S&L Vitamins v. Australian Gold

Citation: S&L Vitamins, Inc. v. Australian Gold, Inc., 521 F.Supp.2d 188 (E.D.N.Y. 2007)(full-text).

Factual Background
Plaintiff S&L Vitamins ("S&L") sold tanning products through its websites including "bodysourceonline.com." Defendant Australian Gold ("AG") made and sold tanning products under the federally registered marks AUSTRALIAN GOLD, CARIBBEAN GOLD, and SWEDISH BEAUTY. AG distributed its products through independent distributors who were contractually required to sell only to "salon environment[s] [with] tanning as a majority of their business."

S&L purchased AG's products from these salons and resold them on its websites at about 50% of the retail prices. S&L's websites contained lists of products for sale arranged by brand name, including AG's products, along with thumbnail pictures of the product. Clicking on a brand name or its picture produced a new web page with a larger picture of the product. S&L added S&L trade names and logos adjacent to or superimposed over the pictures, and added the phrase "All Rights Reserved" right below the images. S&L provided a brief disclaimer at the bottom of the page stating "Tanning Lotion Disclaimer Body Source is Not affiliated with ANY Tanning Lotion manufacturer. To see full Disclaimer Click here."

S&L also purchased the terms "Australian Gold" and "Swedish Beauty" as search engine keywords, and used AG's marks as metatags for its websites.

Trial Court Proceedings
Following a cease-and-desist letter from AG, S&L brought this action seeking a declaratory judgment that its sale of AG's products and use of AG's trademarks on its websites did not violate the Lanham Act or any state law. AG counterclaimed for trademark infringement, unfair competition, dilution, and false advertising, among other claims. The parties filed cross-motions for summary judgment. Regarding trademark infringement, S&L claimed that its sale and display of AG's products: (1) were protected by the "first sale" and "nominative fair use" doctrines, (2) did not amount to trademark "use" for Lanham Act purposes, and (3) did not create a likelihood of confusion.

The court first held that S&L did not "use" AG's marks for Lanham Act purposes. It noted that district courts in the Second Circuit, relying on 1-800 Contacts v. WhenU.com, have consistently held that use of a mark in keywords and metatags did not constitute "use" under the Lanham Act where the defendant does not place the mark on any product or service or use it in a way to indicate source or origin.

But, in Hamzik v. Zale, the District Court for the Northern District of New York held that the defendant's use of the plaintiff's trademark in its keyword-generated, search-engine ads could show an association with plaintiff to create a Lanham Act "use." The court distinguished this case from Hamzik, however, because S&L actually sold AG's products whereas the defendant in Hamzik sold competitive products, not the trademark owner's products.

The court then rejected S&L's first sale defense because S&L did more than just "stock and display" AG's products when it displayed pictures of the products on its website, placed its logo or trade names near or over the pictures, and added the phrase "All Rights Reserved" below the images. But it rejected AG's theory that S&L was not selling genuine products because it failed to follow AG's quality-control standards, because S&L sold unadulterated AG products that were already manufactured, packaged, and inspected by AG, and that Internet customers do not expect the training and inspections that AG's customers received in salons.

Regarding likelihood of confusion, because both parties failed to address all but the actual-confusion factor, and S&L's disclaimer did not mention AG, the court could not conclude as a matter of law for either party on this issue.

The court rejected S&L's nominative fair use defense. By taking pictures of the products, superimposing S&L's logos, and claiming "all rights reserved," it used AG's marks beyond what was reasonably necessary to identify the products and created issues of material fact as to whether such use suggested AG's sponsorship or endorsement. Accordingly, it denied S&L's motion for summary judgment on its use of AG's marks on its website, but granted S&L's motion for summary judgment on its use of AG's marks as keywords and metatags.

The court dismissed AG's claim for false designation of origin under a reverse passing off theory because S&L had not removed AG's mark from AG's products and replaced it with its own and there was no confusion evidence.

The court also dismissed AG's false advertising claim. Merely placing a photograph of AG's products on S&L's website and placing "All Rights Reserved" underneath it did not constitute a literally false advertisement because the advertisement is not literally or implicitly false-S&G did not make any false claims about its or AG's products, did not suggest that it manufactured or created the trade dress of the products, and it was indeed selling those products. Further, even if the phrase "All Rights Reserved" is a literally false statement because S&L did not have all the rights to the elements in the picture, it was not material to the advertisement in its entirety.

The court also dismissed AG's federal and state trademark dilution claims because AG failed to offer sufficient evidence to show that its mark was famous. Because AG provided evidence only that its products are carried in 50% to 60% of tanning salons in the United States, and not the typical dilution evidence indicating significant advertising expenditures or revenues, the court held that it had not shown "more than a mere scintilla of evidence of fame."

This page uses content from Finnegan’s Internet Trademark Case Summaries. This entry is available under the Creative Commons Attribution-Share Alike License 3.0 (Unported) (CC-BY-SA).