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Unauthorized internet reseller of plaintiff’s products is not guilty of trademark infringement, and does not cause actionable initial interest confusion, by using plaintiff’s trademarks in meta tags of website at which plaintiff’s and its competitors’ products are sold, and in...

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Philip Morris USA Inc. v. Veles Ltd., et al.

2007 WL 725412 (S.D.N.Y., March 12, 2007)

Court denies defendants’ motion to dismiss and allows plaintiff Philip Morris USA Inc. (“Philip Morris”) to pursue trademark infringement claims arising out of defendants’ alleged distribution into the US of gray market cigarettes from their websites.  The Court rejected defendants’ argument that plaintiff’s trademark infringement claims should be dismissed because the disclaimers on defendants’ websites adequately disclosed that the cigarettes offered for sale are ‘gray market’ goods – goods manufactured by Philip Morris for different markets - and that the defendants’ websites are not affiliated with or sponsored by Philip Morris.  These disclaimers did not warrant dismissal because they failed to disclose that the ‘gray market’ cigarettes offered for sale by defendants were ‘materially different’ from those intended for the US market.  As such, consumers may be confused and led to believe they were purchasing a product they would not in fact receive.

The Court also rejected defendants’ motion to dismiss on the ground that the Court lacked personal jurisdiction over the defendants.  The Court held the complaint’s allegations that defendants shipped gray market goods into New York in violation of the Lanham Act were sufficient to establish that a New York federal court could exercise personal jurisdiction over the defendants.  Notably, defendants did not seek to challenge these factual assertions, or offer evidence as to either their lack of contact with the forum  or their actual location.

Finally, the Court denied that branch of defendants’ motion to dismiss which asserted that service of the complaint by fax and email pursuant to Fed. Rule Civ. Pro. Rule 4(f)(3) violated Due Process.

The complaint alleges that defendants operate online cigarette stores at the websites www.ez-smoke.net, www.discount-cigarettes-store.com and www.simplysmoke.com.  At these websites, defendants use plaintiff Philip Morris’ trademarks – including Marlboro and Virginia Slims – to advertise their sale of ‘gray market’ cigarettes.  These cigarettes are manufactured by Philip Morris for a market other than the United States.  Each of defendants’ websites contain a disclaimer that advises consumers:

The Philip Morris products being sold were not originally intended for sale in the United States and have been distributed by a company unaffiliated with Philip Morris.  We do not participate in any Philip Morris marketing programs.  As such this products [sic] does not contain ‘Miles.’  Further, we do not make any claim to ownership of the Philip Morris Trademarks or trade names.

Defendants conduct their sales via the Internet and email.  No physical contact information is provided on their websites as to their location.

Asserting that these sales constitute trademark infringement, plaintiff Philip Morris commenced this suit.  The suit charged the defendants, inter alia, with trademark infringement and dilution, false advertising and designation of origin, and importation of goods bearing an infringing mark.

Defendants move to dismiss these Lanham Act claims, arguing that the disclaimers found on their websites precluded any consumer confusion about defendants’ activities.  The Court denied defendants’ motion because the site disclaimers did not advise consumers that the products defendants offered for sale were ‘materially different’ from those Philip Morris intended for sale in this market.  As such, the Court held the complaint stated a claim and would be allowed to proceed. 
Said the Court:

It is true that ‘the Lanham Act does not block reimportation and sale of genuine articles under their real trademarks.  However, ‘this principle does not apply if the domestic and foreign products are materially different, for then sale of the foreign product in the United States under domestic markets has a potential to mislead or confuse consumers about the nature or quality of the product they are buying, they will assume it to the same as the normal domestic product and be disappointed.’

Philip Morris alleged that the gray market cigarettes being imported by defendants were ‘materially different’ from those intended for the US markets.  Apparently these included differences between the ‘quality control measures’ Philip Morris used with respect to cigarettes intended for US and foreign markets.  Because defendants did not so apprise consumers, the Court held consumers may be confused, and plaintiff’s claims could proceed.

The Court considers plaintiff’s claim of a material difference in quality standards between foreign and domestic cigarettes bearing its trademarks to be a legally feasible contention without giving weight as to its substantive merits.  Therefore, plaintiff’s allegations are sufficient to raise an inference that defendants’ sales of foreign Philip Morris brand cigarettes into the United States could be misleading to consumer and therefore state a claim for relief under the Lanham Act.

The Court also rejected defendants’ challenge to the Court’s exercise of personal jurisdiction over them.  Defendants did not offer evidence as to their location, or the extent of their contacts with the forum.  As such, their challenge was limited to the sufficient of the allegations advanced in the complaint.  As these allegations alleged that defendants were selling ‘gray market’ goods to New Yorker from its website which ‘materially differed’ from those intended by Philip Morris for this market, plaintiff had submitted sufficient evidence to support the Court’s exercise of personal jurisdiction.

Finally, the Court rejected defendants’ Due Process challenge to the method of service of process the Court authorized in this matter – by fax and email pursuant to Fed. Rule Civ. Pro. Rule 4(f)(3).  The Court noted that: “[F]ederal courts have approved email service of process as an appropriate means under Rule 4 in proper circumstances … Under Rule 4(f) courts have permitted a wide range of alternative methods including email.  In each case, the court must determine whether the alternative method is reasonably calculated, under all circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.”

Based on the record before the Court, such was the case here.  Defendants’ website gave no hint as to their actual location.  Moreover, defendants did  business over the Internet via email, and were thus likely to receive notice of the action if sent via that means.

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