MEMORANDUM OPINION & ORDER
This matter is before the Court upon Plaintiffs’ Motion for Preliminary Injunction. (Doc. 3) Defendant filed a Memorandum in Opposition (Doc. 8) and Plaintiffs filed a Reply. (Doc. 12) Defendant was also granted leave to file a Sur-reply. (Doc. 16) On January 28, 2005, the Court held a hearing on the application for a preliminary injunction in accordance with Fed.R.Civ.P. 65(a)(2). For the reasons *954 stated herein, the Court orders that the Motion be GRANTED.
I. FACTUAL BACKGROUND
Plaintiffs (hereafter referred to collectively as “Abercrombie”) are a national retailer of casual apparel targeted at men and women aged eighteen through college. 1 Abercrombie maintains that it enjoys an excellent reputation through its high-quality merchandise, highly successful marketing efforts, and its 110-year history in the retail field. Abercrombie explains that it uses a number of registered and common law trademarks in the marketing and sale of its goods, but the most relevant registered marks for purposes of this action are: No. 951,410 for the mark “ABERCROMBIE & FITCH;” No. 2,530,-664 for the mark “A & F;” and No. 2,774,-426 for the mark “HOLLISTER CO.” (Plaintiffs’ Preliminary Injunction Hearing Ex. 1, 2, 3) 2
Defendant Fashion Shops of Kentucky, Inc. (hereinafter referred to collectively as “Fashion Shop”) 3 operates a small, family-owned, off-price retail clothing chain. Fashion Shop stores are located in Kentucky, Indiana, and Ohio. Fashion Shop sells brand-name clothing, typically quantity overproduction or end-of-season goods, at discount prices. Fashion Shop states that it has sold Abercrombie-branded merchandise for the past ten years.
Abercrombie seeks to enjoin Fashion Shop from selling any articles of clothing bearing the marks “ABERCROMBIE & FITCH,” “A & F,” “HOLLISTER CO.,” or “HOLLISTER;” or using these marks in any advertising or promotional material. Abercrombie is also seeking an order from this Court requiring Fashion Shop to turn over to Abercrombie any and all articles of clothing in its possession bearing the marks “ABERCROMBIE & FITCH,” “A & F,” “HOLLISTER CO.,” or “HOLLIS-TER.” In addition, Abercrombie is seeking Fashion Shop’s business records demonstrating the quantity, type, purchase price and sales price for all articles of clothing bearing the marks “ABERCROM-BIE & FITCH,” “A & F,” “HOLLISTER CO.,” or “HOLLISTER” which Fashion Shop has had in its possession since January 1, 2000, as well as records identifying all entities or individuals from whom Fashion Shop has acquired this merchandise.
At the hearing, Matt Braun, an Aber-crombie Brand Protection Specialist, testified that in September of 2004 he learned that Fashion Shop was selling Abercrom-bie merchandise in one of its stores in Louisville, Kentucky. This information came from a security supervisor who had been working in the area for two months. In October of 2004, Braun visited this store and two other Louisville stores, inspected the Abercrombie merchandise, and determined that approximately fifty percent of the merchandise was counterfeit. Braun based his determination on certain clues: the clothing was black, but Aber-crombie does not produce black clothing; the labels on the printed t-shirts stated that they were made in Turkey, but Aber-crombie does not produce t-shirts in Turkey; the sweatpants had a “1892” graphic imprint, but Abercrombie has not approved that style or font of the “1892” graphic; and the clothing was an inferior *955 quality to that produced by Abercrombie. Examples of genuine and counterfeit Aber-crombie clothing were marked as Plaintiffs’ Exhibits 6 through 16 at the hearing.
Braun telephoned Fashion Shop and Informed them that he determined that the stores were selling counterfeit merchandise. David Levine, the owner of Fashion Shop, met Braun at the one of the Louisville stores. Levine had all items which Braun indicated were counterfeit removed from the store’s display area. Levine also directed the other Fashion Shop stores to remove like items from display. In addition, at Braun’s direction, Levine removed the signs which advertised Abercrombie merchandise. (Plaintiffs’ Ex. 17) Braun told Levine that the remaining Abercrom-bie merchandise “appeared to be genuine.” This merchandise remained on display. Braun testified that Abercrombie is still in the process of investigating whether or not this merchandise is counterfeit.
While they were at the store, Braun handed Levine two letters which directed Fashion Shop to “immediately cease and desist from any and all further use of any and all of the ABERCROMBIE & FITCH trademarks;” and to provide information regarding Fashion Shop’s sales, inventory, and suppliers of Abercrombie merchandise. (Plaintiffs’ Ex. 18)
At the hearing, Benjamin Levine, Vice President of Fashion Shop, testified that Fashion Shop has no interest in selling counterfeit merchandise such as those illustrated by Plaintiffs’ Exhibits 6 through 16. Levine stated that Fashion Shop will remove any items which Abercrombie reasonably identifies as counterfeit from their stores. 4
John Carriero, Abercrombie’s Director of Loss Prevention, explained at the hearing that Abercrombie’s merchandise is produced by various overseas manufacturers. Carriero stated that after production, all merchandise is inspected at Abercrom-bie’s distribution center in New Albany, Ohio. Carriero stated that the merchandise which passes inspection is only sold in Abercrombie stores. Carriero explained that merchandise is rejected if it does not meet Abercrombie’s high quality standards. Carriero stated that a merchandise order may be cancelled if the quality of a “sample run” of the merchandise shipped to Abercrombie does not meet its standards; or the order is going to be delivered late.
Carriero explained that Abercrombie allows the manufacturers to sell any rejected merchandise, but with certain restrictions. These restrictions are memorialized in a “Sell-Off Compliance Agreement.” (Plaintiffs’ Ex. 19) As stated in the Agreement, no Abercrombie merchandise can be sold in the United States, and Abercrombie must approve of the final destination for the merchandise. (Id.) In addition, Aber-crombie requires that certain modifications be made: the brand names on all interior labels must be “blacklined” or “cut” through prior to being sold; all marketing that contains brand names (such as price tickets and hangtags) must be removed; and interior prints and tapes which contain the brand names must be marked through completely with black indelible ink. (Id.) Carriero explained that Abercrombie keeps a record of all merchandise which was authorized for “sell off’ each year. (Plaintiffs’ Ex. 22)
Carriero testified that there were two exceptions to Abercrombie’s prohibition against merchandise being sold within the United States. First, Carriero explained that Abercrombie permitted manufacturers to sell denim garments within the *956 United States because Abercrombie’s demanding quality standards resulted in a high number of rejected garments, and the overseas market for such denim garments was not good. Second, Carriero explained that Abercrombie permitted a chain of discount stores called “Gabriel Brothers” to sell any end-of-season merchandise which did not sell at their outlet stores and any damaged merchandise which came from the Abercrombie retail stores. Carriero testified that none of the merchandise approved for sale by Gabriel Brothers had “ever” surfaced in other retail outlets in the United States.
Carriero stated that Abercrombie employs Investigators world-wide to ensure that their manufacturers are not “selling off’ or manufacturing merchandise without their approval. Carriero also explained that it would not be in a manufacturer’s best financial interest to “cross” Aber-crombie. However, Carriero admitted that it was impossible to police all the sales of the rejected merchandise. Carriero testified that while some of the labels on the clothing were marked with a black or red line, these markings were not done according to Abercrombie’s requirements under the “Sell-Off Agreement.” 5
Levine testified that Fashion Shop purchased Abercrombie merchandise and other merchandise from various “jobbers.” Levine explained that this merchandise was often made available at different trade shows throughout the United States. Levine testified that Fashion Shop was never told that it needed authorization to sell Abercrombie products, but he also stated that Fashion Shop has never sought such authorization. Levine testified that Fashion Shop’s purchasers do not typically question how the jobbers acquired the merchandise.
Levine testified that he was informed by one of Fashion Shop’s employees that a customer had been sent to Fashion Shop’s store by an Abercrombie store employee to purchase Abercrombie shorts from the previous season.
Levine testified that if the Court were to order Fashion Shop to stop selling Aber-crombie merchandise, it would threaten their line of credit, and possibly result in Fashion Shop declaring bankruptcy. Levine estimated that the Abercrombie merchandise comprised of $150,000 worth of inventory. Levine stated that the loss of this inventory would lower the quality of the merchandise in their stores and interfere with the planning done for the season. Levine estimated the overall financial impact on Fashion Shop to be $300,000, which would be “potentially catastrophic.”
II. ARGUMENTS OF THE PARTIES
A. Plaintiffs.
Abercrombie’s argument centers on the definition of “genuine.” At the hearing, Abercrombie maintained that merchandise which Abercrombie has not approved for sale, is “non-genuine.” In its motion, Abercrombie relies on
El Greco Leather Products Co. v. Shoe World, Inc.,
B. Defendants.
Fashion Shop states that there is no dispute regarding any counterfeit merchandise, and does not claim any right to *957 sell such merchandise. However, Fashion Shop accuses Abercrombie of attempting to extend its trademark rights beyond their legitimate limits by prohibiting Fashion Shop from selling genuine merchandise. Fashion Shop defines “genuine” to include merchandise manufactured by an Abercrombie supplier. Fashion Shop maintains that under Sixth Circuit precedent, it is permissible to sell this merchandise without the authorization of the trademark owner.
III. ANALYSIS
A. The Lanham Act
Abercrombie alleges violations under two sections of the Lanham Act: (1) trademark infringement and counterfeiting under 15 U.S.C. § 1114 and (2) unfair competition under 15 U.S.C. § 1125(a). 6
To establish liability for trademark infringement under section 1114, the trademark registrant must show: (1) that it owns a valid, protectable trademark; (2) that the defendant used the mark in commerce and without the registrant’s consent; and (3) there was a likelihood of consumer confusion.
Too, Inc. v. TJX Companies, Inc.,
To establish liability for trademark counterfeiting under section 1114, a plaintiff must allege that: (1) the defendant infringed a registered trademark in violation of section 1114; and (2) the defendant intentionally used the mark knowing it was a counterfeit, as the term counterfeit is defined in 15 U.S.C. § 1116.
Id.
at 837,
citing, Babbit Electronics, Inc. v. Dynascan Corp.,
A claim for unfair competition under section 1125(a) does not require a plaintiff to prove that the defendant used the plaintiffs trademark.
U-Haul Int’l, Inc. v. Kresch,
Abercrombie is proceeding on the theories that Fashion Shop is selling Aber-crombie merchandise that is either counterfeit or not authorized for sale by-Abercrombie. Abercrombie argues that either type of merchandise are “non-genuine,” and therefore this Court’s determination regarding the requested injunctive relief is dependant upon the definition of “genuine” in the context of trademark protection.
Based on the testimony at the hearing, there are possibly six categories of merchandise at issue. The first is counterfeit merchandise. A large part of the testimony at the hearing related to how Aber-crombie was able to determine whether certain merchandise being sold by Fashion Shop was counterfeit. However, Fashion Shop does not dispute any of the counterfeit designations made by Abercrombie. The second category is merchandise that Abercrombie has rejected based on its quality standards, but has approved for sales overseas under the terms of a “Sell-Off Compliance Agreement.” The third category is merchandise Abercrombie has rejected based on late production but approved for sales overseas under the terms of a “Sell-Off Compliance Agreement.” The fourth category is merchandise which has been approved for sale in the United States, but is limited to denim products. The fifth category is merchandise approved for sale in the Gabriel Brothers stores, namely the end-of-season and damaged merchandise from Abercrombie stores and outlets. The final category of merchandise consists of merchandise sold by Abercrombie’s manufacturers without Abercrombie’s approval. For example, an Abercrombie manufacturer could have produced a greater number of items than Abercrombie ordered, shipped only the number ordered to Abercrombie, and then sold the excess merchandise. It is also possible that Abercrombie manufacturers have sold rejected merchandise without a “Sell-Off Compliance Agreement.” However, to be clear, the parties do not know the manufacturing source of any of the merchandise found in the Fashion Shop stores.
B. Preliminary Injunction Standard.
When ruling on a motion for a preliminary injunction, this Court must consider and balance four factors: “(1) whether the movant has a strong likelihood of success on the merits; (2) whether the movant would suffer irreparable injury without the injunction; (3) whether issuance of the injunction would cause substantial harm to others; and (4) whether the public interest would be served by issuance of the injunction.”
PACCAR Inc. v. TeleScan Technologies, L.L.C.,
*959
As this Court has previously recognized, under the Lanham Act, “a movant may merit preliminary injunctive relief simply upon a showing of irreparable harm and either a likelihood of success on the merits or ‘sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief.’”
Worthington Foods, Inc. v. Kellogg Co.,
1. Likelihood of Success on the Merits.
The touchstone of both a trademark claim under section 1114 and an unfair competition claim under section 1125 is whether the defendant’s use of the disputed mark is likely to cause confusion among consumers regarding the origin of the goods offered by the parties.
Daddy’s Junky Music Stores, Inc. v. Big Daddy’s Family Music Center,
In determining whether a “likelihood of confusion” exists, this Court must consider eight factors: (1) strength of the plaintiffs mark; (2) relatedness of the goods or services; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) likely degree of purchaser care; (7) intent of the defendant in selecting the mark; and (8) likelihood of expansion of the product lines.
Frisch’s Rests., Inc. v. Elby’s Big Boy of Steubenville, Inc.,
These factors “imply no mathematical precision, and a plaintiff need not show that all, or even most, of the factors listed are present in any particular case to be successful.”
PACCAR Inc. v. TeleScan Technologies, L.L.C.,
Rather than focusing on the specific “likelihood of confusion” factors, the parties have instead centered their arguments around whether or not the Abercrombie merchandise being sold by Fashion Shop is “genuine.” This approach is understandable given that many courts, including this Court, have treated genuiness as a threshold question.
See e.g., Too, Inc.,
Abercrombie would have this Court adopt the genuineness analysis used by the Second Circuit in
El Greco Leather Products Co., Inc. v. Shoe World, Inc.,
The facts of
El Greco
are as follows: the plaintiff contracted with a Brazilian shoe company to manufacture shoes bearing the plaintiffs trademark.
The district court dismissed the plaintiffs complaint for a preliminary injunction, finding that the shoes in question were genuine, and their sale, even though it was not authorized by the plaintiff, could not constitute a violation of the Lanham Act. Id.
The court of appeals began its analysis by stating that “the heart of this case is whether the shoes at issue were ‘genuine’ for purposes of the Lanham Act.” Id. at 395. The court noted the defendant’s position that the sale of genuine goods cannot give rise to the necessary likelihood of confusion. 9 Id. However, the court stated that even so, the shoes sold by the defendant could not be considered genuine. Id. The court explained:
One of the most valuable and important protections afforded by the Lanham Act is the right to control the quality of the goods manufactured and sold under the holder’s trademark. Menendez v. Faber,345 F.Supp. 527 (S.D.N.Y.1972), aff’d in relevant part and modified,485 F.2d 1355 (2d Cir.1973), modification rev’d sub nom. Alfred Dunhill, Inc. v. Republic of Cuba,425 U.S. 682 ,96 S.Ct. 1854 ,48 L.Ed.2d 301 (1976). For this purpose the actual quality of the goods is irrelevant; it is the control of quality that a trademark holder is entitled to maintain. Professional Golfers Association of America v. Bankers Life & Casualty Co.,514 F.2d 665 , 670-71 (5th Cir.1975).
Id. The court stated that a trademark holder is entitled to require that no merchandise be distributed without first being inspected to insure quality. Id. The court noted that the plaintiff had not waived the right to such an inspection, and even required the inspection certificate as a condition of payment. Id. The court found that the certificates of inspection were an inte *961 gral part of the plaintiffs effort at quality-control. Id.
The court criticized the lower court’s definition of “genuine” as being too narrow. Id. The court stated that “the mere act of ordering a product to be labeled with a trademark does not deprive its holder of the right to control the product and the trademark.” Id. at 395-96. The court also stated that it was not necessary for the plaintiff to instruct the manufacturer on how to dispose of the shoes. Id. The court concluded that even though the defendant was not involved in the manufacture of the shoes, or the affixing of the trademark to the shoes, its sale of the shoes was sufficient “use” under the Lan-ham Act for it to be liable for infringement. Id. at 396. The court also held that the defendant’s claimed lack of knowledge of its supplier’s infringement was no defense. Id. 10
One commentator has noted that subsequent to its decision in
El Greco,
the Second Circuit has emphasized that the
El Greco
rule does not change the basic rule that “the unauthorized sale of a trademarked article does not, without more, constitute a Lanham Act violation.” 4 McCarthy on Trademarks and Unfair Competition § 25:42 (4th ed.),
citing, H.L. Hayden Co. v. Siemens Medical Systems, Inc.,
The courts have struggled with drawing the line between two situations, one legal, the other an infringement. The legal situation is a distributor’s resale of unchanged trademarked goods under the “first sale” or “exhaustion” rule, free from the control of the brand owner. The infringing situation is where the trademark owner is entitled to exercise control over the distribution, handling and sale of the trademarked product, such that sale of trademarked products without such quality control is an infringement.
Id.
This struggle to draw the line is certainly evident in decisions of this Court.
See, e.g., Too, Inc. v. TJX Companies, Inc.,
The Court of Appeals for the Sixth Circuit has not considered the
El Greco
decision. However, it appears that the court does recognize the “first sale” or “exhaustion” doctrine as a defense. In
PACCAR Inc. v. TeleScan Technologies, L.L.C.,
the court explained that the first sale doctrine applies when a purchaser “does no more than stock, display, and resell a producer’s product under the producer’s trademark.”
However, as Judge Sargus of this Court has recognized, the exhaustion or first sale doctrine “presupposes that the goods were authorized to be made, in the first instance.”
Too, Inc. v. TJX Companies, Inc.,
At this juncture, it is possible to “draw the line” between several legal and infringing situations in this case. The most easily recognized is the merchandise identified as being counterfeit. Fashion Shop does not contend that these items are “genuine,” and consequently has agreed to not sell any counterfeit merchandise. Second, the denim products which Abercrom-bie approves for sale in the United States can be considered “genuine” under the first sale doctrine. Accordingly, Aber-crombie stated in its motion that the denim articles were “not relevant to this action.” 11 Presumably, they do not seek to enjoin Fashion Shop from selling any denim items which are not counterfeit. The first sale doctrine would also apply to merchandise which Abercrombie has approved for sale in Gabriel Brothers’ stores. However, it was Carriero’s testimony that this merchandise has never made its way to another store, and Fashion Shop has not presented any evidence to contradict this statement.
Another easy “line” to draw is that demarcating any merchandise manufactured without Abercrombie’s approval or rejected by Abercrombie and sold without a “Sell-Off Compliance Agreement.” Under the first sale doctrine, this merchandise was not “authorized to be made, in the first instance,” nor has an approved sale of this merchandise occurred. Understandably, Fashion Shop has not argued that this is the source of the merchandise in their stores. However, this remains as one possible source of the Abercrombie merchandise which has been found in the Fashion Shop stores.
Abercrombie argues, correctly, that this category of merchandise falls squarely within the El Ch"eco rule and this Court’s decision in Too, Inc. v. TJX Companies, Inc.
In
Too, Inc.,
the plaintiffs were seeking to enjoin the defendant from selling allegedly counterfeit or unauthorized clothing.
12
Here, there is similar unrefuted evidence. Not only did Abercrombie present evidence of counterfeiting, the unwitting sale of which Fashion Shop has not disputed, there is testimony which demonstrates a substantial likelihood that the remaining merchandise was made or sold without Abercrombie’s authorization. As Carriero testified, it would not be in the best interest of any of Abercrombie’s approved manufacturers to produce unapproved merchandise, but it is impossible for Aber-crombie to police all of the actions taken by its , overseas manufacturers. Fashion Shop has not presented any evidence which shows the merchandise was manufactured or sold with Abercrombie’s approval. Therefore, Judge Sargus’ opinion in Too, Inc. is dispositive on the disposition of this category of clothing.
However, Judge Sargus was not presented with an arrangement such as the “Sell-Off Compliance Agreement,” whereby the manufacturer is given authorization to sell rejected merchandise. It is this category of merchandise which creates the most difficulty. This is merchandise that Abercrombie has either inspected and rejected, or rejected for being late. However, this merchandise is approved for sale, subject to the terms of the “Sell-Off Compliance Agreement.” Fashion Shop contends that the first sale doctrine applies to this merchandise as well. Aber-crombie argues that even though this merchandise was approved for sale, it was not approved for sale in the United States.
As one district court in this circuit has explained, these goods are known as “gray goods;” products authorized under the plaintiffs mark for production and sale abroad that are brought into this country in violation of such understanding.
U-Haul Int’l, Inc. v. Kresch,
In
Societe Des Produits Nestle, S.A. v. Casa Helvetia, Inc.,
Two amaranthine principles fuel the Lanham Trade-Mark Act. One aims at protecting consumers. The other focuses on protecting registrants and their assignees. These interlocking principles, in turn, are linked to a concept of territorial exclusivity.
Id.
at 636. The First Circuit recognized that “[tjrademark law generally does not reach the sale of genuine goods bearing a true mark even though such sale is without the mark owner’s consent,” but stated that this “maxim does not apply when genuine, but unauthorized, imports differ materially from authentic goods authorized for sale in the domestic market.”
Id.
at 638.
13
The court explained that the unauthorized importation and sale of materially different merchandise was a trademark violation because a difference in products bearing the same name confuses consumers and impinges on the local trademark holder’s goodwill.
Id.,citing, Original Appalachian Artworks, Inc. v. Granada Elecs., Inc.,
There is no mechanical way to determine the point at which a difference becomes “material.” Separating wheat from chaff must be done on a case-by-case basis. Bearing in mind the policies and provisions of the Lanham TradeMark Act as they apply to gray goods, we can confidently say that the threshold of materiality is always quite low in such cases.
Id. at 641. The court explained that “the threshold of materiality must be kept low enough to take account of potentially confusing differences-differences that are not blatant enough to make it obvious to the average consumer that the origin of the product differs from his or her expectations.” Id.
In
Original Appalachian Artworks, Inc.,
one of the decisions relied on by the First Circuit in
Nestle,
the Second Circuit made note of several cases where the courts ruled that there was no trademark infringement because the goods were “genuine,” that is, “their production was authorized by contract, they were labeled with the trademark with the intent that they be sold in the United States, and they were sufficiently similar that they could not give rise to the confusion section 1114 was intended to prevent.”
Abercrombie would have the Court read Original Appalachian Artworks, Inc to stand for the general proposition that the exhaustion doctrine does not apply when goods are sold in a foreign jurisdiction. However, as both the opinion and the concurring opinion make clear, it is the “confusion over the source of the product” which is dispositive, not solely the intended market. Id. at 74 (Cardamone, C.J., concurring). 14
Other circuits have adopted the approach taken by the Second Circuit in
Original Appalachian Artworks, Inc
and the First Circuit in
Nestle: Davidoff & CIE, S.A. v. PLD Intern. Corp.,
The present case is not unlike the above cases because it is possible that some of the merchandise in the Fashion Shop stores is merchandise which was subject to the “Sell-Off Agreements.” These would be “gray goods,” that is to say, they were authorized under Abercrombie’s mark for production and sale abroad, but were evidently brought into this country in violation of such understanding. Therefore, the Court must determine whether the *966 merchandise approved for sale under a “Sell-Off Compliance Agreement” is materially different from that sold in Aber-crombie stores.
As noted above, the threshold of materiality must be kept low enough to take account of potentially confusing differences. These differences may not be blatant enough to make it obvious to the average consumer that the origin of the product differs from his or her expectations. Abercrombie has presented evidence that it maintains strict standards of quality and appearance. Carriero testified that the goods authorized for sale under the “Sell-Off Agreements” did not meet these standards. While it may not be obvious to the average consumer, there could be potentially confusing differences in the construction of the garments and in the material used. 15 Moreover, all merchandise authorized for sell-off must be modified according to Abercrombie’s requirements. For instance, all interior labels must be “black-lined” or “cut” through. Therefore, the merchandise approved for sale under a “Sell-Off Compliance Agreement” is materially different from that sold in Abercrombie stores.
In summary, Abercrombie has shown a likelihood of success on the merits. There is no dispute that the sale of the counterfeit goods is a violation of the Lanham Act. In addition, there is a substantial likelihood that the merchandise which is not counterfeit was made or sold without Abercrombie’s authorization. Finally, even if the merchandise which is not counterfeit is merchandise which was sold in violation of a “Sell-Off Agreement,” this merchandise is materially different from the merchandise Abercrombie that sells within the United States, and it is likely that these differences cause customer confusion.
2. Irreparable Injury.
Irreparable injury is presumed as a result of a finding of a likelihood of confusion for purposes of the Lanham Act.
Too, Inc.,
Fashion Shop argues that Abercrombie’s delay in bringing this action undercuts any allegation of irreparable harm.
The Sixth Circuit has explained that: the “Lanham Act does not contain a statute of limitations. In determining when a plaintiffs suit should be barred under the Act, courts have consistently used principles of laches as developed by *967 courts of equity.” Tandy Corp. v. Malone & Hyde, Inc.,769 F.2d 362 , 365 (6th Cir.1985). Unlike statutes of limitations, “laches is not ... a mere matter of time; but principally a question of the inequity of permitting the claim to be enforced.” Holmberg v. Armbrecht,327 U.S. 392 , 396,66 S.Ct. 582 ,90 L.Ed. 743 (1946). Laches, rather than a state statute of limitations, governs claims brought to enforce an “equitable right created by Congress.” Id. at 395,327 U.S. 392 ,66 S.Ct. 582 ,90 L.Ed. 743 .
Ford Motor Co. v. Catalanotte,
In the Sixth Circuit, there is a strong presumption that a plaintiffs delay in asserting its rights is reasonable as long as an analogous state statute of limitations has not elapsed.
Elvis Presley Enter., Inc. v. Elvisly Yours, Inc.,
While Levine testified that Fashion Shop has been selling Abercrombie merchandise for ten years, Braun testified that he learned in September of 2004 that Fashion Shop was selling Abercrombie merchandise in one of its stores in Louisville, Kentucky. While this may show actual knowledge, it does not resolve whether or when Abercrombie had constructive knowledge of Fashion Shop’s activity.
Fashion Shop points out that it was operating a store immediately adjacent to an Abercrombie store in Louisville. However, no evidence was presented regarding how long these stores had been operating near one another. While there was testimony from Levine that a customer had been sent to Fashion Shop’s store by an Abercrombie store employee to purchase Abercrombie merchandise, this evidence was hearsay evidence and does not show that anyone charged with trademark enforcement at Abercrombie should have known that Fashion Shop was selling potentially infringing merchandise.
Regarding any prejudice to Fashion Shop, while the loss of inventory could result in a loss of income, there was no evidence that this loss is any greater due to a delay in Abercrombie bringing its claims.
Accordingly, based on the evidence currently in the record this Court concludes that Abercrombie’s claims are not barred by the equitable doctrine of laches because Abercrombie did not lack diligence in asserting its rights, and because Fashion Shop was not prejudiced by the timing of Abercrombie’s lawsuit.
3. Substantial Harm to Others. 16
Abercrombie states that Fashion Shop will not be harmed if it is enjoined *968 from selling the allegedly infringing Aber-crombie merchandise because Abercrom-bie would post a security bond. Federal Rule of Civil Procedure 65(c) states, in relevant part:
No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained.
While a district court must consider whether security is appropriate, the decision is left to the sound discretion of the court.
Roth v. Bank of the Commonwealth,
At the hearing, Levine estimated that the Abercrombie merchandise was comprised of between $150,000 and $300,000 in inventory. Accordingly, a bond in the amount of $150,000, posted in accordance with S.D. Civ. Ohio R. 67.1, would prevent any harm Fashion Shop may incur before the final resolution of this matter.
4. Public Interest.
Abercrombie argues that an injunction would protect the public from confusion, which is the paramount public policy underlying the Lanham Act. Accordingly, this Court has previously held that avoiding confusion in the marketplace by issuing an injunction would be in the public interest.
Worthington Foods, Inc.,
Based on the foregoing, IT IS HEREBY ORDERED that Plaintiffs’ motion for a preliminary injunction is GRANTED.
IT IS FURTHER ORDERED that upon the posting of a $150,000 security bond by Abercrombie in accordance with S.D. Civ. Ohio R. 67.1, Fashion Shop is preliminary enjoined from selling any merchandise bearing the marks “ABER-CROMBIE & FITCH,” “A & F,” and “HOLLISTER CO.” Fashion Shop shall turn over any articles in its possession bearing the marks “ABERCROMBIE & FITCH,” “A & F,” and “HOLLISTER CO.” to Abercrombie. This merchandise is to be examined by Plaintiffs and returned to Defendant within ten (10) days of their receipt thereof if the articles are determined by Plaintiffs to be neither counterfeit nor unauthorized.
This order shall remain in effect until further order of this Court.
SO ORDERED.
Notes
. Plaintiffs A & F Trademark, Inc. and J.M.H. Trademark, Inc. are the record owners of the trademarks at issue in this case.
. For purposes of the hearing, the parties stipulated that Defendants are the owners of these marks.
.The parties are in agreement that although the Complaint names two parties—Fashion Shops of Kentucky, Inc. and Fashion Shops of America, Inc.—the proper party is Fashion Shops of Kentucky, Inc. (Doc. 12, at 2 n. 1)
. Braun testified that counterfeit clothing was found in Defendants’ Cincinnati, Ohio stores on January 6, 2005. However, Defendants seemed to indicate that this was an oversight.
. These requirements were illustrated in a document which was presented at the hearing, but was not entered as an exhibit.
. Under 15 U.S.C. § 1114:
(1) Any person who shall, without the consent of the registrant-
la) use In commerce any reproduction, counterfeit, copy, or colorable Imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; or
(b) reproduce, counterfeit, copy, or color-ably imitate a registered mark and apply such reproduction, counterfeit, copy, or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be used in commerce upon or in connection with the sale, offering for sale, distribution, or advertising of goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive,
shall be liable in a civil action by the registrant for the remedies hereinafter provided. Under subsection (b) hereof, the registrant shall not be entitled to recover profits or damages unless the acts have been committed with knowledge that such imitation is intended to be used to cause confusion, or to cause mistake, or to deceive.
Under 15 U.S.C. § 1125(a):
(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which-
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities,
shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.
. As one district court has explained, this approach has grown out of the "oft-repeated maxim” that "[a]s a general rule, trademark law does not reach the sale of genuine goods bearing a true mark even though the sale is not authorized by the mark owner.”
John Paul Mitchell Systems v. Pete-N-Larry’s Inc.,
. The court explained that the official reason the plaintiff gave was production delays, but it was unclear whether these delays were, in turn, caused by quality control problems.
. The defendant had cited
Monte Carlo Shirt, Inc. v. Daewoo International (America) Corp.,
. The court stated that the defendant made no inquiry and had no reason to believe that the plaintiff had approved of the use of its mark.
. At the hearing, Fashion Shop did introduce a pair of jeans from their stores and a pair of jeans purchased from an Abercrombie store. (Defendant’s Ex. 4 and 5) However, Abercrombie maintains that this article of clothing is counterfeit.
. Judge Sargus explained his use of the term 'unauthorized” as follows: "As used in the parlance of trademark law and, as discussed
infra,
'unauthorized' goods are those which were produced by a manufacturer otherwise authorized by the holder to make trademarked products, but a quantity of such products were made without authorization as to amounts or quality. An example would be an unauthorized sale of excess quantities by the manufacturer.”
. As one commentator has explained: “This is only logical, because if one applied the 'first sale' or 'exhaustion' defense to gray goods sales, the unauthorized importer would never be an infringer, because an unauthorized importer is always a reseller of goods.” 4 McCarthy on Trademarks and Unfair Competition § 29:51.2 (4th ed.).
See also Martin's Herend Imports, Inc. v. Diamond & Gem Trading USA Co.,
. In his concurring opinion, the judge does make the point that one of the functions of trademark law is to guarantee the quality of the trademarked product, and territorial sales restrictions are a means of quality control.
. In
Warner-Lambert Co. v. Northside Development Corp.,
Distribution of a product that does not meet the trademark holder's quality control standards may result in the devaluation of the mark by tarnishing its image. If so, the non-conforming product is deemed for Lan-ham Act purposes not to be the genuine product of the holder, and its distribution constitutes trademark infringement.
Id. at 6. While this case is a "repackaging” case, its holding is in keeping with one of the aims of the Lanham Act protecting registrants.
. As this Court recognized in
NBBJ East Limited Partnership v. NBBJ Training Academy, Inc.,
Although the Sixth Circuit defines this branch of the four-part test in terms of harm to others ... the focus is on the harm that a defendant will suffer if the requested injunctive relief is granted. It is with this factor that courts have traditionally balanced the equities.... Shepard’s Company v. The Thomson Corporation, 1999 WL *968 777944 *7 n. 14,1999 U.S. Dist. LEXIS 21051 , at *25 n. 14 (July 15, 1999).