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F. SCHUMACHER & CO. v. SILVER WALLPAPER & PAINT CO

December 21, 1992

F. SCHUMACHER & COMPANY, Plaintiff,
v.
SILVER WALLPAPER & PAINT COMPANY, INC., Defendant.



The opinion of the court was delivered by: ANITA B. BRODY

 In considering plaintiff's motion for a preliminary injunction I must first determine whether certain statements of the defendant violate Section 43(a) of the Lanham Act on the basis of using misleading misrepresentations of fact likely to cause confusion about defendant's affiliation with plaintiff.

 Next I must decide whether a marketing policy adopted by plaintiff constitutes an enforceable term in its contract with third parties such that by inducing the third parties to disregard the policy defendant tortiously interferes with a contract.

 Finally, I must decide whether defendant tortiously interfered with plaintiff's prospective business relations when defendant purchased plaintiff's products from third party retailers, causing plaintiff to refuse to deal with those retailers based on the terms of defendant's marketing policy.

 For the reasons that follow, I will grant in part and deny in part plaintiff's motion on the Lanham Act claim and deny its motion on the tortious interference claims. *fn1"

 FACTUAL BACKGROUND

 F. Schumacher & Company ("Schumacher") is a corporation that designs, manufactures, purchases and sells fabrics, wallcoverings and other home furnishing products. A division of Schumacher, FSC Wallcoverings ("FSC"), sells its Schumacher, Gramercy, Waverly and Village brand wallcoverings directly to independent retailers, chains and decorators. The defendant, Silver Wallpaper and Paint Company, Inc. ("Silver"), was until March 1992 a Schumacher retail dealer.

 Silver is a corporation that discounts fabrics and wallcovering products it obtains from more than 100 different manufacturers or distributors. Silver operates its business both from its Philadelphia showroom and nationwide through an "800" telephone exchange. When customers call Silver with a pattern number, Silver's operators enter that number into a computer to ascertain information regarding the manufacturer, price, discounts and other details about the customer's requested pattern. If Silver cannot fill the order from its own inventory, it obtains the ordered product from another distributor and ships the goods to the customer under its own label.

 In January 1990, Schumacher adopted a Marketing and Advertising Policy (the "marketing policy"), which became effective in March 1990. The policy takes the form of a list of Schumacher's "expectations with respect to the marketing of [its] products," and includes among its points the following: that Schumacher retail dealers shall not resell Schumacher wallcovering products to other retailers without Schumacher's prior approval; that Schumacher retail dealers shall not solicit or sell Schumacher wallcovering products outside their "local trading areas;" and that Schumacher reserves the right to stop doing business with and/or withdraw some or all of the Schumacher brands from retail dealers that violate the policy.

 Retail dealers do not sign or formally agree to Schumacher's marketing policy. The only signed written agreement between Schumacher and its retail dealers is a renewable agreement for the purchase of wallcovering sample books at a discounted price. Schumacher publishes its marketing policy in price books distributed to retail dealers every year.

 After Schumacher adopted its marketing policy in March 1990, Schumacher conducted a series of undisclosed "test orders" with various retail dealers, including Silver, to ascertain whether they were selling Schumacher products in violation of Schumacher's local trading area requirement. Schumacher determined that Silver was selling Schumacher products outside of its assigned area, and on March 18, 1992 advised Silver it was terminated as a Schumacher retail dealer. At that time Silver had a significant amount of Schumacher product in its inventory.

 Despite its termination by Schumacher, Silver continues to receive and accept orders for Schumacher products over its "800" number telephone service. In the process of taking orders from customers, Silver operators provide callers with information about Schumacher products.

 Schumacher continued to monitor Silver after its termination through additional "test orders." On each of several occasions, a Schumacher employee or other designee called Silver's "800" telephone number and placed orders for "slow selling" Schumacher wallcovering patterns. After placing each order, Schumacher monitored its retail dealers for the posting of a sale of the exact quantity and pattern ordered by the Schumacher tester.

 In the course of the test ordering, Schumacher employees documented statements made to them by Silver employees. On one occasion, a Silver operator stated that, "We will contact the manufacturer in the morning and you should have your paper in one to two weeks." (Tr. at 128). A second Schumacher test caller was told by a Silver operator that Silver is "not authorized to discount [the ordered] pattern . . ." because "the company [Schumacher] does not want their wallpaper discounted on the 800 number." (Tr. at 137). A Silver operator told a third Schumacher test caller that the order was unavailable because it was "a Schumacher pattern and they don't sell it through the 800 number any more." (Tr. at 146).

 The court heard evidence in the form of deposition testimony from one consumer who attempted to order a particular pattern of Schumacher wallpaper over Silver's "800" telephone number in June 1992. The consumer testified that based on Silver's quotation of a price for the Schumacher product, she believed Silver and Schumacher were affiliated. (Tr. at 157-58). The consumer further testified that when she called again to order the product a Silver operator informed her the discount was no longer available because Schumacher had prohibited Silver from discounting that particular pattern a week earlier. (Tr. at 159).

 Two Schumacher retail dealers, Wallcovering Concepts and Marconi company, were terminated by Schumacher for violating the marketing policy by "transshipping" Schumacher products to Silver without Schumacher's prior approval. Schumacher has not terminated two larger chain dealers that also sold Schumacher products to Silver without Schumacher's approval. The reason Schumacher articulates for the discrepancy is that it has not established the chain retailers knowingly transshipped to Silver in violation of Schumacher's marketing policy.

 Schumacher seeks injunctive relief requiring Silver affirmatively to disclaim any affiliation with Schumacher when conducting business over its 800 telephone service and restraining Silver from purchasing Schumacher products from Schumacher's retail dealers.

 DISCUSSION

 I. INJUNCTION STANDARDS

 I must decide whether Schumacher has presented sufficient evidence to show a reasonable likelihood of succeeding on the merits of each of cause of action; whether Schumacher is irreparably harmed by Silver's conduct; whether other parties, including Silver, will be substantially harmed by my granting an injunction; and whether the interests of the general public would be well served by my granting an injunction. Opticians Ass'n of Am. v. Independent Opticians of Am., 920 F.2d 187, 191-92 (3d Cir. 1990).

 II.LIKELIHOOD OF SUCCESS ON THE MERITS

 A. The Lanham Act Claim

 The crux of Schumacher's Lanham Act claim is whether it has met its burden for a preliminary injunction when the relevant evidence Schumacher has presented is that after Schumacher refused to continue to ship its product to Silver, Silver made the following three statements, the second of which caused actual confusion to one consumer:

 (1) "We will contact the manufacturer [Schumacher] in the morning and you should have your paper [product] in one or two weeks;"

 (2) "[Silver] is not authorized to discount [the ordered] pattern;" and

 (3) the order was unavailable because it was "a Schumacher pattern and they don't sell it through the 800 number any more."

 The Lanham Act, originally enacted in 1946 and modified in 1988, was intended to expand the scope of federal protection against unfair competition. *fn2" Section 43 of the Act provides that:

 (1) 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 ...


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