David Yurman Enterprises and David Yurman IP LLC recently sued Sam’s East Inc. and Sam’s West, Inc. in a federal district court in Houston, Texas. The Sam’s companies operate the popular Sam’s Club stores as well as Wal-Mart. The lawsuit basically alleges that Sam’s Club is improperly selling David Yurman branded jewelry in its stores and through its website www.samsclub.com. The Yurman products no longer appear to be available on Sam’s Club website, but some remain visible (by title only) on the site and in Google search results.
The lawsuit alleges that Sam’s Club approached exclusive Yurman authorized retailers and convinced them to breach their authorized retailer agreements by giving Sam’s Club access to Yurman branded products (jewelry and point of sale materials). According to the complaint, this was “done with the intention of creating the false impression that Sam’s Club has an association or authorized retailer relationship with Yurman.” While the complaint seems to acknowledge that Sam’s Club sells “well known branded products at its retail locations,” the problem is that Sam’s Club’s plebeian image might not be compatible with the exclusive luxury market (and “well known” is, of course, not the same as “high end”). The concern seems to be even greater in that the problem extends beyond the state of Texas (five Sam’s Texas stores apparently sell the Yurman branded products there). According to the complaint, Yurman has learned that Sam’s has obtained “significant inventories of DAVID YURMAN jewelry products” and has offered them for sale throughout the United States.
The complaint alleges claims for: (1) trademark infringement in violation of 15 U.S.C. 1114; (2) false designation of origin in violation of 15 U.S.C. 1125(a); (3) tortuous interference with contract under the common law of Texas; (4) unfair competition under the common law of Texas; and (5) injunctive relief.
Not to make light of it, cases like these of transshipment can harm a brand that has carefully selected where and how it sells its branded products. It can not only harm the relationship between the brand and authorized retailers, but also the brand as a whole if the consumer sees the brand as tarnished by sales in discount stores. This is all the more so since we are not talking about counterfeit products, but what seems to be the real thing.
This case is similar to the Alex and Ani case (also jewelry) that was filed in September 2013 in Rhode Island. There, the plaintiff alleged that it sold more than 26,000 pieces of jewelry worth about $1 million at the discounted price of $250,000 to a defendant, who subsequently conspired with others to resell the pieces (the jewelry was sold to defendants for distribution in events goodie bags). The jewelry eventually ended up in BJ’s Wholesale Club stores in Rhode Island and Massachusetts. Alex and Ani had previously (independently to this dispute) rejected an application from BJ’s to begin carrying their jewelry. When they discovered the jewelry was indeed sold in their stores, Alex and Ani sued. In July of 2014, the court ruled that the suit could move forward by denying defendant BJ’s motion to dismiss. U.S. District Judge William Smith described the case as a “bewildering ballad of bungled bangle banditry.” Wait, don’t leave, there is more – in seeking to get the case dismissed, Judge Smith wrote, defendants “stack arguments… like so many Alex and Ani bracelets upon the outstretched arm of a trendy woman.”
Both cases demonstrate the careful crafting of a brand through authorized resellers, and the importance of safeguarding that relationship. Remains to be seen how expensive and time consuming such relationships are to maintain. It is highly unlikely the cases will go to trial, and more likely they will settle – but it would certainly be interesting if any of them are decided at the summary judgment stage.