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ORIGINAL APPALACHIAN ARTWORKS, INC. v. J. F. REICH

March 13, 1987

Original Appalachian Artworks, Inc.
v.
J. F. Reichert, Inc., and Joseph F. Reichert



The opinion of the court was delivered by: TROUTMAN

 TROUTMAN, S.J.

 The plaintiff instituted this action seeking a temporary restraining order, a preliminary injunction, a permanent injunction and monetary relief. It alleged in its complaint that the defendants violated various provisions of the Copyright Act of 1976, 17 U.S.C.A. §§ 101-810 (West 1977 and Supp. 1986), and the Lanham Trademark Act of 1946, 15 U.S.C.A. §§ 1051-1127 (West 1982 and Supp. 1986), by importing, marketing and selling in the United States soft sculptured dolls commonly known as the "Cabbage Patch Kids" (hereinafter "CPK"). *fn1" We granted the TRO sought by the plaintiff on June 19, 1985. The order, inter alia, prohibited the defendant from further importing, marketing and/or selling the foreign CPK dolls pending a hearing on the plaintiff's request for a preliminary injunction. The TRO, by agreement of the parties, was continued until September 9, 1985, at which time the parties stipulated to the entry of a preliminary injunction, the terms of which simply incorporated the proscriptions of the TRO. Following completion of discovery, the matter was tried before this Court, sitting without a jury, as to the issue of damages commencing October 16, 1986.

 I. THE FACTS.

 The parties, for the most part, do not dispute the facts of this case. The plaintiff is the owner of copyright registration numbers VA 35-804 (Plaintiff's Exhibit [hereinafter "P"]-2) and VA 141-801 (P-1) and trademark registration number 1,298,970 (P-3). The copyrights and trademark apply to various aspects of the CPK dolls. The plaintiff originally marketed the dolls under the trademark "The Little People", but since July of 1982 has promoted the dolls under the current trademark "Cabbage Patch Kids". The plaintiff, on August 8, 1982, granted a license to Coleco Industries, Inc., to manufacture, market and sell full-sized copies of the CPK dolls in the United States. This license was "exclusive", i.e., the plaintiff had not granted a license to any other entity to sell full-size copies of the dolls in this country. The plaintiff has granted licenses to other entities to manufacture, market and distribute the CPK dolls in areas outside of the United States.

 The defendant Joseph F. Reichert is the owner/sole shareholder of J. F. Reichert, Inc. The defendant admits the following: (a) the validity of the plaintiff's copyright registration and ownership thereof; (b) the plaintiff's adoption, use, ownership and registration of the trademark "Cabbage Patch Kids"; and (c) that Coleco is the exclusive licensee allowed to manufacture, promote and sell full-size copies of the dolls in the United States. The defendant also admits that he imported and sold 67,307 CPK dolls not licensed for sale in this country, with gross revenues from the sale thereof of $2,097,186.91 during the period November, 1984, to June 19, 1985, i.e., the date the plaintiff filed this action.

 Joseph Reichert testified that he operated a "limited export/ import business" through his corporation. He stated that he engaged primarily in the importation of foreign-made automobiles. This type of activity is commonly referred to as the importation of "grey-market" goods, i.e., goods manufactured abroad by, e.g., a licensee of the owner of U. S.-registered trademarks and/or copyrights which is not allowed to export to or distribute the goods in the United States. See, e.g., Coalition to Preserve the Integrity of American Trademarks v. United States, 252 U.S. App. D.C. 342, 790 F.2d 903 (D.C. Cir. 1986), cert. granted, 479 U.S. 1005, 107 S. Ct. 642, 93 L. Ed. 2d 699, 55 U.S.L.W. 3411 (1986) (No. 86-625). Reichert stated that in the late summer-early fall of 1984, he became aware of the "craze" for CPK dolls, and of the problem merchants were having in meeting consumer demand for the product. This spurred him to investigate the possibility of importing the CPK dolls from Europe and selling them at a profit.

 Reichert first determined that the dolls were indeed available on the European market. As stated above, the testimony indicated that the plaintiff had licensed a number of foreign companies to manufacture and distribute full-size copies of the CPK dolls in areas outside the United States. Reichert next contacted the United States Customs Office in Delaware, where the majority of the foreign automobiles he purchased arrived by ship, to determine whether there were any restrictions on importing the dolls. Reichert testified that the personnel in the Delaware Customs Office informed him that they knew of no such restrictions, but they instructed him to contact the Philadelphia Customs Office. He did so and was, once again, informed that the personnel he spoke with knew of no restrictions on importing the dolls; he was also informed that he should contact the New York Customs Office. As instructed, he called the New York Office of United States Customs, and was informed that there were no restrictions on importing the CPK dolls so long as they were "genuine", as opposed to unauthorized imitations or copies. He was also told to call the United States Customs Office in Washington, D.C., to confirm this information. This he did and, for the fourth time, was informed by employees of United States Customs that there were no restrictions on the importation of "authorized" copies of the work. See Coalition to Preserve the Integrity of American Trademarks v. United States, supra.

 Reichert thereupon attempted to contact Coleco to determine if they knew of any reason that he should not attempt to import the dolls for resale in this country. Following calls to Coleco's offices in New York and Toronto, Reichert spoke with a woman in Coleco's legal department in its Connecticut office. She told Reichert that she would research the question and call him back. She neither contacted the defendant nor did Reichert ever attempt to pursue the issue by writing to Coleco or by calling her back.

 Reichert, through his contact in Hanover, West Germany, then began to purchase "European" CPK dolls. The defendant testified that he initially attempted to deal with a German distributor of CPK dolls, which had been made by Coleco exclusively for a German company known as Arxon. (See P-5). Arxon was, in fact, owned by Coleco. When the German distributor refused to deal with him, Reichert's contact in Germany simply began to buy up all the CPK dolls he could find in German "supermarkets". When the German supply was exhausted, the defendant's contact put him in touch with a man named Willy Hangartner, who arranged for shipments of the dolls to Reichert from a Spanish company named Jesmar. The plaintiff had authorized Jesmar to manufacture and sell the dolls in certain areas outside the United States, but it was in no way authorized to export the dolls to this country. Though there are certain differences between the "American" CPK dolls and the "European" CPK dolls, it is undisputed that the dolls Reichert imported were "genuine", "authorized" copies, and not "forfeitures" or "imitations".

 Reichert testified that he sold approximately 16,000 to 18,000 of the dolls he imported to Hess's Department Store in Allentown, Pennsylvania. He sold the remainder himself or to other retailers like Hess's. The now infamous "adoption papers" which accompanied the European dolls were, as might be expected, not printed in English. (See P-8, German adoption paper which accompanied P-5). Reichert, therefore, had the foreign language documents "translated" into English. (See P-6, English version of Spanish adoption request, and P-7, English version of German adoption request). The English versions of the German and Spanish adoption requests are identical, with the exception of the addresses to which the requests were to be sent. The defendant either provided "proofs" of the translated adoption requests to retailers such as Hess's or supplied the documents himself for those dolls he sold to private individuals.

 Reichert also testified that he sold a number of CPK dolls to a Minnesota company, which then developed a number of additional documents promoting the dolls. (See P-9 and 10). P-10, described by the defendant as an "information sheet", states that, "The kids from Europe are a little taller than their American cousins . . ." The sheet also states that, "There are not enough homes in Europe and they wanted to come to America". (P-10). Reichert testified that he supplied this information sheet to the retailers he sold dolls to. Interestingly, the information sheet openly states that, "These are original Cabbage Patch Kids TM by Xavier Roberts, Appalachian Artworks, copyright ". (P-10) (Emphasis added).

 Finally, the defendant openly admitted that he had in a mass mailing campaign advertised the imported CPK dolls as "Genuine Original 16" Cabbage Patch Dolls." (See P-15). Reichert stated that he obtained a mailing list from a partner in an unrelated venture, and in December, 1984, mailed "flyers" to potential customers. He stated that there was much skepticism as to the authenticity of the dolls, and that as a result, he sold only $ 250.00 worth of dolls from the mass mailing campaign. No where did the flyer indicate that the dolls were imported and as just stated, the flyer openly misrepresented that the dolls were manufactured by Coleco.

 II. THE COPYRIGHT ACT VIOLATIONS.

 A. Liability.

 The plaintiff alleged that the defendant had committed four separate violations of the Copyright Act by importing and selling the European CPK dolls. The acts the plaintiff claims constituted infringement of its copyrights are:

 
(1) importation and sale of the dolls;
 
(2) importation and sale of the packing ...

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