Unfair Competition Archives

Unfair Competition

On the Border of Art and Trademark: First Amendment Trumps the Lanham Act

By Anisa Noorassa on Dec 8, 2022
Posted In Trademarks

The US Court of Appeals for the Eleventh Circuit weighed trademark rights against free speech considerations and found that the First Amendment protected use of an artistic work that was not deliberately misleading. MGFB Properties Inc. et al. v. 495 Productions Holdings LLC et al., Case No. 21-13458 (11th Cir. Nov. 29, 2022) (Luck, Brasher, Hull, JJ.) (Brasher, J., concurring).

The suit was brought by MGFB Properties, Flora-Bama Management and Flora-Bama Old S.A.L.T.S. (collectively, the plaintiffs). The plaintiffs own and operate the Flora-Bama Lounge, Package and Oyster Bar on the Florida-Alabama border. The lounge has been in business since 1964 and is well known in the region. The plaintiffs registered their trademark FLORA-BAMA in 2013.

Viacom and 495 Productions (collectively, the defendants) produce reality television series, such as the hit 2009 series Jersey Shore. In light of Jersey Shore’s success, the defendants produced several spinoffs. In 2016 the defendants decided to develop a new spinoff based on “southern beach culture” and chose the term “Floribama” to describe “relaxing Florida beaches with the down-home Southern vibe of Alabama.” The defendants were aware of the name’s connection to the Florabama Lounge but used the term regardless to identify a specific stretch of the Gulf Coast (the Florida and Alabama coasts) and inserted dialogue into the show to explain the term. The show’s logo emphasized its connection to the Jersey Shore franchise:

The plaintiffs argued that the defendants’ use of “Floribama” was a violation of the Lanham Act and caused unfair confusion and damage to their brand. The district court granted summary judgment for the defendants. Plaintiffs appealed.

The Eleventh Circuit upheld the district court’s judgment that the defendants’ First Amendment rights as the creators of an artistic work outweighed the plaintiffs’ interest in their trademark and in avoiding confusion around their brand: “[c]reative works of artistic expression are firmly ensconced within the protections of the First Amendment.” In reaching its outcome, the Court applied the 1989 Rogers v. Grimaldi test.

Under the first prong of the Rogers test, “an artistically expressive use of a trademark will not violate the Lanham Act unless the use of the mark has no artistic relevance to the underlying work whatsoever.” Here, the Eleventh Circuit found that the defendants’ use of the term “Floribama” to describe the geographic area featured in Floribama Shore and the subculture of that region satisfied the first element of the Rogers test. The Court held that it was sufficient for the defendants’ use of “Floribama” to be relevant to their show, even if the term was not “necessary” to production of the show.

Under the second prong of the Rogers test, the Eleventh Circuit found that the defendants’ use of “Floribama” was not explicitly misleading “as to the source or content of the work” [...]

Continue Reading

Tableware Designer Gets Heavenly Results on Its Pearly Plates

By Joshua Revilla on Jul 21, 2022
Posted In Copyrights, Trademarks

The US Court of Appeals for the Fifth Circuit reversed a district court decision, reversing the dismissal of a copyright claim based on lack of standing and finding ownership of the copyright in the claimant based on an assignment of that claim. The Fifth Circuit also found that the plaintiff had a protectible trade dress under the Lanham Act based on secondary meaning. Beatriz Ball, LLC v. Barbagallo Co., LLC, Case No. 21-30029 (5th Cir. July 12, 2022) (Jones, Haynes, Costa, JJ.) (per curiam).

Beatriz Ball, the founder of Beatriz Ball, LLC, alleged that Pampa Bay was marketing and distributing products that infringed on Ms. Ball’s registered copyrights and unregistered trade dress for its “Organic Pearl” line of tableware. Ms. Ball brought suit against Pampa Bay in Louisiana federal court, asserting claims for copyright infringement under the Copyright Act and unfair competition under § 43 of the Lanham Act.

Pampa Bay has marketed and distributed products similar to the Organic Pearl collection but made with cheaper materials since 2016. Ms. Ball alleged that Pampa Bay infringed upon her copyright and its unregistered trade dress because the products are confusingly similar and look and feel like the Organic Pearl trade dress in every way. The district court ruled against Ms. Ball, finding that it had not established that its unregistered trade dress acquired “secondary meaning” as is required for protection of an unregistered trade dress under the Lanham Act. The district court further held that Ms. Ball lacked standing to bring the copyright claims as a result of a lack of legal interest because when “Beatriz Ball Collection” transferred ownership in the copyrights to “Beatriz Ball, LLC,” the language of the assignment did not specifically transfer the right to a cause of action for prior infringements predating the assignment. The assignment clause in issue read:

Assignment. Assignor [Beatriz Ball and Beatriz Ball Collection] hereby irrevocably conveys, transfers, and assigns to Assignee [Beatriz Ball, LLC], and Assignee hereby accepts, all of Assignor’s right, title and interest in and to any and all copyrights, whether registered or not and whether or not applications have been filed with the United States Copyright Office or any other governmental body. This assignment expressly includes any and all rights associated with those copyrights.

The district court found that because the assignment did not specifically transfer the assignor’s right to causes of action for prior infringements, the LLC lacked standing to challenge infringements pre-dating the assignment. The district court therefore never reached the merits of the copyright claim.

On appeal, the Fifth Circuit first reviewed the standing issue to determine if the LLC owned the copyrights at the time of the alleged infringement or if the right to vindicate prior infringements had been effectively assigned to Ms. Ball. Reversing the district court’s ruling, the Court concluded that the LLC had standing to bring the suit as the actual copyright holder. The Court reasoned that § 411(b)(1), which provides that a registration with “inaccurate information” can support an infringement action [...]

Continue Reading

Delay in Enforcing Trademark Measured from When Infringement Became Actionable

By Eleanor B. Atkins on May 26, 2022
Posted In Trademarks

Addressing laches and progressive encroachment, the US Court of Appeals for the Eighth Circuit reversed and remanded a district court’s grant of summary judgment based on laches because the district court failed to “conduct a meaningful analysis” as to when the trademark infringement first became actionable. A.I.G. Agency, Inc. v American International Group, Inc., Case No. 21-1948 (8th Cir. May 13, 2022) (Loken, Gruender, Grasz, JJ.)

A.I.G. Agency (Agency) is a family-owned insurance broker in Missouri and American International Group, Inc. (International) is a large insurance company. Each company has used its version of an AIG trademark for decades. Agency first adopted the mark in 1958 while International began using AIG sometime between 1968 and 1970. In 1995, International sent a demand letter to Agency notifying it of International’s trademark registration and requesting that Agency cease use of the AIG mark. Agency responded that it had the right to use AIG in Missouri and Illinois because it had been using the trademark in those states long before International obtained its registration. In 2008, International again reached out to Agency demanding that it stop using AIG as a mark. Agency again asserted that it had the right to use the mark in Missouri and Illinois. International responded that it did not object to Agency’s use of AIG in St. Charles and St. Louis Counties in Missouri, but it would contest Agency’s use beyond that limited geographic scope.

Nearly a decade later, in 2017, Agency sued International for common law trademark infringement and unfair competition. International asserted that Agency’s claims were barred by laches and counterclaimed for trademark infringement, trademark dilution and unfair competition. Both parties moved for summary judgment, and the district court granted summary judgment for International, finding that Agency’s claims were barred by the doctrine of laches. Agency appealed.

The Eighth Circuit explained the difference between the equitable affirmative defense of laches (which is meant to bar claimants from bringing unreasonably delayed claims) and the doctrine of progressive encroachment (under which the period of delay in a trademark infringement case is measured not from when a claimant first learned of the allegedly infringing mark, but from when that infringement first became actionable). The Court explained that “[t]he doctrine [of progressive encroachment] saves trademark holders from being hoisted upon the horns of an inequitable dilemma—sue immediately and lose because the alleged infringer is insufficiently competitive to create a likelihood of confusion, or wait and be dismissed for unreasonable delay.” Here, Agency argued that it did not have an actionable and provable claim for infringement until 2012 when International changed its marketing strategy.

The Eighth Circuit found that the district court failed to “conduct a meaningful analysis” to determine when the infringement became actionable, noting that the district court found that laches barred the claims because “both parties have been using ‘AIG’ in the same markets for decades, each with full knowledge of the other’s activities.” The Court further criticized the district court for not employing a specific test to determine [...]

Continue Reading

Appeal Shuttered for Lack of Finality

By Paul Devinsky on Jan 27, 2022
Posted In Trademarks

The US Court of Appeals for the Eighth Circuit held that it lacked jurisdiction under 28 U.S.C. § 1291 and therefore dismissed an appeal of a district court decision staying a federal action pending state court litigation between the parties. Window World Int.’l, LLC et al. v. O’Toole et al., Case No. 21-1108 (8th Cir. Jan. 7, 2022) (Loken, Colloton, Benton, JJ.).

Window World International owns registered trademarks for the marketing of exterior remodeling products, such as custom-made vinyl windows. Window World distributes products through 200 independently owned and operated franchisees, including Window World of St. Louis, Inc. and Window World of Springfield-Peoria, Inc., companies co-owned by James T. Lomax III (collectively, the Lomax parties). Window World sublicenses its franchisees to use its trademarks.

In January 2015, the Lomax parties and other Window World franchisees sued Window World in the North Carolina Business Court. The Lomax parties alleged that Window World failed to make franchise disclosures required by federal and state law. They also asserted claims of fraud and breach of contract. In April 2019, the Lomax parties sent letters to Window World customers making several misrepresentations about Window World’s product warranty. Window World commenced action in federal court, asserting causes of action under the Lanham Act for false advertising, trademark infringement, unfair competition and dilution of a famous mark.

The Lomax parties moved to dismiss for failure to state a claim or stay the federal action pursuant to the Supreme Court’s 1976 decision in Colorado River Water Conservation Dist. v. US, which held that the interests of effective judicial administration may lead a federal court to reject taking jurisdiction in a case involving a concurrent state proceeding. Window World opposed the dismissal and stay requests. The district court dismissed several of Window World’s claims but ruled that it had a plausible trademark infringement and unfair competition claim and denied dismissal as to those claims. The district court also stayed the federal action pending determination of the scope of the claims regarding the protected marks in the North Carolina litigation. Window World appealed.

The Eighth Circuit found that the issued stay order was neither a final order under 28 U.S.C. § 1291 nor a collateral interlocutory order that may be appealed. As a result, the Court dismissed the appeal for lack of jurisdiction. In doing so, the Court explained that an order staying civil proceedings is interlocutory and not ordinarily a final decision for purposes of § 1291. However, if the stay effectively ends the litigation, then the order is final and jurisdiction under § 1291 is proper. Here, the Court concluded that the lower court’s stay was not a final order because the order contemplated further litigation in federal court. Additionally, the stay was not a final order merely because it had the practical effect of allowing a state court to be the first to rule on common issues. Therefore, the Court concluded that the stay order was not appealable as a final order and dismissed the appeal.

Foreign Company’s Purposeful US Activities Blemishes Lack of Personal Jurisdiction Defense

By McDermott Will & Emery on Sep 9, 2021
Posted In Trademarks

The US Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of a complaint, finding that the foreign defendant was subject to specific personal jurisdiction in the United States in light of the defendant’s marketing, sales and operations, each of which reflected a significant focus on the United States. Ayla, LLC v. Alya Skin Pty. Ltd., Case No. 20-16214 (9th Cir. Aug. 27, 2021) (Rakoff, J.)

Ayla is a beauty and wellness brand based in the San Francisco area that offers skincare and hair products through retail and online sales, as well as health and personal care advice on its website. Ayla has three registered trademarks “for use of the ‘AYLA’ word mark in connection with on-site beauty services, online retail beauty products and cosmetics services, and cosmetics.” Alya Skin is a skincare company with its place of incorporation and principal place of business in Australia. Alya Skin sells and ships its products worldwide but about 10% of its total sales are made to the United States.

Alleging a “confusingly similar” mark on its products and advertisements, Ayla sued Alya Skin for trademark infringement and false designation of origin pursuant to the Lanham Act, as well as unfair competition under the California Business & Professions Code and California common law. Alya Skin moved to dismiss the lawsuit for lack of personal jurisdiction. The district court granted Alya Skin’s motion to dismiss, finding that it did not have personal jurisdiction. Ayla appealed.

On appeal, Ayla challenged the district court’s determination that it did not have nationwide jurisdiction over Alya Skin under Fed. R. Civ. Pro. 4(k)(2). The Ninth Circuit framed the issue on appeal as a question of whether the district court “erroneously held that the exercise of nationwide jurisdiction over Alya Skin does not comport with due process.” The Court noted that the due process analysis under 4(k)(2) is “nearly identical” to the traditional personal jurisdiction analysis but “rather than considering contacts between [the defendant] and the forum state, we consider contacts with the nation as a whole.” Because trademark infringement is “treated as tort-like for personal jurisdiction purposes,” the Court focused its specific jurisdiction analysis on whether Alya Skin “purposefully directed its activities toward the United States.”

The Ninth Circuit’s inquiry focused on a totality analysis surrounding Alya Skin’s marketing, sales and operations, each of which reflected a significant focus on the United States. The Court noted that Alya Skin promoted its allegedly infringing products specifically to US individuals through “significant advertising efforts.” These efforts included, for example, an Instagram post directly referencing the “USA,” Alya Skin’s advertising efforts during “Black Friday” and Alya Skin’s reference on its website that its products were featured in US magazines. Moreover, Alya Skin presented to consumers “that its products are FDA approved,” which the Court found to be “an appeal specifically to American consumers for whom the acronym ‘FDA’ has meaning.” The Court also noted that Alya Skin’s volume of sales reflected a purposeful direction toward the United States.

[...]

Continue Reading

Third Circuit Orders Second Look at Delays and Disgorgement of Profits

By Sarah Bro on Aug 26, 2021
Posted In Trademarks

In a long-running trademark dispute between two charitable organizations, the US Court of Appeals for the Third Circuit found that the appellee did not preserve its challenge to the district court’s denial of summary judgment on its trademark cancelation claims, the appellant waived any challenge to the validity of the defendant’s mark and the district court did not abuse its discretion by declining to award enhanced monetary relief or prejudgment interest. Kars 4 Kids Inc. v America Can!, Case Nos. 20-2813; -2900 (3rd Cir., August 10, 2021) (Shwartz, J.) The Court also vacated-in-part and remanded for the district court to reexamine its laches and disgorgement conclusions under applicable law.

As charitable organizations that sell donated vehicles to fund children’s programs, both America Can (as CARS FOR KIDS) and Kars 4 Kids have used similar trademarks since their respective starts in the early- to mid-1990s. In 2003 and 2013, America Can sent cease and desist letters to Kars 4 Kids after seeing its advertisements in the state of Texas. In 2014, Kars 4 Kids sued America Can for federal and state trademark infringement, unfair competition and trademark dilution claims. Less than one year later, America Can filed its own suit—alleging the same claims—plus a petition to cancel a Kars 4 Kids trademark registration and seeking a nationwide injunction and financial compensation.

Both parties appeal from a denial of their respective summary judgment motions as well as (1) the jury finding that Kars 4 Kids willfully infringed America Can’s trademark rights in Texas, (2) the rejection of America Can’s petition for cancellation of a KARS FOR KIDS trademark registration finding that the registration was not knowingly procured by fraudulent means, (3) the conclusion that laches did not apply against America Can’s claims, (4) disgorgement of Kars 4 Kids profits in Texas totaling about $10.6 million, (5) rejection of enhanced monetary relief and (6) an injunction against Kars 4 Kids with respect to use of its trademark in Texas and from using the carsforkids.com domain name. On appeal, Kars 4 Kids also renewed its motion for judgment as a matter of law, including an argument that America Can’s trademark is invalid.

The Third Circuit rejected Kars 4 Kids’ effort to overturn the jury’s liability verdict, concluding that Kars 4 Kids failed to preserve its challenge to the validity of the CARS FOR KIDS trademark when it left that issue out of its Rule 50(a) motion. Instead, evidence of America Can’s continuous use of the CARS FOR KIDS mark well prior to 2003 predated Kars 4 Kids’ first use of its trademark in Texas in 2003 and established America Can’s ownership of the CARS FOR KIDS trademark in Texas.

However, after examining the laches claim, the Third Circuit explained that it considered (1) the plaintiff’s inexcusable delay in bringing suit and (2) prejudice to the defendant as a result of the delay. With no statute of limitations under the Lanham Act, the parties agreed that their claims are properly analogized to New Jersey’s six-year [...]

Continue Reading

Injunctive Relief Available Even Where Laches Bars Trademark Infringement, Unfair Competition Damage Claims

By Paul Devinsky on Aug 12, 2021
Posted In Trademarks

The US Court of Appeals for the 11th Circuit affirmed a district court’s conclusion that laches barred an advertising and marketing company’s claims for monetary damages for trademark infringement and unfair competition, but remanded the case for assessment of injunctive relief to protect the public’s interest in avoiding confusion between two similarly named companies operating in the advertising sector. Pinnacle Advertising and Marketing Group, Inc. v. Pinnacle Advertising and Marketing Group, LLC, Case No. 19-15167 (11th Cir. Aug. 2, 2021) (Branch, J.)

Pinnacle Advertising and Marketing Group (Pinnacle Illinois) is an Illinois-based company and owner of two registered trademarks including the name “Pinnacle.” Pinnacle Illinois learned of a Florida-based company operating under almost the same name that was also in the advertising and marketing space—Pinnacle Advertising and Marketing Group (Pinnacle Florida) —through potential clients and a magazine’s accidental conflation of the two unrelated companies. Several years later, Pinnacle Illinois sued Pinnacle Florida for trademark infringement, unfair competition and cybersquatting. Pinnacle Florida filed a counterclaim seeking to cancel Pinnacle Illinois’s trademark registrations and also alleged that Pinnacle Illinois’s claims were barred by the doctrine of laches.

Following a jury trial, the district court granted Pinnacle Florida’s motion for judgment as a matter of law on Pinnacle Illinois’s cybersquatting claim. The jury returned a verdict in favor of Pinnacle Illinois on its claims for trademark infringement and unfair competition, awarding Pinnacle Illinois $550,000 in damages. The district court then granted Pinnacle Florida’s motion for judgment as a matter of law on its laches defense, concluding that Pinnacle Illinois’s trademark infringement and unfair competition claims were barred by laches because it waited more than four years to bring suit after it should have known that it had a potential infringement claim against Pinnacle Florida. The district court also cancelled Pinnacle Illinois’s registrations because it concluded that Pinnacle Illinois’s marks were merely descriptive and lacked secondary meaning. Pinnacle Illinois appealed.

Pinnacle Illinois argued that the district court abused its discretion in finding that Pinnacle Illinois’s claims were barred by laches, and that even if laches did bar Pinnacle Illinois’s claims for money damages, the district court should have considered whether injunctive relief was proper to protect the public’s interest in avoiding confusion between the two companies. Pinnacle Illinois also argued that the district court erred when it cancelled its registrations without regard to the jury’s findings of distinctiveness and protectability or the presumption of distinctiveness afforded to its registered marks.

The 11th Circuit found that the district court did not abuse its discretion in determining that laches barred Pinnacle Illinois from bringing its trademark infringement and unfair competition claims for monetary damages. Pinnacle Illinois sued after the Florida four-year statute of limitations had passed, and the Court found that the company was not excused for its delay because it did not communicate with Pinnacle Florida about the infringement until it filed suit. Pinnacle Florida also suffered economic prejudice because it invested significant time and money, including around $2 million, in developing its business under [...]

Continue Reading

Reverse Confusion Suit Not Ironclad, but SmartSync Lives On

By Joshua Revilla on Apr 29, 2021
Posted In Trademarks

In a split decision, the US Court of Appeals for the Ninth Circuit vacated a district court’s summary judgment and remanded the case for trial in an action brought under the Lanham Act in order to resolve material issues of fact on likelihood of confusion/reverse confusion factors that remain in dispute. Ironhawk Technologies, Inc. v. Dropbox, Inc., Case No. 19-56347 (9th Cir. Apr. 20, 2021) (Smith, J.) (Tashima, J., dissenting)

Ironhawk developed computer software designed to transfer data efficiently in “bandwidth-challenged environments” and has marketed the software since 2004 using the name “SmartSync.” Ironhawk registered the SmartSync mark in 2007. In 2017, Dropbox launched a feature entitled “Smart Sync,” which allowed users to see and access files in their Dropbox cloud storage accounts without taking up space on their hard drive. Ironhawk sued Dropbox for trademark infringement and unfair competition in 2018, alleging that that Smart Sync intentionally infringed upon Ironhawk’s SmartSync trademark and was likely to cause confusion among consumers. The district court granted summary judgment in favor of Dropbox, concluding that “a reasonable trier of fact could not conclude that Dropbox’s use of Smart Sync is likely to cause consumer confusion.”

Ironhawk appealed, focusing primarily on its reverse confusion theory of infringement. Reverse confusion occurs where consumers dealing with the holder of the senior mark (Ironhawk) believe they are dealing with the junior (Dropbox). This occurs when someone who is only aware of the well-known junior (Dropbox) comes into contact with the lesser-known senior (Ironhawk) and incorrectly believes the senior is the same as, or affiliated with, the junior user because of the similarity of the two marks.

The Ninth Circuit first defined the relevant consumer market. This issue revolved around whether the relevant market should be limited to Ironhawk’s only active customer, the US Navy, or whether it should include commercial customers. Dropbox argued that the market should be limited to the Navy and that consequently the relevant consumer would be less likely to be confused as to the source or affiliation of SmartSync. In terms of procurement, it was undisputed that the Navy exercised significant care and effort. However, Ironhawk argued that it previously had a commercial customer, and that it actively markets and pursues business with other commercial businesses. The Court held that because Ironhawk had a previous commercial customer and had made recent attempts to acquire more commercial accounts, a reasonable jury could include the potential commercial customers in the relevant market.

The Ninth Circuit next turned to the “highly factual inquiry” of the eight Sleekcraft factors:

Strength of the mark
Proximity of the goods
Similarity of the marks
Evidence of actual confusion
Marketing channels used
Type of goods and likely level of care exercised by purchaser
Defendant’s intent in selecting the mark
Likelihood of expansion of the product lines.

For the first three factors, the Ninth Circuit found that a reasonable jury could find that:

Dropbox’s mark was commercially strong and would be able to swamp Ironhawk’s reputation.
The Smart [...]

Continue Reading

Colorful Non-Functionality Argument Misses the (Design) Mark

By Paul Devinsky on Mar 4, 2021
Posted In Trademarks

Addressing the functionality of colors in design marks, the US Court of Appeals for the Second Circuit reversed the district court’s entry of judgment for a trademark owner on its unfair competition and trademark claims, ruling that where color is used as an indicator of size or parts matching, it is functional and does not qualify as trade dress. Sulzer Mixpac AG v. A&N Trading Co., Case No. 19-2951 (2d Cir. Feb. 18, 2021) (Pooler, J.)

Sulzer Mixpac and A&N Trading are competitors that manufacture and supply mixing tips, which dentists use to create impressions of teeth for dental procedures. Mixpac obtained trademarks for the colors yellow, teal, blue, pink, purple and brown (collectively, the Candy Colors) as applied to mixing tips. Mixpac filed suit against A&N, claiming unfair competition; common law trademark infringement; and trademark infringement, trademark counterfeiting and false designation of origin under the Lanham Act. A&N countersued, claiming that Mixpac’s use of the Candy Colors on mixing tips was functional and therefore not entitled to trademark protection. The district court concluded that Mixpac’s use of the Candy Colors was non-functional (based in part on the increased cost of adding color to the mixing tips, and noting that other competitors used clear tips), and entered judgment and a permanent injunction in favor of Mixpac. A&N appealed.

The Second Circuit reversed, explaining that the district court erred by failing to apply the Louboutin three-part aesthetic functionality test to Mixpac’s marks. Under the Louboutin test, to determine whether a design feature is non-functional and thus entitled to trademark protection, courts look to whether the design feature (1) is “essential to the use or purpose” of the product, (2) “affects the cost or quality” of the product, and (3) has a significant effect on competition. A&N argued that the mixing tips’ color coding helps users identify useful product characteristics, such as diameter, and that it aids users in selecting the correct tip. Applying the Louboutin test in the first instance and citing trial testimony, the Second Circuit concluded that the colors signify diameter, which assists users when selecting the proper cartridge, as the colors “enable users to quickly match the proper mixing tip with the proper cartridge, and (citing Louboutin) thereby ‘improve[] the operation of the goods.'”

Practice Note: In trade dress cases, be sure to apply the Louboutin three-part aesthetic functionality test. Failure to do so may lead to reversal on appeal. In this case, the Second Circuit noted that “[t]he district court erred because it did not apply this test when it considered only that Mixpac’s use of the Candy Colors adds to manufacturing costs and that other companies use different or no colors.”

Attorney’s Fees Properly Awarded in Unsuccessful Trade Secret Misappropriation and Civil Theft Suit

By Paul Devinsky on Aug 26, 2020
Posted In Trade Secrets

The US Court of Appeals for the Fifth Circuit affirmed a take-nothing judgment and an attorney’s fees award against plaintiffs in a trade secret misappropriation and civil theft suit under Texas law, finding that the fee award did not need to be segregated to various claims. ATOM Instrument Corp. v. Petroleum Analyzer Co., L.P., Case Nos. 19-29151, -20371 (5th Cir. Aug. 7, 2020) (Southwick, J.). The Court also remanded for an additional award of appellate attorney’s fees.

Olstowski was a consultant for Petroleum Analyzer Co., L.P. (PAC), during which time he developed a krypton-chloride-based excimer lamp to detect sulfur with ultraviolet fluorescence. Although he developed the lamp independently, he used PAC resources to test the technology. Olstowski and PAC negotiated but failed to agree on licensing. Olstowski founded ATOM Instrument to assist him in the licensing discussions. Subsequently, PAC filed a declaratory judgment action in Texas court alleging that it owned the lamp technology. The state court ordered the claim to arbitration. The arbitration panel declared Olstowski the owner of the technology and enjoined PAC from using it. The state court confirmed the arbitral award, and a Texas appellate court upheld the confirmation order.

PAC thereafter developed a new sulfur-detecting excimer lamp called MultiTek that also used krypton-chloride with UV fluorescence. Olstowski and ATOM filed in state court for contempt of the injunction, but the state court denied the contempt motion as moot because PAC had ceased selling MultiTek.

ATOM filed for bankruptcy the following year. Olstowski and ATOM initiated a district court proceeding against PAC alleging misappropriation of trade secrets, unfair competition and civil theft. After holding a bench trial, the court found that MultiTek did not practice Olstowski’s technology and therefore entered a take-nothing judgment in favor of PAC. The district court also awarded attorney’s fees to PAC under a provision of the Texas Theft Liability Act (TTLA) that awards fees to prevailing parties. Olstowski and ATOM appealed both issues, and PAC sought an award of its appellate attorney’s fees.

As to liability, ATOM argued that the district court erred in finding that the MultiTek lamp did not practice Olstowski’s technology. ATOM characterized the error as a legal one regarding interpretation of the arbitral award, but the Fifth Circuit held that “whether one company used another’s protected technology” is a factual question for which Olstowski and ATOM had failed to carry the burden of proof at trial. ATOM further argued that the district court had ignored the alleged law of the case in deviating from the scope of technology defined in the arbitral award, but the Court again rejected ATOM’s argument because the district court had explicitly stated that the description of Olstowski’s technology in the arbitral award remained in effect.

As to the award of attorney’s fees, ATOM argued that the district court had not appropriately segregated fees related to the TTLA claim from those related to other claims. Applying Texas law, the Fifth Circuit affirmed that the TTLA claim was sufficiently related to the other claims [...]

Continue Reading

Older Posts »

BLOG EDITORS

STAY CONNECTED

TOPICS

ARCHIVES

RECENT POSTS