Filene's Basement Inc. has agreed to pay Fendi Adele SRL $2.5 million to settle a suit accusing the bankrupt discount retailer of selling counterfeit goods with the Italian fashion house's famous trademark. Filene's filed a motion Monday in the U.S. Bankruptcy Court for the District of Delaware seeking approval of the deal, which also includes a $50,000 payment to Fendi for the purpose of running corrective advertising.
The allegations against Filene's began nine years ago, when the designer sent a cease-and-desist letter ordering the retailer to stop selling counterfeit Fendi-marked products.
Filene's agreed to comply, but Fendi learned in 2003 that the defendant had resumed selling the products, according to attorney Richard Mattiaccio, who represents the plaintiff.
That discovery prompted Fendi to file suit in January 2006 in the U.S. District Court for the Southern District of New York. When Filene's went bankrupt, Fendi filed a claim in the Delaware bankruptcy court over the alleged infringement.
The settlement comes on the heels of an early victory for Fendi, which scored injunctive relief in March 2010 when a Manhattan federal judge ordered Filene's Basement to stop selling handbags and other goods bearing the Fendi name or trademark without permission. U.S. District Judge Richard Berman granted a permanent injunction halting such sales.
He said a jury should decide at trial whether Filene's conduct was willful, and whether Filene's former parent Retail Ventures Inc should also be held liable despite its argument it was merely a holding company. "It is undisputed that Filene's used Fendi's famous marks and trade name in commerce after the marks had become famous," Berman wrote in a 45-page opinion.
The judge ordered both sides to enter settlement talks, and to appear in court on April 1 to discuss their progress. "We're disappointed the case was not entirely resolved, but are pleased with the rulings that make clear Filene's Basement was counterfeiting," said Richard Mattiaccio, a partner at the law firm Squire Sanders in New York, who represents Fendi.
He said the case is ready for trial but hopes it can be settled. A lawyer for Retail Ventures did not immediately return a request for comment.
Syms Corp SYMS.O and Vornado Realty Trust (VNO.N) bought Filene's at a bankruptcy auction in June. Another judge in the same court last month ordered Burlington Coat Factory Warehouse Corp to pay Fendi about $4.7 million for violating a similar injunction, records show.
Fendi's four-year-old lawsuit is one of many brought by luxury goods companies to protect their trademarks. These companies are trying to thwart alleged counterfeiters whose products they believe will damage their reputation, confuse consumers and reduce sales.
This month alone in Manhattan federal court, Burberry Group Plc (BRBY.L) sued TJ Maxx parent TJX Cos (TJX.N), Coach Inc (COH.N) sued Sears Holdings Corp's (SHLD.O) Kmart unit, and LVMH Moet Hennessy Louis Vuitton SA (LVMH.PA) sued Hyundai Motor Co (005380.KS) over alleged trademark violations.
Fendi had accused Burlington, Massachusetts-based Filene's of selling fake Fendi-branded handbags and other leather accessories, even after receiving legal notices to stop.
In his ruling, Berman said Filene's failed to rebut evidence that it was selling counterfeit Fendi-branded goods, and failed to rebut a presumption of bad faith. He also rejected Filene's use of "mere speculation or conjecture" that the alleged infringing items might have been obtained via the gray market or "authorized" Fendi retailers.
* The case is Fendi Adele s.r.l. et al, v. Filene's Basement Inc et al, U.S. District Court, Southern District of New York, no. 06-00244.