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ABG Prime Group, Inc. v. Innovative Salon Products, Inc.

United States District Court, E.D. Michigan, Southern Division

June 12, 2018

ABG PRIME GROUP, INC., Plaintiff/Counter-Defendant.
v.
INNOVATIVE SALON PRODUCTS, INC., d/b/a LOMA Defendant/Counter-Plaintiff,

          R. Steven Whalen Magistrate Judge.

          OPINION AND ORDER DENYING MOTION TO DISMISS COUNTER-COMPLAINT [12]

          LAURIE J. MICHELSON UNITED STATES DISTRICT COURT JUDGE.

         Gary Greenberg, Adam Greenberg, and Bryan Acrich formed ABG Prime Group to resell beauty supplies on Amazon. (R. 1, PID 3.) In 2016, ABG Prime opened an Amazon store and began to sell LOMA-brand hair-care products. (Id. at 4-6.) ABG buys LOMA's products from an authorized LOMA distributor and then resells the identical, unopened products on ABG's Amazon store. (Id. at 5-6.)

         But LOMA never agreed to let ABG sell its products on Amazon. So starting in 2017, LOMA filed a series of complaints with Amazon requesting that the retail giant shutter ABG's store. (Id. at 6-7.) Each time, Amazon suspended ABG's account. (Id. at 7-8.)

         After the final Amazon suspension, and anticipating an eventual trademark suit from LOMA, ABG filed a declaratory judgment action on LOMA's trademark rights. According to ABG, because it lawfully purchased LOMA's products from a LOMA distributor, the first-sale doctrine protects ABG from any liability for trademark infringement.

         LOMA disagrees. LOMA filed a counter-complaint alleging trademark infringement and false designation of origin. ABG now moves to dismiss the counter-complaint.

         I.

         The following factual allegations from the counter-complaint are accepted as true. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

         David Hanen founded Innovative Salon Products to sell high-quality beauty supplies to salons, spas, barbershops, and beauty schools (a market informally known as the salon channel of trade). (R. 10, PID 92.) In 1991, Hanen first started using the LOMA mark. Fourteen years later, the U.S. Patent and Trademark Office added the LOMA mark to the Principle Register. (Id.) The mark is now incontestable under 15 U.S.C. § 1065. (Id.) In that time “the mark has become well known among consumers as a distinctive source indicator of high quality goods.” (Id. at PID 92- 93.)

         LOMA is a source indicator because the products come with training, support, and warranties. (R. 10, PID 94.) LOMA staff, including Hanen, visit salons to show salon staff how to use LOMA products and provide one-on-one consultations. (Id.) And LOMA provides the same level of training and support to its distributors. (R. 10, PID 94.) When LOMA brings a new distributor on board, staff train the distributor's salespeople on the proper uses for LOMA products. (Id.) LOMA wants to ensure that distributors educate salons and spas on the proper uses for LOMA products, and understand LOMA's product support. (Id.)

         The centerpiece of LOMA's product support is an unconditional satisfaction and replacement guarantee. LOMA recognizes that salons and their hair-care professionals are the best ambassadors for the LOMA brand. (Id.) So LOMA tells the distributors about the guarantee, and once LOMA products reach salon and spa shelves, LOMA's Brand Managers conduct routine visits to salons and spas to tell the hair-care professionals about the guarantee. (R. 10, PID 95.) It is this guarantee that ultimately persuades salons and customers to purchase the products and has been a primary driver of LOMA's growth. (Id.) Within the salon channel of trade, LOMA has been one of the “fastest growing brands in the professional hair care business . . . for each of the last two years.” (Id.)

         LOMA strives to ensure that its products are sold exclusively within the salon channel of trade. (R. 10, PID 96.) LOMA's distributors must sign a non-diversion agreement restricting to whom distributors may sell LOMA products. (Id.) Under the terms of the non-diversion agreement, distributors may only sell to “Salon[s], Spa[s], Barbershop[s][, ] or Beauty Schools that have no less than 50% of the square footage of their facility devoted to professional services and no more than 50% of the square footage of the store dedicated to retail display and sales.” (Id. at 97.) The non-diversion agreement further prohibits salons, spas, barbershops, and beauty schools from reselling LOMA products on the internet. (Id. at PID 97-98.)

         Windsor Beauty Supply is an authorized distributor of LOMA products and signed LOMA's non-diversion agreement. (Id.) ABG purchased LOMA's products from Windsor. (R. 10, PID 97.) And yet, ABG does not operate a salon, spa, barbershop, or beauty school. (Id. at 98.) Instead, 100 percent of ABG's revenue comes from selling its wares on Amazon. (Id.) So Windsor never should have sold ...


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