Martin's Herend v. Diamond & Gem Trad, et a ( 1997 )

United States Court of Appeals,
Fifth Circuit.
Nos. 95-20349, 95-21019 and 96-20781.
MARTIN'S HEREND IMPORTS, INC. and Herendi Porcelangyar,
Plaintiffs-Counter Defendants-Appellees,
v.
DIAMOND & GEM TRADING USA, CO., Judith Juhasz and Frank Juhasz,
Defendants-Counter Plaintiffs-Appellants.
MARTIN'S HEREND IMPORTS, INC. and Herendi Porcelangyar,
Plaintiffs-Counter Defendants-Appellees,
v.
DIAMOND & GEM TRADING USA, CO., et al., Defendants,
Judith Juhasz and Frank Juhasz, Defendants-Counter Claimants-
Appellants.
MARTIN'S HEREND IMPORTS, INC. and Herendi Porcelangyar,
Plaintiffs-Appellees,
v.
DIAMOND & GEM TRADING USA, CO., et al., Defendants,
Judith Juhasz and Frank Juhasz, Defendants-Appellants.
May 28, 1997.
Appeals from the United States District Court for the Southern
District of Texas.
Before REAVLEY, KING and BARKSDALE, Circuit Judges.
REAVLEY, Circuit Judge:
In this trademark dispute, Judit and Frank Juhasz and their
proprietorship, Diamond & Gem Trading, USA, Co. (collectively
Juhasz), appeal a judgment awarding injunctive relief and damages,
a contempt order, an order awarding attorney's fees, and a summary
judgment denying their counterclaim for wrongful seizure. We agree
1
with the district court that plaintiffs were entitled to injunctive
relief and damages, but hold that the injunction entered was too
broad. We also reverse the award of attorney's fees, affirm the
contempt order, and reverse the judgment on the counterclaim.
BACKGROUND
Herendi Pocelangyar (Herendi), a Hungarian corporation, is the
manufacturer of Herend porcelain. It manufactures high-quality
porcelain tableware, figurines, and other pieces. The pieces are
hand-painted by master craftsmen and usually sell for hundreds or
thousands of dollars each. Herendi owns a federally registered
trademark which consists of the hand-painted "Herend" name and
design.
Martin's Herend Imports, Inc. (Martin's) is an American
corporation. Martin's and Herendi are parties to an exclusive
distributorship agreement, under which Martin's is authorized as
the sole importer of Herend porcelain for sale in the United
States.1 Martin's and Herendi select which Herendi pieces are
offered for sale in this country. Martin's imports top quality
pieces and resells them in this country to upscale retailers. It
chooses not to import many of the thousands of items offered by
Herendi even when manufactured to the same quality standards.
Juhasz, individually or through Diamond & Gem or a successor
company, sold pieces bearing the Herend trademark after purchasing
them from American and foreign sources, including Herendi company
1
The United States distributorship is exclusive except as to
the U.S. Virgin Islands.
2
stores located in Hungary. The parties dispute whether Juhasz ever
sold Herendi pieces that were "counterfeit" in the ordinary sense,
meaning that they bore a fake trademark or were not in fact
manufactured by Herendi. Juhasz has vehemently maintained
throughout this litigation that it only sold genuine Herend
porcelain, purchased from legitimate sources in this country or
elsewhere. It claims that all the goods it sold bore a true
Herendi trademark and were in fact manufactured at the Herendi
factory. Some of the pieces were vintage items from private
collections. Juhasz conceded, however, that it sold Herend pieces
not offered for sale in this country by Martin's, the exclusive
distributor for the American market. Such pieces are sometimes
referred to as "gray market" goods.2
Herendi and Martin's sued Juhasz, alleging trademark
infringement and false designation of origin, and seeking
injunctive relief, damages and an ex parte order of seizure. The
complaint alleges that Juhasz sells "counterfeit goods" bearing
"counterfeit Herendi trademarks." An accompanying affidavit
submitted by Martin's president states that Martin's had purchased
from Juhasz numerous counterfeit Herend pieces, which were inferior
in quality to genuine pieces. On the same day that suit was filed,
the district court signed a temporary restraining order and order
of seizure. Plaintiffs, through counsel and with the assistance of
2
See K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 285, 108
S. Ct. 1811, 1814, 100 L. Ed. 2d 313 (1988) ("A gray-market good is a
foreign-manufactured good, bearing a valid United States trademark,
that is imported without the consent of the United States trademark
holder.").
3
U.S. marshals, raided Juhasz's premises, seizing numerous goods and
records.
The case proceeded to trial. At the close of plaintiffs'
case, the district court granted plaintiffs' motions for summary
judgment and judgment as a matter of law, holding Juhasz liable for
trademark infringement, and denying its counterclaim for wrongful
seizure. The issue of damages was left to the jury, which returned
a verdict of $685,000. The court entered judgment in favor of both
plaintiffs for this amount, and granted a permanent injunction
against Juhasz. As discussed below, the court later awarded
plaintiffs attorney's fees, and entered an order of contempt
against Juhasz.
DISCUSSION
A. Liability for Trademark Infringement
While originally alleging that Juhasz was selling fake Herend
porcelain, plaintiffs ultimately sought judgment on the theory that
the pieces sold by Juhasz, even if genuine, were materially
different from those imported by Martin's for sale in this country
under its rights as the exclusive importer and distributor of
Herend wares. The difference is between those lines of Herend
products Martin's imports and those lines it does not import. The
district court agreed with this theory of liability.
Some courts have recognized that trademark protection extends
to bar a defendant's importation of genuine goods where, as here,
the manufacturer of the goods has granted exclusive importation
rights to a single domestic importer. An early explication of this
4
doctrine is found in Justice Holmes's opinion in A. Bourjois & Co.
v. Katzel.3 There, plaintiff Bourjois purchased the United States
business and the "Java" trademark of a French face powder
manufacturer. Defendant Katzel purchased the same powder in
France, packed in French boxes with the "Java" name, and began
selling it in the United States. Although the powder was genuine,
the Court held that the plaintiff's trademark had been infringed.
The Court reasoned that the French manufacturer could no longer
legally sell the powder in the United States, and should not be
able to circumvent its agreement with the plaintiff by selling the
powder to others for import into this country. An essential
teaching of Katzel is that trademarks can sometimes have a
territorial scope.
There are factual distinctions between our case and Katzel.
In Katzel, the American importer was the only plaintiff, while in
our case both the American importer (Martin's) and the foreign
manufacturer (Herendi) are plaintiffs. The Court noted a "public
understanding [ ] that the goods come from the plaintiff although
not made by it," that the trademark itself had been sold to the
plaintiff, and that the trademark "stakes the reputation of the
plaintiff upon the character of the goods."4 In our case,
liability was not based on proof that Martin's owns the trademark,
or that the public attached any meaning to the Martin's name or
even associated Martin's with Herend porcelain. Nevertheless,
3
260 U.S. 689, 43 S. Ct. 244, 67 L. Ed. 464 (1923).
4
Id. at 692, 43 S.Ct. at 245.
5
other courts have read Katzel and the trademark laws to prohibit a
defendant from importing goods that are materially different from
those imported by an exclusive distributor or importer, even absent
proof that the public associates the goods with the exclusive
distributor.
This approach was fully explicated in the First Circuit's
opinion in Societe Des Produits Nestle, S.A. v. Casa Helvetia,
Inc.5 Nestle, a foreign company, owned the trademark for Perugina
chocolates. Nestle sold expensive, Italian-made Perugina
chocolates in Puerto Rico through an exclusive distributorship
agreement with an American affiliate. It also licensed the
manufacture and sale of less expensive Perugina chocolates in
Venezuela. Defendant Casa Helvetia purchased the Venezuelan
chocolates through a middleman, imported them to Puerto Rico, and
sold them there under the Perugina mark. The court recognized that
trademark protection has a territorial element, but said that
Katzel did not prohibit the importation of identical foreign goods
carrying a valid trademark since, by and large, "courts do not read
Katzel ... to disallow the lawful importation of identical foreign
goods carrying a valid foreign trademark. Be that as it may,
territorial protection kicks in under the Lanham Act where two
merchants sell physically different products in the same market and
under the same name, for it is this prototype that impinges on a
trademark holder's goodwill and threatens to deceive consumers."6
5
982 F.2d 633 (1st Cir.1992).
6
Id. at 637 (citations omitted).
6
The court adopted a test finding infringement where the foreign
goods imported by the defendant gray market importer are materially
different from the goods sold by the plaintiff authorized to sell
the trademarked goods in the domestic market.7 The court also
noted that in this context "the threshold of materiality is always
quite low."8 Applying this test, the court held as a matter of law
that the chocolates were materially different since their
presentation, composition, variety, and price were different.9
As in our case, the goods at issue in Nestle were authentic
and bore a genuine trademark. The court nevertheless held that
Nestle, the owner of the trademark, and its regional Puerto Rico
distributor were entitled to injunctive relief for trademark
infringement and unfair competition under sections 32(1)(a), 42 and
43(a)(1) of the Lanham Act.10 The court reasoned that "the
7
Id. at 637-40.
8
Id. at 641.
9
Id. at 642-44.
10
15 U.S.C. §§ 1114(1)(a), 1124, 1125(a)(1). Juhasz claims
that plaintiffs lack standing to pursue a trademark infringement
action. Herendi has standing as the registrant and owner of the
trademark. Courts have reached different conclusions as to whether
an exclusive distributor has standing to sue for trademark
infringement. E.g., Quabaug Rubber Co. v. Fabiano Shoe Co., 567
F.2d 154, 158-60 (1st Cir.1977); DEP Corp. v. Interstate Cigar
Co., 622 F.2d 621, 622-23 (2d Cir.1980); Ferrero U.S.A., Inc. v.
Ozak Trading, Inc., 753 F. Supp. 1240, 1244-45 (D.N.J.), aff'd mem.,
935 F.2d 1281 (3d Cir.1991). Regardless, in this circuit Martin's
has standing to sue for unfair competition under 15 U.S.C. § 1125,
even if it lacks standing to sue for trademark infringement under
15 U.S.C. § 1114. Norman M. Morris Corp. v. Weinstein, 466 F.2d
137, 142 (5th Cir.1972) (holding that exclusive distributor has
standing to sue for unfair competition). Accord Quabaug, 567 F.2d
at 160.
7
importation of goods properly trademarked abroad but not intended
for sale locally may confuse consumers and may well threaten the
local mark owner's goodwill."11
Nestle did not turn on proof by the plaintiff of consumer
confusion. Instead, it presumed a likelihood of confusion as a
matter of law when the products are materially different.12 It
recognized that the presumption can be overcome by proof from the
defendant that "the differences are not of the kind that consumers,
on average, would likely consider in purchasing the product."13
The Second Circuit has taken a similar approach. In Original
Appalachian Artworks, Inc. v. Granada Electronics, Inc. ("OAA"),14
the owner of the trademark for Cabbage Patch Kids dolls, OAA, had
licensed a Spanish company, Jesmar, to make and sell Cabbage Patch
Kids dolls in Spain. The dolls differed from dolls made for the
American market in that the "adoption papers" were printed in
Spanish. When the defendant, a gray-market importer, began
importing the Jesmar dolls, OAA sought injunctive relief under the
Lanham Act. The court upheld a permanent injunction under section
32(1)(a) of the Lanham Act,15 on grounds that "Jesmar's dolls were
not intended to be sold in the United States and, most importantly,
were materially different from the Coleco Cabbage Patch Kids dolls
11
Nestle, 982 F.2d at 636.
12
Id. at 640.
13
Id. at 641.
14
816 F.2d 68 (2d Cir.1987).
15
15 U.S.C. § 1114(1)(a).
8
sold in the United States.... Thus, even though the goods do bear
OAA's trademark and were manufactured under license with OAA, they
are not "genuine' goods because they differ from Coleco dolls and
were not authorized for sale in the United States."16
We are persuaded that the Nestle/OAA test, which finds
infringement if the goods sold by the authorized domestic
distributor and the defendant's foreign goods are materially
different, is a sound one, at least when the goods in question are
highly artistic, luxury goods. The successful marketing of such
goods in this country by a foreign manufacturer is a skill and not
a science. It depends not only on the "quality" of such goods as
measured in some objective or scientific sense, but on the ability
to impart on the domestic consumer a view that the goods are rare,
collectable, elegant, chic, or otherwise highly desirable pieces to
own. As the Court noted in Katzel, "the monopoly of a trade-mark
... deals with a delicate matter that may be of great value but
that easily is destroyed...."17 For Herendi, maintaining the
goodwill of its trademark may depend on the stores where the goods
are sold, advertising, the selection of which of the thousands of
Herendi pieces will be offered for sale in this country, and many
other factors. The president of Martin's stated in a summary
judgment affidavit that Martin's "limits the Herend products which
are sold here based on its evaluation of the U.S. market, its
desire to promote product identity among U.S. consumers, its desire
16
OAA, 816 F.2d at 73.
17
Katzel, 260 U.S. at 692, 43 S. Ct. at 245.
9
to control the nature of the products on which the Herend mark is
affixed, and the public's perception of the Herend mark.
[Martin's] decisions can have a significant impact on the image of
Herend products in the U.S." As is its right, Herendi has chosen
Martin's as its exclusive distributor to assist in these complex
decisions, as a means of preserving the value of its trademark in
this country.
The district court properly held Juhasz liable for trademark
infringement. The evidence is undisputed that Juhasz sold Herend
pieces not offered by Martin's. Frank Juhasz admitted in his
deposition that "at least 50 percent of what we sell, they don't
sell." Some of the pieces, such as figurines of guinea hens and
rabbits, were completely different pieces from those sold by
Martin's. Others had painted patterns and colors different from
those offered by Martin's. As a matter of law, such differences
are material, since consumer choices for such artistic pieces are
necessarily subjective or even fanciful, depending on each
consumer's personal artistic tastes. As Juhasz observes in its
brief, "[e]ach consumer for a variety or reasons might prefer a
bird to a rabbit or stripes to diamonds or red to blue." Juhasz
therefore cannot show "the differences are not of the kind that
consumers, on average, would likely consider in purchasing the
product."18
Juhasz argues that its imports, while different, were of the
same grade and quality, but Nestle flatly rejects this argument,
18
Nestle, 982 F.2d at 641.
10
holding that the plaintiff need not prove that the defendant's
imports are of inferior quality to establish trademark
infringement, only that they are materially different.19 We agree
with this approach.
Juhasz argues that its conduct is sanctioned under Matrix
Essentials, Inc. v. Emporium Drug Mart, Inc.20 In this case,
plaintiff Matrix, the trademark owner, manufactured hair care
products. It sold its products to distributors who were
contractually bound to sell only to licensed cosmetologists.
Defendant Emporium, a discount retailer, began selling the products
and Matrix sued for trademark infringement. We held that Emporium
had not violated the Lanham Act. We reasoned that Emporium's
stocking of genuine Matrix products did not create a likelihood of
consumer confusion.
Matrix is distinguishable in that it was not a parallel
importer case, where the territorial scope of the trademark was in
issue. As explained above, trademark protection can extend to an
owner's efforts to maintain the value and goodwill of the trademark
in a particular territory, where the owner has endeavored to
confine the use of the trademark to certain goods. Moreover, the
goods sold by the defendant in Matrix and the authorized retailers
were not materially different. The court noted that the Matrix
products sold by Emporium "were the same products available in
19
Id. at 636, 640.
20
988 F.2d 587 (5th Cir.1993).
11
salons."21
Juhasz also relies on NEC Electronics v. CAL Circuit Abco22 and
Weil Ceramics and Glass, Inc. v. Dash.23 In these cases the courts
held that gray market importers of genuine goods were not liable
for trademark infringement. However, both cases are
distinguishable from our case because the goods were identical to
those sold by the authorized American distributors.24
Juhasz claims that its sales of Herend porcelain are allowed
under the "first sale" rule. Under this rule, recognized in NEC
Electronics, "[t]rademark law generally does not reach the sale of
genuine goods bearing a true mark even though such sale is without
the mark owner's consent. Once a trademark owner sells his
product, the buyer ordinarily may resell the product under the
original mark without incurring any trademark law liability."25 An
analogous and better known first sale rule is recognized in the
copyright law, and is indeed codified in the Copyright Act.26 This
21
Id. at 589.
22
810 F.2d 1506 (9th Cir.1987).
23
878 F.2d 659 (3d Cir.1989).
24
NEC Electronics, 810 F.2d at 1508-09; Weil, 878 F.2d at 668
& n. 11 (noting that, if goods had been materially different, "that
fact would provide a stronger argument for [plaintiff's] claim of
trademark infringement.").
25
NEC Electronics, 810 F.2d at 1506 (emphasis added), quoted
in Matrix, 988 F.2d at 590, 593.
26
17 U.S.C. § 109(a) ("Notwithstanding the provisions of
section 106(3), the owner of a particular copy or phonorecord
lawfully made under this title, or any person authorized by such
owner, is entitled, without the authority of the copyright owner,
to sell or otherwise dispose of the possession of that copy or
12
rule "finds its origins in the common law aversion to limiting the
alienation of personal property."27 As one court has explained, the
rationale behind the rule is that after the first sale, "the policy
favoring a copyright monopoly for authors gives way to policies
disfavoring restraints of trade and limitations on the alienation
of personal property...."28 Similar policies underlie recognition
of a first sale rule in trademark law.
We conclude that this rule does not protect Juhasz. First,
the rule applies only to identical genuine goods. No one would
argue, for example, that a seller of fake Rolex watches or Gucci
bags, or pirated compact discs, could escape liability by showing
that he was merely reselling the fakes after purchasing them from
the manufacturer of the pirated works.29 And as Nestle explains,
"although it has been said that "[t]rademark law generally does not
reach the sale of genuine goods bearing a true mark even though
such sale is without the mark owner's consent,' the maxim does not
apply when genuine, but unauthorized, imports differ materially
from authentic goods authorized for sale in the domestic market....
[A]n unauthorized importation may well turn an otherwise "genuine'
phonorecord.").
27
Sebastian Int'l Inc. v. Consumer Contacts (PTY) Ltd., 847
F.2d 1093, 1096 (3d Cir.1988).
28
Parfums Givenchy, Inc. v. C. & C Beauty Sales, Inc., 832
F. Supp. 1378, 1388 (C.D.Cal.1993).
29
Again, looking to the analogous copyright first sale rule,
the Copyright Act recognizes that the first sale rule only applies
to a copy "lawfully made under this title." 17 U.S.C. § 109(a).
13
product into a "counterfeit' one."30
Further, applying the first sale rule to an unauthorized
importer such as Juhasz would mean that the gray-market importer
would always escape liability. Unauthorized importers are never
the first seller. They always purchase the goods from the
manufacturer and owner of the trademark or an intermediary, and
resell the goods in violation of an agreement the manufacturer has
with the exclusive distributor, or a policy of the manufacturer
barring the sale of the goods in a particular geographic market.
Yet since 1923, when the Supreme Court ruled in Katzel, courts have
held that such sales can sometimes violate the trademark laws. If
Juhasz were correct, then the defendants in Katzel, Nestle and OAA
would have escaped liability, since they too resold genuine
products bearing genuine marks.
We conclude, however, that the permanent injunction is too
broad in light of the first sale rule. The injunction prohibits
Juhasz from "distributing, advertising or selling in the United
States products which are physically different from but which bear
the same federally registered trademark No. 1,816,915 as genuine
Herend products which are at that time being sold in the United
States by plaintiffs." By its terms, Juhasz is barred from selling
pieces that Martin's previously imported as appropriate for the
United States market but which are no longer being imported by
Martin's. While plaintiffs should be allowed to maintain the
territorial integrity of the trademark by limiting which porcelain
30
Nestle, 982 F.2d at 638 (quoting NEC, 810 F.2d at 1509).
14
pieces are offered for sale in this country, they should not be
heard to complain that the trademark is infringed when a good
previously approved for sale is deleted from Martin's current
catalogue. In such circumstances the first sale rule's policies of
limiting restraints on trade and alienation of personal property
outweigh the trademark owner's right to control its goodwill
through an exclusive distributorship arrangement.
Even plaintiffs conceded below, in one of their filings, that
their proposed permanent injunction "would not prohibit Defendants
from selling products which Plaintiffs previously imported and sold
in the United States, even if such products are not presently sold
by Plaintiffs here, since Plaintiffs' previous sale in the U.S.
would constitute a "first sale' of such products." Accordingly,
the injunction should be modified to allow Juhasz to sell all
pieces which have ever been sold by plaintiffs in the United
States.
We further hold that the injunction should make clear that
Juhasz is not limited to selling individual pieces which Martin's
has imported and sold first in this country. To hold otherwise
would require Juhasz to establish the provenance of each individual
piece. Herend pieces, though beautiful and distinctive, are mass
produced and should not be treated the way the art world treats an
original Picasso. As long as plaintiffs have ever approved a piece
for importation and sale in this country, Juhasz is free to sell
any individual piece of the same quality from the same product
line. Juhasz is, for example, allowed to sell any Herend piece
15
offered in a Martin's catalogue. The Lanham Act protects the
trademark; it does not protect the exclusive distributorship
agreement per se. In addition, the injunction should be modified
to allow the sale of Herend pieces which were imported to this
country before Martin's became Herendi's exclusive distributor in
1957. We can see no basis for holding that plaintiffs had a right
to render such pieces "counterfeit" by choosing, decades ago, not
to select them for importation after they created the exclusive
distributorship.
B. Damages
Juhasz complains that the district court erred in awarding
damages. Under the Lanham Act the plaintiff is entitled to recover
defendant's profits and "any damages sustained by the plaintiff."31
Further:
In assessing profits the plaintiff shall be required to prove
defendant's sales only; defendant must prove all elements of
cost or deduction claimed. In assessing damages the court may
enter judgment, according to the circumstances of the case,
for any sum above the amount found as actual damages, not
exceeding three times such amount. If the court shall find
that the amount of the recovery based on profits is either
inadequate or excessive the court may in its discretion enter
judgment for such sum as the court shall find to be just,
according to the circumstances of the case.32
Great latitude is given the district court in awarding damages
under the Lanham Act, "which expressly confers upon the district
judges wide discretion in determining a just amount or recovery for
31
15 U.S.C. § 1117(a).
32
Id.
16
trademark infringement."33
Plaintiffs offered an accounting expert who had reviewed
Juhasz's business records. She relied on Frank Juhasz's deposition
testimony that at least 50 percent of the Herend pieces it sold
were not products sold by Martin's in the United States. He
admitted that these were pieces that Herendi "intended to sell in
other countries" and that "had never been seen on this market."
The expert found that the business records were inconsistent, but
estimated Juhasz's sales of infringing goods (50 percent of gross
sales of Herend goods) during the 1991-1994 period at $238,541.
She calculated damages based on infringing sales and plaintiffs'
lost profits amounting to $403,000. She further opined that
inventory records indicated inventory several times higher than the
inventory testified to by defendants and discovered by plaintiffs
on the date of the seizure. She testified that the damages would
be significantly higher ($350,000) if this additional inventory
were taken into account. She did not take into account any damage
to plaintiffs' reputations, or any pre-1991 or post-1994 sales by
Juhasz.
The jury found damages of $685,000, and the court awarded this
amount. While the evidence of damages could have been more
precise, we conclude that the award should be affirmed, given the
broad discretion accorded the district court in deciding damages up
to three times the amount of actual damages found.
33
Holiday Inns, Inc. v. Alberding, 683 F.2d 931, 935 (5th
Cir.1982).
17
C. Attorney's Fees
The district court awarded attorney's fees of $328,825 for
the entirety of the fees incurred by plaintiffs in prosecuting this
action. Plaintiffs sought attorney's fees under 15 U.S.C. §
1117(a), which provides that "[t]he court in exceptional cases may
award reasonable attorney fees to the prevailing party." We have
noted that the legislative history of this statute suggests that
the exceptional case is one in which the defendant's trademark
infringement "can be characterized as "malicious,' "fraudulent,'
"deliberate,' or "willful,' " and that it "has been interpreted by
courts to require a showing of a high degree of culpability."34
The court erred in finding that this is an "extraordinary"
case meriting the award of attorney's fees. Suffice it to say that
the law of gray market goods and "parallel importers" is a
difficult subject. The district court itself erred in the breadth
of the injunction it ordered, as explained above. Likewise,
plaintiffs and their able counsel incorrectly believed that the ex
parte seizure provision of the Lanham Act applied to the gray
market goods in issue, as discussed below. Juhasz's counsel erred
in advising it, after the ex parte seizure, that Juhasz's conduct
was legal under Matrix. The notion that a jeweler can violate the
trademark laws by importing and selling genuine porcelain with a
genuine trademark borders on the counterintuitive, even to those
seasoned in the law. We can find no evidence in the record that
34
Texas Pig Stands, Inc. v. Hard Rock Cafe Int'l, Inc., 951
F.2d 684, 697 (5th Cir.1992).
18
Juhasz knew at the time of its actions that it was violating the
law. Frank and Judit Juhasz swore in post-trial affidavits that
they only sold genuine Herend porcelain, and did not believe that
the sales were illegal. When Judit Juhasz was asked by her counsel
at trial whether she believed the items taken during the seizure
were counterfeit, plaintiffs successfully objected on grounds that
the question was irrelevant. Even after the ex parte seizure,
Juhasz obtained an opinion of legal counsel who advised that their
sales of gray market goods were "not an infringement of anyone's
rights in accordance with United States law." Plaintiffs did not
demonstrate the kind of highly culpable conduct meriting an award
of attorney's fees.
D. Wrongful Seizure Counterclaim
Juhasz complains that the district court erred in granting
summary judgment against it on its counterclaim for wrongful
seizure. Simultaneously with the filing of their original
complaint, plaintiffs sought and obtained a order of seizure
pursuant to 15 U.S.C. § 1116(d), which provides in pertinent part:
(1)(A) In the case of a civil action arising under section
1114(1)(a) of this title ... with respect to a violation that
consists of using a counterfeit mark in connection with the
sale, offering for sale, or distributions of goods or
services, the court may, upon ex parte application, grant an
order ... providing for the seizure of goods or counterfeit
marks involved in such violation and the means of making such
marks, and records documenting the manufacture, sale or
receipt of things involved in such violation.
(B) As used in this subsection the term "counterfeit mark"
means—
(i) a counterfeit of a mark that is registered ...
whether or not the person against whom relief is sought
knew such mark was so registered ...
19
but such term does not include any mark or designation used on
or in connection with goods or services of which the
manufacture35 or producer was, at the time of the manufacture
or production in question authorized to use the mark or
designation for the type of goods or services so manufactured
or produced, by the holder of the right to use such mark or
designation.
Given the draconian nature of this ex parte remedy, providing
for the seizure of defendant's wares and records without prior
notice to the defendant and with the assistance of law enforcement
officers,36 we believe that it should be narrowly construed. By its
terms, this provision does not apply to gray market goods such as
the ones at issue here. It does not apply to goods having a mark
placed on the product "at the time of the manufacture" by a
manufacturer "authorized to use the mark ... by the holder of the
right to use such mark." Here, the owner of the right to use the
Herend trademark—Herendi—is also the manufacturer, and was of
course authorized to place its own trademark on its own goods at
the time of its own manufacture. Gray market goods are not subject
to this provision even if they are materially different from those
selected for the domestic market. Plaintiffs had no right to
conduct an ex parte seizure of authentic Herend pieces from Juhasz.
Hence, the district court erred in ruling that the counterclaim
should fail because plaintiffs "seized several porcelain products
that were different from the products that Herend sells in the
United States."
The result would be different if plaintiffs had seized fake
35
So in original. Probably should be "manufacturer."
36
See 15 U.S.C. § 1116(d)(9).
20
pieces with a forged trademark. The seizure order was based on an
affidavit of Martin's president, who believed that several of the
pieces Martin's had purchased from Juhasz were not authentic Herend
porcelain. Plaintiffs never established as a matter of law that
Juhasz was selling fakes, and there is substantial evidence to the
contrary. At trial plaintiffs called Herendi's commercial director
and its lead painter, undoubtedly two of the world's leading
experts on the authenticity of Herend porcelain, and neither
identified a single piece sold by Juhasz as having a fake
trademark.
Under 15 U.S.C. § 1116(d)(11), "[a] person who suffers damage
by reason of a wrongful seizure under this subsection has a cause
of action against the applicant for the order under which such
seizure was made, and shall be entitled to recover such relief as
may by appropriate, including damages for lost profits, cost of
materials, loss of good will, and punitive damages in instances
where the seizure was sought in bad faith...." The court erred in
granting judgment in favor of plaintiffs on this counterclaim after
the plaintiffs rested.
E. Contempt Order
After the court entered its permanent injunction, plaintiffs
sought a civil contempt order, alleging that Juhasz was violating
the injunction. After a hearing, the court found that Juhasz had
sold and advertised for sale Herend pieces materially different
from those offered by Martin's. The court entered a contempt
order, which ordered that Juhasz: (1) return all physically
21
different Herend products and all related brochures, price lists
and other advertising materials; (2) turn over records documenting
the sale of physically different products, so that plaintiffs could
in the future seek recovery of lost revenues; (3) identify and
send a letter to all persons who had received physically different
products or advertising for such products, stating that defendants
sold them in violation of the injunction; (4) pay plaintiffs $6300
as reasonable attorney's fees incurred in bringing the contempt
proceeding; (5) serve within 12 days a declaration describing its
compliance with the contempt order; and (6) beginning 10 days
after entry of the contempt order, pay a fine of $50 per day for
each day of non-compliance with the order.
We review an order of contempt under the abuse of discretion
standard, and the district court's underlying fact findings under
the clearly erroneous standard.37
We note that the contempt order should not be reversed simply
because we now hold, above, that the injunction the court issued
was too broad. The Supreme Court has recognized "the long-standing
rule that a contempt proceeding does not open to reconsideration
the legal or factual basis of the order alleged to have been
disobeyed and thus become a retrial of the original controversy."38
Juhasz was obliged to obey the injunction pending reconsideration
by the district court or appellate review.
37
Travelhost, Inc. v. Blandford, 68 F.3d 958, 961 (5th
Cir.1995).
38
Maggio v. Zeitz, 333 U.S. 56, 69, 68 S. Ct. 401, 408, 92 L. Ed.
476 (1948).
22
Juhasz argues that the contempt order was one of criminal
contempt requiring proof beyond a reasonable doubt. We disagree.
As we explained in Lamar Financial Corp v. Adams:39
If the purpose of the sanction is to punish the contemnor and
vindicate the authority of the court, the order is viewed as
criminal. If the purpose of the sanction is to coerce the
contemnor into compliance with a court order, or to compensate
another party for the contemnor's violation, the order is
considered purely civil. A key determinant in this inquiry is
whether the penalty imposed is absolute or conditional on the
contemnor's conduct.40
The purpose of the contempt order was to compel Juhasz to
comply with the previously entered injunction. The modest
attorney's fees awarded were compensation to the plaintiffs for the
costs of prosecuting the contempt motion, and the monetary
sanctions of $50 per day were prospective only, and thus
conditioned on the contemnor's future compliance with the
injunction.
Juhasz argues that it only sold pieces obtained in the
"secondary market" after the injunction issued, and that the
injunction was so vague that it did not understand that such sales
were prohibited. The injunction plainly prohibited Juhasz from
"distributing, advertising or selling in the United States products
which are physically different from but which bear the same
federally registered trademark No. 1,816,915 as genuine Herend
products which are at that time being sold in the United States by
plaintiffs." There is no exception for sales of pieces purchased
39
918 F.2d 564 (5th Cir.1990).
40
Id. at 566 (citations omitted).
23
in the "secondary market."
Juhasz appears to complain that the scope of the injunction
became confused when plaintiffs themselves conceded in one of their
pleadings (discussed above) that their proposed permanent
injunction "would not prohibit Defendants from selling products
which Plaintiffs previously imported and sold in the United States,
even if such products are not presently sold by Plaintiffs here,
since Plaintiffs' previous sale in the U.S. would constitute a
"first sale' of such products." This interpretation of the
injunction would not allow Juhasz to sell pieces unless they had
first been imported to this country and sold by Martin's. The
evidence showed that Juhasz was not selling pieces first sold in
this country by Martin's. Regardless of this statement, the
injunction the court entered had no exception for secondary market
purchases. Further, plaintiffs offered evidence that, after the
injunction issued, Juhasz sold and advertised for sale Herend
pieces that plaintiffs had never sold in the United States.
We conclude that the fact findings forming the basis for the
contempt order are not clearly erroneous, and that the district
court did not abuse its discretion in issuing the contempt order.
CONCLUSION
For the foregoing reasons, we conclude that an injunction was
properly issued against Juhasz, but that the injunction entered by
the district court was too broad; that plaintiffs are entitled to
damages but are not entitled to attorney's fees; that the contempt
order should be affirmed; and that the summary judgment against
24
Juhasz on its wrongful seizure counterclaim should be reversed.
Accordingly, we affirm in part, reverse in part, and remand for
further proceedings consistent with this opinion.
AFFIRMED in part, REVERSED in part and REMANDED.
25