SEBASTIAN WINS ROUND

Byline: Julie Naughton

NEW YORK — A court battle between Sebastian International and Drug Emporium, which began two years ago over diverted hair care products, has gone another round and Sebastian has scored a small victory.
Following a ruling Aug. 30 in the Los Angeles County Superior Court, Drug Emporium, a drugstore chain based in Powell, Ohio, agreed to pay a settlement to Sebastian on a contempt of court charge. Sebastian is an American division of German beauty giant Wella and is based in Woodland Hills, Calif.
The charge stems from a preliminary injunction Sebastian obtained in that court in October 1998, which ordered Drug Emporium to stop selling any Sebastian products that lacked batch codes.
Sebastian said its products were intended for sale only in salons and alleged that batch codes had been removed from the products and they were available for sale at Drug Emporium. Batch codes are used to trace the origins of products.
The contempt charge settlement was made orally to a Los Angeles County judge, according to William C. Conkle of Conkle & Olesten, Sebastian’s outside counsel. According to Mark Riedel, vice president and general counsel for Sebastian, the settlement amount was $75,000.
Jane Lagusch, vice president of Drug Emporium, confirmed that the parties had settled the contempt charge, but declined to comment on its terms.
The two entities have been battling since August 1997, when Sebastian filed a case against Drug Emporium, a salon and a number of individuals, charging that they sold Sebastian products to Drug Emporium.
The complaint’s many charges included intentional interference with contractual relationship, intentional inference with prospective economic advantage, unfair competition and racketeering. That suit is continuing.
Sebastian obtained the preliminary injunction against Drug Emporium in October 1998. Last March, Sebastian charged in court that Drug Emporium had violated the injunction because it was continuing to sell decoded Sebastian products. The court ordered Drug Emporium to stand trial on the criminal contempt charges.
Riedel said Sebastian “repeatedly warned” Drug Emporium to stop selling its products before filing suit.
“Selling decoded product is a crime in California,” Riedel said. “The codes protect consumers in the event of a recall and also help Sebastian identify and prosecute diverters. Drug Emporium insisted on learning the hard way.”
However, Lagusch denied allegations that the chain had removed codes from products. “We have no interest in selling anything but the very finest products to our consumers,” said Lagusch. “However, we do believe that we have a right to be competitive with every other drugstore chain out there, and many of them carry Sebastian. We welcome the opportunity to go to trial and fight for our rights on this issue, because we believe that under the second-sale doctrine, we will win.”
The second-sale doctrine holds that once a company sells its products to a second party, the items then are the second party’s, to do with as it wishes.
Lagusch said the products’ distribution network — rather than the retailer — should be examined.
“The whole crux of this issue seems to be that Sebastian has a distribution system that they haven’t been able to police,” said Lagusch.

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