IP Law Daily Sports eyewear seller infringed by violating license agreement with manufacturer
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Friday, March 24, 2017

Sports eyewear seller infringed by violating license agreement with manufacturer

By Thomas Long, J.D.

Eyewear manufacturers Halo Optical Products, Inc., and Halo Sports and Activity, Inc. (together, "Halo") established that retailer Liberty Sport, Inc., infringed Halo’s REC SPECS mark and breached distribution and license agreements by ordering REC SPECS and competing non-REC SPECS products from a third-party supplier instead of from Halo, the federal district court in Albany, New York, has ruled. According to Halo, Liberty’s conduct caused it to lose the ability to monitor and protect the quality of the products bearing its mark, thereby risking damage to its reputation. By misleading consumers into believing the unauthorized goods were "genuine" REC SPECS products, Liberty created a likelihood of confusion that could cause irreparable harm to Halo, warranting injunctive relief. Halo’s damages, however, could not be determined on summary judgment. The agreements between the parties were unclear as to the amount Liberty owed to Halo for certain inspection services and for the right to use the REC SPECS mark (Halo Optical Products, Inc. v. Liberty Sport, Inc., March 22, 2017, D’Agostino, M.).

Pursuant to a license agreement, Halo gave Liberty permission to sell REC SPECS-branded sports protective eyewear, alongside competing products, as long as Halo continued to receive the orders for REC SPECS products so that Halo could inspect them. The arrangement required Liberty to pay Halo a mark-up price for Halo’s cost of acquiring and inspecting the products. After Liberty started buying REC SPECS and other products directly from another supplier—Hwa Meei Optical—Halo sued Liberty for trademark infringement and breach of contract. The district court granted Halo’s motion for a preliminary injunction, enjoining Liberty during the pendency of the case from ordering, purchasing, marketing, or selling REC SPECS eyewear, or sports protective eyewear that competed with REC SPECS eyewear, except in accordance with the parties’ agreements. The court denied Liberty’s motion for reconsideration of the preliminary injunction order. The parties subsequently filed motions for summary judgment.

Breach of contract. In the court’s view, it was clear that Liberty breached a 1992 distribution agreement and a 1993 trademark license agreement when it began purchasing REC SPECS products directly from Hwa Meei instead of from Halo, and for not paying Halo at least some amount for those products. Neither agreement set forth the price that Halo was entitled to charge Liberty for inspection services or for the use of Halo’s mark; therefore, the amount Liberty owed Halo was a question of fact that could not be decided at the summary judgment phase. However, there was no doubt, the court said, that Liberty owed Halo something under the agreements.

Halo also was granted summary judgment as to liability with respect to Liberty’s sales of competing sports protective eyewear products without Halo’s permission. The court rejected Liberty’s argument that it complied with the trademark license agreement by marketing the competing products under the REC SPECS brand. Liberty did not have permission to use the REC SPECS mark in connection with those competing products. Factual questions precluded summary judgment as to the amount Liberty owed Halo for these breaches.

Trademark infringement. Halo’s infringement claims hinged on whether Liberty’s conduct created a likelihood of confusion as to the REC SPEC trademark. Ordinarily, this question was governed by a list of factors identified by the Second Circuit ("the Polaroid factors"), but that test was more suited to cases involving the comparison of two distinct, although similar, marks. Application of the Polaroid factors was unnecessary when the use of an identical mark was at issue, the court said. Moreover, it was well established that when a licensee used a mark beyond the scope permitted in the licensing agreement, the consumer confusion requirement was satisfied. Consumers were misled into believing that goods sold under such circumstances were "genuine," when they could not in fact be considered so, due to the manufacturer having been deprived of the opportunity to exercise quality control.

In this case, the trademark license agreement gave Liberty an exclusive right to the REC SPECS mark as long as Liberty continued to aggressively market and promote the mark. When the agreement was entered into, Halo made all of its products. Liberty paid Halo for making and inspecting the products, and Halo retained control over the mark through its inspection of the goods. When Halo started using Hwa Meei to manufacture REC SPECS eyewear, Halo still had the right to inspect REC SPECS products to ensure their quality. Liberty did not have the authority to order and sell REC SPECS products without Halo’s oversight and inspection. Therefore, ordering REC SPECS products and using the mark in connection with competing goods without permission was clearly outside the scope of the license, and Liberty’s conduct amounted to trademark infringement, the court concluded.

Injunctive relief. Halo was, in principle, entitled to a permanent injunction against Liberty, the court said. The relevant factors all favored Halo, particularly the factor of irreparable harm, since damage to reputation was not precisely quantifiable. However, the court declined to make the preliminary injunction permanent because the court could not determine the injunction’s scope until after a trial. The preliminary injunction required Liberty to pay Halo a mark-up, but there were factual questions as to the amount of the mark-up that was owed. The preliminary injunction remained in effect in the meantime.

Monetary relief for trademark infringement. Halo did not appear to argue that it was entitled to damages due to actual consumer confusion, the court noted. Instead, it apparently contended that Liberty’s conduct was intentionally or willfully deceptive, giving rise to a presumption of confusion. Liberty asserted that it had acted on the advice of counsel and that its actions were innocent and non-willful. Liberty failed, however, to fully disclose its counsel’s advice during discovery and could not now invoke an advice-of-counsel defense, the court said. However, questions of fact still precluded summary judgment on damages for trademark infringement because the license agreement was ambiguous as to what Liberty was required to pay for use of the REC SPECS mark. For similar reasons, the court denied Liberty’s motion for partial summary judgment seeking to dismiss Halo’s claims for enhanced damages under the Lanham Act.

The case is No. 6:14-cv-00282-MAD-TWD.

Attorneys: G. Kimball Williams (McNamee, Lochner, Titus & Williams, P.C.) for Halo Optical Products, Inc., and Halo Sports and Safety, Inc. Carolyn J. Fairless (Wheeler, Trigg Law Firm) for Liberty Sport, Inc.

Companies: Halo Optical Products, Inc.; Halo Sports and Safety, Inc.; Liberty Sport, Inc., f/k/a Liberty Optical Manufacturing Co., Inc.

MainStory: TopStory Trademark NewYorkNews

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