author: DIANA E. MURPHY, District Judge.

text:
    George NICK and June Nick, Plaintiffs, v. SHEARSON/AMERICAN EXPRESS, INC., and Richard Larson, Defendants.
    Civ. No. 4-84-793.
    United States District Court, D. Minnesota, Fourth Division.
    Dec. 14, 1984.

      Terrence J. Fleming, Delaney & Solum, Minneapolis, Minn., for plaintiffs.
    J. Jackson, Dorsey & Whitney, Minneapolis, Minn., for defendants.
   MEMORANDUM OPINION AND ORDER

DIANA E. MURPHY, District Judge.

Plaintiffs, George and June Nick, brought this action for recission and damages against defendant, Shearson/American Express, Inc. (Shearson) and Richard Larson, alleging violations of securities laws under Sections 12(2) and 17(a) of the Securities Act of 1933, 15 U.S.C. §§ 77 et seq. (1933 Act), and Section 10(b) and Rules 10b-5 and 10b-16 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78 et seq. (1934 Act). Jurisdiction is alleged under Section 22(a) of the 1933 Act and Section 27 of the 1934 Act. This matter is now before the court upon the motion of defendants to dismiss.

I. Background

For purposes of a motion to dismiss under Fed.R.Civ.P. 12(b)(6) the facts as alleged in the complaint are to be taken as true.

In the mid-1970s, the Nicks began doing business with Richard Larson, a broker-dealer with Shearson. At that time the Nicks’ savings consisted almost entirely of Chicago and Northwestern (CNW) common stock. Up until 1982, the Nicks’ primary involvement in the securities market was their sale of CNW stock to pay for home improvements and other personal obligations.

In May 1982, Larson represented to the Nicks that they could preserve their capital with no risk by selling short-against-the-box and that there would be no interest charges for such a transaction. The Nicks agreed to sell short-against-the-box and delivered 12,000 shares of CNW stock to the defendants, who then sold 12,000 shares of the stock short-against-the-box for the Nicks’ account.

Soon thereafter, interest charges began appearing on the Nicks’ monthly statements for their account. When the Nicks inquired about these charges, Larson stated to the Nicks that there were no interest charges for short-against-the-box transaction, that the interest charges reflected in the monthly statement were erroneous and that the interest charges would be withdrawn or otherwise cancelled. After receiving these further assurances, the Nicks permitted the transaction to remain open.

The parties differ strongly on the applicability of the securities laws to these facts. The Nicks contend that these representations were false and that Larson’s failure to disclose other information was misleading. They claim that as a result of defendants’ conduct they entered into the short-against-the-box transaction which was not suitable to their investment objectives and financial position. They allege that this conduct violates antifraud provisions of both the 1933 and 1934 Acts. They seek withdrawal and cancellation of all interest charges and rescission of the short-against-the-box transaction and return of their 12,000 shares of CNW stock. The defendants seek to dismiss the Nicks’ complaint in its entirety for failure to state a claim upon which relief can be granted. II. Discussion

The defendants argue that the claims brought under Section 12(2) of the 1933 Act, 15 U.S.C. § 711(2), should be dismissed. They assert that since the Nicks are sellers, not purchasers, they have no standing to sue under Section 12(2). They argue in the alternative that the claim should be dismissed for failure to plead facts showing compliance with the governing statute of limitations under Section 13 of the 1933 Act, 15 U.S.C. § 77m. The Nicks disagree and assert that a “short seller” who borrows stock on account from a broker by pledging his stock as collateral is a purchaser for purposes of Section 12(2).

Only purchasers in an “offer or sale” of a security have standing to sue under Section 12(2). Whether an individual who borrows stock for a “short sale” is a purchaser for purposes of Section 12(2) is an open question with no authority directly on point. The Nicks have analogized to the pledge of stock to a bank as a “sale of securities.” See Rubin v. United States, 449 U.S. 424, 101 S.Ct. 698, 66 L.Ed.2d 633 (1981). The defendants at the hearing argued that a loan of stock is distinguishable from the pledging of stock involved in Rubin and that in actuality the short sale is merely a bookkeeping entry. They also believe that the “purchaser” in Rubin was the Bank which received the pledges, while in this case it is Shearson who received the pledge of stock from the Nicks.

A proper determination of this issue of who is a purchaser requires the court to analogize to cases involving other similar types of stock transactions. The underlying mechanics of the particular stock transaction and the actual facts involved are crucial to determining whether a “short seller” is a purchaser within the framework of the securities laws and specifically Section 12(2) of the 1933 Act. Cf. Rubin v. United States, 449 U.S. 424, 101 S.Ct. 698, 66 L.Ed.2d 633 (1981) (pledge of stock is the sale of a security under Section 17(a) of the 1933 Act); Gutter v. Merrill Lynch, Pierce, Fenner & Smith, 644 F.2d 1194 (6th Cir.1981), cert. denied, 455 U.S. 909, 102 S.Ct. 1256, 71 L.Ed.2d 447 (1982) (writer of an option contract is not a purchaser under Section 12(2)). The record, however, fails to provide the court with the evidentiary foundation necessary to evaluate what a short sale is and how it functioned in this particular situation. Accordingly, the court cannot at this time rule as a matter of law that the Nicks are not purchasers under Section 12(2).

The Nicks concede that they must plead facts showing compliance with Section 13 in order to state a claim under Section 12(2). Hagert v. Glickman, Lurie, Eiger & Co., 520 F.Supp. 1028, 1033 (D.Minn. 1981). Accordingly, they will be given 20 days to file an amended complaint to state their claim under Section 12(2).

Count two of the complaint alleges a violation of Section 17(a) of the 1933 Act, 15 U.S.C. § 77q(a). Section 17(a), however, does not provide a private right of action in this circuit. Shull v. Dain, Kalman & Quail, Inc., 561 F.2d 152, 155 (8th Cir.1977), cert. denied, 434 U.S. 1086, 98 S.Ct. 1281, 55 L.Ed.2d 792 (1978). Accordingly, the Nicks have no standing to bring this claim, and it should be dismissed.

The defendants assert that the Nicks have failed to state a claim under Rule 10b-16 of the Securities and Exchange Commission, 17 C.F.R. § 240.10b-16. That rule provides in part that it is unlawful “for any broker or dealer to extend credit” unless it “has established procedures to assure that each customer (1) is given or sent at the time of opening the account” a written statement disclosing the terms of credit including the interest rate to be charged. Subsection (b) of the rule provides that it is unlawful to make changes in the credit terms established unless the required notice is given.

The Nicks allege that credit terms were established through Larson’s representations that no interest charges were to be incurred. They argue that a cause of action arose under Rule 10b-16 when they were nevertheless charged interest arising from the short-against-the-box transaction.

Rule 10b-16 regulates the establishment of procedures for providing credit information at the time an account is opened. It also creates a duty to inform the customer when changes are made in the original credit terms. Larson’s representations about the operation of the short-against-the-box transaction cannot form the basis for a claim under Rule 10b-16. There is lacking the necessary allegation that the defendants failed to establish procedures to provide credit disclosure or that the terms initially established for the Nicks’ account in the 1970’s were changed without the required notice.

The defendants also assert that any claims brought under Rule 10b-5 of the Securities and Exchange Commission, 17 C.F.R. § 240.10b-5, should be dismissed because the Nicks could not have reasonably relied on the alleged misrepresentations. They argue that the Nicks, as a matter of law, could not have relied on a representation that a transaction involved “no risk” because every transaction involves some risk. The Nicks assert that the representations of no risk and no interest charges are actionable because they were unsophisticated investors and the transaction was complex.

The sufficiency of the Nicks’ allegations must be reviewed in light of the particular facts involved and the standard for a motion to dismiss. The complaint shows the Nicks to be unsophisticated investors whose savings consisted almost entirely of CNW common stock. They had up until this transaction been very conservative investors whose only trading activity was the occasional sale of stock to pay for personal debts. Investors, especially if they are unsophisticated, may reasonably be unaware of the details and risks of specialized investment transactions. Alvord v. Shearson Hayden Store, Inc., 485 F.Supp. 848, 854 (D.Conn.1980); see Zerman v. Ball, 735 F.2d 15, 21 (2d Cir.1984). Evaluating the claim in the light most favorable to the plaintiffs, as the court must on a motion to dismiss, it cannot be said as a matter of law that the Nicks could not have reasonably relied on the alleged representations.

ORDER

Accordingly, based upon the above and all the files, records, and proceedings herein,

IT IS HEREBY ORDERED that

1. The motion of defendants Shear-son/American Express, Inc. and Richard Larson to dismiss count one is denied. Plaintiffs have twenty days from the date of this order to serve and file an amended complaint stating their claim under Section 12(2).

2. The motion of defendants to dismiss count two with prejudice is granted.

3. The motion of defendants to dismiss with prejudice that portion of count three that asserts a claim under Rule 10b-16 is granted.

4. The motion of defendants to dismiss that portion of count three that asserts a claim under Rule 10b-5 is denied.

      . Section 12(2) provides in pertinent part, that a person who "offers or sells a security ... by means of a[n] ... oral communication, which includes an untrue statement of material fact or omits to state a material fact necessary in order to make the statements ... not misleading ... shall be liable to the person purchasing such security from him____"

      . For example, while the parties have provided a general definition of a "short-against-the-box” transaction, it is not clear exactly what rights and liabilities are created at the time of such a transaction.

      . The defendants also argue that there is no private right of action under Rule 10b-16. While it remains an open question whether a private right of action exists, that issue need not be reached here because of the Nicks’ failure to state a claim under Fed.R.Civ.P. 12(b)(6). Compare Liang v. Dean Witter & Co., 540 F.2d 1107, 1113 n. 25 (D.C.Cir.1976) with Establissement Tomis v. Shearson Hayden Stone, Inc., 459 F.Supp. 1355 (S.D.N.Y.1978).

      . At the hearing, counsel for defendants withdrew their contention that the allegations of fraud failed to satisfy Fed.R.Civ.P. 9(b)’s requirement of particularity.


source: Caselaw Access Project

author: PAINE, District Judge.

license: Public Domain

text:
    SELCHOW & RIGHTER COMPANY, Plaintiff, v. GOLDEX CORPORATION, John A. Ishmael, and 800 Marketing, Inc., Defendants. GOLDEX CORPORATION, Counter-plaintiff, v. SELCHOW & RIGHTER, COMPANY, Horn Abbot, Ltd., Walter D. Ames, Warson, Cole, Grindle & Watson and John Does 1-50, Defendants.
    No. 84-8264-Civ-Paine.
    United States District Court, S.D. Florida.
    Feb. 20, 1985.

      Walter Ames, Kathy Klock, Miami, Fla., for plaintiff.
    Charles Wender, Boca Raton, Fla., Robert Stone, Edward Joffe, for defendants.
   FINDINGS OF FACT AND CONCLUSIONS OF LAW AND ORDER

PAINE, District Judge.

This cause is before the Court for consideration of the plaintiff, Selchow & Righter Company’s Motion for Summary Judgment, or alternatively, for a Preliminary Injunction (DE # 20). A hearing on this motion was held on October 26, 1984. After reviewing the record in this cause, the various submissions of the parties and considering argument of counsel, this Court makes the following findings of fact and conclusions of law.

FINDINGS OF FACT

The plaintiff, Selchow & Righter Company (“S & R”) is a New York Corporation which manufactures family games. Horn Abbot, Ltd. (“Horn Abbot”), a Canadian corporation, is the originator of the Trivial Pursuit-brand games which have achieved amazing popularity in the United States and Canada. In conjunction with its plan to sell and distribute these games in the United States, Horn Abbot obtained and is the legal owner of the following trademarks, design patents, and copyrights covering Trivial Pursuit-brand games:

1. “Trivial Pursuit” — U.S. Registered Trademark No. 1,236,540.

2. Game Board Design — U.S. Design Patent No. 270,741.

3. Game Board — U.S. Copyright Registration No. U.A. 95-532.

4. Rules and Cards — U.S. Copyright Registration No. TX 846-925.

On November 19, 1982, Horn Abbot executed an exclusive license agreement whereby Horn Abbot granted the exclusive right to manufacture, use and sell Trivial Pursuit-brand games in the United States, its territories and possessions to S & R. This agreement also provides that these rights are exclusive even as to Horn Abbot.

Trivial Pursuit-brand games (Genus Edition) manufactured by S & R in the United States consist of a playing board, rules and card sets, plastic playing pieces, a die and an advertising brochure. Additional card sets' printed in the United States, for example the Silver Screen and Baby Boomer editions, contain only the rules, the card sets, and the advertising brochure. Games manufactured in Canada are identical to those manufactured in the United States with some exceptions: (1) The S & R wheel logo does not appear on the boxes of games manufactured in Canada, except those manufactured by Chieftain Products, discussed infra at p. 22; (2) complete game sets (i.e. complete with playing board, card sets, playing pieces, etc.) are manufactured in Canada for several editions (e.g. Genus edition, Baby, Boomer edition, Silver Screen, etc.) whereas only one edition (Genus edition) is manufactured in the United States as a complete set. All other editions manufactured for the United States market (e.g. Baby Boomer edition) are available only as additional card sets; (3) several questions and/or answers in the Canadian version were deemed by S & R to be offensive and unsuitable for family participation. Accordingly, games manufactured in the United States contain some different subject matter, and/or different words or phrases; (4) games manufactured in Canada do not contain a S & R advertising brochure.

S & R maintains a manufacturing plant in Holbrook, L.I., N.Y. In addition to manufacturing games there, S & R hires “printing brokers”, who act as agents of S & R, to manufacture the games as well. One of these printing brokers hired by S & R is Cornacchia Press, Inc. (“Cornacchia”). When S & R first began manufacturing Trivial Pursuit games in November, 1982, Cornacchia was hired to print and collate the card sets for S & R. In turn, Cornacchia subcontracted with Banta Company in Menasha, Wisconsin to do the actual printing and collating of the cards [Cornacchia deposition, DE #75; pp. 13-18]. The finished card sets were delivered to S & R’s manufacturing plant in Holbrook, Long Island.

Sometime in 1983, Cornacchia began manufacturing and assembling complete game sets for S & R (the actual production of these games was done by Banta Company; Cornacchia supervised the production) [Cornacchia deposition, DE #75; pp. 23-25]. In order to meet increased demand for the game, Cornacchia also subcontracted with Chieftain Products, a Canadian printing broker, and Western Publishing Co. of Wisconsin to manufacture complete game sets for S & R. [Cornacchia deposition, DE #75; pp. 26-27 and p. 30]. Apparently, Chieftain Products was also the manufacturer utilized by Horn Abbot to produce the Canadian games [Cornacchia deposition, DE #75, p. 31]. The method utilized for payment consisted of Chieftain billing Cornacchia per game. Cornacchia would pay Chieftain. Thereafter, Cornacchia billed S & R. [Cornacchia deposition, p. 43]. The games manufactured by Chieftain for Cornacchia comprise 15% of all the games manufactured for S & R. In other words, 15% of all Trivial Pursuit games sold by S & R in the United States and its territories are manufactured in Canada.

The defendants Goldex Corporation (“Goldex”), John Ishmael (“Ishmael”) and 800 Marketing, Inc. are Florida residents. Ishmael is an officer of both corporations. The stock of Goldex is owned by a family trust; Ishmael’s family members are the beneficiaries of the trust and Ishmael is the trustee. Each company operates what is essentially a “mail order” business. That is, they offer goods for sale through magazine and newspaper advertisements, obtain goods from different sources, and mail or ship the goods per customer order.

Due to the enormous popularity of the game “Trivial Pursuit”, S & R has had difficulty in supplying retail outlets in the United States to meet customer demand. Seizing on this short supply, Goldex (acting through Ishmael) contacted a representative of S & R to inquire about obtaining a large supply of games to distribute through his mail order businesses. S & R referred him to a Miami “jobber”. Further inquiry elicited the information that this “jobber” could not supply him with the quantity desired. Ishmael also made inquiries in Canada, directed to Horn Abbot and Chieftain. Both companies refused to supply him with any games and informed Ishmael of the exclusive license agreement. Ishmael then made arrangements with a Canadian corporation, Goldex of Canada, to buy the Canadian versions of Trivial Pursuit-brand games. Evidence submitted by Ishmael (Def. Ex. 1) shows that he checked with U.S. Customs before importing any games into the United States; U.S. Customs informed him that the Trivial Pursuit trademark had not been registered with U.S. Customs by Horn Abbot or anyone else.

Ishmael states that he sells approximately .001% of all Trivial Pursuit games, most of which are Baby Boomer editions. He admits that most of “his” games are shipped from Canada and, occasionally, he buys games from local retailers/wholesalers. His major medium for advertising is USA Today. Exhibits of advertisements submitted by both parties (Def.Ex. # 2; Pl.Ex. # 2) show that, in addition to the Genus and Baby Boomer editions, the defendants offer such games as “Sexual Trivia”, “Junior Trivia” and “Bible Trivia”, all of which are under the heading “Trivial Pursuit”. The ads also show “Goldex-800” as the offeror. Ishmael testified that he offers a “100% money-back guarantee”, however, no mention of guarantee is contained in the ads for Trivial Pursuit games.

Mr. Selchow, president of S & R, testified that the games imported from Canada are causing his company to lose advertising clout (since they do not contain a S & R advertising brochure), and generate dissatisfaction among S & R distributors (who cannot import the game from Canada and who are in consistently short supply) as well as S & R customers because of the sale of “Sexual Trivia”. S & R concludes that, as a manufacturer of family type games, its reputation is injured by the sale of “Sexual Trivia”.

CONCLUSIONS OF LAW

Fed.R.Civ.Pr. Rule 56(c) provides that on motion for summary judgment, the moving party must demonstrate that there exists no genuine issue of material fact and that he is entitled to judgment as a matter of law. Once the moving party has made this showing, the burden shifts to the opposing party to come forward with significant probative evidence demonstrating a triable issue of fact. American Viking Contractors, Inc. v. Scribner Equipment Co., 745 F.2d 1365 (11th Cir.1984).

There being no genuine issue or dispute between the parties as to the foregoing findings of fact or, no proof to the contrary being offered or elicited, the Court’s first inquiry must be whether those uncontroverted facts establish a claim entitling the plaintiff to judgment as a matter of law.

PLAINTIFF’S CASE

The plaintiff S & R is the assignee in the United States of registered U.S. trademarks, design patents and copyrights owned by Horn Abbot, Ltd. (See, this Court’s order of August 27, 1984). These registrations are presumptively valid. The defendants admit that they are importing Trivial Pursuit-brand games from Canada and are selling them in the United States by mail order. The imported games are those manufactured and distributed by Horn Abbot in Canada. The plaintiff has not given the defendants permission to sell these Canadian games in the United States.

I. Statutory Trademark Infringement

“The primary and proper function of a trademark is to identify the origin or ownership of the article to which it is affixed” Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 36 S.Ct. 357, 60 L.Ed. 713 (1916). As such, 15 U.S.C. § 1114(1) (the Lanham Trademark Act § 32(1)) provides, in pertinent part, that

any person who shall, without the consent of the registrant—
(a) use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; ... shall be liable in a civil action by the registrant for the remedies hereinafter provided.

The gravaman of an action for trademark infringement is that the use of the infringing mark is likely to confuse consumers as to the source of the product, its endorsement by the trademark holder, or its connection with the holder. Kentucky Fried Chicken Corp. v. Diversified Packaging Corp. 549 F.2d 368 (5th Cir.1977). In determining whether there is a likelihood of confusion between marks, the Court must evaluate a number of factors including the type of trademark, similarity of design, similarity of product, identity of retail outlets and purchasers, similarity of advertising media used, defendant’s intent, and actual confusion. Soweco, Inc. v. Shell Oil Co., 617 F.2d 1178 (5th Cir.1980), cert. den. 450 U.S. 981, 101 S.Ct. 1516, 67 L.Ed.2d 816.

The plaintiff S & R has shown that there exists a substantial likelihood of confusion between Trivial Pursuit-brand games originating from the United States manufacturer (S & R) and Trivial Pursuit-brand games originating from the Canadian manufacturer (Horn Abbot). The trademark “Trivial Pursuit” affixed to both games (and the product itself) are virtually identical. S & R does not identify itself with any particular retail outlet, so consumers are not put on notice as to the origin of the goods. Mr. Selchow testified that purchasers of Canadian Trivial Pursuit-brand games often call or write to his company regarding offensive words/phrases which are contained in that version of the game.

The advertisement submitted by the defendants show that a number of trivia games are offered for sale by the defendants under the trademark “Trivial Pursuit”. The ad lists “Baby Boomer or Genus Edition — complete game; Bible Trivia and Junior Trivia”. Mr. Selchow testified that his company does not manufacture either the complete game set for Baby Boomer editions or Junior Trivia or Bible Trivia games; nor is there any allegation by the defendants that S & R does manufacture those games. It is unknown whether Horn Abbot manufactures Junior Trivia and Bible Trivia games. Another advertisement, submitted by the plaintiff, shows that the defendants offer the above-enumerated games for sale, as well as the game “Sexual Trivia”, under the heading “Trivial Pursuits”. Given the fact that the plaintiff has shown that a number of S & R customers associate “Trivial Pursuit” with S & R, the Court concludes that the plaintiff has shown that a substantial likelihood of confusion exists and has proved its case for statutory trademark infringement.

II. Common Law Trademark Infringement

S & R has acquired a common law trademark in the State of Florida by virtue of its adoption and continuous use in this state of the trademark “Trivial Pursuit” in connection with an established business. See, Crown Central Petroleum Corp. v. Standard Oil Co. 135 So.2d 26, cert. den. 142 So.2d 731 (Fla.1962); and Sheila’s Shine Products, Inc. v. Sheila Shine, Inc., 486 F.2d 114 (5th Cir.1973).

The same elements necessary to prove statutory trademark infringement (as set forth previously herein) would also establish common-law trademark infringement. See, eg., Mako Marine, Inc. v. Mako Inc., 328 F.Supp. 177 (S.D.Fla.1971). The Court, having found that S & R has proved a case for statutory trademark infringement, also finds that S & R has proved common-law trademark infringement.

III. Patent Infringement

35 U.S.C. § 271(a) provides that “whoever without authority makes, uses or sells any patented invention, within the United States during the term of the patent therefor, infringes the patent”. The term of the patent, (filed in November 1981) is for 14 years. There is no question that the defendants have been, and are, selling the game board (the patented article) in conjunction with Trivial Pursuit-brand games in the United States during the term of the patent. The majority of game boards sold by the defendants in the United States are imported from Canada, and are sold in the United States without the authority of the exclusive licensee, S & R, who stands in the shoes of the patentee. The plaintiff has established that its patent rights have been and are being infringed by the defendants. See, e.g., Aro Manufacturing Co., Inc. v. Convertible Top Replacement Co., Inc. 377 U.S. 476, 84 S.Ct. 1526, 12 L.Ed.2d 457 (1964); and Shields v. Halliburton Co., 493 F.Supp. 1376 (W.D.La.1980), affm’d. 667 F.2d 1232 (5th Cir.1982).

IV. Copyright Infringement

17 U.S.C. § 501 provides that “anyone who violates any of the exclusive rights of the copyright owner ... or who imports, copies or phonorecords into the United States in violation of Section 602, is an infringer of the copyright.” The exclusive rights of a copyright owner include the rights of manufacturing, distributing and selling the copyrighted work. 17 U.S.C. § 106(1) and (3).

The copyrights obtained by the inventors of the game pertain to the game board and to the rules and card sets used in conjunction with the game. The defendants admit they are importing Trivial Pursuit-brand games containing the copyrighted works from Canada and are selling these games in the United States without the permission of S & R, who is the holder of the exclusive rights under the registered copyrights. Unauthorized use of copyrighted material which is inconsistent with the exclusive rights enumerated in Section 106 constitutes copyright infringement. Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U.S. 394, 94 S.Ct. 1129, 39 L.Ed.2d 415 (1974). Accordingly, the defendants’ sale in the United States of Trivial Pursuit-brand games acquired in Canada and containing copyrighted material constitutes copyright infringement.

DEFENDANTS’ REBUTTAL

The plaintiff having supported its motion for summary judgment for trademark, patent and copyright infringement, the burden shifted to the defendant to come forward with significant probative evidence demonstrating a triable issue of fact.

At the hearing in this cause, the defendants alleged that there exist four (4) genuine issues of material fact: (1) That the plaintiff denies that the two games (i.e. those games manufactured in the United States vs. those games manufactured in Canada) are identical; (2) that the plaintiff failed to establish that all three (3) defendants participated in acts constituting infringement; (3) that, in defense to the claim for patent infringement, there exists a relationship in restraint of trade, including tying of products and price-fixing (patent misuse) in violation of the Sherman Anti-Trust Act, 15 U.S.C. § 1 et seq.; and (4) that the plaintiff can not prevent the importation and sale in the United States of “parallel” or “genuine” goods manufactured outside the United States by the original manufacturer.

I. Identical Games

The plaintiff concedes that the two games and the trademarks are identical, with a few minor exceptions (set forth specifically in the Court’s findings of fact). It is the plaintiff’s position that, regardless of the fact that the Canadian games are identical to the United States games, S & R has the right to prevent their sale in the United States. Thus, there is no issue as to whether the goods are identical.

II. Joint Liability of Defendants

The defendants claim that there is a genuine issue of material fact as to whether defendants Ishmael and 800 Marketing are liable for acts constituting infringement. In a previous order, this Court considered the defendants’ motion for summary judgment. The defendants contended that since both Ishmael and 800 Marketing, Inc. were acting on behalf of Goldex, neither could be liable. The Court ruled that if S & R proved infringement, and if S & R proved that both Ishmael and 800 Marketing participated in acts constituting infringement, then all three (3) defendants could be liable as a matter of law. Accordingly, the defendant’s motion for summary judgment was denied because the plaintiff demonstrated a genuine material issue of fact. The proverbial shoe is now on the other foot. The plaintiff is requesting summary judgment on the issue of infringement and all other issues connected therewith — including the issue of joint liability.

Defendant Ishmael is an officer of both Goldex Corp. and 800 Marketing. He is the legal owner (as trustee) of all Goldex stock; his family members are the beneficial owners. During the hearing in this cause, Ishmael admitted the acts constituting infringement. When Ishmael described the acts of soliciting the cooperation of Goldex of Canada in importing Trivial Pursuit games into the United States, placing ads in U.S.A. Today, filling orders, etc., he used the terms “we” and “I” to describe who performed these actions. The ads submitted by both parties (Plaintiff’s Exhibit # 2; Defendants’ Exhibit # 2) show that the games are offered for sale by “Goldex800”. Mr. Ishmael testified that “Goldex800” is not a separate company. Goldex primarily handles the arrangements for shipping the games sold to customers; 800 Marketing handles arrangements for payment of the goods by credit card. See Affidavit of John Ishmael, DE # 55. The evidence submitted by the defendants shows that they are jointly involved in the importation and sale of Canadian Trivial Pursuit-brand games. As such, all three (3) defendants are responsible for any liability connected therewith. See, Mead Johnson and Co. v. Baby’s Formula Service, Inc., 402 F.2d 19 (5th Cir.1968).

III. Relationship in Restraint of Trade; Tying of Products and Price Fixing Defenses.

In their counterclaim, and as affirmative defenses, the defendants allege a relationship in restraint of trade, including tying of products and price fixing. The basis for these defenses (which focus, for the main part, on the patent rights held by the patentee and/or his assigns) lies in the maxim that a court of equity will deny a patentee the right to enforce his patent where the patentee has used or attempted to use his legal rights thereunder in violation of the anti-trust laws; i.e. one may not seek affirmative relief in a court of equity with “unclean hands”. See, for eg., Ex-tractol Process Ltd. v. Hiriam Walker & Sons, Inc., 153 F.2d 264 (7th Cir.1946).

a. Relationship in Restraint of Trade

The defendants contend that the exclusive license agreement is per se illegal (and is therefore unenforceable) because it imposes territorial restrictions. The defendants argue that, as a matter of law, the patentee (Horn Abbot) is precluded from assigning its patent rights to a specified territory such as the whole of the United States, its territories and possessions.

On the contrary, 35 U.S.C. § 261 specifically authorizes the assignment of an exclusive right under a patent to the whole or any part of the United States. Cases interpreting this section hold that such an assignment by the patentee is not a violation of the anti-trust laws. See, Dunlop Company, Ltd. v. Kelsey-Hayes Co., 484 F.2d 407 (6th Cir.1973); Brownell v. Ketcham Wire & Manufacturing Co., 211 F.2d 121 (9th Cir.1954) and Deering, Milliken & Co., Inc. v. Temp-Resisto Corp., 160 F.Supp. 463 (S.D.N.Y.1958), aff'd. in part, rv’d, in part on other grounds, 274 F.2d 626. Consequently, the mere grant of an exclusive license under a patent to the whole of the United States is not an illegal territorial restriction.

b. Tying of Products or “Tie-in” arrangement.

A “tying arrangement” in violation of 15 U.S.C. §§ 1-7 is an agreement by one party to sell one product but only on the condition that the buyer also purchases a different product, or at least agrees that he will not purchase the product from any other supplier. Northern Pacific Railway Co. v. U.S., 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1948); See also, Bell v. Cherokee Aviation Corp., 660 F.2d 1123 (6th Cir.1981).

The defendants allege that an anonymous representative from S & R called an unnamed employee of Ishmael’s on an unspecified date and allegedly stated that S & R would only sell Ishmael Trivial Pursuit games as part of a “larger package”. Fed.R.Civ.Pr. 56(e) makes it clear that the party opposing a motion for summary judgment cannot rest upon the mere allegations of his pleading; he must come forward with admissible evidence or affidavits based on personal knowledge to demonstrate a triable issue of fact.

The allegation that a tying arrangement exists, supported only by inadmissible hearsay evidence, does not meet the requirements of Rule 56(e). No affidavit by the unnamed employee was submitted by the defendants, although the defendants had ample time to procure such an affidavit and ample notice that such an affidavit (or admissible evidence) should have been forthcoming. (See, eg., DE # 54; p. 4).

c. Price-Fixing

The defendants allege that there exists a price-fixing scheme between Horn Abbot and S & R whereby Horn Abbot has the right to approve the prices of the games which S & R sells. This alleged price-fixing arrangement is purportedly contained in the exclusive license agreement. (TR. pp. 37-38).

The Court has read and examined the exclusive license agreement submitted at the hearing in this cause. There is no provision contained therein which even remotely suggests that Horn Abbot has the right to approve prices.

IV. “Genuine" “Parallel” or “Grey Market” Goods

Notwithstanding their other defenses and claims, the defendants mainly rely on their argument that the exclusive licensee of a trademark can not prevent the importation and sale in the United States of identical goods originating outside the United States from the foreign licensor. Only one court in this district has published a decision on this issue, however, that ruling does not apply to the case at bar for the reasons enumerated herein.

The precise legal issue before the Court may be stated as: Whether the exclusive licensee of trademark rights throughout the United States has the right to exclude from-importation and sale in the United States identical goods originating outside the United States from the foreign licensor and imported into the United States by a third party, where the licensor is itself prohibited from importing and selling those goods in the United States? A review of the existing case law compels this Court to answer in the affirmative.

The notion that a trademark owner in this country may prohibit the importation and sale in the United States, of identical goods (usually called “parallel” or “grey market goods”) purchased abroad is based on the principle of territoriality. This principle evolved from a series of cases beginning with A. Bourjois & Co. v. Katzel, 260 U.S. 689, 43 S.Ct. 244, 67 L.Ed. 464 (1923). In that case, the plaintiff, a New York corporation purchased a French company’s entire United States’ business for face powder, including the United States’ registered trademark “Java”. The face powder sold by the plaintiff was made by the French company in France but packed in the United States by the plaintiff. The defendant purchased the face powder on the open market in Europe, imported the face powder in its original boxes and resold the face powder in the United States.

In ruling that the plaintiff could bar the importation and resale in the United States of the French face powder, the Supreme Court stated:

It is said that the trademark here is that of the French house and truly indicates the origin of the goods. But that is not accurate. It is the trademark of the plaintiff only in the United States and indicates in law, and, it is found, by public understanding, that the goods come from the plaintiff although not made by it____ It stakes the reputation of the plaintiff upon the character of the goods, (emphasis added).

Id. at 692, 43 S.Ct. at 245. See also, Perry v. American Hecolite Denture Corp., 78 F.2d 556 (8th Cir.1935). Recently, courts addressing the issue have relied on this principle of territoriality in ruling that the owner of United States’ trademarks may bar importation and sale in the United States of “genuine” or identical goods manufactured abroad. Bell & Howell: Mamiya Co. v. Masel Supply Co., 548 F.Supp. 1063 (E.D.N.Y.1982); Osawa & Co. v. B & H Photo, 589 F.Supp. 1163 (S.D.N.Y.1984).

In Osawa, the district court emphasized the notion of the territoriality of trademarks and the need for protecting them. Judge Leval reasoned that the essential function of a trademark is

to symbolize the domestic good will of the domestic mark-holder so that the consuming public may rely with an expectation of consistency on the domestic reputation earned for the mark by its owner, and the owner of the mark may be confident that his goodwill and reputation (the value of the mark) will not be injured through the use of the mark by others in domestic commerce.

589 F.Supp. at 1171-1172. In other words then, a trademark represents the local or domestic goodwill of the owner of the national mark. Identical goods imported from another country are apt to confuse domestic buyers of the goods as to their origin. If the foreign goods are damaged, or are without a warranty, or are not of the same quality as the domestic goods, the goodwill and reputation of the domestic owner of the mark is injured.

,This principle of territoriality plays an important part in the case at bar. S & R has made some changes, albeit minor ones, in the questions and answers used in conjunction with the Trivial Pursuit games it manufactures. These changes were deemed necessary to promote the goodwill of S & R, who is a manufacturer of family games. Games imported from Canada can irreparably damage S & R’s image and reputation, since United States consumers associate the “Trivial Pursuit” trademark with S & R.

Horn Abbot has sold its business and trademarks in this country which relate to Trivial Pursuit games to S & R. Horn Abbot itself is precluded from selling Trivial Pursuit-brand games in the United States in competition with S & R. The facts of the instant suit fall squarely within the principles of Bourjois and its progeny. A fortiori, S & R may legally bar the importation and sale in the United States of Trivial Pursuit games manufactured in Canada.

This Court is aware that a minority of courts have ruled to the contrary, however, those cases are inapplicable here. The only published opinion is Parfums Stem. There, the plaintiff corporation sought a preliminary injunction against the United States Customs Service, to enjoin Customs from allowing the importation into the United States of goods manufactured by the plaintiffs subsidiary corporations abroad and imported by persons other than the plaintiffs authorized distributors. In denying the preliminary injunction, Judge Aronowitz reasoned that where the holder of the domestic trademark was merely a cog or entity in a single international enterprise, “so interrelated amongst the individuals, corporate entities and structure” which were all part of that international conglomerate, there was no basis for protecting the domestic goodwill of the plaintiff. In other words, Bourjois did not apply to that situation.

Seizing on this language in Parfums Stem, the defendants have attempted to demonstrate that S & R and Horn Abbot are part of an “amoeba-like structure” as described by Judge Aronowitz. Viewing the facts in the light most favorable to the defendants, no such interrelationship was established. The plaintiff has licensed others to manufacture Trivial Pursuit games for the United States’ market. There is no allegation and no evidence that the games manufactured for S & R are sold in Canada or put in the stream of commerce there. There is no evidence (by affidavit or otherwise) that more than an arm’s-length relationship exists between S & R and Horn Abbot. Absent those facts, no international interrelationship of the kind described in Parfums Stem can exist.

There being no genuine issue of material fact requiring resolution, and the plaintiff being entitled to judgment as a matter of law, summary judgment in favor of the plaintiff is appropriate at this time on the issue of liability.

REQUESTED RELIEF

I. Injunction

The plaintiff has requested that the defendants be permanently enjoined from infringing its trademarks, copyrights and patents. Mr. Ishmael stated at the hearing in this cause that he has and intends to continue to sell in the United States Trivial Pursuit-brand games imported from Canada.

Injunctions against infringement are authorized by statute; 17 U.S.C. § 502; 35 U.S.C. § 283; 15 U.S.C. § 1116. The plaintiff has shown that the sale of Canadian Trivial Pursuit-brand games in this country will irreparably damage its name and reputation; that it is losing valuable advertising clout; and that it has no adequate legal remedy. Accordingly, an injunction against the defendants should be entered, permanently enjoining them from importing and selling Canadian Trivial Pursuit-brand games in the United States for as long as the plaintiff is the owner of the registered trademarks, copyrights and patents in this country.

II. Damages

The plaintiff neither offered nor presented any proof as to damages. Therefore, a trial on the issue of damages will be held.

Accordingly, it is

ORDERED and ADJUDGED:

1. That plaintiffs Motion for Summary-Judgment (DE # 20) is granted in part and denied in part.

2. That Summary Judgment on the issue of liability is granted in favor of the plaintiff and against all three (3) defendants for the reasons discussed herein.

3. A permanent injunction is granted, beginning immediately, within the parameters set forth above.

4. Summary Judgment on the issue of damages is denied.

5. The following pending motions are deemed moot and are therefore denied:

a. Plaintiffs Motion for Preliminary Injunction (DE # 20).
b. Plaintiffs Motion for Temporary Restraining Order (DE # 33).
c. Plaintiffs Motion to Strike Counterclaim (DE # 60).
d. Plaintiffs further Motion for Summary Judgment (DE # 78).
e. Defendants’ Motion for Extension of Time or to Strike (DE # 81).

      . Copies of these registrations were attached to the amended complaint filed in this cause. In addition to the fact that these registrations are deemed presumptively valid in the absence of any facts asserted to the contrary (See, Coca-Cola v. Overland, 692 F.2d 1250 (9th Cir.1982) this Court is not persuaded by argument of defense counsel that the plaintiff must conclusively prove the validity of these registrations, especially in light of the fact that defendant Goldex Corp. apparently relies on their existence and validity in its counterclaim (DE # 9, ¶ 12).

      . By order dated August 27, 1984, this Court preliminarily determined that this agreement constitutes an assignment under applicable law, as opposed to a mere license.

      . 35 U.S.C. § 282; 17 U.S.C. § 410(c); 15 U.S.C. § 1051; See, Coca-Cola Co. v. Overland, Inc. 692 F.2d 1250 (9th Cir.1982).

      . The S & R wheel logo is only displayed on the side of the box. It is only displayed on games manufactured by S & R. An ordinary consumer, however, is not likely to look for that logo.

      . In the ad submitted by the defendants, the trademark "Trivial Pursuit” is written in script. In the ad submitted by the plaintiff, the heading "Trivial Pursuits” is written with block letters.

      . Evidence of actual confusion is not a prerequisite for finding that a likelihood of confusion exists. Sun-Fun Products, Inc. v. Suntan Research & Development, Inc., 656 F.2d 186 (5th Cir.1981); Holiday Inns, Inc. v. Holiday Out In America, 481 F.2d 445 (5th Cir.1973).

      . 17 U.S.C. § 602(a) prohibits importation without the consent of the copyright owner into the U.S. of copies or phonorecords of a work acquired outside the U.S. and defines such action as an infringement of the exclusive right to distribute.

      . This allegation is also the subject of defendant Goldex’s counterclaim.

      . As to the validity of exclusive license agreements, generally, See, Cataphote Corp. v. Desoto Chemical Coatings, Inc., 450 F.2d 769 (9th Cir.), cert. den. 408 U.S. 929, 92 S.Ct. 2497, 33 L.Ed.2d 341 (1972); Rail-Trailer Co. v. ACF Industries, Inc., 358 F.2d 15 (7th Cir.1966); American Photocopy Equipment Co. v. Rovico, Inc., 257 F.Supp. 192 (N.D.Ill.1966); affmd. 384 F.2d 813, cert. den., 390 U.S. 945, 88 S.Ct. 1030, 19 L.Ed.2d 1133; Foundry Services, Inc. v. Beneflux Corp., 110 F.Supp. 857 (S.D.N.Y.1953); rvsd. on other grounds, 206 F.2d 214.

      . Defendants also allege that “if the parts included in plaintiff's version of the Trivial Pursuit-brand board game are not the patented, trademarked and/or copyrighted supplies, there exists a firm probability that Horn Abbot, Ltd. is itself guilty of tying unprotected supplies with a patented product..." (emphasis added). As defendants are aware, this allegation is pure conjecture unsupported by affidavit, extrinsic evidence or the record in this cause.

      . Parfums Stern, Inc. v. United States Customs Service, 575 F.Supp. 416 (S.D.Fla.1983).

      . Parfums Stern, Inc. v. United States Customs Service, 575 F.Supp. 416 (S.D.Fla.1983); Coalition to Preserve the Integrity of American Trademarks v. United States of America, 598 F.Supp. 844, Case No. 84-0390 (D.C.D.C.1984).

      . Supra, at n. 12.

      . Id. at 420.


author: DUPREE, District Judge.

text:
    Mary Sally TISDALE, Plaintiff, v. TELEFLEX, INC., Eldocraft Manufacturing Company, Inc., and Outboard Marine Corporation, Defendants.
    No. 82-1992-8.
    United States District Court, D. South Carolina, Charleston Division.
    Feb. 22, 1985.

      John D. Jones, Steven J. Misner, Greene, Buckley, DeRieux & Jones, Atlanta, Ga., for plaintiff.
    B. Allston Moore, Jr., Burnet R. May-bank, III, Buist, Moore, Smythe & McGee, Charleston, S.C., Francis P. Manchisi, Wilson, Elser, Moskowitz, Edelman & Dicker, New York City, N.Y., for Teleflex, Inc.
    J.W. Cabaniss, Grimball & Cabaniss, Charleston, S.C., for Eldocraft Manufacturing Co. •
    G. Dana Sinkler, Sinkler, Gibbs & Simons, Charleston, S.C., Alex B. Marconi, Senior Counsel, Outboard Marine Corp., Waukegan, 111., for Outboard Marine Corp.
   MEMORANDUM OF DECISION

DUPREE, District Judge.

Invoking the court’s admiralty jurisdiction under Rule 9(h) of the Federal Rules of Civil Procedure plaintiff, Mary Sally Tisdale, instituted this action for damages for personal injuries in August of 1982 against defendants, Teleflex, Inc. (Teleflex), Eldo Craft Manufacturing Company, Inc. (Eldocraft) and Outboard Marine Corporation (OMC). Plaintiff alleges that she was severely and permanently injured in a boating accident which occurred on navigable waters near Charleston, South Carolina on October 27, 1979. The plaintiff’s cause of action is based on allegations of defects in the manufacture of the boat in which she was a passenger at the time of the accident and its accessory equipment. Liability of the defendant manufacturers of the boat and its equipment is sought to be imposed on principles of negligence, breach of warranty and strict liability in tort.

The defendants timely filed answers denying all liability to the plaintiff and pleading defenses of contributory negligence, assumption of risk and the intervening, superseding negligence of the operator of the boat. On the issues thus joined the case came on for trial and was tried by the court without a jury over a two-week period in November of 1984. Thereafter the parties submitted proposed findings of fact and post-trial briefs, and in this memorandum of decision the court now enters its findings of fact and conclusions of law. Rule 52, F.R.Civ.P.

In March, 1974 Wallace Tisdale, a retired Navy petty officer living in the Charleston, South Carolina area, purchased from an independent dealer a 15-foot motor boat which had been designed, manufactured and sold by Eldocraft. Known in the trade as a “bass boat,” the boat was used by Tisdale primarily for fishing in the inland, navigable waters in the Charleston area. The boat was originally powered by a 45-horsepower Chrysler outboard motor and it was equipped with a “stick steerer” manufaetured by Teleflex. The boat was equipped with two pedestal seats, one forward and one aft, each of which rotated 360 degrees thus enabling the occupants to fish in any direction from the boat.

Weather permitting, Tisdale apparently spent a substantial part of his waking hours fishing with the result that by 1979 he had completely worn out the Chrysler engine on his boat, and in the spring of that year he replaced it with the 55-horse-power Evinrude engine manufactured by defendant OMC which he was operating at the time of the accident.

The boat was operated from the front pedestal seat near its bow, and when facing forward the throttle control was mounted on the right side of the boat and the stick steerer was mounted on the left side. The stick steerer, as the name implies, consists of a rod of approximately twenty inches in length on the top of which is a ball of the approximate size of a billiard ball. This “stick” extends vertically from a drum assembly which houses cables extending rearward to the engine and which control its movements to each side as it pivots on its mountings. Pushing the stick forward causes the engine to pivot to the starboard and the boat to make a right turn. Pulling back on the stick causes the engine to pivot to port and the boat to make a left turn. When the stick is in the vertical position the boat moves straight ahead, but if the stick is released the torque force created by the engine will gradually at first and then more rapidly cause the boat to go into a right turn.

On the late afternoon of October 27,1979 the plaintiff, who was then Mary Sally Davis, and who has since married Wallace Tisdale, was a passenger in the Tisdale boat from which they had been fishing on Flagg Creek, a small tidal creek off the Cooper River near Charleston. Davis and Tisdale had been keeping company for a short time, but this was her first trip in Tisdale’s fishing boat. About sunset they stopped fishing and prepared to return to the boat landing. Because she had begun to get chilly, Davis, who had been seated in the rear pedestal seat, went to the bow of the boat and assumed a kneeling position between Tisdale’s legs and facing him as he sat in the front pedestal seat with his right hand on the throttle and the left hand on the stick steerer.

While they were in these positions Tisdale accelerated the engine and started the trip back to the landing. When the boat had reached a speed of approximately fifteen miles an hour it suddenly went into a sharp right turn which caused Tisdale and Davis to be ejected into the water from the port side of the boat. What happened immediately thereafter is not readily determinable from the evidence, but it is clear that the boat continued to circle to the right, and either on the first time around or thereafter Davis was severely injured when she was struck by the skeg or propeller of the boat engine. As a result of her injuries the plaintiff has incurred medical expenses of upwards of $50,000, and while she suffers from a variety of other unrelated ailments, her medical problems attributable to injuries received in this accident are of a permanent and disabling nature.

As to the cause of this accident the Tisdales at one time or another have given at least three conflicting versions as to how it happened. In 1980 Sally Davis brought an action against Wallace Tisdale in this court alleging that his negligence and recklessness caused her injuries and demanding actual and punitive damages from him. At that time she alleged that Tisdale had been negligent in reaching for a coat while traveling at full speed in the boat or by allowing the steering stick to become caught in his sleeve. At other times the Tisdales have contended that when Tisdale took his hand off the stick steerer momentarily the stick fell forward causing the boat to go into the sharp right turn.

The court finds the most believable story given by the Tisdales as to how the accident happened is what they said immediately following the accident and before any litigation was instituted or even contemplated. In the accident report required to be filed by Tisdale shortly after the accident he stated that the boat struck an underwater obstacle causing him to lose control and that the boat thereupon went into a violent turn to the right. The plaintiff herself originally confirmed this version of the accident, and following the accident it was determined that the skeg (the vertical metal shield which partially surrounds the propeller protecting it from striking objects in or out of the water) was damaged as the obvious result of a blow which it had sustained, but while this damage may very well have been incurred at the time of the accident, the court is unable to determine with any certainty that this was the case.

The violence of the turn which the boat took at the time of the accident is attested by the fact that Tisdale, a 240-pound man, and the plaintiff, a 140-pound woman, were thrown clear of the boat and in the process the arm rest on the seat occupied by Tisdale was torn off. The court is satisfied that the boat’s sharp turn was not attributable to any momentary release of the stick steerer by Tisdale, for movies introduced at the trial by the plaintiff showed that while a momentary release of the stick will result in a gradual turn to the right, this can be promptly corrected by regaining control of the stick. Wallace Tisdale, in fact, testified that he had had occasion to remove his hand from the stick momentarily (as when he would slap a mosquito) but that he had never had any difficulty in bringing the boat back under control promptly. As a boat operator with thousands of hours of experience it is simply not plausible to assume that on this occasion a momentary release of the stick resulted in the boat’s becoming uncontrollable.

The court also rejects the suggestion by plaintiff that maladjustment of the tilt and trim tab devices on the engine may have caused the boat to go into its violent right turn. Here again Tisdale testified that he had never experienced any difficulty attributable to such causes in the five years he had been operating the boat prior to the accident.

Thus the court concludes on all of the evidence that by far the most likely cause of this accident was the striking of a submerged object by some part of the boat’s engine assembly, and the court so finds.

It appears now to be well settled that the admiralty jurisdiction of the court is properly invoked in actions arising out of the use of pleasure craft on navigable waters. Foremost Insurance Company v. Richardson, 457 U.S. 668, 102 S.Ct. 2654, 73 L.Ed.2d 300 (1982); Souther v. Thompson, 754 F.2d 151 (4th Cir.1985); Oliver v. Hardesty, 745 F.2d 317 (4th Cir.1984). Additionally, the parties in this action are agreed that in such actions federal maritime law applies but in the absence of controlling maritime law principles South Carolina law governs. Wilburn Boat Company v. Fireman’s Fund Insurance Company, 348 U.S. 310, 75 S.Ct. 368, 99 L.Ed. 337 (1955); Continental Oil Company v. Bonanza Corporation, 677 F.2d 455 (5th Cir.1982).

Both admiralty law and the law of the State of South Carolina recognize the doctrine of strict liability as enunciated in Restatement of Torts (2d) § 402-A. Under this doctrine the exercise of due care in the manufacture of a product will not relieve the manufacturer of liability. Rather, a plaintiff need only prove that the product was defective and unreasonably dangerous when it was placed in the stream of commerce. Thus the focus of the trier of fact is upon the product itself, not the conduct of the manufacturer. Reed v. Tiffin Motor Homes, Inc., 697 F.2d 1192 (4th Cir.1982).

Notwithstanding the parties here are agreed that the doctrine of strict liability is applicable in admiralty, the plaintiff, apparently in deference to the fact that the boat and its stick steering system were manufactured and sold by Eldocraft and Teleflex prior to the adoption of strict liability in South Carolina, S.C. Code Ann. § 15-73-30 (1976), has sought to hold Eldocraft and Teleflex solely on principles of negligence and breach of implied warranty. Since the Evinrude motor was manufactured and sold by defendant OMC after the effective date of the South Carolina strict liability statute, plaintiff seeks to hold that defendant on principles of strict liability. Despite the apparent concession by plaintiff that her claims against Eldocraft and Teleflex are not to be considered as strict liability claims, in view of the agreement on all sides that the doctrine of strict liability obtains in admiralty, the court has chosen to apply the doctrine in this case with respect to each of the three defendants.

This brings us to a discussion of plaintiffs claims as they relate to each of the defendants.

PLAINTIFF’S CLAIM AGAINST ELDOCRAFT

As previously stated, in 1974 Wallace Tisdale purchased the boat involved in the accident from an independent dealer in the Charleston area. It had been manufactured and outfitted with the Teleflex stick steering system by Eldocraft at its plant in Arkansas in 1973. The boat was of the standard bass fishing boat design which meant that it had low gunwales, a relatively flat bottom and two swivel seats each of which rotated 360 degrees to permit cast fishing in any direction. Described by one witness as a “floating platform,” the boat was designed to operate in shallow waters and to accommodate bass fishermen, of which Tisdale was a most ardent one, in the sport of bass fishing.

Tisdale was well acquainted with this type boat and the stick steering system with which it was equipped, and the primary reason he bought it was because it had the features mentioned. At the time of the accident, it was estimated that he had used the boat between 2,000 and 3,000 hours. He had never had any kind of accident with the boat prior to the one in question here.

The plaintiff offered the testimony of two expert witnesses, Robert Swint and Robert Warren, who testified that in their opinion the Teleflex steering system was inherently unsafe; that the boat should not have been operated with an engine which did not have a “kill switch,” that is, an ignition switch device attached to the boat operator by a lanyard which would cause the engine to stop if the operator left his seat for any purpose. These witnesses also testified that the position of the operator on the seat was unsafe since it was level with or above the gunwales thus increasing the likelihood that the operator would be thrown out of the boat during a violent turn and that the seats should have been equipped with a device which would lock them in place when the boat was underway.

Plaintiff alleged and offered this evidence to prove as against Eldocraft that that defendant was negligent in the design and manufacture of the boat; the failure to provide necessary safety devices; and the failure to warn Tisdale and the plaintiff of these defects.

A careful review of all the evidence as it relates to the defendant Eldocraft has led to the conclusion that the plaintiff has failed to establish her cause of action against this defendant by a preponderance of the evidence. Concededly some of the features of this bass boat to which reference has been made tend to make it a less safe vessel in which to ride at high speeds, but these features were the very thing that which Tisdale was looking for when he purchased the boat. For ease and convenience in fishing he wanted the swivel seats and the stick steering system, and he was fully acquainted with the characteristics and possible hazards involved in employing this particular equipment. There was no duty to warn him of something which he already knew. Apparently hundreds of thousands of these bass fishing boats have been manufactured, and they are still being marketed with these same features of which plaintiff now complains. No public statute, rule or regulation has ever prohibited their manufacture and sale.

Eldocraft is not chargeable with the failure of the OMC engine to be equipped with a kill switch for the simple reason that Eldocraft had nothing to do with the selection and installation of this engine in the boat some five years after its purchase by Tisdale. And again, there was no duty to warn him about the failure to equip the engine with a kill switch, for he already knew about kill switches, their ready availability to him and the purpose which they served.

Even if it be conceded that Eldocraft was negligent in any of the respects alleged or that it breached its implied warranty of fitness, it was still incumbent upon plaintiff to establish that such negligence or breach of warranty constituted a proximate cause of the accident and plaintiff’s resulting injuries. Plaintiff was unable to do this for the simple reason that the accident was caused by the boat’s striking a submerged object, and there was no evidence from which the court can find that the accident and its consequences would not have occurred if the boat had been equipped with any other type of steering mechanism, or if the seats had been of any other height and equipped with a locking mechanism, or if the engine had been of greater or less than 35 horsepower capacity.

In sum, the plaintiff has failed to prove her case as against defendant Eldocraft which is therefore entitled to judgment of dismissal.

PLAINTIFF’S CLAIM AGAINST TELEFLEX

Teleflex manufactured the stick steering system which was installed in the boat at the time it was manufactured and sold by Eldocraft. This steering system was developed in the 1960’s in response to the demands of bass fishermen who wanted a steering system which would allow fishing lines to be cast from the front seat of the boat without the interference of a steering wheel. During the period 1970 to about 1978 Teleflex manufactured approximately 75,000 of these steering systems of which approximately seventy-five per cent were sold for use on bass boats. Admittedly the system is more sensitive than the conventional steering systems operated from a steering wheel, but as we have seen the sensitiveness of the stick steering system was not a cause of the loss of control of the boat. Rather, it was the sudden striking of the submerged object, and the evidence showed that when this happens, regardless of whether a boat is equipped with stick steering or wheel steering it is impossible for the operator to maintain control. Of the thirty-odd cases in which the witness Swint had testified involving ejection of occupants of a boat only about seven of the boats had been equipped with stick steering while the remaining twenty-three boats had been equipped with wheel steering.

For reasons not related to safety or accident experience Teleflex ceased to manufacture its stick steering systems about 1978, but other manufacturers continued to market this system, and there has never been any public statute, rule or regulation governing the use of stick steering on bass boats.

What has been said with respect to the failure of the evidence to establish proximate causation between Eldocraft’s alleged negligence and breach of warranty and plaintiffs injuries applies with equal force to Teleflex, and even if this defendant were chargeable with any negligence or breach of warranty in connection with the manufacture and sale of its stick steering system, plaintiffs evidence has failed to establish such as a proximate cause of her injuries. Plaintiffs action as to Teleflex must therefore be dismissed.

PLAINTIFF’S CLAIM AGAINST OMC

Turning first to the applicable law, as previously noted the court is of opinion that since the court’s admiralty jurisdiction has been invoked, federal maritime law which has incorporated the doctrine of strict liability in tort controls. No federal statute, rule or regulation has ever been adopted which required the installation of kill switches on marine engines used on pleasure boats of the kind involved here. Plaintiff stressfully contends, however, that the Federal Boat Safety Act, 46 U.S.C. § 1461, et seq., defines the duties of care of the defendants in this case. 46 U.S.C. § 1461 provides in part:

(a) No person shall—
(3) fail to furnish a notification as required by section 1464(a) of this title or exercise reasonable diligence in fulfilling the undertaking given pursuant to section 1464(c) of this title.

46 U.S.C. § 1464(a) provides:

Every manufacturer who discovers or acquires information which he determines, in the exercise of reasonable and prudent judgment, indicates that a boat or associated equipment subject to an applicable standard or regulation prescribed pursuant to section 1454 of this title either fails to comply with such standard or regulation, or contains a defect which creates a substantial risk of personal injury to the public, shall, if such boat or associated equipment has left the place of manufacture, furnish notification of such defect or failure of compliance as provided in subsections (b) and (c) of this section, within a reasonable time after the manufacturer has discovered the defect.

46 U.S.C. § 1464(c) provides:

The notification required by subsection (a) of this section shall contain a clear description of such defect or failure to comply, an evaluation of the hazard reasonably related thereto, a statement of the measures to be taken to correct such defect or failure to comply, and an undertaking by the manufacturer to take such measures at his sole cost and expense.

Since Section 1454 of the Act does not prescribe any standard or regulation with respect to kill switches, plaintiff’s claim that OMC violated the Act must be based upon the contention that the failure of the Evinrude engine to be equipped with a kill switch rendered it defective and created a substantial risk of personal injury to the public which in turn gave rise to a duty to furnish notification of such defect to its customers.

While it is by no means clear from a close reading of this statute that it was intended to cover defects in design such as the failure to incorporate a safety device in a product, for purposes of discussion the court has assumed that such defects are covered. The question for decision, then, is whether OMC’s failure to equip its engine with a kill switch rendered it defective within the purview of strict liability law thus giving rise to the duty to warn of the need for and the consequences of the failure to use a kill switch with this engine. A careful review of the evidence and the applicable law has led the court to conclude that the question must be answered in the negative.

The kill switch device has been in use for twenty or more years, and the desirability of requiring that engines on pleasure craft be equipped with kill switches has apparently been debated for a long time. The United States Coast Guard made a study of the question and concluded not to issue a regulation requiring kill switches. Required by federal law to justify its regulations on the basis of cost effectiveness, the Coast Guard found that about 7,250,000 boats would be affected by the regulations and that the prospective cost per life saved by the device would be $1,600,000. This was determined not to be “cost effective.” It is significant, however, that the Coast Guard has not recommended the use of kill switches on pleasure craft of the type here involved.

As is usual in these cases, the testimony of the expert witnesses offered by plaintiff and defendants was sharply conflicting. Plaintiff’s experts testified that in their opinion any bass boat equipped as was the one in this case which did not have a kill switch on its engine was inherently dangerous, while defendants’ experts testified to the contrary and pointed out that kill switches themselves might pose as great or greater danger to occupants of a bass boat in that the sudden, unintentional activation of the switch by the operator’s moving about in the boat and its resulting deceleration might cause occupants to be thrown about in the boat or overboard with the possibility of serious injury. While the court finds merit in the arguments of each set of experts, it is unable to say that the evidence of either side preponderates but is inclined to regard the evidence on this score as being evenly balanced, which, standing alone, would justify decision in defendants’ favor. Welch v. Outboard Marine Corporation, 481 F.2d 252, 256-7 (5th Cir.1973). (Testimony of expert that lawnmower met all industry standards for the year it was manufactured and that the safety devices suggested by plaintiff would present other functional and safety problems supported jury finding that design of lawnmower was not unreasonably dangerous for normal use.)

The doctrine of strict liability in tort is set forth in Section 402A of the Restatement (Second) of Torts (1965) which was adopted as law in South Carolina in 1976. S.C.Code Ann. § 15-73-10 (1976) provides:

Section 15-73-10. Liability of seller for defective product.
(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm caused to the ultimate user or consumer, or to his property, if
(a) the seller is engaged in the business of selling such a product, and
(b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.
(2) The rule stated in subsection (1) shall apply although
(a) the seller has exercised all possible care in the preparation and sale of his product, and
(b) the user or consumer has not bought the product from or entered into any contractual relation with the seller.

While this case is governed by principles of maritime law (including, as we have seen, the doctrine of strict liability) the court is technically not bound by the body of case law which has developed in South Carolina since the enactment of this statute. For reasons which will be detailed later the court has nevertheless found the South Carolina authorities persuasive, and application of developing principles of strict liability law in the South Carolina cases to facts of the case at bar leads unerringly to the conclusion that the kill switch question should be resolved in favor of OMC.

These principles have been summarized in the virtually indistinguishable case of Young v. Tide Craft, Inc., 270 S.C. 453, 242 S.E.2d 671 (1978). That was a wrongful death action against the manufacturer of a boat similar to the one involved here. The accident which resulted in the operator’s death occurred when the cable connecting the boat’s stick steerer to its outboard engine parked and the operator was thrown overboard and drowned. In reversing a jury verdict for the plaintiff the South Carolina Supreme Court held that the splicing and resulting disengagement of the steering cable were not acts for which the boat manufacturer was responsible, but in that case, as here, the claim was made that the failure of the boat to be equipped with a kill switch on its engine rendered it inherently defective. In rejecting this claim the South Carolina court said:

Tide Craft’s failure to install a kill switch warrants separate consideration. A kill switch is a safety device which cuts electrical power to a boat’s motor whenever the operator is thrown from his seat and is no longer in a position to control the boat. With the electrical power disconnected, the motor will cease functioning and the boat will come to a stop. This device is attached to the motor and ignition system neither of which is manufactured by Tide Craft. Even assuming that Tide Craft had responsibility in this area, it is clear to us that the absence of this device did not constitute a breach of warranty, an unreasonably dangerous defect, or lack of due care on the part of Tide Craft.
To warrant recovery under the strict liability in tort theory, the absence of the kill switch must constitute a defect “unreasonably dangerous to the user or consumer,” S.C.Code § 15-73-10 (1976). As pointed out in Skyhook Corp. v. Jasper, 90 N.M. 143, 560 P.2d 934 (1977), the test of whether or not the “failure [to incorporate a safety feature or device in a product] constitutes a defect is whether the product, absent such feature or device, is unreasonably dangerous to the user or consumer or to his property,” 560 P.2d at 938.
The question that presents itself is whether the absence of the kill switch per se rendered the boat “dangerous to an extent beyond that which would be contemplated by the ordinary consumer who purchases it, with the ordinary knowledge common to the community as to its characteristics,” Restatement (Second) of Torts § 402A, com. i (1965). In applying this test to a situation in which the manufacturer of a winch used on fishing boats failed to include a brake on the winch, the court in Williams v. Bra-sea, Inc., 497 F.2d 67 (5th Cir.1974), cert. den., 423 U.S. 906, 96 S.Ct. 207, 46 L.E.2d 136 (1975), stated: “The danger posed by the lack of a brake could scarcely be beyond the contemplation of crewmen who knew of its absence and worked with the winch in that condition on a daily basis.” Id. at 79. It is common knowledge that a normal risk of boating is that of being thrown overboard. While the test set out above is an objective one and knowledge common to the community must be attributed to Young, there can, nevertheless, be no question of his awareness of this risk. His wife testified that Young had fished almost every weekend for the past ten years. He had often used boats and his wife felt he was relatively familiar with them. Young being aware of the normal risks of boating, the danger posed by the obvious lack of a kill switch could hardly be beyond his contemplation. Accordingly, the lack of a kill switch does not constitute a defect within the meaning of the strict liability in tort statute.

From the foregoing it is seen that as a prerequisite to the application of the doctrine of strict liability to a case South Carolina requires both a showing that the product in question is defective and is unreasonably dangerous to the user or consumer. The Fourth Circuit has adopted this view of the law in Purvis v. Consolidated Energy Products Company, 674 F.2d 217 (1982), where Chief Judge Winter said:

Under the formulation of the Restatement (Second), the policies of strict products liability come into play only as to products “in a defective condition unreasonably dangerous to the user or consumer or to his property.” Restatement (Second) § 402A.10 To be unreasonably dangerous within the meaning of section 402A, a defective product “must be dangerous to an extent beyond that which would be contemplated by the ordinary purchaser who purchases it, with the ordinary knowledge common to the community as to its characteristics.” Id., Comment i.

Id. at page 222. Footnote 10 referred to in the quotation reads in pertinent part as follows:

Some courts hold that a plaintiff who proves that he was injured by a product defect may recover under the doctrine of strict products liability without showing, as a separate element of proof, that the defect was unreasonably dangerous (citing cases). Other courts require proof that the product is both defective and unreasonably dangerous (citing cases).
We think that the language of section 402A of the Restatement (Second) favors the latter position. To our knowledge, moreover, the Supreme Court of South Carolina has never applied strict products liability in a case not involving an extraordinary hazard or accident. Although that court may some day decide that unreasonable dangerousness is not an element of a section 402A claim, existing precedents afford us no basis for anticipating such a development.

Cases in other jurisdictions involving products alleged to have been inherently dangerous by reason of their failure to incorporate a kill switch have reached the same result as did the South Carolina court. In Boatland of Houston, Inc. v. Bailey, 609 S.W.2d 743 (1980), the Supreme Court of Texas upheld a jury verdict which had concluded that a fishing boat which had no kill switch on its engine was not defectively designed. In Pressley v. Sears-Roebuck and Company, 738 F.2d 1222 (11th Cir.1984), the court affirmed the granting of partial summary judgment to the defendants under the plaintiff’s theories of negligence and strict liability in tort for failure to equip a lawnmower with a deadman (kill switch) control or other like safety feature. In that case the court said:

A manufacturer is under no duty to guard against injury from a patent peril or from a source that is manifestly dangerous. There is no duty to warn of obvious common dangers connected with the use of a product____ There was no evidence presented to the court suggesting that the absence of a deadman device rendered the lawn mower unsuitable for mowing grass, its “intended use.”
There is no statutory requirement or industry safety standard that would impose upon either Roper or Sears an obligation to manufacture and to sell only those lawn mowers equipped with dead-man devices. Although the lawn mower in this case is arguably potentially dangerous, the lack of such a device was open and obvious. Pressley acknowledged that he knew, prior to his accident, that the lawn mower motor and blade would continue to run even when the rider was unseated.

Id. at 1223-24.

To like effect see Williams v. Brasea, Inc., 497 F.2d 67, 79 (5th Cir.1974), where it was said:

The question then arises whether the lack of a brake made the winch “dangerous to an extent beyond that which would be contemplated by the ordinary consumer who purchases it, ____” Sec. 402A com. i. This proposition carries its own answer. The danger posed by the lack of a brake could scarcely be beyond the contemplation of crewmen who knew of its absence and worked with the winch in that condition on a daily basis.

With respect to plaintiffs continued insistence that OMC had a duty to warn Tisdale of the need for equipping the boat engine with a kill switch and the possible consequences of his failure to do so the short answer, as we have seen before and as the cited cases hold, is that there was no duty to warn Tisdale of the obvious. He knew about kill switches and the purpose which they served, and had he taken the time to read his instruction book he would have been referred to his dealer for further information on the subject.

Since the evidence has failed to sustain plaintiffs cause of action on strict liability grounds her actions based on negligence and implied warranty must also fail. Claytor v. General Motors Corporation, 277 S.C. 259, 286 S.E.2d 129 (1982).

Finally, as promised earlier, the court will explain further why it has found it expedient to apply South Carolina law in this case notwithstanding its non-binding force where the court’s admiralty jurisdiction has been invoked. In the first place, the parties have not cited and the court’s research has not revealed any federal maritime law at variance with the principles of strict liability in tort as applied in South Carolina, and absent some compelling federal authority to the contrary policy considerations argue strongly for applying state law. It was not until the Supreme Court decided Foremost Insurance Company v. Richardson, 457 U.S. 668, 102 S.Ct. 2654, 73 L.Ed.2d 300 (1982), that it was finally settled that accidents involving pleasure boats on navigable waters fall within the admiralty jurisdiction. Prior thereto there was highly respected opinion in the Fourth Circuit that such cases should not be cognizable in admiralty. Richards v. Blake Builders Supply, Inc., 528 F.2d 745, 747 (4th Cir.1975); Crosson v. Vance, 484 F.2d 840 (4th Cir.1973). And, of course, the five to four decision in Foremost brought forth the vigorous dissent of Justice Powell concurred in by the Chief Justice, Justice Rehnquist and Justice O’Connor. As pointed out by then Chief Judge Haynsworth in Crosson v. Vance, if the accident in this case had resulted in death, the wrongful death statute of South Carolina, not the Death on the High Seas Act, 46 U.S.C. § 761, would have governed. Except for the fortuitous circumstance that the accident here occurred on navigable waters this would have been an essentially local action. For these reasons the court feels that since there are no controlling principles of maritime law mandating a different result, the parties should be bound by South Carolina law the application of which has resulted in the conclusion that plaintiff is not entitled to recover of either of the defendants.

Judgment accordingly will be entered.

      . This defendant was so identified in the caption to plaintiffs amended complaint filed October 15, 1984, but throughout the litigation it has been referred to as "Eldo Craft Boat Company,” "Eldocraft Boat Manufacturing Company, Inc.,” etc. The correct corporate name of this defendant is said to be El Do-Craft Boat Company, Inc., but no question is raised as to the correct identification of this defendant.

      . This action was settled for $20,000 on a covenant not to sue and thereafter Davis married Tisdale and brought the present action against the manufacturers of the various components of Tisdale's boat.

      . In response to questioning at the trial Tisdale said that he knew of no other accident which could have caused this damage to the skeg.

      . As stated in plaintiffs first proposed conclusion of law,
      the instant action, being brought under the court’s admiralty jurisdiction is governed by federal maritime law. Where a clearly established principle of federal maritime law applies, that law is applied. In the absence of such clearly established principles, the court is governed by the laws of South Carolina.

      . There was evidence that an association of bass fishermen had promulgated a rule prohibiting the use of stick steering on bass boats used in fishing tournaments when equipped with engines of more than 35 horsepower.

      . OMC has never contested the feasibility of equipping its engines with kill switches, and the evidence showed that the cost of incorporating such a device in an engine would be something less than $10.

      . The use of kill switches is required by state law in only one state, Alabama, and the law in that state only requires kill switches on engines of 50-horsepower and over.

      . The opinions of plaintiffs experts were premised on the assumption that Tisdale was ignorant of the hazards inherent in his boat and the need for added safety precautions such as the installation of a kill switch. Aside from the fact that this ascribes to this 44-year-old ex-seaman with twenty-eight years’ experience in the Navy, including experience in small boats, a completely unrealistic naivete and one totally at variance with the impression which he left with the court, by his own admission Tisdale never bothered to read the owner’s manual furnished him at the time he purchased the OMC engine which instructed him how to adjust the trim tab and tilt pin on the engine and told him to see his dealer about kill switches, and neither he nor the plaintiff were wearing the life jackets with which the boat was equipped at the time of the accident. On this evidence it is highly speculative to conclude that this man would have equipped his boat with a kill switch or that he would have used it if he had bought one.


author: GONZALEZ, District Judge.

text:
    BLUE CROSS AND BLUE SHIELD ASSOCIATION, Plaintiff, v. BLUE CROSS MUTUAL CLINIC, INC., Defendant.
    No. 84-0934-Civ.
    United States District Court, S.D. Florida, Northern Division.
    Feb. 28, 1985.
    Thomas H. Boyd, Blackwell, Walker Gray, Powers, Flick & Hoehl, Miami, Fla., and Joan Dillon, Owen, Wickersham & Erickson, San Francisco, Cal., for plaintiff.
    H. Lee Bauman, Miami, Fla., for defendant.
   AMENDED FINAL JUDGMENT

GONZALEZ, District Judge.

Pursuant to the Court’s Order dated January 3, 1985, granting plaintiff BLUE CROSS AND BLUE SHIELD ASSOCIATION’S motion for summary judgment and directing that judgment be entered herein in the plaintiff’s favor, it is hereby

ORDERED AND ADJUDGED as follows:

1. That this Court has jurisdiction over the plaintiff, BLUE CROSS AND BLUE SHIELD ASSOCIATION, and the defendant, BLUE CROSS MUTUAL CLINIC, INC., and over the subject matter of the complaint on file herein and that venue is proper.

2. That defendant, its officers, agents, servants, affiliates, employees, attorneys and representatives, and all those in privity or acting in concert with the defendants, and each and all of them, be and are hereby permanently restrained and enjoined from:

(a) infringing plaintiff’s service marks by continuing to promote and provide service under marks confusingly similar to plaintiff’s;
(b) diluting plaintiff’s service marks by causing injury to plaintiff’s distinctive service marks and the valuable reputation they represent; and
(c) unfairly competing by misappropriating and unfairly trading upon plaintiff’s service marks and reputation.

3. That all Counts, 28 through 30, of defendant’s affirmative defenses are hereby dismissed with prejudice.

4. That defendant bear plaintiff’s cost of suit herein.

5. That the Court shall retain jurisdiction of this matter for the purpose of taking such other action and providing such other and further relief as may be necessary or appropriate to carry out and enforce this Order from time to time.

6. That this Order should be effective immediately.

7. That the Court makes the following findings of fact and conclusions of law:

FINDINGS OF FACT

8. Plaintiff BLUE GROSS AND BLUE SHIELD ASSOCIATION [THE ASSOCIATION] is a not-for-profit corporation organized and existing under the laws of the State of Illinois, havings its principal place of business at 676 North St. Clair Street, Chicago, Illinois.

9. Plaintiff BLUE CROSS AND BLUE SHIELD ASSOCIATION is an affiliation of local BLUE CROSS AND BLUE SHIELD plans, which are engaged in the provision of prepaid financing and administration of medical, hospital and related health care services, and in the provision of health care services.

10. Defendant BLUE CROSS CLINIC, INC. is a corporation and existing under the laws of the State of Florida, havings its principal place of business at 5840 West Flagler Street, Miami, Dade County, Florida, and having no affiliation with the Association.

11. Plaintiff’s services and those of its member plans are identified by and rendered under the word mark BLUE CROSS and a BLUE CROSS design service mark, which has been extensively used, advertised and promoted throughout the United States, including the State of Florida.

12. THE ASSOCIATION is the owner of the following relevant incontestable service mark and trademark registrations:

(a) BLUE CROSS mark, registration No. 554,488, issued January 5, 1952;
(b) BLUE CROSS, mark, registration No. 554,492, issued February 5, 1952,
(c) Blue Cross design, registration No. 554,817, issued January 12, 1952;
(d) BLUE CROSS design, registration No. 969,385, issued September 25, 1973;
(e) BLUE CROSS design, registration No. 990,414, issued August 6, 1974; and
(f) BLUE CROSS design, registration No. 1,055,560, issued January 4, 1977.

13. Each of these service or trademarks is used in association with the promotion of THE ASSOCIATION’S health care services.

14. Each of these service or trademarks appearing either independently or in use in association with one another in THE ASSOCIATION’S national advertising and literature are always noticed by the placement of the ® therein.

15. As a result of long use and extensive sales, advertising and promotion, THE ASSOCIATION’S BLUE CROSS word mark and its BLUE CROSS design mark as used together or independently have become exceptionally well and favorably known throughout the United States as representing THE ASSOCIATION and its health care services and were so well known before any use of BLUE CROSS or the BLUE CROSS design mark by defendant.

16. THE ASSOCIATION’S BLUE CROSS and BLUE CROSS design service marks are now famous and have achieved secondary meaning and symbolize THE ASSOCIATION, its plans and the health care services offered by its plans.

17. Because of its extensive advertising and sales of services under its marks, the good will built up, owned and associated with THE ASSOCIATION’S service marks is one of the plaintiff’s most valuable assets.

18. Defendant, with constructive and actual knowledge of THE ASSOCIATION’S ownership of the words “BLUE CROSS” and the BLUE CROSS design and its identification thereof with THE ASSOCIATION’S health care services and prepayment financing thereof, and subsequent to THE ASSOCIATION’S use, intentionally used the term “BLUE CROSS” and a blue stylized cross composed of the letters BCMC, to mislead and deceive the public into thinking that defendant’s health care clinic services are sponsored by, endorsed by, related to or approved by THE ASSOCIATION or its member plan.

19. Defendant’s health care clinic services are the same as, or substantially related to, the health care services and information services and the prepaid financing thereof offered by THE ASSOCIATION under its service marks.

20. The use of a cross design in blue by defendant in association with health care clinic services is likely to mislead and deceive the public into believing that defendant’s health care clinic is sponsored, endorsed, related to or approved by THE ASSOCIATION or its plans due to the similarity of the services offered by THE ASSOCIATION and its plans and the defendant under a cross design in blue.

21. The use of the BLUE CROSS word mark by defendant in association with health care clinic services is likely to mislead and deceive the public into believing that defendant’s health care clinic is sponsored, endorsed, related to or approved by THE ASSOCIATION or its plans due to the similarity of the services offered by THE ASSOCIATION and its plans and the defendant under a BLUE CROSS word mark.

22. Upon learning of defendant’s infringing use of the BLUE CROSS word and stylized BLUE CROSS marks, plaintiff made every effort to resolve this dispute without resort to the Court. THE ASSOCIATION has been diligent and timely in the assertion of its service mark rights.

23. Defendant used and continues to use the infringing BLUE CROSS word and BLUE CROSS marks in association with its health care clinic services.

24. Defendant has caused, and unless restrained by this Court, will continue to cause serious irreparable injury and damages to THE ASSOCIATION and its plans and to the good will associated with THE ASSOCIATION’S marks and has caused and will continue to cause grave injury to the public as well, because of the nature of the services provided by the defendant under THE ASSOCIATION’S marks unless defendant’s use of THE ASSOCIATION’S marks is enjoined by this Court.

25. Defendant’s conduct constitutes service mark infringement, unfair competition, false designation of origin, and service mark dilution of THE ASSOCIATION’S rights in its mark and such unfair competition, dilution, false designation of origin and infringement will continue causing irreparable damage to THE ASSOCIATION and to the good will it enjoys in its service marks unless enjoined by this Court.

26. Plaintiff’s remedy at law is inadequate to compensate for its injuries; therefore, defendant should be restrained and enjoined from engaging in such conduct.

CONCLUSIONS OF LAW

27. The Court has jurisdiction over this action pursuant to 15 U.S.C. § 1051, et seq., 28 U.S.C. Section 1338, and under Sections 495.131 and 495.161, Florida Statutes 1983.

28. Venue is proper in this District.

29. THE ASSOCIATION’S incontestable federal registrations establish conclusively the validity of plaintiff’s BLUE CROSS word service marks and BLUE CROSS design service marks and THE ASSOCIATION’S right to the exclusive use of these marks in commerce. 15 U.S.C. § 1115(b) and § 33(b) of the Lanham Act.

30. THE ASSOCIATION’S BLUE CROSS word mark and BLUE CROSS design marks are famous and strong marks, whether used in association with one another or independently, in the identification of prepaid financing and administration of medical, hospital and related health care services and in the provision of health care services.

31. Summary judgment relief is proper in a trademark infringement action where there is no genuine issue as to any material fact and it is clear that the moving party is entitled to judgment as a matter of law. Volkswagenwerk Aktiengesellschaft v. Tatum, 344 F.Supp. 235 (S.D.Fla.1972).

32. Plaintiff's and defendant’s services are the same or substantially similar, and the similarity of the marks used by ASSOCIATION and the defendant in association therewith are so great as to show that public confusion, mistake and deception will be created by defendant’s continued use of BLUE CROSS and a BLUE CROSS design mark and that such use constitutes trademark infringement, false designation of origin, and service mark dilution.

33. This Court has available to it at least two approved methods of determining whether a likelihood of confusion exists, namely, the “ocular test,” Frostie Co. v. Dr. Pepper Co., 341 F.2d 363 (5th Cir.1965) and the “Seven Part Test,” Playboy Enterprises v. P.K. Sorren Export Co. of Florida, 218 U.S.P.Q. 795 (S.D.Fla.1982).

34. Defendant’s use of THE ASSOCIATION’S service marks, the BLUE CROSS word mark and the BLUE CROSS design, whether used together or presented separately, in association with defendant’s health care services constitutes infringement, dilution and unfair competition under both the “ocular” test and the “Seven Part Test.” The marks are the same or substantially similar, the services offered thereunder are the same, the purchasers are the same and the advertising media utilized is the same or similar. THE ASSOCIATION’S marks are famous as related to the provision of health care services.

35. Defendant’s conduct is infringing in violation of the Lanham Act, 15 U.S.C. § 1114(1) and constitutes a false designation of origin in violation of 15 U.S.C. § 1125(a) and if allowed to continue, will do irreparable harm to the strength and distinctiveness of THE ASSOCIATION’S marks and therefore should be enjoined.

36. Section 15 U.S.C. § 1117 of the Lanham Act provides that a successful plaintiff may recover (1) defendant’s profits, (2) any damages sustained by plaintiff and (3) plaintiff’s costs. The recovery is cumulative.

37. Because of the difficulty in obtaining an accounting from defendant and in ascertaining the extent of the monetary damages as well as the necessity for immediate injunctive relief, plaintiff requests only its costs incurred and injunctive relief.

38. THE ASSOCIATION is entitled to the granting of its motion for summary judgment, immediate injunctive relief and its costs incurred in bringing this action.

39. Defendant is hereby ordered to:

(a) destroy all literature, advertising and other material bearing the marks BLUE CROSS MUTUAL CLINIC and a BLUE CROSS design;
(b) request of the telephone company that its business listings be changed in the next printing of each and every directory where the name BLUE CROSS MUTUAL CLINIC has appeared, including both White and Yellow Pages;
(c) since plaintiff has waived any damages herein, defendant shall only pay plaintiffs costs incurred in the prosecution of this action; and
(d) file with this Court, and serve upon plaintiff within thirty (30) days of this Order, a report in writing under oath setting forth the manner and form in which defendant has complied with this Order.

40. All of for which let execution issue.