Will Johnnie Walker's new label be scotched?April 7, 2014: 5:00 AM ET
The nonprofit Explorers Club seeks to block Diageo's mighty Scotch whisky unit from marketing its new Explorers' Club Collection
FORTUNE -- The 110-year-old nonprofit Explorers Club is invoking an obscure, 106-year-old New York law in an attempt to block a major retail campaign launched by Diageo, the world's largest premium drinks company.
At a hearing on Thursday in state court in Manhattan, New York State Supreme Court Justice Charles Ramos will consider whether to permit the rare proceeding to go forward, potentially allowing the Club -- whose tweedy Manhattan headquarters has, over the years, served the likes of Sir Ernest Shackleton, President Teddy Roosevelt, and Jacques Cousteau -- to stop Diageo's (DEO) mighty Johnnie Walker brand from marketing its new Explorers' Club Collection. The new label is sold exclusively at duty-free shops, often from "pop-up" Explorers' Club Collection pavilions in airports, which, according to nonprofit The Explorers Club, consciously evoke the decor of its Upper East Side clubhouse.
London-based Diageo, represented by Robert Raskopf of Quinn Emanuel Urquhart & Sullivan, maintains that the Club is misusing an "obscure and draconian procedural mechanism" which was originally intended to target only fraudsters who "prey on unsuspecting persons by masquerading as charitable organizations."
The Club, on the other hand, represented by Joshua Schiller of Boies, Schiller & Flexner, contends that Diageo has brazenly misappropriated its name in a "direct, egregious violation" of the New York law, misleading consumers into thinking that the club has endorsed Diageo's products.
"The situation is so dire," Schiller writes in a brief filed last month, "that seasoned Club members -- including senior board members -- believed that Diageo's 'Explorers' Club' products were branded with the Club's name."
The Explorers Club, which has 26 chapters around the world, was founded in 1904 to promote exploration and scientific discovery. Its members have included such legends as Robert Peary and Matthew Henson (explorers of the North Pole), Roald Amundsen (South Pole), Sir Edmund Hillary and Tenzing Norgay (Mt. Everest), Charles Lindbergh, Chuck Yeager, Jane Goodall, and Sally Ride. The club's flag was carried to the moon in 1969 by Neil Armstrong, another member.
Though it raises money mainly from dues and donations, the club alleges that it has also been paid from time to time for commercial endorsements. It has entered into endorsements in the past for, for instance, Eddie Bauer, Rolex, Land Rover, and, most significantly here, Scotch whisky distiller Whyte and Mackay. In 2011, it endorsed the Whyte and Mackay's launch of a scrupulous recreation of the Scotch that Club member Shackleton took to Antarctica in 1907, Mackinlay's Rare Old Highland Malt. (Shackleton abandoned several unopened crates of this Scotch at his Antarctic base camp in 1909, and they were miraculously recovered from under the polar ice 98 years later, in 2007. Full disclosure: I tasted this replica brand a couple years ago, thought it was fabulous, and bought a bottle for my brother-in-law.)
Diageo, the defendant in this case, is generally regarded as the world's leading premium drinks business, with brands like Bushmills, Smirnoff, Captain Morgan, Tanqueray, and Guinness. Its Johnnie Walker mark, according to its papers, "currently outsells every other deluxe blended Scotch whisky around the globe." Founded in 1820, Johnnie Walker has an illustrious history of its own. Traveling sales agents spread its malt beverage across the globe, bringing it to 120 countries by 1920. In the late 19th century the company opened a Johnnie Walker Travellers Room in London, where its sales agents could stop for R&R. The brand's "striding man" logo is a reference to its historic association with travel, Diageo attorney Raskopf argues in his briefs, and he contends that the new Johnnie Walker Explorers' (with an apostrophe) Club Collection label and its accompanying airport lounges all spring from that homegrown tradition and not from any conscious emulation or evocation of the The Explorers Club (without an apostrophe).
Here's how the dispute unfolded. In April 2012 Johnnie Walker applied for a U.S. trademark for the Johnnie Walker Explorers' Club Collection mark. The filing remained secret -- as is the usual course -- while the U.S. Patent and Trademark Office conducted its initial review.
In December Diageo began the rollout of the new brand overseas, which a Diageo official later described as "on track to be the biggest ever spirit brand launch in travel retail." The Explorers Club acknowledges having noticed the campaign at that time, but its U.S. trademarks offer no protection overseas.
In February 2013, the U.S. PTO completed its initial review of Diageo's proposed trademarks in the "Johnnie Walker Explorers' Club Collection" name, and "published it for opposition," i.e., made it public so competitors could file objections. In April The Explorers Club sent Diageo a cease-and-desist letter, and in August it filed formal objections with the PTO.
"Amicable business negotiations" then began, according to an affidavit filed in state court last week by Diageo in-house lawyer Evan Gourvitz. In December Gourvitz sent the Club a draft license agreement which, in his view, "reflected the terms previously discussed between the parties."
Apparently the Club didn't see it that way, and it quietly retained Boies, Schiller & Flexner in January. (Josh Schiller, the Boies Schiller attorney handling the matter, is the son of name partner Jonathan Schiller.)
On March 19 Diageo's Gourvitz inquired about the status of the draft agreement and was told, evidently to his considerable surprise, to direct all further inquiries to Boies Schiller. The next day that firm filed two lawsuits against Diageo, one in federal court, raising a suite of traditional trademark and unfair business practices claims, but the other in New York State Supreme Court, seeking a permanent injunction under a seldom-used statute available only to charitable organizations, known as Section 135 of the New York General Business Law. The last published case concerning this 1908 law was decided in 1961, when Lincoln Center for the Performing Arts used it to stop a for-profit record label from calling itself Lincoln Center Classics.
Whereas obtaining an injunction from the federal court would ordinarily be a protracted, multifaceted affair, the New York law, by its terms, envisions a breathtakingly quick, simple, and tunnel-visioned process. In a federal trademark infringement case, for instance, a plaintiff seeking a quick injunction would encounter at the threshold the high hurdle of showing "irreparable harm" -- a standard that won't be met if money damages will provide the plaintiff with adequate recompense for any damages incurred -- and it might also have to post an expensive bond (a major hurdle for a nonprofit). In addition, in the federal proceeding in this case, for instance, one might anticipate that Diageo would raise a host of defenses requiring discovery and thrashing out over time. What's the empirical evidence regarding consumer confusion? Does the use of Diageo's full brand name, "Johnnie Walker Explorers' Club Collection," militate against such confusion? Does The Explorers Club's mark have any provable "commercial magnetism"?
By contrast, Section 135 of New York's General Business Law is another animal entirely. On as little as five days notice to the defendant, it says, a nonprofit may be entitled to a permanent injunction if it can simply show that a for-profit company is using its name or "a name so nearly resembling it as to be calculated to deceive the public." This is so, the law says, even "without proof that any person has in fact been misled or deceived" by the similarity in names. Explorers Club lawyer Schiller argues in his papers, moreover, that the law doesn't even require proof of "any intent to deceive" on Diageo's part.
"This court should read Section 135 as enforcing a near-absolute civil ban on the use of names belonging to charitable organization or names that are confusingly similar," Schiller writes in the brief supporting his state court petition.
Diageo attorney Raskopf protests in a motion to dismiss the Club's petition that the Club's use of the provision "is a brazen tactical matter designed to circumvent its 16-month delay in bringing a lawsuit." He argues that the legislative history of Section 135 shows it was aimed at providing quick relief against for-profits that were fraudulently pretending to be charitable organizations -- a situation obviously not present here. He has asked that the state petition be dismissed or, alternatively, stayed while the federal case is allowed to play out at the ordinary, more methodical pace.
Timothy Holbrook, an intellectual property expert at Emory University School of Law, read each side's papers at my request.
"I'd be shocked if the state court grants the injunction," he says in an interview, citing the pendency of the federal case and the likelihood that Section 135 was intended for other purposes.
But at the federal court stage, he adds, the Club "definitely" has a triable case.