(2d Cir. 1989), Siemens was a supplier of dental x-ray equipment, while Hayden was a full-service dental equipment dealer that sold Siemens equipment. 879 F.2d at 1009. The owner of Hayden then founded Schein Dental, a mail-order firm that sold dental equipment at a discount. Id. Siemens informed Hayden that it could no longer sell Siemens products to third parties, including Schein Dental, and instituted an "Authorized Dealership Agreement" to this effect, which Hayden refused to sign. Id. Hayden continued to sell Siemens products to Schein Dental, and was eventually terminated as a Siemens dealer. Id.
The Second Circuit affirmed the district court's grant of summary judgment in favor of Hayden on Siemens' tortious interference counterclaim. 879 F.2d at 1024. In doing so, the circuit agreed with the district court's conclusion that "Siemens suffered no pecuniary loss either in the sales, since it profited from them, or from the expense of tracking down the sources of Schein Dental's equipment, as this was a necessary part of enforcing the Dealership Agreement." Id. The Second Circuit also rejected Siemens' argument that loss of control over the distribution of its products, increased exposure to products liability suits, and "undermining of Siemens marketing strategy" constituted damages that would support a tortious interference claim. Id. The court upheld the denial of both monetary and equitable relief, concluding that "pecuniary injury is an element of this tort and must be established as a basis for injunctive relief, as well as damages." Id. (citing Restatement (Second) of Torts § 766 cmt. u).
Similarly, we find that Matrix has not established the damage necessary to justify injunctive relief in a tortious interference claim. Indeed, Matrix presented very little evidence of damage from the alleged tortious interference. Urban and DiDonato both testified that when Matrix products become available in retail stores such as defendants', they receive complaints from salons that carry Matrix products. Matrix also offered the testimony of Mary Jones, a salon owner, who stated that she would stop carrying Matrix products if they were widely available in retail stores. However, there is not a shred of proof to support the proposition that the increased sales which result from the activities of diverters would be offset by the loss of salon sales.
Matrix's passionate but unproven assertion of potential lost salon sales does not support an injunction for tortious interference with contract. Just as in Hayden, Matrix profited from the initial sale of Matrix products to defendants. To the extent that Matrix claims damages based on a loss of control over its distribution and marketing strategies, this is the very argument rejected by the court in Hayden.
Matrix cites two cases for the proposition that interference with the salon-only distribution of hair-care products in itself causes damage. These cases, however, are inapposite. In Sebastian Int'l, Inc. v. Consumer Contacts (PTY) Ltd., 1988 U.S. Dist. LEXIS 3462, Civ. No. 87-1995, 1988 WL 24147 (D.N.J. Mar. 11, 1988), the court simply held that, based on the factual record existing at the time of defendants' summary judgment motion, a material issue of fact existed as to whether plaintiff had suffered damages. Id., at *5-6. Similarly, in JBL Enterprises, Inc. v. Jhirmack Enterprises, Inc., 698 F.2d 1011 (9th Cir.), cert. denied, 464 U.S. 829, 78 L. Ed. 2d 109, 104 S. Ct. 106 (1983), the court, in upholding the district court's grant of summary judgment on the ex-distributors' antitrust claim, stated only that some salons "will therefore refuse to carry products that are generally available OTC [over-the-counter]." 698 F.2d at 1013.
These cases, however, do not establish a per se rule that damage always occurs when one interferes with a salon-only distribution scheme. Indeed, the JBL court did not find that the violation of an exclusive distribution scheme caused damages, but rather held, as has this court, that the distribution scheme was reasonable under the antitrust laws. See 698 F.2d at 1015. In this case, Matrix's failure to adduce evidence to show that harm will result from defendants' actions is fatal to its tortious interference with contract claim, whether it requests injunctive relief or money damages.
Even if Matrix had established a tortious interference claim, we would hold that it is not entitled to a permanent injunction. This court may enter a permanent injunction only "'after a showing of both irreparable injury and inadequacy of legal remedies, and a balancing of competing claims of injury and the public interest.'" Public Interest Research Group Of New Jersey, Inc. v. Powell Duffryn Terminals Inc., 913 F.2d 64, 82 (3d Cir. 1990) (quoting Natural Resources Defense Council v. Texaco Refining and Marketing, Inc., 906 F.2d 934, 941 (3d Cir. 1990)), cert. denied, 498 U.S. 1109, 111 S. Ct. 1018, 112 L. Ed. 2d 1100 (1991). A permanent injunction will issue "only where a threat of harm exists, not just where potential harm exists." McLendon v. Continental Can Co., 908 F.2d 1171, 1182 (3d Cir. 1990). Therefore, "'[an injunction] may not be used simply to eliminate a possibility of a remote future injury . . . .'" Acierno v. New Castle County, 40 F.3d 645, 1994 WL 621545, at *9-10 (3d Cir. 1994) (quoting Continental Group, Inc. v. Amoco Chem. Corp., 614 F.2d 351, 359 (3d Cir. 1980). Because Matrix's evidence of damage, irreparable or otherwise, is speculative at best or non-existent at worst, injunctive relief is not warranted.
B. Trademark Infringement and Unfair Competition
Likelihood of consumer confusion is the "linchpin" of a trademark infringement or unfair competition claim. Matrix Essentials, Inc. v. Emporium Drug Mart, Inc., 988 F.2d 587, 590 (5th Cir. 1993). We have already ruled that defendants' sale of unaltered Matrix liquid products does not create a likelihood of consumer confusion, and thus granted defendants' motion for summary judgment on that issue. See id. at 591 (holding that a diverter's sale of unaltered Matrix liquid products does not create a likelihood of consumer confusion). We now decide that neither defendants' sale of defaced Matrix products nor its sale of Matrix perms created a likelihood of consumer confusion.
1. Sale of defaced products.
"Trademark rights are 'exhausted' as to a given item upon the first authorized sale of that item." J McCarthy, McCarthy on Trademarks § 25.11 at 25-61 (3d ed. Release #2, Apr. 1994). Thus, as a general rule, "'trademark law does not apply to the sale of genuine goods bearing a true mark, even if the sale is without the mark owner's consent.'" Matrix, 988 F.2d at 590 (quoting Shell Oil Co. v. Commercial Petroleum, Inc., 928 F.2d 104, 107 (4th Cir. 1991)).
In the case of damaged goods, however, trademark infringement may occur if "there exists a material difference between the products sufficient to create a likelihood of consumer confusion." John Paul Mitchell Sys. v. Pete-N-Larry's Inc., 862 F. Supp. 1020, 1023 (W.D.N.Y. 1994) (citing Societe Des Produits Nestle v. Casa Helvetia, 982 F.2d 633, 640 (1st Cir. 1992)). Courts will find a "material difference" if the goods are "'seconds' of inferior quality" or have been "tainted . . . by mishandling." Henry v. Chloride, Inc., 809 F.2d 1334, 1350 (8th Cir. 1987) (citing Burlington Mills Corp. v. Roy Fabrics, 91 F. Supp. 39, 47 (S.D.N.Y.), aff'd, 182 F.2d 1020 (2d Cir. 1950), and Adolph Coors Co. v. A. Genderson & Sons, Inc., 486 F. Supp. 131, 135-36 (D. Colo. 1980)).
In this case, we find that the damage done to Matrix products did not create a likelihood of consumer confusion. The actions undertaken by defendants in no way compromised the quality of Matrix hair products themselves. Furthermore, the minor esthetic damage done to the containers of these products did not create a likelihood that consumers would think that Matrix intentionally distributed shoddy goods. Therefore, the damage done to the product containers in this case did not constitute trademark infringement.
Defendants not only damaged Matrix products, but also damaged them intentionally. Courts have recognized that "proof of defendant's 'bad' intent to confuse is relevant to likelihood of confusion . . . ." McCarthy, § 23.31 at 23-197. The defendants' intent is relevant because "if defendant intended confusion, this tends to show confusion of customers in fact." Id. § 23.32 at 23-199.
While the defendant's intent is usually most relevant in cases of "palming off," id., at least one court has applied a similar analysis to the intentional defacement of goods. In Paddington Corp. v. Major Brands, Inc., 359 F. Supp. 1244 (W.D. Okla. 1973), the plaintiff, Paddington, was the sole United States distributor of J & B Scotch. The defendant, Major Brands, bought J & B Scotch marked for duty-free sale only, and instead resold it wholesale. In doing so, Major Brands affixed a label bearing the legend "Imported by Major Brands, Oklahoma City," over the duty-free sticker on the bottle. 359 F. Supp. at 1247. Major Brands also covered a label bearing the legend "Imported by the Paddington Corporation, New York, New York," with a plain white label. Id.
The court granted Paddington's motion for summary judgment on its request for injunctive relief. The court found that
Major Brands' mutilation of the J & B labels by designating itself as the importer in place of Paddington and pasting over the "duty-free" marking was an unconscionable attempt to deceive and mislead both wholesalers and consumers as to Major Brands' relationship with [J & B], and may well have injured the business reputation of both [J & B] and Paddington.
Id. at 1248. The court also found that "the mutilation of J & B labels misled consumers into believing that Paddington and [J & B] deal in 'seconds' or Scotch whiskeys of an inferior quality to that marketed under the unmutilated J & B label." Id.
Paddington shows that even intentional defacement will not create a likelihood of consumer confusion unless it: (1) causes consumers to believe that the seller is authorized to distribute the product, when it is not; or (2) compromises the manufacturer's quality control standards. Here, defendants did not attempt to deceive consumers as to their relationship with Matrix, and their sale of Matrix products did not damage Matrix's business reputation. Furthermore, we have already found that the esthetic damage done to Matrix bottles would not lead consumers to believe that Matrix dealt in shoddy goods.
In sum, while intentional defacement of a product may support an inference of consumer confusion, it will only create a likelihood of consumer confusion if the product is defaced in a way that would confuse consumers. In this case, defendants did not even intend to deceive consumers by altering the product, but simply sought to avoid detection by Matrix. Furthermore, even if this defacement was "intentional," it did not create a likelihood that consumers will believe either that defendants are in some way authorized to sell Matrix products, or that Matrix lowered its quality control standards. Thus, defendants' intentional defacement of the product does not constitute trademark infringement.
2.. Sale of perms for home use.
Plaintiff alleges that defendants' sale of Matrix permanent wave products for home use constitutes trademark infringement insofar as it deprives Matrix of its ability to provide the "professional consultation" that should accompany the sale of these products. Plaintiff had raised a similar argument with respect to liquid products, but the court granted defendants' motion for summary judgment on this claim except as to the sale of Matrix perms.
Courts have held that "[a] distributor's failure to observe a restrictive condition on the type or class of customers with whom it may deal can constitute trademark infringement, but more is required than unauthorized sales standing alone." Polymer Technology Corp. v. Mimran, 975 F.2d 58, 63 (2d Cir. 1992). Thus, if Matrix could show that the lack of professional consultation would in some way harm its trademark, sale without professional consultation might constitute trademark infringement.
Matrix's most helpful case is Clairol, Inc. v. Boston Discount Ctr. of Berkley, Inc., 608 F.2d 1114 (6th Cir. 1979). In Clairol, the trial judge found that the sale of plaintiff's professional use only hair-care products "without proper instructions can cause allergic reactions or customer dissatisfaction because of hair discoloration or damage or other unsatisfactory result." 608 F.2d at 1117. Furthermore, the sale of unlabelled professional use only products exposed the manufacturer to criminal liability. Id. at 1120. Thus, the defendant's practice damaged both the public and the manufacturer, and violated Michigan unfair competition law. Id.
We find Clairol unpersuasive. Recent courts have been more skeptical of the need for professional consultation in the sale of goods. See H.L Hayden, 879 F.2d at 1023 (in a case involving the unauthorized sale of dental equipment, finding that "customers are well aware that what they purchase . . . is simply the manufactured product and not its installation") (internal quotations omitted). Indeed, in Polymer Technology Corp. v. Mimran, 841 F. Supp. 523 (S.D.N.Y. 1994), on remand from 975 F.2d 58 (2d Cir. 1992), aff'd, 37 F.3d 74 (2d Cir. 1994), the district court rejected the Sixth Circuit's interpretation of the facts in Clairol in favor of that of the Supreme Judicial Court of Massachusetts: "Clairol, it seems to us, largely seeks to protect what has been an effective marketing and advertising devise." Clairol, Inc.. v. Cody's Cosmetics, Inc., 353 Mass. 385, 393, 231 N.E.2d 912, 917 (1967) (quoted in Polymer, 841 F. Supp. at 530).
We believe that this description applies to the facts at hand. The evidence has not shown that Matrix permanent wave or coloring products present a health or safety risk to" home users. Furthermore, we have found that consumers who use Matrix products at home will not blame their "bad hair days" on Matrix. In other words, we agree with the Fifth Circuit's conclusion that "Matrix's use of professional hair care salons as its exclusive distribution channel seems more marketing-related than quality-related. " Matrix, 988 F.2d at 592. Thus, defendants' sale of Matrix products, including perms and colors, without the availability of a professional consultation does not infringe the Matrix trademark.
3.. Unfair competition.
Finally, we must address Matrix's unfair competition claim under the Lanham Act and New Jersey statutory and common law. At the outset, we note that Matrix has never seriously contended throughout the course of this case that its unfair competition claim differs in any material way from its trademark claim. We now find that the unfair competition claim fails for the same reasons as the trademark claim.
Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), imposes civil liability upon one who, in connection with the sale of goods, makes a false or misleading representation of fact that "is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods . . . ." 15 U.S.C. § 1125(a). Thus, as in the trademark action, "the touchstone of a section 1125 (a) unfair competition claim is whether the defendants' actions are 'likely to cause confusion."' Matrix, 988 F.2d at 592.
We have already found that neither defendants' sale of Matrix products with defaced packaging nor its sale of perms without professional consultation created a likelihood of consumer confusion. Thus, Matrix's section 43 (a) claim, like its trademark claim, fails. See Matrix, 988 F.2d at 592-93 (rejecting plaintiff's unfair competition claim); H.L. Hayden, 879 F.2d at 1022-24 (same).
Matrix's common law unfair competition claim meets the same fate. A key element of unfair competition under either N.J.S.A. § 56:4-1 or New Jersey common law is the likelihood of consumer confusion. Holiday Inns, Inc. v. Trump, 617 F. Supp. 1443, 1465 (D.N.J. 1985). Because Matrix has failed to establish consumer confusion, this claim fails as well.
We find that Matrix has not met its burden of proving a tortious interference, Lanham Act, or New Jersey unfair competition claim, and enter judgment for defendants on all plaintiff's claims. Because the Florida corporations were joined in this action solely as successor corporations to defendants Cosmetic Gallery and C & L, all claims against these" parties are also dismissed.
JOSEPH E. IRENAS
DATED: December 12, 1994
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