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.

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