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The lawyers involved agree: The dispute between Calvin Klein, Inc., and The Warnaco Group, Inc. could have been worked out a long time ago — behind closed doors, out of court, the way these things are usually handled between former friends. Instead, the disagreement between the fashion designer’s company and one of its principal licensees has turned into all-out war, with some battle-hardened soldiers taking the field: Armonk, New York’s Boies, Schiller & Flexner and Washington, D.C.’s Williams & Connolly. Calvin Klein and Warnaco have come to blows over some unusual suspects: Costco Wholesale Corporation and Wal-Mart’s Sam’s Club. What do these discount sellers have to do with high fashion? That’s Calvin Klein’s question. According to its complaint, Calvin Klein has only permitted sales to such cut-price vendors in certain cases, such as getting rid of the remnants of a discarded line, but allegedly Warnaco has been filling orders for current-line items instead. Calvin Klein wasn’t the only party surprised to find the designer’s trademark in a bargain bin. When trademark attorney Vincent Palladino, a partner at New York’s Fish & Neave who has been observing the case, was walking through the aisles of a Costco over Memorial Day weekend, he was startled to see Calvin Klein jeans for sale at a price of $25. “I said ‘Holy mackerel. These things would be 50 bucks in New York,’” Palladino says. It’s just that kind of reaction that Calvin Klein, Inc. wants to avoid. Its suit alleges that Warnaco is liable for trademark infringement and dilution; both are uncommon claims for a licensor to bring against a major licensee, especially dilution, which has only been a federal tort since 1996. What might have served as the final straw between the partners? The industry was abuzz when, earlier this year, Warnaco entered into an agreement to sell Calvin Klein merchandise at J.C. Penney Company, Inc. — several steps up from the warehouse environment of a Costco, but still not one of the higher-end department stores that sell Calvin Klein goods. Some of those retailers scaled back or even canceled orders of Calvin Klein merchandise after the Penney deal was announced. Those retailers’ discontent might have been a factor in the failure of Calvin Klein’s attempt this spring to sell his business for an asking price of $1 billion. Warnaco argues that Calvin Klein has consented to these sales all along. Certainly both parties have profited from the deals Warnaco has struck — and that profit might have tempted Calvin Klein into approving the sales or Warnaco into selling without approval, depending on which complaint you read. (Warnaco general counsel Stanley Silverstein, along with counsel at New York’s Amster, Rothstein & Ebenstein and Williams & Connolly, would not comment on the case.) The dilution claim, according to Calvin Klein’s intellectual property counsel, Tony Fletcher of Fish & Richardson, is unusual in that it alleges tarnishment, a less common form of dilution claim. Through the tarnishment claim, Calvin Klein is arguing that its trademark is being used in a way that casts aspersions on the company and the mark itself. According to Calvin Klein senior vice president of legal affairs Pamela Bradford, it was public perception that drove Calvin Klein to action. “We believe, in terms of the way our mark is being used, and the distribution channels of the product, there is a real concern about the image and reputation of the mark,” she says. Although both parties are negotiating to continue their business relationship pending the results of the trial, whatever hopes they might have had of resolving their differences peaceably have long since ended. Warnaco responded to Calvin Klein’s suit with a counterclaim alleging bad-faith dealing and trade libel and seeking hundreds of millions of dollars in damages. “This kind of litigation occurs when parties who are in an important business relationship are unable to work things out and one party believes itself to be in economic peril,” says Jonathan Schiller, Calvin Klein’s trial counsel. As a result, Calvin Klein and Warnaco are headed into battle to see if Calvin Klein jeans will still be heading to a Costco near you.

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