Designer Skin LLC v. S & L Vitamins, Inc., et al.
Hard Rock Café International (USA) Inc. v. Morton, et al.
1999 U.S. Dist. Lexis 8340 (S.D.N.Y. June 1, 1999)
This case arises out of the alleged breach by defendants of several agreements they had with plaintiff, including agreements which granted defendant Hard Rock Hotel Inc. certain rights to use plaintiff's trademarks "Hard Rock Hotel" and "Hard Rock Casino."
In June, 1996, defendant Morton sold his interests in the Hard Rock Café business to plaintiff's parent the Rank Group PLC, which already had an ownership interest in the Hard Rock Café business. At that time, the parties entered into several agreements (the "Agreements"), which permitted Morton to retain ownership of the Hard Rock Hotel and Casino he had opened in Las Vegas Nevada, and to open additional hotel/casinos in other designated territories, defined in the agreements as the "Morton Territories."
Under the parties' agreements, Morton was obligated to and did convey to plaintiff his ownership interest in the trademarks Hard Rock Hotel, Hard Rock Café and Hard Rock Casino. However, the agreements granted defendant "an exclusive license to use and exploit" the Hard Rock Hotel and Hard Rock Casino marks "only in the Morton Territories ... and solely in connection with the development, operation, ownership, management, operation of and promotion of Hard Rock Hotel/Casinos. Licensee shall not use or exploit the Hard Rock Hotel Marks outside the Morton Territories, except, however, Licensee may engage in the promotion, advertising, or marketing (not including the sale of merchandise) and broadcasting of Hard Rock Hotel Casinos and Hard Rock Casinos anywhere in the world." The agreements also granted Morton the right to operate a website using the Hard Rock Hotel and Casino marks. Thus, the agreements provided that "Licensee may develop, maintain and update a web page for the Hard Rock Hotel/Casinos or Casinos in the Morton Territories." The Agreements further granted defendants the right to sell "Licensed Products" through the Internet provided those products "bear the Internet address as the Licensed Products' location." "Licensed Products" was defined in the Agreements to include merchandise bearing the Hard Rock Hotel or Casino marks and offered for sale or sold by defendant.
Both before and after these transactions, the plaintiff and defendants worked jointly on creating a website to be operated at the domain hardrock.com. The registered owner of the domain name was a Mr. Stone, who was an employee of defendant. The site went live shortly after the Agreements were executed. The site's home page contained both the Hard Rock Café and Hard Rock Hotel logos. Clicking on the Café logo took the user to a web page that displayed a "coming soon" message. Clicking on the Hotel logo took the user to a live web site.
Users who visited the Hotel portion of the website were offered the opportunity to purchase merchandise, which would be shipped by the defendant Hard Rock Hotel. This merchandise could also be ordered from the defendant directly by phone. The merchandise defendant offered for sale was not limited as provided under the Agreements. Not all items contained the "internet address" as the item's location. Other items contained the mark Hard Rock, but not the words Hotel or Casino.
The "hotel" portion of the site also contained a number of logos, some of which defendants were authorized to use under the parties' agreements, and some of which were unauthorized.
Defendants also entered into an agreement with Tunes Network Inc. ("Tunes") to sell CDs to the public. Defendants installed a link on their portion of the site which contained the words "record store." Clicking on this link took the user to the Tunes web page which appeared in "frames" on defendants' website. In the frames above and to the left of the Tunes' content appeared the Hard Rock Hotel logo. The Tunes' frame permitted the user to listen to and order CDs from Tunes, who would be responsible for shipping the same. No Hard Rock logo appeared on the CDs. Defendant was to receive 5% on each CD sale. Only two CDs were sold in this fashion.
Shortly after the parties entered into the Agreements, defendant obtained ownership of the domain name hardrockhotel.com. After this acquisition, defendant allowed users to access its web site both via the hardrock.com and hardrockhotel.com domain names.
Without sending a cease and desist letter, and without any attempt to negotiate with defendants at all, plaintiff commenced two law suits. The first was brought in Florida against Stone, an employee of defendant in whose name the domain name hardrock.com was registered.
The second is the lawsuit at issue. In this lawsuit, the plaintiff alleged that defendants, by engaging in the conduct described above, breached the Agreements, and committed, among other things, trademark infringement and dilution.
The Court found that defendants' sale of merchandise that did not conform with the parties' license agreement was a breach of that agreement. The court also held that defendants' use of logos on its website that contained the word "Hard Rock" and that were not authorized by the parties' Agreements constituted a breach of those agreements.
Of greater import, the court found that the use of the Hard Rock Hotel mark in frames around the Tunes web pages was a use that occurred outside the "Morton Territories" and therefore violated the Agreements. As set forth above, the Agreements prohibited defendants from using the marks outside the Morton Territories except in connection with the sale of "Licensed Products", which did not include the materials marketed by Tunes on its web site. The court held that by using frames in this fashion, defendants were using the Hard Rock Hotel marks to advertise and sell CDs, even though the actual sales were being conducted by Tunes. Said the court:
The court went on to conclude that this activity was occurring both inside and outside the Morton Territories. In reaching this conclusion, the court relied on principles of trademark law that "the wrong takes place ... where the passing off occurs." The court also pointed to those cases that hold that "advertisements alone can constitute actionable use of a trademark and in such cases the trademark is used wherever the advertisement has its effect on consumers." Because the "defendants have advertised and offered CDs for sale to a global audience" their activities occurred both within and without the Morton Territories, and thus violated the Agreements. Of note, the court said:
The court also held that the Agreements did not prohibit defendants from registering with NSI as the owner of domain name "hardrockhotel.com," or require them to transfer ownership of that domain name to plaintiff. This was true despite the fact that the agreements provided that plaintiff shall have "sole right for the registration or renewal of trademarks and service marks or other proprietary rights for the Hard Rock Hotel Marks ..." and that defendant "shall not at any time apply for any registration of any copyright, trademark or other designation which would affect the ownership of or encumber, damage, dilute or modify the Hard Rock Hotel marks..." and "shall not file any document requesting any governmental authority to take any action, nor take any action itself which would affect the ownership of or damage, dilute or modify the hard Rock Hotel Marks or the Hard Rock Casino marks." As stated above, the agreements permitted defendants to operate a web site promoting its Hard Rock Hotel and to use the Hard Rock Hotel mark in promotion efforts for its hotel anywhere in the world. As such, concluded the court, defendants were permitted to maintain registration of the hardrockhotel.com domain name. Said the court "[defendants'] reservation and use of the "hardrockhotel.com" domain name ... has not affected [plaintiff's] ownership of the Hard Rock Hotel Mark, or encumbered, damaged, diluted or modified the Hard Rock Hotel Mark ..." within the meaning of the Agreements.
The court went on to conclude that "defendants' violations of the License Agreement through use of "hardrock.com" domain name, sales of merchandise on the Internet and use of logos on the Internet also constitute trademark infringement under the Lanham Act." In reaching this conclusion, the court relied heavily on the fact that consumers were likely to be confused by such uses "particularly because Hard Rock Hotel is a licensee of [plaintiff]. When a licensee makes both permissible and impermissible use of a trademark in selling merchandise on the Internet, the likelihood of confusion is strong. It is improbable that the public will be able to ascertain which uses are unauthorized and which are not. Defendants' breaches of the license agreement therefore constitute trademark infringement in violation of federal and state law."
Notwithstanding its finding that defendants had breached the Agreements, and committed trademark infringement, the court was unwilling to award plaintiff damages. Said the court: