Federal Court Decisions in the Advertising Law, Marketing Law and Commercial Speech Areas

Welcome to JLCom Publishing Co., LLC's Advertising Law Cases Area. This area contains the full text of federal court decisions in the advertising law, marketing law and commercial speech areas. The federal court decision below involves the Lanham Act, New York Common Law and General Business Law:

Nora M. Manella, United States District Judge.

Final Judgment Re Defendants Mass Appeal, Timothy Kevin Gaspar, And Daniel Tseselsky

I. INTRODUCTION

Plaintiff, PepsiCo, Inc. ("PepsiCo"), brought this action on April 4, 2002, against (among others) defendants Mass Appeal, a partnership, Timothy Kevin Gaspar, an individual and partner in Mass Appeal, Daniel Tseselsky, an individual and partner in Mass Appeal, and Does 1-7 (collectively, "Defendants"), to prevent the unlawful manufacture, distribution, sale and advertisement of products bearing counterfeit PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA trademarks that are commonly known as "stash bottles." This Court earlier granted PepsiCo's motion against Defendants for an ex parte temporary restraining order and subsequent preliminary injunction, and its request for a seizure order, expedited discovery and a recall. The parties now stipulate to the following findings of fact and conclusions of law, and consent to entry of a permanent injunction and the award of a portion of the damages, profits, attorneys' fees, costs and prejudgment interest to which PepsiCo is entitled, as set forth below. Accordingly, the court enters the following:

II. FINDINGS OF FACT

PepsiCo is engaged in the manufacture and marketing of beverage products throughout the United States and the world. PepsiCo has adopted and made continuous use of the trademarks PEPSI, DIET PEPSI, MOUNTAIN DEW, on their own, or with designs or other variations, in connection with the manufacture, sale and advertising of soft drinks, and PepsiCo also has adopted and made continuous use of the trademark AQUAFINA, on its own or with designs or other variations, in connection with the manufacture, sale and advertising of purified water.

PepsiCo, through its licensees, sells a wide variety of novelty and promotional merchandise under the PEPSI, DIET PEPSI and MOUNTAIN DEW trademarks, including bottles and cans used as banks.

PepsiCo is the owner, inter alia, of the following federal trademark registrations issued by the United States Patent and Trademark Office for the aforesaid PEPSI, DIET PEPSI, MOUNTAIN DEW, and AQUAFINA trademarks used in connection with its products: MARK REG. NO. REG. DATE GOODS PEPSI- 349,886 Sept. 14, 1937 Beverages and syrups for the COLA manufacture of such beverages PEPSI 824,150 Feb. 14, 1967 Soft Drinks and svrups and concentrates for the preparation thereof PEPSI- 824,151 Feb. 14, 1967 Soft Drinks and syrups and COLA concentrates for the preparation thereof Design mark 824,153 Feb. 14, 1967 Soft Drinks PEPSI 1,317,551 Feb. 5, 1985 Candles, key chains, radios, can shaped telephones, electric lamps and charcoal burning barbecue grills, clocks, pencil cases and pens, umbrellas, mirrors and bean bag chairs, drinking glasses, polyurethane beverage holders, waste-baskets for domestic use, insulated bags for food, beverages and ice, beach towels, t-shirts, sweatshirts, knit hat jackets, aprons and belts, baseball caps, embroidered patches for clothing, toy can banks, toy trucks, toy railroad cars, toy soda dispensers and kaleidoscopes PEPSI and 2,100,417 Sept. 23, 1997 Soft Drinks Design PEPSI and 2,104,304 Oct. 7, 1997 Soft Drinks Design PEPSI and 2,321,907 Feb. 22, 2000 Soft Drinks Design DIET PEPSI- 824,149 Feb. 14, 1967 Soft Drinks and syrups and COLA concentrates for the preparation thereof DIET PEPSI 824,152 Feb. 14, 1967 Soft Drinks and syrups for the preparation thereof DIET PEPSI 2,161,008 May 26, 1998 Soft Drinks and Design MOUNTAIN 820,362 Dec. 13, 1966 Soft Drinks, and concentrates used DEW in the preparation thereof MOUNTAIN 2,509,558 Nov. 20, 2001 Soft Drinks DEW and Design MOUNTAIN 2,509,700 Nov. 20, 2001 Soft Drinks DEW and Design AQUAFINA 1,917,411 Sept. 5, 1995 Soft Drinks, aerated water, mineral water, soda water, carbonated water, non-carbonated water, table water AQUAFINA 2,506,189 Nov. 13, 2001 Drinking water and Design AQUAFINA 2,509,365 Nov. 20, 2001 Drinking water and Design AQUAFINA 2,509,701 Nov. 20, 2001 Drinking water and Design PEPSI 2,048,009 Mar. 25, 1997 Sports equipment, namely, STUFF footballs, basketballs, soccer balls and kick sacks PEPSI 2,049,301 Apr. 1, 1997 Watches STUFF PEPSI 2,049,302 Apr. 1, 1997 Furniture, namely, beach chairs STUFF PEPSI 2,049,300 Apr. 1, 1997 Sunglasses STUFF PEPSI 2,049,299 Apr. 1, 1997 Bicycles STUFF PEPSI 2,052,910 Apr. 15, 1997 Towels STUFF PEPSI 2,081,370 July 22, 1997 Clothing, namely, sweatshirts, STUFF t-shirts, jackets, shorts, sandals, ball caps

Said registrations are valid and subsisting, and Reg. Nos. 349,886; 824,149; 824,150; 824,151; 824,152; 824,153; 820,362 and 1,917,411 are incontestable in accordance with 15 U.S.C. Sections 1065 and 1115(b).

PepsiCo, including its authorized bottlers and licensees, has sold many billions of dollars worth of beverages and merchandise under the aforesaid PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA trademarks throughout the United States and has expended many hundreds of millions of dollars to advertise and promote these products and said PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA trademarks.

As a result of PepsiCo's extensive sales, promotion and advertising, the aforesaid PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA trademarks have become exceedingly famous, represent extraordinarily valuable goodwill owned by PepsiCo and are among the most well-known and famous trademarks in the world.

PepsiCo's beverages sold under the aforesaid PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA trademarks are subject to a strict quality control program implemented by PepsiCo and its authorized bottlers that protects and preserves all aspects of the beverages including their ingredients, nutritional content, taste, aroma, appearance and packaging.

PepsiCo also employs a strict and rigorous quality control program in determining when and how to license the use of the PEPSI, DIET PEPSI and MOUNTAIN DEW trademarks for novelty and promotional merchandise to ensure safety and good taste.

Defendants have been engaged in the manufacture, advertising and sale of actual PepsiCo plastic bottles labeled with PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA trademarks and filled with liquids that have been colored to look like PepsiCo's PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA products, but in fact are not PepsiCo's beverages (hereinafter "counterfeit products"). Defendants sell the counterfeit products with twist-off tops that have broken seals so that the liquids inside Defendants' counterfeit products are very easy to access. Defendants' counterfeit products contain labels listing wholly inaccurate ingredient and nutritional content information for the liquid contents of Defendants' counterfeit products. Overall, Defendants' counterfeit products are identical to PepsiCo's authorized products in appearance and weight, even when handled.

There is a strong likelihood that consumers, either those who buy Defendants' counterfeit products themselves or those who encounter these products post-sale, will mistakenly drink the liquids in the counterfeit products believing they are PepsiCo's PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA products or are authorized for sale by PepsiCo. These consumers will become alarmed by the foul taste and smell of these liquids.

Defendants' counterfeit products also contain a hidden interior compartment created from the molding of two pieces of plastic that stop the liquids inside from entering the center of the bottle. This compartment can be accessed by pulling the bottle apart. Defendants market these products as bottle safes or "stash bottles." These counterfeit products are commonly referred to as "stash bottles" because of their use in concealing illegal narcotics or even weapons, which use has become a concern to law enforcement.

Defendants' manufacture, distribution, advertising and sale of the counterfeit products damages PepsiCo's goodwill in the PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA trademarks, damages PepsiCo's business reputation, and will cause consumers who encounter or consume these counterfeit products to be alarmed and angry with PepsiCo and its legitimate PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA products.

III. CONCLUSIONS OF LAW

PepsiCo's incontestable United States trademark registrations conclusively establish its ownership of and exclusive rightsin the PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA marks. 15 U.S.C. Sections 1065 and 1115(b); Park ' N Flv v. Dollar Park and Flv Inc., 469 U.S. 189, 194, 83 L. Ed. 2d 582, 105 S. Ct. 658 (1985). PepsiCo's other registrations are prima facie evidence of its ownership of and exclusive rights in the marks they cover. See 15 U.S.C. Section 1115(a). PepsiCo's long use, extensive advertising and promotion of the PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA marks have made them among the most famous marks in the world. Such marks are entitled a wide scope of protection. James Burrough Ltd. v. Sign of the Beefeater, Inc., 540 F.2d 266, 276 (7th Cir. 1976).

A "counterfeit" is defined in the Lanham Act as a "spurious mark which is identical with, or substantially indistinguishable from, a registered mark." 15 U.S.C. Section 1127. Defendants' use of actual PepsiCo bottles displaying the PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA marks, but filled with simulated beverages, constitutes the use of "spurious" marks under the Lanham Act. See Rolex Watch. U.S.A., Inc. v. Michel Co., 179 F.3d 704, 707 (9th Cir. 1999) (sale of reconditioned watches containing non-ROLEX parts constitutes use of spurious ROLEX trademarks); see also United States of America v. Petrosian, 126 F.3d 1232, 1234 (9th Cir. 1997) (sale of fake soft drinks in actual COCA-COLA bottles constitutes criminal trademark counterfeiting).

To establish trademark counterfeiting, trademark infringement and unfair competition under Federal and California State law, there also must be likelihood of confusion over Defendants' use of the PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA marks. 15 U.S.C. Sections 1114, 1125(a); Cal. Bus. & Prof. Code Section 17200 et seq, New West Corp. v. NYM Co. of Cal., Inc., 595 F.2d 1194, 1201 (9th Cir. 1979); see also Malavtex USA, Inc. v. Colonial Surgical Supply, Inc., 1997 U.S. Dist. LEXIS 5304, 44 U.S.P.Q. 2d 1291 (C.D. Cal. 1997). In this Circuit, likelihood of confusion depends upon the determination of the following factors: (1) the similarity of the marks; (2) the relatedness of the two companies' goods; (3) the marketing channel used; (4) the strength of plaintiff's marks; (5) defendants' intent in selecting their marks; (6) evidence of actual confusion; (7) the likelihood of expansion into other markets; and (8) the degree of care likely to be exercised by purchasers. GOTO.com, Inc. v. Walt Disnev Co., 202 F.3d 1199, 1205 (9th Cir. 2000); AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348-49 (9th Cir. 1979).

PepsiCo has established likelihood of confusion among both consumers who purchase the counterfeit products directly from Defendants and those who encounter them post-sale. In Petrosian, the Court of Appeals for the Ninth Circuit upheld the lower court's finding of likelihood of confusion through the defendant's sale of fake soft drinks in actual COCA-COLA bottles "because consumers were likely to assume the mark indicated Coca-Cola was the source of the beverage inside the bottle." Petrosian, 126 F.3d at 1234. Similarly, in Rolex, the Court of Appeals reversed the district court in part and found thatthe use of ROLEX on reconstructed ROLEX watches that had been altered with non-authorized parts was likely to cause confusion, even with the inclusion on those watches of defendant's independent mark. Rolex, 179 F.3d at 710. Under Petrosian and Rolex, Defendants' sale of the counterfeit products creates likelihood of confusion over the PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA marks.

PepsiCo's licensing program underscores this likelihood of confusion because consumers also will assume that PepsiCohas licensed or otherwise authorized Defendants' sale of the counterfeit products. See Gucci America, Inc. v. Action Activewear, Inc., 759 F. Supp. 1060, 1064 (S.D.N.Y. 1991) (" Even though defendants' goods were of an inferior quality, a likelihood of confusion exists because customers could have mistakenly assumed that plaintiffs had begun producing such items, or licensing their marks to the producers of those items.")

Post-sale confusion over Defendants' use of the counterfeit PEPSI, DIET PEPSI, MOUNTAIN DEW, and AQUAFINA marks is especially likely here. In Rolex, the Court upheld the district court's determination that the use of the ROLEX mark on altered watches "was likely to cause confusion to subsequent or downstream purchasers, as well as to persons observing the product." Rolex, 179 F.3d at 707. Similarly, in H-D Michigan, Inc. v. Biker's Dream, Inc., 1998 U.S. Dist. LEXIS 17259, 48 U.S.P.Q.2d 1108 (C.D. Cal. 1998) (citation omitted), the Court found trademark counterfeiting and noted: " 'Once a product is injected into commerce,' however, 'there is no bar to confusion, mistake, or deception occurring at some future point in time.'" H-D, 48 U.S.P.Q.2d at 1111. Here, anyone who encounters Defendants' products post-sale in households, schools, businesses or anywhere else, is likely to believe they are legitimate PepsiCo soft drinks and purified water and are likely to drink them as a result.

Based on this finding of likelihood of confusion, Defendants' use of the PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA trademarks constitutes trademark counterfeiting, trademark infringement and unfair competition under the Lanham Act, and trademark infringement and unfair competition under State common and statutory laws, 15 U.S.C. Section 1114; 15 U.S.C. Section 1125(a); Cal. Bus. and Prof. Code Section 17200, et. seq., see also Rolex, 179 F.3d 704.

Defendants' counterfeit products, as shown by, among other things, their foul taste and odor, also are tarnishing PepsiCo's business reputation and diluting the famous PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA marks under the Lanham Act and California State Law. 15 U.S.C. Section 1125(c); Cal. Bus. and Prof. Code Section 14330; H-D, 48 U.S.P.Q.2d at 1112; Guess? Inc. v. Tres Hermanos, 993 F. Supp. 1277, 1284-1285 (C.D. Cal. 1997). The use of these counterfeit products as "stash" bottles to conceal illicit narcotics and possibly weapons from law enforcement further supports a finding tarnishment and dilution. See Coca-Cola v. Gemini Rising. Inc., 346 F. Supp. 1183 (E.D.N.Y. 1972) (enjoining defendants from using ENJOY COCAINE in famous Coca-Cola script on its posters).

Defendants' ingredient and nutritional content information on the counterfeit products is literally false and is likely to lead consumers to drink the contents of Defendants' products. Consumers who do drink these beverages based on this false and misleading information will blame PepsiCo for their foul taste. See Coca-Cola v. Tropicana Products, Inc., 690 F.2d 312, 317 (2d Cir. 1982) (superseded on other grounds by statute); see also S.C. Johnson & Son. Inc. v. Clorox Co., 241 F.3d 232, 238 (2d Cir. 2001) (where advertising claim is literally false and mentions plaintiff's product by name, court will presume irreparable harm and may enjoin the use of the claim without reference to its impact on the buying public). As a result, Defendants' false advertising will cause people who consume their counterfeit products to avoid PepsiCo's legitimate products. Defendants' conduct, therefore, constitutes false advertising in violation of both Section 43(a) of the Lanham Act and California law. 15 U.S.C. Section 1125(a); Cal. Bus. & Prof. Code Section 17500, et. seq.

Defendants' intentional use of the PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA marks in connection with the sale of simulated soft drinks and purified drinking water, knowing such trademarks were counterfeit, entitles PepsiCo to elect between (a) an award of either three times Defendants' profits or PepsiCo's actual damages, whichever is greater, or (b) an award of statutory damages. 15 U.S.C. Section 1117(b) and (c); See H-D, 48 U.S.P.Q.2d at 1115. PepsiCo also is entitled to an award of its attorney's fees and costs as well as prejudgment interest. 15 U.S.C. Section 1117(a) and (b); See H-D, 48 U.S.P.Q.2d at 1116-1117.

Trademark counterfeiting, trademark infringement, unfair competition, dilution and false advertising by their very nature result in irreparable injury since the attendant loss of good will, reputation and business cannot adequately be quantified and trademark owners such as PepsiCo cannot be compensated adequately. Sony Computer, 87 F. Supp. 2d 976 at 988; Reebok Int'l 737 F. Supp. 1515 at 1516. PepsiCo, therefore, is entitled to permanent injunctive relief as set forth below.

IV. ORDER

It is ORDERED, ADJUDGED and DECREED that:

1. This Court has personal jurisdiction over the parties, including Mass Appeal, Timothy Kevin Gaspar and Daniel Tseselsky, as well as subject matter jurisdiction over this action.

2. Defendants, their officers, agents, servants, employees, and attorneys, their successors and assigns and all others in active concert or participation with Defendants, are permanently enjoined and restrained from using the PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA trademarks or any other marks which:

a) are likely to cause confusion with PepsiCo or its PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA trademarks;

b) are likely to result in unfair competition with PepsiCo;

c) dilute the distinctiveness of PepsiCo's PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA trademarks; or

d) injure or tarnish PepsiCo's business reputation or its PEPSI, DIET PEPSI, MOUNTAIN DEW and AQUAFINA marks or products.

3. Defendants shall, pursuant to agreement of the parties, pay a substantial monetary amount to PepsiCo, as a portion of the actual damages, restitution, attorneys' fees, costs and prejudgment interest PepsiCo is entitled to under the Lanham Act, 15 U.S.C. Section 1117(a)-(b), and the laws of California, Cal. Bus. and Prof. Code Sections 14340, 17203.

4. Defendants will continue to conduct a recall of their counterfeit products by sending a letter by U.S. mail to each of their customers to whom they have sold counterfeit products, instructing them not to sell these counterfeit products, indicating that Defendants shall refund to them the cost of these counterfeit products, requiring such customers to return these counterfeit products to Defendants' location at Defendants' expense and Defendants shall continue to receive products under this recall under these terms.

5. All the items seized on April 5, 2002, and collected from the subsequent recall, will be turned over to PepsiCo by the substitute custodian and Defendants, and destroyed pursuant to 15 U.S.C. Section 1118, with the exception that PepsiCo may keep one archived copy of these items.

6. Defendants Timothy Kevin Gaspar and Daniel Tseselsky shall act as agents for service of any subpoena for trial or deposition testimony, regarding Defendants' knowledge of other sources, manufacturers, or sellers of counterfeit products, in any other action, and said subpoena shall be accepted for service at 19811 Hiawatha Street, Chatsworth, California 91311, and all the Defendants shall immediately in writing inform PepsiCo, Inc., care of Jonathan S. Jennings at Pattishall, McAuliffe, Newbury, Hilliard & Geraldson, Suite 5000, 311 South Wacker Drive, Chicago, Illinois 60606, if their respective address for this service changes and the new address for such service.

7. This action is dismissed against all remaining Doe Defendants.

8. This Court shall retain jurisdiction for 180 days over this action for purposes of construing and ensuring compliance with this Final Judgment.

SO ORDERED AND ADJUDGED:

Dated: 7/18/02

NORA M. MANELLA

United States District Judge

AGREED TO:

DATED: July 17, 2002

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