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Rendering the latest decision in Quality King’s ongoing shampoo battle, a federal judge has ruled that the Ronkonkoma, N.Y.-based company violated trademark laws when it distributed counterfeit bottles of Head & Shoulders to a Kroger Co. division. U.S. District Court Judge Arthur D. Spatt granted summary judgment Dec. 4 to The Procter & Gamble Co., which argued that Quality King and middlemen in the transaction infringed on the trademark of the popular dandruff shampoo in violation of 15 USC �1114. A jury trial to determine damages is scheduled for Jan. 16. The decision in Procter & Gamble v. Quality King, CV95-3113, stems from the Cincinnati-based company’s lawsuit filed in 1995 after it received complaints from consumers claiming that the product did not control dandruff and that the shampoo bottles leaked. Procter & Gamble alleged that Quality King, a wholesale distributor, and Omnisource International mixed, bottled and sold “potentially harmful,” counterfeit Head & Shoulders in violation of the Lanham Act. According to the decision, a recycling company hired by Procter & Gamble illegally sold about 30,000 counterfeit bottles of a substance made from Head & Shoulders waste material. About 4,400 of those bottles went to Quality King, Long Island’s largest privately held company, and were sold to Peyton’s, an operating division of Kroger Co. After the customers’ complaints, Procter & Gamble contacted Kroger Co. and tested the bottles, which were affixed with discontinued labels containing a typeface not used by Procter & Gamble. In addition, the bottles themselves were replicas of a bottle shape that was last produced in the United States in 1986 and did not contain supplier codes and leakproof caps. A chemical analysis revealed that the substance contained no more than 50 percent of the active ingredient in genuine Head & Shoulders, the decision stated. ADS PUBLISHED After discovering the bottles, Procter & Gamble ran advertisements warning consumers of the fake shampoo in 24 publications across the country, including USA Today, said Procter & Gamble’s attorney Harold P. Weinberger, with Kramer Levin Naftalis & Frankel. The advertisement costs contributed to actual damages in the “high six figures,” Weinberger said. Whether Quality King intentionally distributed the bottles will be determined at trial on the issue of attorney’s fees. Quality King’s lawyer, Ira G. Greenberg with Edwards & Angell, said in an interview last week that the advertisements are “not a proper expense.” “One of our positions is that the ad was unnecessary and that the manner in which the ad was done demonstrates that it was not designed to get the bottles off the shelf,” Greenberg said. OTHER LAWSUITS Judge Spatt’s decision involves just one legal skirmish in Quality King’s numerous battles related to its distribution of hair care products. In 1998, a lawsuit filed by California-based L’Anza against Quality King for unlawful distribution of its salon goods went up to the U.S. Supreme Court. Quality King was granted certiorari after the Ninth Circuit rejected the Long Island company’s “first sale” defense. Quality King had argued that the products, marked with copyrighted labels and purchased through a Malta distributor, were not protected by copyright law. Specifically, Quality King asserted that protection of copyrighted material only applied to the first sale of the goods. The high court agreed. In addition, Quality King is defending a Paul Mitchell action in the U.S. District Court for the Southern District, part of a 15-year battle with the California-based hair care company. The lawsuit in the Southern District claimed that Quality King participated in an elaborate diversionary scheme with ties to China to sell salon products in drug and retail stores. In September, Judge Sidney H. Stein refused to grant Paul Mitchell a preliminary injunction, ruling it was “unlikely” that Paul Mitchell would prove Quality King knew prior to the suit about the specific diversion that took these products “around the world” before winding up in Quality King’s Long Island warehouse. According to Quality King’s counsel in the Paul Mitchell matter, Anthony J. Viola, also with Edwards & Angell, the only remaining claim is for replevin, which asks Quality King to return the Paul Mitchell product to the manufacturer. POLICY KNOWN However, Judge Stein in the Southern District lawsuit found that Paul Mitchell was likely to prove Quality King knew of Paul Mitchell’s across-the-board policy that its products were to be sold only in salons. Greenberg noted the distinction between the Paul Mitchell action and the Head & Shoulders lawsuit. “I’m not saying that Quality King never sells products to which the manufacturer would rather not sell,” he said. “Quality King never intentionally sells counterfeit product.” Also part of the shampoo fray was a California federal judge’s order last year that required Quality King to destroy about $1 million in counterfeit Paul Mitchell hair products purchased from a man convicted there of conspiracy and counterfeiting. Quality King also is appealing a decision last year from the Suffolk County Supreme Court, in which Justice Peter Fox Cohalan ruled that the company’s insurer was not required to defend it in the Procter & Gamble action. “The judge was wrong on law and on fact,” Viola said. Oral arguments in that appeal are slated for next month at the Appellate Division, Second Department.

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