Judge: “Go after your distributors, not free enterprise”

Originally posted 2007-11-27 14:59:05. Republished by Blog Post Promoter

Quality KingJudges — especially in the Eastern District of New York — are picking up what’s going on in the “elite salons” end of the trademarks-as-distribution-method-enforcement scam.  Ever hear of Quality King?  Says Forbes:

Quality King Distributors has grown from a small shop in Queens, New York to a large distributor of pharmaceuticals and health and beauty care products. The company re-imports exported U.S.-branded over-the-counter pharmaceuticals and personal care products and sells them at deep discounts. Clients include drugstore and supermarket chains, grocery distributors, wholesale clubs and mass-merchant discounters. Glenn Nussdorf and his wife started Quality King in 1961, and the Nussdorf family still owns the company.

That can’t stand, can it?  Well, maybe it can:

A federal judge has blasted the L’oreal company, and former federal law enforcement officials it employs, for trying to bolster what he said was a very weak civil case by attempting to get former Justice Department colleagues to prosecute criminally a longtime business opponent. …

U.S. District Judge Leonard Wexler in Central Islip recently ruled against Paris- and New York-based L’oreal in a 2004 civil lawsuit brought by the company against Ronkonkoma-based Quality King Distributors, a $3-billion-a-year distributor of hair-care and other products, as well as its spinoff company, N.J.-based Pro’s Choice. The suit was the most recent round of an ongoing 17-year legal battle between L’oreal and Quality King.

L’oreal sought in its suit the enforcement of a 1990 injunction that barred Quality King and Pro’s Choice from buying and reselling an upscale line of hair shampoos and conditioners, sold by L’oreal under the names Matrix and ARTec.

That should be good enough, right?  Well, not if Judge Wexler smells baloney:

L’oreal maintains that to keep the value, integrity and status of the products, they are supposed to be sold only by company-trained professionals in fashionable salons. Matrix alone “has been the number one professional hair brand on the market, with an estimated 16 percent market share,” L’oreal  said in court papers.

Quality King and Pro’s Choice, however, were obtaining the products in violation of the injunction by buying them, or, as it is called, diverting them, from middlemen and reselling them to nonqualified dealers, L’oreal contended.

In his opinion, Wexler declined to enforce the old injunction, in effect, throwing out L’oreal’s case against the two companies.

The judge said that if L’oreal  wanted seriously “to stop diversion of Matrix products,” it could terminate those of its distributors who are the sources of the diverted products. L’oreal  sought in its suit the enforcement of a 1990 injunction that barred Quality King and Pro’s Choice from buying and reselling an upscale line of hair shampoos and conditioners, sold by L’oreal under the names Matrix and ARTec.

Well put, and it’s exactly how Dick Troll put it a little while ago.

Here’s the opinion. Certainly not what Baker & Hostetler were expecting, or promising their client, as they trekked out to the most inhospitable courthouse in creation in Central Islip!

UPDATE:  Second Circuit affirms (mostly), which it does (mostly).

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Author:Ron Coleman

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6 Responses to “Judge: “Go after your distributors, not free enterprise””

  1. DensityDuck
    July 5, 2011 at 12:55 pm #

    How does this square with Leegin v. PSKS?

    • July 5, 2011 at 4:27 pm #

      Why do you think that is a problem?

      • DensityDuck
        September 6, 2011 at 7:49 pm #

        Retail price maintenance?

Trackbacks/Pingbacks

  1. Greg Beck HQ » Court Holds Resales Are Not Infringement - November 29, 2007

    [...] Posted on November 29, 2007 under Uncategorized In Matrix Essentials v. Quality King Distributors, the Eastern District of New York recognized that trademark law is designed to protect consumers from confusion, not to preserve corporate distribution schemes and minimum prices. L’Oreal sued a competitor (and tried to interest the U.S. Attorney in starting a criminal prosecution) for “diverting” (i.e., reselling) L’Oreal’s hair care products outside of L’Oreal’s authorized distribution system. Although L’Oreal characterized the shampoo as “counterfeit,” the court didn’t buy it: Under the “first sale” doctrine, long a basic premise of trademark law, a trademark owner cannot control distribution of a trademarked item beyond its first sale. The re-sale of such genuine goods does not create consumer confusion and supports neither a claim of infringement nor unfair competition. Far from protecting consumers, penalizing resellers for selling authentic products raises prices by halting legitimate competition. Nevertheless, some courts have bought into the argument that resellers are liable for selling less expensive products without permission of the manufacturer. This court, at least, appears to have gotten it right. via Likelihood of Confusion [...]

  2. Greg Beck HQ » Court Holds Resales Are Not Infringement - December 28, 2007

    [...] Posted on November 29, 2007 under Consumer Law and Policy Blog, Law In Matrix Essentials v. Quality King Distributors, the Eastern District of New York recognized that trademark law is designed to protect consumers from confusion, not to preserve corporate distribution schemes and minimum prices. L’Oreal sued a competitor (and tried to interest the U.S. Attorney in starting a criminal prosecution) for “diverting” (i.e., reselling) L’Oreal’s hair care products outside of L’Oreal’s authorized distribution system. Although L’Oreal characterized the shampoo as “counterfeit,” the court didn’t buy it:Under the “first sale” doctrine, long a basic premise of trademark law, a trademark owner cannot control distribution of a trademarked item beyond its first sale. The re-sale of such genuine goods does not create consumer confusion and supports neither a claim of infringement nor unfair competition.Far from protecting consumers, penalizing resellers for selling authentic products raises prices by halting legitimate competition. Nevertheless, some courts have bought into the argument that resellers are liable for selling less expensive products without permission of the manufacturer. This court, at least, appears to have gotten it right.via Likelihood of Confusion [...]

  3. LIKELIHOOD OF CONFUSION® » Blog Archive » Tail wagging dog? - March 4, 2008

    [...] You know, this is not a half-bad argument.  And this demonstrates why our law professors always said, “Hard cases make bad law.”  These sorts of “trademark infringement” claims that don’t on lightly implicate consumer confusion — they really are offering an Alienware machine — but are really attempts to get at some other black act, or grey act, are making copyright and trademark the all-round would-be enforcers of every sort of conceived and actual business offense.  Some judges get it; some don’t. [...]

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