New York Law Review

Tag: Goodwill

  • ITC Ltd. v. Punchgini, Inc., 9 N.Y.3d 467 (2007): Unfair Competition and Protection of Foreign Marks

    ITC Ltd. v. Punchgini, Inc., 9 N.Y.3d 467 (2007)

    Under New York common law, unfair competition, specifically misappropriation, can protect a foreign business’s goodwill from being exploited in New York if the business has a demonstrable reputation and commercial advantage within the state.

    Summary

    ITC, an Indian corporation, sought to prevent Punchgini, Inc. from using the name “Bukhara Grill” for its New York restaurants, arguing unfair competition based on ITC’s famous Bukhara restaurant in India. ITC had previously operated a Bukhara restaurant in New York but had abandoned the mark in the U.S. The Second Circuit certified questions to the New York Court of Appeals regarding whether New York common law protects famous foreign marks. The Court of Appeals held that New York law recognizes unfair competition claims but does not specifically adhere to a “famous marks” doctrine. Protection hinges on whether the foreign mark possesses demonstrable goodwill within New York, and consumers associate the mark with the foreign entity.

    Facts

    ITC owns and operates the Maurya Sheraton in New Delhi, which includes the Bukhara restaurant. ITC had limited success franchising Bukhara restaurants globally, including a closed Manhattan location. Punchgini’s principals, some former employees of ITC’s Bukhara, opened Bukhara Grill in New York, featuring similar dishes and design elements. ITC accused Punchgini of capitalizing on Bukhara’s reputation, demanding they cease using the name. Punchgini claimed ITC abandoned the mark in the U.S.

    Procedural History

    ITC sued Punchgini in the Southern District of New York, alleging trademark infringement and unfair competition under the Lanham Act and New York common law. The District Court granted summary judgment to Punchgini, finding ITC abandoned the trademark. The Second Circuit affirmed the dismissal of federal claims but certified questions to the New York Court of Appeals regarding New York common law claims, specifically concerning the “famous marks” doctrine.

    Issue(s)

    1. Does New York common law permit the owner of a famous mark or trade dress to assert property rights therein by virtue of the owner’s prior use of the mark or dress in a foreign country?

    2. How famous must a foreign mark or trade dress be to permit its owner to sue for unfair competition?

    Holding

    1. Yes, because New York recognizes unfair competition claims, particularly misappropriation, when a business has demonstrable goodwill within the state.

    2. The mark must have a level of fame that the relevant consumer market primarily associates the mark with the foreign plaintiff and their goods or services.

    Court’s Reasoning

    The Court clarified that New York common law recognizes two types of unfair competition: palming off and misappropriation. While the “famous marks doctrine” is debated, New York cases like Maison Prunier v Prunier’s Rest. & Cafe, Inc. and Vaudable v Montmartre, Inc., often cited as examples of this doctrine, are actually grounded in misappropriation theory. The Court emphasized that a foreign business with a reputation extending into New York possesses goodwill protectable from misappropriation. The court stated, “Under New York law, ‘[a]n unfair competition claim involving misappropriation usually concerns the taking and use of the plaintiffs property to compete against the plaintiffs own use of the same property’”. To succeed, ITC needed to show Punchgini deliberately copied ITC’s mark, and that New York consumers primarily associate the “Bukhara” mark with ITC’s restaurants. The Court refused to provide an exhaustive list, but some factors that would be relevant include evidence that the defendant intentionally associated its goods with those of the foreign plaintiff in the minds of the public, direct evidence, such as consumer surveys, indicating that consumers of defendant’s goods or services believe them to be associated with the plaintiff; and evidence of actual overlap between customers of the New York defendant and the foreign plaintiff. This case clarifies that while New York protects against unfair competition, such protection for foreign marks depends on establishing a real presence and consumer association within New York, not merely international fame.

  • Dawson v. White & Case, 88 N.Y.2d 666 (1996): Accounting for Goodwill and Unfunded Pension Plans in Law Firm Dissolution

    Dawson v. White & Case, 88 N.Y.2d 666 (1996)

    Partnership agreements govern the distribution of assets upon dissolution, and if the agreement explicitly states that goodwill is not to be considered an asset, or if such an understanding can be implied from the partners’ conduct, then goodwill is not a distributable asset.

    Summary

    This case concerns the dissolution of the White & Case law firm and the subsequent accounting of partner Evan Dawson’s interest. The key issues are whether the firm possessed distributable goodwill and whether its unfunded pension plan constituted a liability. The Court of Appeals held that, based on the specific facts and the partnership agreement, goodwill was not a distributable asset because the partners had agreed it was of no value. The court also found that the unfunded pension plan was not a liability of the dissolved firm, but rather an operating expense of the successor firm contingent upon profitability. This decision emphasizes the importance of partnership agreements in determining asset distribution upon dissolution.

    Facts

    Evan Dawson was a partner at White & Case. The firm negotiated to have him withdraw, and when negotiations failed, the firm dissolved and re-formed without him. Dawson sued, seeking an accounting of his partnership interest. A Special Referee included goodwill as an asset and excluded the unfunded pension plan as a liability. The Supreme Court confirmed the report, and the Appellate Division affirmed.

    Procedural History

    Dawson initially sued alleging wrongful termination and other claims. The Supreme Court ordered an accounting. The Special Referee’s report valued assets, including goodwill, and excluded the pension plan as a liability. The Supreme Court confirmed. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether the law firm of White & Case possessed distributable goodwill that should be included as an asset in the partnership accounting.

    2. Whether the law firm’s unfunded pension plan should be considered a liability of the firm for accounting purposes.

    Holding

    1. No, because the partnership agreement and the conduct of the partners indicated an intent that goodwill not be considered a distributable asset.

    2. No, because the pension payments were contingent operating expenses of the successor firm, not a liability of the dissolved firm.

    Court’s Reasoning

    Regarding goodwill, the Court relied on Partnership Law § 71(a)(I), which makes the distribution of assets “subject to any agreement to the contrary.” The Court emphasized that partners are free to exclude items from partnership property by agreement. The Court cited Matter of Brown, 242 N.Y. 1 (1926), and Siddall v. Keating, 8 A.D.2d 44 (1959), noting that a tacit understanding or course of dealing can indicate an agreement not to account for goodwill. Here, the White & Case partnership agreement explicitly stated that “no consideration has been or is to be paid for the Firm name or any good will of the partnership, as such items are deemed to be of no value.” The court rejected Dawson’s attempts to argue that these provisions were inapplicable. The court acknowledged evolving views on law firm goodwill, noting that “the ethical constraints against the sale of a law practice’s goodwill by a practicing attorney no longer warrant a blanket prohibition against the valuation of law firm goodwill when those ethical concerns are absent.”

    Regarding the pension plan, the Court deferred to the Appellate Division’s reasoning that the payments were operating expenses contingent on the successor firm’s profitability, not a liability of the dissolved firm. The firm had also never included the unfunded pension plan as a liability in its financial statements. The partnership agreement also specified that pension payments could only be made out of profits and could not exceed 15% of profits.

  • Findlay v. Findlay, 18 N.Y.2d 12 (1966): Limits on Using One’s Own Name in Business When It Creates Confusion

    Findlay v. Findlay, 18 N.Y.2d 12 (1966)

    A person’s right to use their own name in business is not absolute and can be limited when such use tends to create confusion or diversion that harms the business of another, even without a showing of fraud or intent to deceive.

    Summary

    Two brothers, David and Walstein (Wally) Findlay, were involved in a family art business. David operated a gallery in New York City under the name “Findlay Galleries,” building a strong reputation. Wally, who operated a gallery in Chicago under a similar name, decided to open a gallery next door to David’s on East 57th Street, using the name “Wally Findlay Galleries.” David sought an injunction, arguing that Wally’s use of the name would cause confusion and divert customers. The court agreed, finding that Wally’s use of the “Findlay” name would inevitably lead to confusion, harming David’s established business and goodwill.

    Facts

    The Findlay art business was established in 1870 by the grandfather of David and Wally Findlay.
    Their father expanded the business, with David managing a New York branch and Wally a Chicago branch.
    In 1938, after a dispute, David sold the Chicago gallery to Wally, allowing him to use the name “Findlay Galleries, Inc.” in Chicago.
    David continued to operate his gallery on East 57th Street in Manhattan, building a strong reputation.
    In 1963, Wally purchased a building next door to David’s gallery and planned to open his own gallery under the name “Wally Findlay Galleries.”
    David objected, claiming it would cause confusion and damage his business.

    Procedural History

    The trial court issued an injunction preventing Wally from using the name “Findlay” on East 57th Street.
    The Appellate Division affirmed the trial court’s decision.
    Wally Findlay appealed to the New York Court of Appeals.

    Issue(s)

    Whether a person’s right to use their own name in business is absolute, or if it can be restricted when it causes confusion and harms the business of another.

    Holding

    No, because the right to use one’s own name in business is not unlimited and can be restricted when such use tends to produce confusion in the public mind and impairs the goodwill of an existing business.

    Court’s Reasoning

    The court emphasized that while individuals generally have the right to use their own name in business, this right is not absolute. It cannot be exercised in a way that injures the business of another or misleads the public. The court found that Wally’s use of the name “Findlay” next door to David’s established gallery would inevitably cause confusion. Customers looking for “Findlay’s on 57th St.” would likely enter Wally’s gallery by mistake, diverting business from David.

    The court noted that the present trend of the law is to enjoin the use even of a family name when such use tends or threatens to produce confusion in the public mind. The court cited World’s Dispensary Med. Assn. v. Pierce, 203 N. Y. 419, 425 stating that, “The defendant has the right to use his name. The plaintiff has the right to have the defendant use it in such a way as will not injure his business or mislead the public. Where there is such a conflict of rights, it is the duty of the court so to regulate the use of his name by the defendant that, due protection to the plaintiff being afforded, there will be as little injury to him as possible.”

    The court found that the objective facts of unfair competition and injury to plaintiff’s business were determinative, not the defendant’s subjective state of mind. The injunction was narrowly tailored to prevent the use of the name Findlay only on East 57th Street, minimizing the injury to Wally while protecting David’s business.