Charisma World Wide Corp., S.A. v. Avon Products Inc.

Filing 22

MEMORANDUM OPINION & ORDER: re: 17 MOTION to Dismiss / Notice of Motion to Dismiss the Complaint 8 . filed by Avon Products Inc. Defendant's motion to dismiss is denied. The Clerk of the Court is directed to terminate the motion (Dkt. No. 17). (Signed by Judge Paul G. Gardephe on 3/19/2017) (ap)

USDC SONY
DOCUMENT
ELECTRONICALLY FILED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

DOC#:~~~---t~---.~~~

DATE FILED:

i) :z.o J °"7
1

CHARISMA WORLD WIDE CORP., S.A.,
Plaintiff,

MEMORANDUM
OPINION & ORDER

- against 16 Civ. 2739 (PGG)
A VON PRODUCTS INC.,
Defendant.

PAUL G. GARDEPHE, U.S.D.J.:
Plaintiff Charisma World Wide Corp, S.A. ("Charisma") brings this suit for
trademark infringement under the Lanham Act, 15 U.S.C. § 1125(a), against Avon Products Inc. 1
Charisma alleges that Avon directed its Panamanian subsidiary to infringe Charisma's trademark
in Panama and, in furtherance of the infringement scheme, brought a sham legal proceeding
against Charisma in Panama attacking Charisma's Panamanian trademark. (Cmplt. (Dkt. No. 1)
~~

23, 25) Avon has moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing

that Charisma has not alleged a substantial cffect en domestic commerce sufficient to support the

1

'"[S]ection 44 of the Lanham Act[, codified at 15 U.S.C. § 1126,] gives foreign nationals the
same rights and protections provided to United States citizens by the Lanham Act,'" if their
countries are signatories to a qualifying convention or treaty, such as the Paris Convention for
the Protection oflndustrial Property, Mar. 20, 1883, as revised at Stockholm, July 14, 1967, 21
U.S.T. 1583, 828 U.N.T.S. 305 ("Paris Convention"). Empresa Cubana del Tabaco v. Culbro
Corp., 399 F.3d 462, 484 (2d Cir. 2005) (quoting Int'l Cafe, S.A.L. v. Hard Rock Cafe Int'l
(U.S.A.), Inc., 252 F.3d 1274, 1277-78 (11th Cir. 2001). Charisma is a domiciliary of Panama,
which is a signatory to the Paris Convention, and thus is entitled to sue under the Lanham Act.
(Cmplt. (Dkt. No. 1) iiiI 8-9)

extraterritorial application of the Lanham Act. (Def. Br. (Dkt. No. 18) at 4) 2 For the reasons
stated below, Avon's motion will be denied.

BACKGROUND
Charisma is a Panamanian company that sells a wide variety of women's
cosmetics and personal care products, including hand and body lotions, deodorants, and
perfumed body talc and powders, in Panama. Charisma's products are made almost entirely
from materials obtained from the United States. (Cmplt. (Dkt. No. 1) ~~ 9, 16, 38) Charisma
markets its products with a trademark - "Charisma y Disefio" - that it created and registered in
Panama in 1990. (Id.

~

15) Charisma distributes its trademarked products through wholesale

supermarkets, pharmacies, and department stores in Panama. (Id.

~

17) Charisma alleges that its

trademarked products are "frequently consumed by individuals of Panamanian extraction
residing, either temporarily or permanently, within the United States," and that its mark has "a
reputation for quality amongst Panamanians throughout the world." (Id.

~~

18-19) As a result of

the commercial and financial success of its products, Charisma has entered into private label 3
contracts in other countries, including the United States. (Id. ,; 20)
Avon is a New York corporation that specializes in beauty, household, and
personal care products. (Id.

~

11) Avon uses a direct sale business model in which Avon sales

representatives market its products door to door. (Mh ~ 12) Avon created a Panamanian
subsidiary in 1991, and has since opened multiple retail locations in Panama. (Id.

~~

22, 30-31)

2

The page numbers of documents referenced in this Memorandum Opinion & Order correspond
to the page numbers designated by this District's Electronic Case Filing system.
3

The Complaint describes a private label contract as "a special business arrangement pursuant
to which a manufacturer or producer's product is sold under the name of a retailer or
wholesaler." (Cmplt. (Dkt. No. 1) at 5 n.2 (citing Cadbury Beverages, Inc. v. Cott Corp., 73 F.3d

474, 476 (2d Cir. 1996)))
2

Charisma alleges that Avon directed its subsidiary to infringe Charisma's mark in
Panama by selling competing products with the mark "Charisma" in Panama. (Id. ~~ 23, 34; id.
Exs. C, D) Beginning in 2006, Charisma and Avon litigated Charisma's ownership of its mark
in the Panamanian courts. On April 16, 2013, the First Judicial Circuit of Panama ruled in favor
of Charisma. (Id. ~ 29) Charisma alleges that Avon nonetheless continues to infringe
Charisma's mark in Panama.

M

~~

30-31)

Charisma alleges that Avon's ongoing infringement and legal challenge in
Panama "negatively impact[ed] consumer confidence and goodwill," resulting in lost revenue to
Charisma and, correspondingly, reduced purchases of materials from, and private label contracts
with, U.S. companies. (Id.~~ 28, 38-19) Charisma also alleges that Avon's "infringing retail
efforts have caused United States-based consumers to purchase the Panamanian Avon Products,"
resulting in a financial benefit to Avon from its infringement.

(Id.~~

30, 35-37)

DISCUSSION
I.

RULE 12(b)(6) STANDARD
"To survive a motion to dismiss, a complaint must contain sufficient factual

matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
"In considering a motion to dismiss ... the court is to accept as true all facts alleged in the
complaint," Kassner v. 2nd Ave. Delicatessen Inc., 496 F.3d 229, 237 (2d Cir. 2007) (citing
Dougherty v. Town of N. Hempstead Bd. cf Z0ning Appeals, 282 F.3d 83, 87 (2d Cir. 2002)),
and must "draw all reasonable inferences in favor of the plaintiff." Id. (citing Fernandez v.
Chertoff, 471 F.3d 45, 51 (2d Cir. 2006)).
A complaint is inadequately pled "if it tenders 'naked assertion[s ]' devoid of

'further factual enhancement,"' Iqbal, 556 U.S. ut 678 (quoting Twombly, 550 U.S. at 557), and
3

does not provide factual allegations sufficient "to give the defendant fair notice of what the claim
is and the grounds upon which it rests." Port Dock & Stone Corp. v. Oldcastle Ne., Inc., 507
F.3d 117, 121 (2d Cir. 2007) (citing Twombly, 550 U.S. at 555).
In considering a motion to dismiss for failure to state a claim pursuant to Rule
12(b)(6), a district court may consider the facts alleged in the complaint, documents attached to
the complaint as exhibits, and documents incorporated by reference in the complaint." DiFolco
v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010) (citing Chambers v. Time Warner,
Inc., 282 F.3d 147, 153 (2d Cir. 2002); Hayden v. Cty. of Nassau, 180 F.3d 42, 54 (2d Cir.
1999)).

II.

EXTRATERRITORIAL APPLICATION OF THE LANHAM ACT
Section 43(a) of the Lanham Act provides for a civil action for infringement of a

trademark, including those not registered in the United States, against
[a]ny person who ... uses in commerce any word, term, name, symbol, or device,
or any combination thereof, or any false designation of origin ... which ... is likely
to cause confusion, or to cause mistake, or to deceive as to the affiliation,
connection, or association of such person with another person, or as to the origin,
sponsorship, or approval of his or her goods, services, or commercial activities by
another person.
15U.S.C.§l125(a)(l).
"The ·usual rule' is that a sale of trademark-infringing merchandise that occurs in
[a foreign country] will be governed by [that country's] law, not United States law." Aero group
Int'l, Inc. v. Marlboro Footworks, Ltd., 955 F. Supp. 220, 225 (S.D.N.Y. 1997), aff d, 152 F.3d
948 (Fed. Cir. 1998). However, "[t]he Lanham Act may reach allegedly infringing conduct that
occurs outside the United States when necessary to prevent harm to commerce in the United
States." Atl. Richfield Co. v. Arco Giobus Im 'i Co., 150 F.3d 189, 192 (2d Cir. 1998) (citing
Fun-Damental Too, Ltd. v. Gemmy Indus. Corp., 111 F.3d 993, 1006 (2d Cir. 1997)).

4

[T]hree factors - the so-called "Vanity Fair factors" - are relevant to whether the
Lanham Act is to be applied extraterritorially: (i) whether the defendant is a United
States citizen; (ii) whether there exists a conflict between the defendant's trademark
rights under foreign law and the plaintiffs trademark rights under domestic law;
and (iii) whether the defendant's conduct has a substantial effect on United States
commerce.
Id. (citing Totalplan Corp. of Am. v. Colbome, 14 F.3d 824, 830 (2d Cir. 1994) (citing Vanity
Fair Mills v. T. Eaton Co., 234 F.2d 633, 642 (2d Cir. 1956) (citing Steele v. Bulova Watch Co.,
344 U.S. 280 (1952)))).
"[T]he absence of ... factors [i] or [iii] ... 'might well be determinative and ...
the absence of both is certainly fatal' to applying the Lanham Act to a citizen's activities
abroad." Aerogroup, 955 F. Supp. at 226 (quoting Vanity Fair, 234 F.2d at 643). Moreover, the
Second Circuit "has 'never applied the Lanham Act to extraterritorial conduct absent a
substantial effect on United States commerce.'" Hong Leong Fin. Ltd. (Singapore) v. Pinnacle
Performance Ltd., No. 12 CIV. 6010 JMF, 2013 WL 5746126, at *4 (S.D.N.Y. Oct. 23, 2013)
(quoting Atl. Richfield Co., 150 F.3d at 192 n.4) (citing Gucci Am., Inc. v. Guess?, Inc., 790 F.
Supp. 2d 136, 142-143 (S.D.N.Y. 2011)).

III.

WHETHER A VON'S ALLEGED CONDUCT HAS
HAD A SUBSTANTIAL EFFECT ON U.S. COMMERCE
Here, the parties dispute only the third Vanity Fair factor - whether Avon's

conduct has had a "substantial effect on United States commerce." (See Def. Br. (Dkt. No. 18) at
8; Pltf. Opp. (Dkt. No. 20) at 4, 10). Avon contends that Charisma has not made this showing,
noting that the Complaint does not allege that (1) Avon sold Charisma-branded products in the
U.S.; (2) Charisma owns trademark rights in the U.S.; or (3) Charisma products have been sold
in the U.S. (Def. Br. (Dkt. No. 18) at 9) Charisma argues that Avon has engaged in a course of
conduct in the United States that is essential to its foreign infringement, and that that

5

infringement has caused six substantial effects on commerce in the United States. (Pltf. Opp.
(Dkt. No. 20) at 12)

A.

Avon's Alleged Orchestration and Management in the
United States of Infringement-Related Activities in Panama
Arguing that "[t]he substantial effects factor is satisfied by showing that ... a

defendant's orchestration and perpetration of the infringing foreign scheme on American soil
was essential to the infringing activity abroad," (Pltf. Opp. (Dkt. No. 20) at 10-11), Charisma
cites the following alleged conduct by Avon in the United States:
( 1) Avon USA began orchestrating and devising a scheme to infringe upon the
Charisma Mark;
(2) Avon USA made the decision, on America soil, to avail itself of the
Panamanian courts to initiate a sham legal proceeding to further its
infringement scheme;
(3) Avon USA continued to unlawfully utilize the Infringing Mark on its
Panamanian Avon Products while the Panamanian Litigation was in progress
and even after losing the Panamanian Litigation (brought by, and controlled
by Avon USA and not the Avon Subsidiary) ....
(Id. at 12; see also Cmplt. (Dkt. No. 1) ~~ 23-31) Plaintiffs claims that Avon orchestrated,
schemed about, and directed from the United States infringement-related activities in Panama are
not sufficient to demonstrate a "substantial effect on United States commerce," however.
Steele v. Bulova Watch Co., 344 U.S. 280 (1952) - Plaintiffs primary authority
on this point - is not to the contrary. In Bulova, "a United States citizen residing in San Antonio,
Texas, conducted a watch business in Mexico City where, without Bulova's authorization and
with the purpose of deceiving the buying public, he stamped the name 'Bulova' on watches there
assembled and sold." Bulova, 344 U.S. at 281. Steele imported into Mexico from the United
States certain parts used in the watches he assembled and sold in Mexico. Id. at 285. The
Supreme Court found that Steele's purchases of parts from the United States "were essential

6

steps in the course of business consummated abroad; acts in themselves legal lose that character
when they become part of an unlawful scheme." Id. at 287. In concluding that it was
appropriate to apply the Lanham Act to Steele's infringing activities in Mexico, the Supreme
Court also cited the harm to Bulova's reputation and goodwill in the United States being caused
by the infringing watches Steele was assembling in Mexico, many of which subsequently entered
commerce in the United States. See id. at 287 ("[S]purious 'Bulovas' filtered through the
Mexican border into this country; [Steele's] competing goods could well reflect adversely on
Bulova Watch Company's trade reputation in markets cultivated by advertising here as well as
abroad."). In sum, in Bulova, the extraterritorial application of the Lanham Act was premised
both on defendant's "domestic purchases" and on harm to Bulova's business in the United
States. The case does not hold that the mere direction and orchestration in the United States of
infringing activities taking place abroad is sufficient for the extraterritorial application of the
Lanham Act.
This interpretation of Bulova is confirmed by the Second Circuit's decision in
Atlantic Richfield:
Bulova does not hold that a defendant's domestic activity, even if "essential" to infringing
activity abroad, is alone sufficient to cause a substantial effect on United States
commerce. In Bulova, the infringing product, although manufactured and sold abroad,
was coming into the United States for sale, resulting in consumer confusion and harm to
the plaintiffs goodwill in the United States.
Atl. Richfield Co., 150 F .3d at 193 (citation on1itted).
Numerous decisions in this District likewise confirm that the mere direction or
authorization in the United States of infringing activity taking place abroad - even if "essential"
to the infringing activity - is not sufficient to justify the extraterritorial application of the
Lanham Act. See Hong Leong Fin., 2013 WL 5746126, at *4 (no substantial effect on U.S.

7

commerce where plaintiffs sole argument for the extraterritorial application of the Lanham Act
was that defendant's "scheme was executed in

larg~

pmt from

1'~ew

York'.); World Book, Inc. v.

lnt'l Bus. Machines Corp., 354 F. Supp. 2d 451, 454 (S.D.N.Y. 2005) (no substantial effect on
U.S. commerce where "the only domestic activity plaintiff alleges to have occurred in
connection with the unauthorized distribution is the mere authorization of that activity"
(emphasis in original)); see also Gucci Am., 790 F. Supp. 2d at 144 ("A defendant's domestic
activity, even if 'essential' to allegedly infringing activity abroad, is insufficient by itself to
constitute a substantial effect on United States commerce." (citation omitted)); Procter &
Gamble Co. v. Colgate-Palmolive Co., No. 96 Civ. 9123(RPP), 1998 WL 788802, at *68 & n.31
(S.D.N.Y. Nov. 9, 1998) ("Domestic activity involved in the preparation of defendants'
advertisements, even if 'essential' to the allegedly infringing activity abroad, is not enough to
satisfy this prong of the Vanity Fair test. ... [T]here is no precedent for the view that domestic
activities 'essential' to infringement abroad are enough to satisfy the 'substantial effect on U.S.
commerce' test."' (citation omitted)).
Plaintiffs allegations that Avon orchestrated and managed the alleged
infringement-related activities in Panama, and "made the decision ... to initiate a sham legal
proceeding [in Panama] to further its infringement scheme," (Pltf. Opp. (Dkt. No. 20) at 12), are
not sufficient to demonstrate a "substantial effect on United States commerce."
B.

Other Alleged Effects on U.S. Commerce

Charisma claims that Avon's alleged infringing conduct has affected U.S.
commerce in six ways. (See Pltf. Opp. (Dkt. No. 20) at 12) These alleged effects fall into three
categories: (1) domestic benefits realized by Avon as a result of the alleged infringement-related
activities in Panama; (2) consumer confusion in the United States caused by Avon's infringing

8

activities in Panama; and (3) certain effects on domestic companies resulting from the harm
Charisma has suffered in Panama as a result of Avon's alleged infringing activities.
1.

Alleged Benefits to Avon

Charisma alleges that Avon ha.) reaiizcd a variety of benefits from its infringing
conduct in Panama and - given that Avon is a domestic company - the benefits Avon has
obtained from its infringement constitute a substantial effect on domestic commerce. (Pltf. Opp.
(Dkt. No. 20) at 12; see also Cmplt. (Dkt.

No.I)~~

35-37) Avon argues that this Court may

consider only whether Avon's alleged infringement activities in Panama have impaired
Charisma's trademark rights in domestic commerce. (Def. Reply (Dkt. No. 21) at 6)
Courts that have considered the domestic effects on U.S. companies of
infringement abroad have focused on harm to the victim and not gain to the infringer. For
example, in Bulova, the Supreme Court analyzed the effects of Steele's infringement on
Bulova's business in the United States, and not on the profit Steele - an American citizen and
resident - had realized from his sale of Bulova watch knockoffs. See also Les Ballets
Trockadero de Monte Carlo, Inc. v. Trevino, 945 F. Supp. 563, 565-67 (S.D.N.Y. 1996)
(analyzing domestic harm to the plaintiffs mark, reputation, and business resulting from
domestic competitor's infringement abroad in finding a substantial effect on U.S. commerce);
Warnaco Inc. v. VF Coi:p., 844 F. Supp. 940, 950-51 (S.D.N.Y. 1994) (denying motion to
dismiss domestic plaintiffs Lanham Act claim based on infringing conduct in Spain and
Portugal; "[a]ccepting the factual allegations in the Complaint as true, the Defendants' infringing
activities have diverted sales from Warnaco and have caused confusion among consumers, with
adverse impacts on Wamaco's income, reputation, and licensees. These impacts adversely affect
Warnaco 's competitive position with VF, a large rival in the United States market. ... These

allegations indicate that the Defendants' alleged activities affect United States commerce.");
9

Philip Morris, Inc. v. MidWest Tobacco, Inc., Civ. A. No. 88-1292-A, 1988 WL 150693 at *3-4
(E.D. Va. Nov. 4, 1988) (extending application of Lanham Act abroad because sales of domestic
defendant's products there were expected to diminish domestic plaintiffs export sales and
diminish its revenues from sales and licensing).
Considering the benefits realized by a domestic defendant from its infringement
abroad in determining whether plaintiff has shown a substantial effect on U.S. commerce would
- to a great extent - have the practical effect of reducing Vanity Fair's three-factor test to a twofactor test. Presumably, most U.S. defendants committing infringement abroad would profit
thereby. A ruling that such a profit could - in any case involving an allegation of infringing
conduct overseas - provide the basis for the extraterritorial application of the Lanham Act would
eviscerate the rule that "each nation grant and control the exercise of trademark rights within its
own borders." Aerogroup, 955 F. Supp. at 226 (citing Vanity Fair, 234 F.2d at 639 ("[T]he
rights and liabilities of United States citizens who compete with foreign nationals in their home
countries are ordinarily to be determined by the appropriate foreign law." (citation omitted))).
Such a result should be avoided.
Consistent with this logic, Charisma has cited no case in which a court in this
Circuit has found a "substantial effect on United States commerce" based merely on the benefit a
domestic company received from foreign infringement. 4

4

Indeed, in Int'l Cafe, S.A.L. v. Hard Rock Cafe Int'l (U.S.A.), Inc., 252 F.3d 1274 (11th Cir.
2001) - a case cited by Charisma (Pltf. Opp. (Dkt. No. 20) at 11) - the Eleventh Circuit
explicitly rejects the argument Charisma makes here:
The only substantial effect in the United States alleged by Plaintiff is financial gain
by [the domestic defendant], like royalties and merchandise commission. But the
financial gain from royalties that [defendant], the United States parent company,

10

The Court concludes that the alleged benefits to Avon from the alleged
infringement in Panama do not constitute a substantial effect on domestic commerce.
2.

Consumer Confusion

Charisma contends that Avon's infringement in Panama has likely confused
Panamanians residing in the United States. (See Pltf. Opp. (Dkt. No. 20) at 12; see also Cmplt.
(Dkt. No. 1) ~ 44) In the Complaint, Charisma alleges that its trademarked products are
"frequently consumed by individuals of Panamanian extraction residing, either temporarily or
permanently, within the United States"; that "[t]he Charisma Mark earned a reputation for
quality amongst Panamanians throughout the world"; and that Avon's "infringing retail efforts
have caused United States-based consumers to purchase the Panamanian Avon Products."
(Cmplt. (Dkt. No. 1) ~~ 18, 19, 30) Charisma also asserts that "customers throughout the world
have come to believe that Charisma World Wide is the infringer, and that the Charisma Mark is
an inferior imitation, and have refused to continue purchasing, distributing, or retailing the
Charisma Products."

(Id.~

45) Avon argues that purchases made outside the United States do

not constitute domestic commerce, and that Charisma's allegations about consumer confusion in
the United States are too conclusory to be relied on. (Def. Br. (Dkt. No. 18) at 7-9)
While it is true that"[ f]inancial harm to an American trademark owner whether
from the loss of foreign sales or the damage to the trademark owner's reputation abroad is at the
very least, relevant to determining whether foreign infringement has a substantial effect on U.S.
commerce," Rodgers v. Wright, 544 F. Supp. 2d 302, 313 (S.D.N.Y. 2008) (citations omitted),
see Bulova, 344 U.S. at 286 (noting that the "spurious 'Bulovas"' could well reflect adversely on

received from the subsidiary abroad is insufficient in this case to establish the
"substantial effects" required by Bulova

Irtt'l Cafe, 252 FJd at 1278 (citing Vanity Fair, 234 F.2d at 638, 642).
11

Bulova Watch Company's trade reputation in markets cultivated by advertising here as well as
abroad"), here the trademark owner is not a domestic company.
Although Charisma cites alleged confusion among Panamanians residing in the
United States, Plaintiff has not pled that purchases reflecting consumer confusion were made in
the United States. Moreover, Charisma has not responded to Avon's assertion that any such
purchases took place in Panama. (See Avon Br. (Dkt. No. 18) at 9)
Charisma alleges only that it has a Panamanian trademark and that its products are
distributed in Panama. (Cmplt. (Dkt. No. 1) ~~ 15, 17) Charisma has not alleged that it does
business in the United States or that it has a registered trademark in the United States that has
been, or could be, harmed by Avon's alleged infringement in Panama. Given these
circumstances, the consumer confusion alleged by Charisma does not demonstrate a substantial
effect on U.S. commerce.

3.

Claim that Harm Plaintiff Suffered as a Result of Avon's
Alleged Infringement in Panama Has Caused Plaintiff to
Purchase Fewer Commodities from U.S. Companies, and to
Enter Into Fewer Private-Label Contracts with U.S. Entities

Charisma contends that Avon's infringement-related activities in Panama have
damaged Charisma's business such that Charisma has reduced its purchases of commodities
from U.S. suppliers, and entered into fewer private label contracts with U.S. entities:
28. The loss of revenue resulting from the Avon Companies' infringement also
diminished Charisma World Wide's ability to continue producing and licensing its
private label products.
38. Because Charisma World Wide purchased from U.S. companies nearly all of the
materials it used to manufacture and produce the Charisma products, certain U.S.
companies - including American Containers, Inc., Prochem USA, and Bourbon Street
Trading Co. - all lost lucrative contracts and further business opportunities with
Charisma World Wide, as a result of Defendant's infringement.

12

39. As a result of the infringement, Charisma World Wide's private label contracts in the
Caribbean, Latin America, and the United States were limited, jeopardized or lost. This
included private label contracts in Puerto Rico, a United States Territory, valued at
approximately four hundred thousand dollars ($400,000.00) a month.
(Cmplt. (Dkt. No. 1) ~~ 20, 27-28, 38-39) Avon argues that Plaintiffs allegations are too
conclusory, that the negative effects cited by Plaintiff do not result from Avon's conduct, and
that - in any event - the Lanham Act only address effects that are trademark-impairing in the
United States. (Def. Reply (Dkt. No. 21) at 6, 8)
a.

Whether Plaintiff's Allegations Are Conclusory

"[A] court considering a motion to dismiss can choose to begin by identifying
pleadings that, because they are no more than conclusions, are not entitled to the assumption of
truth." Iqbal, 556 U.S. at 679. For example, an allegation that simply repeats the phrasing of the
applicable statute is clearly not sufficient. Id. (quoting Twombly, 550 U.S. at 551)
Here, Charisma's assertions oflost private label contracts are not supported by
sufficient facts "to 'state a claim to relief that is plausible on its face."' Id. (quoting Twombly,
550 U.S. at 570). Plaintiff has not pled what private label contracts were "limited, jeopardized or
lost" (Cmplt. (Dkt. No. 1) ~ 39), nor has it explained in any fashion how Avon's alleged
infringing activities in Panama caused Plaintiff to lose private label contracts with U.S. entities.
The outcome is different as to Plaintiffs allegations concerning U.S. companies
that lost contracts as a result of the harm inflicted on Plaintiff as a result of Avon's alleged
infringement-related activities in Panama. Plaintiff has pled that it "purchased from U.S.
companies nearly all of the materials it used to manufacture and produce the Charisma
products," and that as a result of the harm done to its business in Panama by Avon's
infringement-related activities, Plaintiff stopped buying materials from these U.S. companies -

13

three of which are identified by name.

(Id.~

38) These allegations are sufficient to pass muster

under Iqbal.

b.

Whether Defendant's Conduct Must Be
Trademark-Impairing in the United States

Avon argues that Plaintiffs claim nonetheless fails, because the "substantial
effect on United States commerce" must be trademark-impairing in the United States. (Def.
Reply (Dkt. No. 21) at 6, 8)
As an initial matter, if the Vanity Fair court intended to limit extraterritorial
application of the Lanham Act to cases in which a domestic defendant's conduct has impaired a
trademark in the United States, the court could have said that. Instead, the third Vanity Fair
factor- which is based on an interpretation of Bulova, see Vanity Fair, 234 F.2d at 642 - uses
much broader language: whether "the defendant's conduct ha[s] a substantial effect on United
States commerce." (Id.)
In any event, many cases involving extraterritorial application of the Lanham Act
have relied on commercial effects that do not reflect direct impairment to a trademark in the
United States.
For example, in Bulova, the Supreme Court cited the defendant's domestic
purchase of components used in the Bulova watch knockoffs in finding that the Lanham Act
extended to Defendant's manufacture of the knockoffs in Mexico City. Bulova, 344 U.S. at 28687. Steele's purchase in the United States of the components for his phony "Bulova" watch
knockoffs did not itself impair Bulova's trademark, but these purchases were nonetheless cited as
a basis for the extraterritorial application of the Lanham Act.
Moreover, several courts have applied the Lanham Act extraterritorially where a
domestic company has lost foreign sales because of infringing conduct abroad. For example, in

14

Software AG, Inc. v. Consist Software Sols., Inc., No. 08 CIV. 389CMFM, 2008 WL 563449, at
*14 (S.D.N.Y. Feb. 21, 2008), affd, 323 F. App'x 11 (2d Cir. 2009), a domestic software
company sued another domestic software company alleging false advertising in Brazil related to
a trademark dispute in that country. In determining that the "substantial effect on United States
commerce" prong of Vanity Fair was satisfied, the district court relied on potentially lost sales of
Colorado-based technical support to customers in Brazil. There was no claim in Software AG
that plaintiffs trademark was being impaired in the United States. See jd. at * 14 ("no literally
false statement was directed into the United States or to a U.S. customer").
Similarly, in Warnaco Inc. v. VF Corp., 844 F. Supp. 940 (S.D.N.Y. 1994),
plaintiff brought a Lanham Act claim based on infringing conduct in Spain and Portugal. There
was no claim that defendant had impaired plaintiffs trademark in the United States. The court
nonetheless found that "diversion of sales and adverse impact on foreign licensees can constitute
substantial impact on United States commerce." Warnaco, 844 F. Supp. at 944, 952 (citation
omitted).
And in Totalplan Corp. of America v. Colborne, 14 F.3d 824 (2d Cir. 1994)while the Second Circuit ultimately concluded that a basis for the extraterritorial application of
the Lanham Act did not exist - in conducting !ts analysis of the "substanthl effect on United
States commerce" factor, the court considered whether the domestic plaintiff had shown that it
had lost foreign sales. See Totalplan, 14 F.3d at 830 ("Totalplan has not shown that any foreign
sales of Love cameras have been diverted from it by Lure's shipment to Japan.").
Finally, in Piccoli A/S v. Calvin Klein Jeanswear Co., 19 F. Supp. 2d 157, 172
(S.D.N. Y. 1998), the court found Lanham Act jurisdiction over infringement in Scandinavia
committed by a domestic defendant, even though there was no evidence of trademark

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impairment in the United States. In Piccoli, plaintiff - the exclusive distributor of Calvin Klein
jeans in Scandinavia - sued, among others, the exclusive distributor of the jeans in the United
States, which was exporting excess inventory to Scandinavia. See Piccoli, 19 F. Supp. 2d at 16062. The court found the Lanham Act applicable because the U.S. distributor had "engaged in an
organized scheme pursuant to which [it] sent promotional materials to prospective purchasers
which invited them to come to its U.S. showrooms to view, negotiate for and purchase Calvin
Klein jeans for unrestricted international distribution." The court found that this conduct
constituted "a use of the physical stream of American commerce that was essential to the alleged
infringement [overseas]." Id. at 171. Although the alleged foreign trademark infringement could
have no domestic trademark effect - given that plaintiff held only a foreign trademark license the domestic defendant's commercial activity in the United States was found sufficient to justify
extraterritorial application of the Lanham Act.
The Court concludes that - under the circumstances of this case - Plaintiff is not
limited to trademark-impairing conduct in the United States in showing a "substantial effect on
United States commerce. " 5 This Court further concludes that - in alleging that three specific

5

Sterling Drug. Inc. v. Bayer AG, 14 F.3d 733 (2d Cir. 1994) is not to the contrary. In that case,
the Second Circuit vacated a district court injunction that had ''extensive extraterritorial effects"
- because the court had not considered the Vanity Fair factors - and ordered the district court to
craft an injunction that would "prohibit only those foreign uses of the mark by Bayer AG that are
likely to have significant trademark-impairing effects on United States commerce." Sterling
Drug, 14 F.3d at 746-47. In so instructing, the Circuit noted that because the defendant was not a
United States citizen and held foreign trademark rights, the Vanity Fair factors could be read to
suggest the there was no basis to apply the Lanham Act extraterritorially. Id. at 746. The Circuit
declined to apply Vanity Fair "mechanically," however, instead balancing "the Lanham Act's
goals of protecting American consumers against confusion, and protecting holders of American
trademarks against misappropriation of their marks," with the need to avoid its use "as a sword
to eviscerate completely a foreign corporation's foreign trademark." Id. In sum, the "trademarkimpairing" language found in Sterling Drug reflects the unique circumstances of that case, which
are not present here. Avon does not argue otherwise.
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U.S. companies "lost lucrative contracts" with Plaintiff as a result of the damage Avon inflicted
through its infringement-related activities in Panama (see Cmplt. (Dkt. No. 1) ~ 38)- Plaintiff
has adequately pled a "substantial effect on United States commerce" flowing from Defendant's
alleged infringement in Panama.

CONCLUSION
For the reasons stated above, Defendant's motion to dismiss is denied. The Clerk
of the Court is directed to terminate the motion (Dkt. No. 17).
Dated: New York, New York
March 19, 2017
SO ORDERED.

Paul G. Gardephe
United States District Judge

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