7th Circuit Finds Failure To Respond To Admissions Sufficient To Support Summary Judgment

In Gabbanelli Accordions & Imports, L.L.C., v. Ditta Gabbanelli Ubaldo Di Elio Gabbanelli, 91 USPQ2d 1599 (7th Cir. 2009), Plaintiff, “American Gabbanelli,” and Defendant, “Italian Gabbanelli,” have a long history of business relationships and law suits.  In the 1960s, American Gabbanelli began as theU.S. distributer for the predecessor of Italian Gabbanelli, a manufacturer of accordions inItaly.  In the late 1990s, American Gabbanelli obtainedU.S. trademark registrations for the mark GABBANELLI for use in association with accordions, and America Gabbanelli imported accordions from Italian Gabbanelli as well as other manufacturers.

In 1999, American Gabbanelli sued Italian Gabbanelli in Italian court over Italian Gabbanelli’s use of http://www.gabbanelli.com and use of the GABBANELLI mark for advertising over the internet.  Italian Gabbanelli won, but two more trademark suits were filed in Italian court, one by each of American Gabbanelli and Italian Gabbanelli.  American Gabbanelli and Italian Gabbanelli settled by a settlement agreement resulting in American Gabbanelli having exclusive rights to use the mark in theUnited Statesand Italian Gabbanelli having exclusive rights to use the mark inItaly.  The settlement agreement also provided an arbitration provision requiring that “any further controversy” would be resolved through arbitration in which each party would choose an arbitrator, and the two arbitrators would choose a third arbitrator.

After another controversy arose, the two parties entered arbitration and each selected an arbitrator.  However, the third arbitrator has never been appointed and no arbitration has been conducted under the arbitration provision of the settlement agreement. 

In May of 2002, Italian Gabbanelli sued American Gabbanelli in Italian court seeking transfer of American Gabbanelli’s U.S. Trademarks to Italian Gabbanelli.  The Italian court ruled in Italian Gabbanelli’s favor.

The current appeal to the 7th Circuit arises from a suit filed by American Gabbanelli in January 2002 alleging that Italian Gabbanelli was liable for trademark infringement of the GABBANELLI mark.  In July 2002, an unrepresented Italian Gabbanelli sent a letter to the district court alleging that the court did not have jurisdiction because of the arbitration provision of the settlement agreement.  The district court rejected such argument because Italian Gabbanelli had waived its right to insist on arbitration by filing suit inItalyagainst American Gabbanelli in violation of the arbitration provision.  Further, the 7th Circuit noted that a contractual arbitration agreement does not affect a court’s jurisdiction but operates as a defense to suit.

The district court stayed further proceedings pending the outcome of the Italian suit.  However, in May 2005, the district court became impatient and lifted the stay.  American Gabbanelli promptly served Italian Gabbanelli with requests for admissions in which American Gabbanelli asked Italian Gabbanelli to admit liability on all claims.  In October 2005, well past the deadline to respond to the requests for admissions, Italian Gabbanelli made an appearance through counsel.  American Gabbanelli filed for summary judgment, which was granted because Italian Gabbanelli was deemed to have admitted all of the admissions in American Gabbanelli’s requests for admissions because Italian Gabbanelli failed to respond to such requests.  The 7th Circuit stated that “Italian Gabbanelli had no excuse for ignoring its opponent’s request for admissions long, long past the deadline” because Italian Gabbanelli had Italian lawyers at the time that could have contacted an American firm and the request to rescind the admissions was not made until 2 years after Italian Gabbanelli’s attorneys’ appearance in court.  With Italian Gabbanelli’s admissions of record, summary judgment was inevitable and proper because the district court was not required to rescind the admissions.

The 7th Circuit then asked: what of the Italian court’s ruling in favor of Italian Gabbanelli?  All in all, it is of no consequence because the district court’s ruling came first such that the Italian court’s ruling cannot be pleaded as res judicata.  Although theUnited Statesis not a signatory to any treaty governing recognition of foreign judgments,United States’ courts can recognize the res judicata effects of foreign judgments.  But, due to the timing of the court decisions, it appears more likely that theUnited Statesdistrict court would have a res judicata effect on the Italian court’s ruling.  Thus, it is determined that Italian Gabbanelli’s challenge to liability fails.

However, Italian Gabbanelli has a legitimate grievance concerning the damages awarded by the district court, specifically, $151,200 in lost profits plus statutory damages of $500 per infringing accordion.  Of concern are the statutory damages of $500 per infringing accordion.  Statutory damages are only available under the Lanham Act when the violation of the Act involves use of a “counterfeit” mark.  15 U.S.C. §1117(c).  A “counterfeit” mark is a “spurious mark which is identical with, or substantially indistinguishable from, a registered mark.  §1116(d)(1)(B)(ii).  Cases in which the mark is placed on the defendant’s product with the trademark owner’s consent but then the product is distributed through an unauthorized channel, i.e., grey market products, are not eligible for statutory damages.  Because Italian Gabbanelli placed the GABBANELLI mark on accordions produced by a company not authorized to sell such accordions in theUnited States, Italian Gabbanelli counterfeited the accordions. 

Thus, statutory damages were available to American Gabbanelli; but “statutory damages may be awarded only in cases in which compensatory damages are not awarded for the same violation.”  See 35 U.S.C. §1117(c).  Although it is possible to apply statutory damages to some violations and compensatory damages to other violations in the same action, here, the compensatory damages and the statutory damages pertain to the same accordions that Italian Gabbanelli sold in violation of American Gabbanelli’s trademark rights.  Thus, the statutory damages are not proper.

Further, the statutory damages awardable in counterfeit trademark cases is “not less than $500 or more than $100,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed as the court considers just.”  15 U.S.C. §1117(c).  The award is per counterfeit mark per type of goods, not per individual item bearing the counterfeit mark.  Thus, the statutory damages are further improper. 

Therefore, the holding that Italian Gabbanelli infringed American Gabbanelli’s trademark rights in the mark GABBANELLI was affirmed; but, the awards of damages and attorneys’ fees, which will have to be re-determined, are reversed.

Significance to Trademark Owners and Litigants

While the outcome in Gabbanelli is not surprising since not responding to a lawsuit is never advisable, Gabbanelli  serves as a reminder as to why a party should serve a request for admissions during discovery.  As occurred in Gabbanelli, the failure to respond to the request worked as to admissions as to facts, and these admitted facts were the foundations of the court’s ultimate granting of a summary judgment for trademark infringement.  In this way, even where an opposing party makes a late appearance, if the entry is after the response time for the request, a motion for summary judgment could be granted without further discovery or trial.

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