Electrolux Corp. v. Val-Worth, Inc.

RabiN, J. The plaintiff is the manufacturer of the well-known “Electrolux” vacuum cleaner. The appealing defendants are Solomon Sacks doing business as “ Famous Vacuum Shops ” and “ Famous Appliance Shops ”, and Vacuum Cleaner Conservation Company, Inc. (hereinafter called “ Conservation ”) of which corporation Sacks is the president and principal stockholder. Since 1948 Conservation has been buying from the plaintiff and others, quantities of traded-in Electrolux vacuum cleaners of a discontinued model. With plaintiff’s knowledge, Conservation would then recondition the cleaners and resell them as reconditioned Electrolux machines. The cleaners were advertised and sold by Conservation under the trade names “ Famous Vacuum Shops ” and “ Famous Appliance Shops ” (hereinafter called “ Famous ”) and bore a decalcomania stating that they had been rebuilt by Famous Appliance Shops. It is quite clear that the cleaner was advertised as a rebuilt one and that there was no effort to create the impression that the same was new. In July, 1949, the plaintiff wrote to Famous requesting that in all future advertising it be made clear that the cleaners had been rebuilt by Famous. Sacks, as president of Conservation, assured Electrolux that the plaintiff’s request would be complied with and it appears that this assurance was fulfilled. On January 12, 1953, the plaintiff objected to the use of the word “ Famous ” in the defendants’ television advertising on the grounds that the trade name “ Famous ” was used in such a manner when spoken as to create the impression that the word “Famous” was an adjective referable to the plaintiff (a famous company). The defendants thereupon ceased the use of the word “ Famous ” in its television promotion. Some time thereafter the plaintiff hired an investigator, one Adler, who called the television station, where defendants offered the rebuilt Electrolux for sale, asking for a demonstration of the defendants’ rebuilt cleaner at his home. A salesman of defendants called on Adler and brought a rebuilt Electrolux cleaner. Adler testified that the salesman was critical of the rebuilt Electrolux cleaner and attempted to sell him another new cleaner at a much higher price. Adler was, however, able to purchase a reconditioned Electrolux cleaner from the salesman, and the machine proved satisfactory. Adler’s testimony was supported in part by that of the salesman who said he was instructed to avoid selling the cheaply priced rebuilt cleaner, for which he was paid no commission, and to use his best efforts to sell the more expensive cleaner. [219] Thereafter and in Jnne, 1953, the plaintiff, claiming unfair competition, instituted the instant proceeding seeking broad injunctive relief against the defendants and the sum of $15,000 in damages. The court below, after trial without jury, entered a judgment based upon its findings and enjoined the defendants from the following: (1) using the name “ Electrolux ” unless all the parts used in the reconditioned cleaners sold by defendants are of plaintiff’s own manufacture; (2) using the reconditioned Electrolux cleaner as a lure to sell another brand machine; (3) misrepresenting the reconditioner of the rebuilt Electrolux cleaner; and (4) using the word “Famous” in advertising in such a manner as to create the misleading impression that plaintiff has reconditioned the machines sold by defendants. In addition, the judgment directed that a reference be had to determine the plaintiff’s damages “ including lost profits and profits of defendants attributable to their acts of unfair competition”. For the reasons to be indicated, the judgment of the court below must be reversed. The facts which obtained at the time of trial did not warrant any conclusion of actionable misrepresentation as to the identity of the rebuilder. The decalcomania affixed to the reconditioned machines plainly and clearly announced that Famous and not Electrolux reconditioned the machines. For some time prior to this proceeding plaintiff was aware of the label thus used by defendants and saw no occasion to complain. Whatever confusion may have been caused by the verbal expression “ Famous ” in defendants’ television and radio advertising cannot now be the subject of a prohibitory decree since, at plaintiff’s request, defendants promptly discontinued the word “Famous” in such sales promotion six months before this proceeding was initiated and nothing in the record suggests any likelihood that defendants will resume the discarded practice. (43 C. J. S., Injunctions, § 22, subd. d, p. 445.) It was also error to enjoin the defendants from the use of the name “Electrolux” on their reconditioned cleaners unless all replacement parts came from the plaintiff. For the proof is that plaintiff does not sell the parts necessary for reconditioning, and that, with plaintiff’s knowledge, defendants had for years rebuilt and resold as reconditioned “ Electrolux ” vacuum cleaners old, trade-in machines bought by defendants from plaintiff. Plaintiff is estopped from now enjoining a course of business of which it not only presumably had knowledge, but in which it actively participated and profited. (Rothschild v. Title Guar. & Trust Co., 204 N. Y. 458, 461; William H. Keller, Inc. v. Chicago Pneumatic Tool Co., 298 F. 52, 59; Bennett & Sons [220] v. Farmers’ Seed & Gin Co., 288 F. 365, cert. denied 263 U. S. 704.) In any event, since defendants merely repaired or reconditioned plaintiff’s machines and did not thereby construct a substantially or basically new or different cleaner, it was open to defendants to use parts from sources other than plaintiff and then sell the product as a reconditioned cleaner. (Champion Plug Co. v. Sanders, 331 U. S. 125; Champion Spark Plug Co. v. Reich, 98 F. Supp. 242.) Defendants are not charged with offering their product as a new Electrolux cleaner; they expressly marked and sold their product as a reconditioned item; in such circumstances defendants do not deceive the public or unduly trade on the Electrolux mark in the incidental use of parts not produced by plaintiff. (Singer Mfg. Co. v. Briley, 207 F. 2d 519, 521.) The more difficult problems here arise from defendants’ practice of using the rebuilt cleaner as a lure to sell a more costly new machine not made by plaintiff. Thus the mark of Electrolux is exploited not to sell the product of Electrolux but that of another. Yet, unless we are judicially to outlaw the innumerable instances in which the retailer overtly offers a loss-lead item with the covert hope and expectation of other more profitable sales, we can find no actionable wrong to have been committed here. In this case defendants did not refuse to sell rebuilt Electrolux machines as advertised, in possible violation of section 421 of the Penal Law; defendants did in fact sell many rebuilt Electrolux cleaners, including the one sold to Adler. Nor is this the case where a competing item is palmed-off as the luring item (Admiral Corp. v. Price Vacuum Stores, 141 F. Supp. 796); the consumer was emphatically told by defendants’ salesmen that the choice was between an old Electrolux and a new cleaner of a different kind. And even if we assume the availability in our courts of injunctive relief for trade disparagement (cf. Marlin Fire Arms Co. v. Shields, 171 N. Y. 384, with Allen Mfg. Co. v. Smith, 224 App. Div. 187), there is here lacking either the proof of specific loss of trade necessary to recover damages (Reporters’ Assn. v. Sun Print. & Pub. Assn., 186 N. Y. 437; Tower v. Crosby, 214 App. Div. 392) or the fully persuasive “convincing evidence” of disparagement necessary to an injunction (Bourjois, Inc., v. Park Drug Co., 82 F. 2d 468, 471). What remains is, therefore, the practice of offering a well-known product at a low price to stimulate an interest which the seller attempts to divert to a lesser-known product at a more profitable price. This commonplace in the retail economy creates no cause of action. (Sunbeam Corp. v. Payless Drug [221] Stores, 113 F. Supp. 31; see, also, General Elec. Co. v. Gem Vacuum Stores, 36 N. J. Super. 234.) Of course, the owner of the mark so exploited is not without recourse. Plaintiff could have refused to sell defendants its old machines for repair and resale. Sellers can, by agreement, fix the resale prices to be charged by parties, and by nonsignatories buying from parties to the agreement. (General Business Law, art. XXIV-A; General Elec. Co. v. Masters, Inc., 307 N. Y. 229, appeal dismissed 348 U. S. 892.) But plaintiff is not entitled, beyond these devices and the relief available for the traditional torts of infringement, unfair competition, and trade libel, to judicial restraint of the common competitive practice of loss-lead items. The judgment of the court below should be reversed on the law and facts and judgment directed in favor of defendants, dismissing the complaint, with costs.