USA: Calvin Klein, Inc. Sues Warnaco, Linda Wachner for Trademark Violations, Breach of Fiduciary Duty and Contracts
For relief, the suit seeks measures that will rectify the situation: the termination of the agreements between Calvin Klein, Inc. and Warnaco; an injunction preventing Warnaco from engaging in practices that violate the agreements; Warnaco's profits from the improper sales; and compensatory damages.
Key elements of the charges against Warnaco and its subsidiaries include:
- Warnaco infringed upon and diluted the Calvin Klein underwear and
jeanswear trademarks in the U.S. both by selling goods that were never approved by Calvin Klein, Inc. and by directing large volume sales of full-price merchandise to off-price warehouses such as Costco, Sam's Club, BJ's and other unauthorized channels.
- Warnaco treated these unauthorized distribution channels as if they were regular, full-priced accounts, instead of using them in select, pre-approved situations only for the sale of irregular and close-out items.
- Warnaco breached its fiduciary duty by misrepresentation, self-dealing and malfeasance, and by placing its short-term financial interests ahead of the long-term interests and integrity of the jeanswear and underwear trademarks.
- Warnaco misrepresented its dealings to Calvin Klein, Inc. by asserting that it was only selling authorized merchandise - irregulars and close-outs - to approved discount stores, when in fact Warnaco was regularly selling high volumes of unauthorized product -basics and regular season merchandise - to non-approved mass merchandisers. Warnaco also told Calvin Klein, Inc. that it would not sell Calvin Klein jeanswear and underwear to J.C. Penney then shortly thereafter Warnaco started such sales.
- Warnaco engaged in self dealing by selling unauthorized products - including goods produced by another Warnaco division, Chaps by Ralph Lauren - in Calvin Klein Outlet Stores, which are supposed to offer Calvin Klein merchandise exclusively.
- Warnaco presented products from other designers - affiliated with Warnaco - as samples of Calvin Klein jeanswear and underwear products.
- Warnaco's contract breaches include repeated interference with, and failure to abide by, distribution and quality control standards, design timetables and marketing guidelines for the Calvin Klein jeanswear and underwear lines.
- Warnaco failed to abide by the distribution and quality control standards for Calvin Klein jeanswear and underwear products by making unapproved changes in the design of products and delivering its merchandising plans late and incomplete.
- Among the many instances of substandard product quality, unapproved changes and missed deadlines: though the merchandising plan for the children's summer 2001 line was due on February 29, 2000, Warnaco had yet to provide a complete merchandising plan as of March 23, 2000, with similar delays incurred for the spring 2001 children's line merchandising plan; during the winter of 1999-2000, Warnaco "injected" additional garment designs that Calvin Klein, Inc. never approved; and for the fall 2000 line, Calvin Klein, Inc. designers produced outerwear knits to accompany their Green Tinted Denim product, but Warnaco only produced the Green Tinted Denim product, and essentially replaced entire deliveries with its own injections.
Calvin Klein, vice chairman of Calvin Klein, Inc., and Barry Schwartz, chairman and CEO of Calvin Klein, Inc., said, "Over the past 30 years, this company has built and nurtured what is recognized as one of the most powerful and successful brands in the world. As the lawsuit we filed explains, Warnaco is threatening to erode the Calvin Klein jeanswear and underwear lines through a flood of discounting and other unauthorized sales and practices that are the equivalent of counterfeiting. Moreover, Warnaco has engaged in a pattern of intentionally deceptive business practices designed to conceal these violations. We cannot allow Warnaco's desperate search for short-term revenues to harm the Calvin Klein, Inc. brands, nor can we tolerate the repeated and willful violations of our agreements with Warnaco. Having repeatedly sought to prevent violations of our agreements cooperatively through multiple discussions and letters, and given the recent, accelerated decline of Warnaco's business practices, we are left with no choice but to file this suit if we are to preserve the integrity, value and prestige of the Calvin Klein underwear and jeanswear brands."
The firm of Boies, Schiller & Flexner LLP is representing Calvin Klein, Inc.
Calvin Klein, Inc. is one of the leading design and marketing companies in the world. The Company's lifestyle brands include the Calvin Klein Collection, cK Calvin Klein and cK Calvin Klein Jeans. Products designed under these lifestyle brands include apparel, accessories, watches, shoes, underwear, sleepwear, hosiery, socks, swimwear, eyewear, coats, and fragrances, as well as products for the home.
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