Court Allows PacSun’s Breach of Warranty Claim

SAN DIEGO (CN) - A California appeals court allowed clothing retailer Pacific Sunwear to proceed with a breach of warranty claim against a company that allegedly sold it T-shirts that infringed on a third party's trademark.

PacSun bought 16,000 "Hot Sauce Monkey" T-shirts from Olaes Enterprises. Included in the sales contract was a warranty against trademark infringement lawsuits by a third party.

The T-shirt contained the slogan "Smile Now" on the front as the monkey drinks hot sauce, and "Cry Later" on the back as the pained monkey expels fire.

This prompted a lawsuit from a Hawaii clothing manufacturer Smile Now Cry Later Inc. (SNCL), which only proved three of the eight factors to establish a likelihood of confusion. The parties later settled the dispute.

PacSun then sued Olaes for breach of the warranty that the shirts were "free of the rightful claim of any third party by way of infringement or the like."

The trial court ruled in Olaes' favor because SNCL did not prevail in its suit against PacSun.

Justice Irion ruled that the definition of a "rightful claim" lies somewhere between PacSun's definition (any litigated claim) and Olaes' definition (a successful claim).

Irion wrote that the correct interpretation will "encompass all nonfrivolous claims of infringement, and not solely those claims that ultimately prove (or are expected to prove) successful in litigation."

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