The American National Red Cross (ARC) did not violate a federal criminal statute regulating display of the Red Cross sign by licensing four companies to manufacture and sell products displaying the Red Cross name and emblem, according to the federal district court in New York City. The statute (18 U.S.C. Sec. 706) prohibits use of the Red Cross sign or an imitation thereof for the fraudulent purpose of inducing the belief that the user is a member of or an agent for ARC. Consumer products maker Johnson & Johnson (J&J) asserted that ARC acted illegally by authorizing third parties to sell branded Red Cross products through commercial channels of trade. Pursuant to the challenged license agreements, products bearing the Red Cross logo were sold at Target, Wal-Mart, Walgreens, and CVS.

Section 706, on its face, did not prohibit ARC from making any use whatsoever of the Red Cross emblem and words, the court said. Section 706 also specified that uses of the Red Cross symbol that were lawful on the date of enactment of the provision were not made unlawful by the statute. At the time the criminal provision now codified at Sec. 706 was enacted, in 1948, the Charter Act incorporating ARC (first enacted in 1900 and amended in 1905 and 1910) placed no prohibition of any kind on ARC's use of the Red Cross emblem, including uses for the purpose of trade or as an advertisement to induce the sale of goods. Entering into a license agreement is a standard business arrangement undertaken for the purpose of trade and to induce the sale of goods and did not contravene Sec. 706, the court reasoned.

J&J contended that the statute prohibited use of the Red Cross emblem by anyone other than ARC and "grandfathered" users that had used the symbol prior to enactment of the Charter Act, such as J&J. However, the permission given to ARC by the statute to use the symbol for any purpose, including commercial purposes, inherently contemplated that such uses would entail subsequent or subordinate uses by others in order to carry out the uses permitted to ARC. J&J conceded that ARC could lawfully contract with manufacturers and suppliers to supply it with the water bottles, blankets, and other items bearing the Red Cross logo that ARC used for disaster relief activities. These suppliers were third parties who made use of the Red Cross emblem and words, pursuant to ARC's permission, just like the licensees in the current case. The license agreements also did not violate the Charter Act or the Geneva Convention, the court ruled.

Even if the license agreements constituted violations of Sec. 706, ARC's conduct would not constitute unfair competition under New York common law, as J&J contended. J&J introduced no evidence of palming off or misappropriation, the court said. There was no indication that ARC or its licensees attempted to palm off their own products as J&J's products, or that ARC placed the Red Cross emblem on these products in order to take wrongful advantage of J&J's name or goodwill or in an effort to misappropriate the labors and expenditures of J&J. ARC and its licensees were attempting to profit from ARC's own goodwill and reputation, not J&J's, the court concluded.

ARC did not engage in dilution, under federal or state law, of trademarks held by J&J by entering into the license agreements. J&J could not show that the Red Cross name and emblem were distinctive as a mark for J&J's goods, in the court's view. ARC had used the emblem for more than 100 years. ARC's right to use the emblem was specifically granted by Congress in 1900. J&J's right to use the name and emblem was protected by a "grandfather clause" because J&J had used the symbol on goods prior to Congress' grant of rights to ARC. However, a grandfathered user could not use dilution law to trump the dominant use for the emblem granted by Congress to ARC, the court said. In addition, there was no evidence that the general consuming public saw the Red Cross name and emblem as a designation of J&J's products rather than as a designation of ARC or the International Red Cross.

The court rejected a counterclaim by ARC that J&J violated Sec. 706 by exceeding its "grandfathered" rights as a user of the symbol prior to the grant of exclusive rights to ARC in 1905. Although J&J was using the symbol on products it was not selling in 1905, none of its current uses of the symbol created a different commercial impression than its pre-1905 uses. If J&J were permitted only to sell first aid and emergency kits containing exactly the same products as those sold prior to 1905, J&J would be constrained to forever continue selling kits that contained such antiquated products as cat gut ligatures and kidney plasters, the court reasoned.