Judge: “Go after your distributors, not free enterprise”
Judges — 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.
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.
UPDATE: Second Circuit affirms (mostly), which it does (mostly).