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Clairol Inc. v. Plus

Decided: July 26, 1974.

CLAIROL INCORPORATED, A DELAWARE CORPORATION, PLAINTIFF,
v.
COSMETICS PLUS, A NEW JERSEY CORPORATION, DEFENDANT



Schreiber, J.s.c.

Schreiber

Clairol Incorporated (Clairol), a Delaware corporation, seeks to enjoin defendant Cosmetics Plus, a New Jersey corporation, from selling to retail customers any of plaintiff's products which are intended for the "professional" market. Cosmetics Plus owns and operates two retail stores, one in Kearny, New Jersey, and one in Rutherford, New Jersey, which sell various cosmetics, including those manufactured by Clairol, to the public.

Clairol has been producing various beauty supply items, primarily hair dyes, shampoos, and the like, for many years. Its products fall into two basic categories: hair coloring and hair care. The hair coloring products, partially composed of coal tar, are used to color or remove color from hair. The hair care category consists of products such as shampoos and hair sprays which are not made from coal tar. The Clairol name is used in connection with each of its hair coloring and hair care items. It has registered the name "Clairol" as well as the names of many other of its products as trademarks or trade names. Large sums have been spent to advertise the Clairol retail merchandise. Some $30,000,000 was expended in 1973 and $500,000,000 over the last ten years.

Distribution of the hair coloring and hair care products is channeled through two streams. One is designated retail, where

the product is intended for the user at home. This is accomplished either (a) through some 1100 direct wholesalers which in turn resell to retail stores, or (b) by making sales to large chain stores or discount houses such as Two Guys from Harrison or Pathmark. The second stream is directed to the beauty salon industry, which has been designated the "professional" trade. Clairol reaches this user by making sales to (a) wholesale beauty supply distributors, (b) chains of beauty salons, and (c) beauty schools. Clairol's organization is divided into two divisions, retail and professional, to service the respective markets.

Some products sold to the retail and professional trades are identical. Some are sold only for the professional trade and some only for the retail trade. In 1973 retail and professional sales totaled $160,000,000 and $20,000,000, respectively. Broadly speaking, the identical items which are sold for both retail and professional markets may be distinguished between those that are and are not made out of coal tar. The differentiation is significant.

Under N.J.S.A. 24:5-1 no person may distribute or sell a cosmetic which is adulterated, and N.J.S.A. 24:5-11.1 provides that a cosmetic shall be deemed to be adulterated if it contains any poisonous or deleterious substance which may render it injurious to users, provided that this provision shall not apply to coal tar hair dye the label of which bears a legend reading: "Caution -- This product contains ingredients which may cause skin irritation on certain individuals and a preliminary test according to accompanying directions should first be made. This product must not be used for dyeing the eyelashes or eyebrows. To do so may cause blindness," and the label must also bear "adequate directions for such preliminary testing." The Federal Food, Drug and Cosmetics Act has identical provisions. 21 U.S.C.A. ยง 361(a).

Probably the most important coal tar product sold to both the retail and professional trades is Miss Clairol Hair Color Bath, a liquid which is used to dye hair. Clairol has approximately

13% of the retail hair coloring market in the United States. The packaging and labeling of the hair coloring for the professional and retail markets differ. The retail bottle carries the precise language required by the statutes. It is packaged individually in a box on which is printed advice to keep the bottle away from heat and light, a caution with respect to skin irritation and a direction to read instructions enclosed in the box. The instructions concern preliminary skin and color tests, a color chart section, and directions on how to apply Miss Clairol. The shelf life is about three years, but this life is reduced sharply if the bottle is removed from the carton. The professional package contains six bottles. The professional bottle does not have the statutory language. Its label refers to the fact that cautionary statements regularly required for sale to nonprofessionals are not included on the bottle label; it refers to the skin test, and warns against use for dyeing eyelashes or eyebrows. The bottle carries the legend, "professional use only." Imprinted on the outside carton are the same cautionary statements that appear on the labels of the individual bottles. The legend on the container also warns against exposure of the bottles to heat or light. Inside the package is one small sheet of paper with warnings concerning hypersensitivity and patch test instructions. If one were to purchase one professional bottle, the buyer would not receive the details on how to apply the patch test, specific instructions on how to apply the product, or color data. In the absence of testing or following the instructions in the retail package, use could lead to allergic reactions, green hair, or other disastrous results, any of which would probably have an adverse impact on Clairol's sales and goodwill. Clairol manufactures 27 colors, five of which are sold only to the professional trade. The remaining 22 are sold to the retail and professional markets. The products are identical.

Some of the other products which are sold to the professional and retail trades come in bottles or containers which

are identical except that a legend such as "professional use," "professional package" or "professional use only" appears on that destined for the beauty salon market. In some professional items no individual instructions are included as in the retail package. In some the instructions are the same or adequate for both types of use.

The labeling on products which are sold only to the professional trade varies. In some instances, no language limiting sales to the professional trade appears on the label. Other products which are sold by Clairol only to the professional trade do carry that notation. Some of the items are sold only to the professional market because of expertise needed in application, which the professional beautician could apply more readily and safely.

Within each group, retail and professional, the price charged by Clairol is the same. Thus there is no difference in the price charged to the drug wholesaler who sells to retail stores or to large retail store chains. So, too, the price charged for professional use, whether it be to the beauty supply distributor or a chain of beauty salons or a beauty school, is the same. However, Clairol charges a substantially different price for the identical product earmarked for the retail trade and that for the professional trade. For example, the price for Miss Clairol Hair Color Bath is $11.76 a dozen for the retail market (if the purchase exceeds 35 dozen), whereas the price to the professional outlet is $5.76 a dozen. Clairol does not attempt to fix the prices at which its products are resold, either at the wholesale or the retail level. [Certain factual findings and discussion have been omitted.]

It is with the factual backdrop described above that plaintiff seeks to enjoin defendant from selling Clairol products which it desires be restricted to the professional trade. Plaintiff does not predicate its case on a breach of contract for there is no contractual relationship between the parties. Counsel stated on summation that plaintiff does not rely upon a theory of equitable servitude. Nor are the concepts of inducing

a breach of contract, including the conspiratorial fraudulent misrepresentation rationale, available to it or found under the circumstances here.

Plaintiff urges that its cause of action is based in part on N.J.S.A. 56:4-1 which reads as follows:

No merchant, firm or corporation shall appropriate for his or their own use a name, brand, trade-mark, reputation or goodwill of any maker in whose product such merchant, firm or corporation deals, or discriminate against the same by depreciating the value of such products in the public mind, or by misrepresentation as to value or quality, or by price inducement, or by unfair discrimination between buyers, or in any other manner whatsoever, except where such products do not carry any notice prohibiting such practices, and except in the case of a receiver's sale or a sale by a concern going out of business.

By its terms the statute is inapplicable where the products do not carry a notice "prohibiting such practices." Obviously, the statute then would not apply where plaintiff's products carried no notice or where the label simply bore the legend "professional use" or "professional package." The only contention made in this respect by plaintiff was that those items which carried the notation "professional use only" satisfied the notice requirement. Guidance as to the nature of the notice required may be found in the case of Ingersoll v. Goldstein, 84 N.J. Eq. 445 (Ch. 1915). There a notice by a manufacturer of watches forbade a sale under various conditions at a price less than that fixed. The court held that, since the statute was to be strictly construed, the notice was ineffective because it forbade a sale for reasons to which the act had no application. Following that approach, one must readily conclude that here the notice did not clearly and explicitly prohibit the sale of the product to home users. To the public the word "professional" may well not mean what Clairol intended. The notice would have to spell out that the sale of the product other than to certain described persons was prohibited, and it has not met the statutory requirement.

Even if the notice were sufficient plaintiff would be unable to meet the remaining statutory requirements. It relies upon the proscription to "discriminate against the same product by depreciating the value of such products in the public mind * * *." To that end it contends that defendant has discriminated against Clairol's goodwill by depreciating the value of its products in the public mind. But defendant has not advocated that the Clairol product is poor or not as good as a competitive brand. The opinion was voiced by Mr. Shea, Clairol's Vice President, that by not leaving the professional product in the same package, which is true as to Miss Clairol Hair Color Bath but not other items, the goodwill image is adversely affected. This does not establish, and plaintiff has not shown by a fair preponderance of the evidence, that defendant intended to harm or discriminate against Clairol products. The statute does not support plaintiff's cause of action.

There is no doubt but that a manufacturer may create goodwill associated with his business. This may be accomplished in a number of ways -- sales and prompt and adequate servicing over a long period of time under identifiable names or trademarks to satisfied customers. Advertising on a broad scale may produce goodwill in a much shorter period of time. In any event, the manufacturer may develop a property interest in that goodwill which is evidenced by the name or trademark placed on the product. When that has occurred, the courts ...


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