supplying high-quality products; and (3) not abiding by court orders. Shortly after the preliminary injunction issued, IMW sent a cease and desist letter to one of the largest U.S. dance retailers and a letter to various retailers supposedly apprising them of the recent order. Though IMW argued that it was substantially true, the court wasn’t going to resolve that at this stage.

In Pennsylvania, out-of-court statements made by parties to a proceeding enjoy a qualified privilege provided those “statements are a fair and accurate report of statements made or pleadings filed” in the proceeding and the individual does not “make his report with the sole purpose of causing harm to the person defamed.” The C&D “sufficiently remains within the bounds of protected statements. The letter recounts I.M. Wilson’s litigation position that it is the exclusive owner of the GRISHKO house mark and notifies the recipient of the pending litigation.” So too with the letter to retailers. Though it says those retailers “have been undercut” by Grishko’s recent sales efforts, “read in context, these statements provide the basis for I.M. Wilson to seek an injunction,” and IMW made the very same claims in court (unlike certain political campaigns one could mention).

Even though the letter was sent before IMW posted the bond and so the PI wasn’t in effect, the court order had been entered, and the letter “expressly notes that it was ‘perfect[ing] the injunction,’ and attached a copy of the order granting the preliminary injunction. The Court rejects Grishko’s attempt to fashion a defamation claim on a technicality.”

The remaining possible basis was IMW’s July 2019 letter to its customers, which “rehashed” the present trademark claims and discusses the “unsatisfactory” quality of Grishko’s recent shipments. While IMW argued that this was mere opinion, the court thought that statements about the quality of goods should have been, and weren’t, pled as commercial disparagement. “Opining on the quality of the ballet shoes does not go to the honesty and fairness of Grishko’s dealings” and thus the letter wasn’t capable of defamatory meaning. Nor could it be defamation per se, since it was just a negative opinion. (In a footnote, the court noted that it’s not clear why corporate entities should be eligible for defamation per se, because corporations can’t be embarrassed or humiliated, but “Pennsylvania law continues to recognize it as a viable claim for corporations to assert.”)

Tortious interference with business relations: Under Pennsylvania law, interference is “privileged when the actor believes in good faith that his legally protected interest may otherwise be impaired by the performance of the contract.” Where the parties are competitors, there must be a showing that the defendant engaged in “independently actionable conduct” for plaintiff to succeed on a tortious interference claim. The court was persuaded by IMW’s argument that it had a duty to send notice to the retailers to apprise them that the court had entered an order enjoining Grishko, in order to bind them, since the Federal Rules of Civil Procedure say that PIs bind only people who receive “actual notice.” Plus, the defamation claims failed and so there was nothing independently actionable, even though Grishko sufficiently alleged actual damages.