Antitrust Law Daily Wrap Up, ADVERTISING—S.D. N.Y.: Appliance manufacturer obtains trademark infringement, false advertising judgment against repair business, (Apr 4, 2014)

By John W. Arden, J.D., LL.M.

Kitchen appliance manufacturer Sub-Zero, Inc. was granted a default judgment against repair business Sub Zero NY Refrigeration & Appliances Services for trademark infringement and false advertising under the Lanham Act. The federal district court in New York City granted Sub-Zero a permanent injunction, requiring Sub Zero NY to deliver for destruction all infringing advertisements, and awarded $9,676 in attorney fees and $1,738 in costs of suit (Sub-Zero, Inc. v. Sub Zero NY Refrigeration & Appliances Services, Inc., April 1, 2014, Wood, K.)

Sub-Zero, Inc., a Wisconsin corporation, manufactures and distributes kitchen appliances, including Sub-Zero refrigerators, freezers, and wine storage units. It maintains a network of repair service providers who are authorized to use Sub-Zero’s trademarks. The manufacturer has two registered trademarks: (1) the Sub-Zero word mark and (2) the Sub-Zero logo. Both marks have been registered in connection with the installation, repair, and maintenance of kitchen appliances. The manufacturer has marketed it products under the Sub-Zero word mark since 1945 and has used the logo since 1964.

Sub Zero NY is a New York corporation that purports to be in the business of repairing Sub-Zero products, even though it is not an authorized repair service provider and is not endorsed or sponsored by Sub-Zero. At the direction and control of Nikki Grochowski, Sub Zero NY conducts its business in a manner purposely designed to confuse consumers into believing that it is endorsed, sponsored by, affiliated with, or associated with Sub-Zero, the court found. Sub Zero NY and Grochowski have misled customers regarding the company’s qualifications for repairing Sub-Zero products and have defrauded customers by improperly performing repairs, performing unnecessary repairs, and overcharging for repairs, according to the court.

The repair service has operated a website at www.subzeerorefrigerationservice.com, which stated that “[a]ll of our service men are factory trained master Sub-Zero technicians.” Their invoices describe Sub Zero NY and Grochowski as “specialists” in Sub-Zero repairs. However, none of the employees had received any training from Sub-Zero, the court found. Invoices, advertisements, and promotional materials display the “Sub-Zero” word mark and logo without permission.

Sub-Zero filed this trademark infringement and false advertising action after being contacted by a customer of Sub Zero NY who claimed that the company defrauded her by charging $9,500 for unnecessary and improperly performed repairs. Grochowski’s counsel contacted Sub-Zero, asserting that Grochowski did not control the company, but refused to answer why Grochowski was listed as the company’s contact person. Neither defendant filed an answer or appearance, and a default judgment was entered against them on July 18, 2013.

In moving for default, a permanent injunction, an order for destruction of infringing advertisements, attorney fees, and costs of suit, Sub-Zero asserted that its allegations were sufficient to establish liability.

Trademark infringement. To establish liability for infringement under the Lanham Act, a plaintiff must prove: (1) that it owns a valid, protectable trademark; (2) that the defendant used the trademark in commerce without consent; and (3) that there was a likelihood of consumer confusion. Because Sub-Zero proved all prongs of this test, it established liability for trademark infringement, according to the court.

Sub-Zero had two valid, protectable trademarks and has secured trademark registration for its logo in connection with the installation, repair, and maintenance of kitchen appliances. Its allegations sufficiently established that Sub Zero NY used the manufacturer’s trademarks in commerce without consent. With regard to the likelihood of consumer confusion, the court found that Sub-Zero showed that six of the eight factors from Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492 (2nd Cir. 1961). The marks used by Sub Zero NY were identical to Sub-Zero’s. Because the parties competed in the same market and were competitively proximate, there was no gap for the manufacturer to bridge. The fact that a customer of the defendant notified Sub-Zero about the defendant’s fraudulent practices indicated that actual confusion was occurring. Moreover, Sub Zero NY’s use of Sub-Zero’s exact word mark and logo indicated bad faith. Finally, evidence revealed that Sub-Zero had developed a reputation for high-quality products that was placed at risk by the association with the defendant.

False advertising. Sub-Zero’s allegations sufficiently established a Lanham Act false advertising claim under the literally false theory. The complaint alleged that the website statement that all the defendant’s service men were “factory trained master Sub-Zero technicians” was literally false because none of them had received such training from Sub-Zero and there was no such thing as a “master Sub-Zero technician.”

Individual liability. Sub-Zero sufficiently alleged that Grochowski was a “moving force” behind Sub Zero NY’s Lanham Act violations, the court held. The complaint alleged that Sub Zero NY, at the direction of Grochowski, conducts its business in a manner that is purposely designed to confuse customers into believing that it was endorsed or sponsored, affiliated or associated with Sub-Zero.

Permanent injunction. The Lanham Act empowers district courts to grant injunctions, according to the principles of equity, when the plaintiff has shown a likelihood of success on the merits, irreparable injury, an inadequate remedy at law, a balance of hardships in its favor, and public interest in the grant of a permanent injunction.

Sub-Zero established a likelihood of success on the merits because the defendant’s default constituted an admission of liability. In a trademark case, irreparable liability is established where there is a likelihood that an appreciable number of ordinarily prudent purchasers would be misled or confused. Sub-Zero showed a likelihood of confusion and irreparable injury, according to the court. Legal remedies were inadequate to protect Sub-Zero because the loss of reputation and goodwill was not precisely quantifiable. The balance of hardships weighed in Sub-Zero’s favor because it showed the likelihood of customer confusion and potential loss of goodwill. Sub Zero NY failed to allege any hardship. The public interest favored the injunction since the consuming public had a protectable interest in being free from confusion, deception, and mistake.

Thus, Sub Zero NY was permanently enjoined from using Sub-Zero’s word mark or logo; using the phrase “Sub-Zero Authorized Service,” “Sub-Zero Experts,” or “factory trained Sub-Zero technicians” in any advertising, marketing, promotional, or informational materials; or engaging in any acts of trademark infringement, unfair competition, or false advertising.

The district court issued an order requiring defendants to “deliver up for destruction any and all advertisements (and the like) in their possession” that use the term Sub-Zero in connection with the sale or provision of services in a manner that confuses the public about Sub-Zero’s authorization of the defendant’s use of the marks.

Attorney fees and costs. The Lanham Act authorizes the award of reasonable attorney fees in “exceptional circumstances.” Willful infringement, such as practiced by the defendants, was considered an exceptional circumstance. Thus, Sub-Zero was awarded attorney fees. Costs of suit—consisting of filing fees and service of process—were awarded to Sub-Zero as the prevailing party.

The case is 13-CV-2548 (KMW) (JLC).

Attorneys: Andrew Baum (Foley & Lardner, LLP) for Sub-Zero, Inc.

Companies: Sub-Zero, Inc.; Sub Zero NY Refrigeration & Appliances Services Inc.

Cases: Advertising NewYorkNews