I. COPYRIGHT

A. Substantial similarity; Subject matter jurisdiction

Creations Unlimited, Inc. v. McCain, 112, F.3d 814, 42 U.S.P.Q.2d 1787 (5th Cir. 1997); GARWOOD, WIENER, and DeMOSS, Circuit Judges

Plaintiff was in the business of designing artwork and printing that artwork upon t-shirts for sale at craft fairs and festivals.  Plaintiff had obtained copyright registrations on at least seven of those designs for which infringement was claimed.  In 1992, defendants began selling t-shirts at the same craft fairs and festivals as plaintiffs.  According to plaintiff, many of the t-shirts sold by defendant bore designs modeled on those copyrighted by plaintiff.  In 1993, plaintiff informed defendant that it believed defendant was infringing its copyrights and demanded that defendants cease selling t-shirts that copied plaintiff’s designs.  When defendant did not cease the alleged infringing activities, plaintiff sued.  On motion for summary judgment, the district court compared the copyrighted designs with defendant’s t-shirts and found that the two were not substantially similar.

On appeal, the Fifth Circuit affirmed the trial court’s finding of no substantial similarity as a matter of law.  Plaintiff argued that the trial court erred in comparing the plaintiff’s drawings to the defendant’s t-shirts.  Accordingly, the Fifth Circuit modified the judgment of the trial court to include dismissal for lack of subject matter jurisdiction.  The court held that copyright registration is a jurisdictional prerequisite to filing a copyright infringement suit.  Thus, the court concluded, to the extent plaintiff’s complaint included claims for infringement of its t-shirts, apart from the drawings, the trial court had no jurisdiction because plaintiff had not filed for copyright registration of its t-shirts which incorporated the copyrighted designs.

B. Audiovisual works; implied licenses

Lulirama Ltd. v. Axcess Broadcasting Services, Inc., 128 F.3d 872, 44 U.S.P.Q.2d 1731 (5th Cir. 1997); POLITZ, Chief Judge, KING, Circuit Judge, and DUPLANTIER, Senior District Judge

 In November 1991, plaintiffs and defendant entered into a one-year jingle writing agreement whereby Michlin, plaintiff’s president, was to write and provide defendant with fifty jingles for $37,500 over the one year.   The agreement was in writing and stated that the works were for hire.  Defendant paid plaintiff the full sum due, but plaintiff provided defendant with only seven jingles.

In April 1992, plaintiff and defendant entered into another written agreement that gave defendant the right to use any musical works that plaintiff or Michlin could claim any right, title or interest in.  The term of this agreement was one year, but renewable up to four years at defendant’s discretion.

In March 1993, the parties orally extended the jingle writing agreement of November 1991 for an indefinite period.  From March 1993 to June 1994 defendant paid plaintiff the full sums owed, but plaintiff provided only twenty-nine songs.

In October 1995, plaintiffs filed suit against defendant claiming copyright infringement for defendant’s unauthorized reproduction of the jingles, preparation of derivative jingles, and distribution of copies of the jingles and authorization of others to perform the jingles.  Defendant filed an answer and counterclaim, alleging that it owned the copyrights to all the jingles and that it had an implied license to use the jingles.

On cross motions for summary judgment, the district court held that defendant owned the copyrights in the first seven jingles, while plaintiffs owned the copyrights in the twenty-nine subsequent jingles.  The district court also found that defendants had an oral or implied license to use the twenty-nine jingles and that defendants had not exceeded the scope of that license.

On appeal, defendants argued that the advertising jingles were ordered by them to sell to its television and radio station clients, thus indicating that the jingles were specially ordered or commissioned for use in an audiovisual work per 17 U.S.C. Section 101.  The Fifth Circuit disagreed and vacated the summary judgment entered by the district court on the issue of ownership of the first seven jingles, finding that a genuine issue of material fact existed regarding whether or not the jingles were ordered or to be used as part of a motion picture or other audiovisual work.  The district court had apparently based its decision to grant summary judgment in part on a finding that audiovisual works in 17 U.S.C Section 101 included purely audio works.  The Fifth Circuit disagreed noting that such a definition would render the category of “sound recordings” in that same section completely empty.

Plaintiffs also appealed the trial court’s decision that an implied license existed between the parties with regard to the last twenty nine jingles.  The Fifth Circuit adopted a totality standard to determine whether such a license exists noting that other circuits find implied licenses when the licensee requests creation of a work, the licensor creates the particular work and delivers it to the licensee, and the licensor intends that the licensee copy and distribute the work.  Citing I.A.E., Inc. v. Shaver, 74 F.3d 768, 775 (7th Cir. 1996).  The court then noted that the three-pronged inquiry was clearly satisfied because defendant requested creation of the jingles, Michlin delivered the jingles requested, and plaintiffs knew that defendant would sell the jingles to radio and television customers.

 Hence, the Fifth Circuit rendered judgment that defendant had a non-exclusive implied license to reproduce the jingles, create derivative works of the jingles, distribute and sell the jingles to its radio and television station customers, and authorize public performances of those jingles.

C. Infringement; Vicarious liability

Playboy Enterprises, Inc. v. Webbworld, Inc., 968 F.Supp. 1171 (N.D.Tex. 1997); Judge Saffels

Plaintiff, a famous men’s magazine publisher, brought suit against defendants for copyright infringement.  Defendants operated a website whereby customers, upon payment of a monthly fee, could download images from the website.  Plaintiff brought suit after finding that images retrieved from defendant’s website were identical to those images which appeared in plaintiff’s copyrighted magazines.

On a motion for summary judgment and after review of the alleged infringing images, the court granted the motion and found that defendants had infringed plaintiff’s copyrightd.   Defendant argued that it could not be held liable for copyright infringement because it had no control over the persons who were posting the alleged infringing images to the news groups from which defendant obtained its images.  The court dismissed that argument noting that defendant surely had control over which images it decided to sell to the public.  Additionally, the court refused to grant summary judgment with respect to sixteen of the images because plaintiff placed its trademark “rabbit head” on the images.  The court concluded that granting the motion for summary judgment on those sixteen images would be improper, based on defendant’s claims of plaintiff’s tampering with the images.

Plaintiff also moved and was granted a motion for summary judgment for vicarious copyright infringement against defendant’s two principal operators.  The Fifth Circuit’s standard for vicarious copyright infringement is whether or not a defendant has a direct financial interest in the infringing activity and has the right to supervise the activity which causes the infringement.  The court found that the determination of supervisory authority and financial interest are questions of law, and held each of defendant’s two principals liable for vicarious copyright infringement because they each exercised the necessary supervisory and financial interest in the defendant company.  In particular, one of the defendants, Ives, was the sole officer, director and shareholder, while Ives along with defendant Ellis maintained the necessary supervisory authority to control what occurred on the defendant’s website despite their contentions that the process was automated.  Additionally, because both Ives and Ellis benefitted from the monthly access charges imposed by the website upon customers, the requisite financial interest prong had been met.

D. Preliminary Injunction

 Haas Outdoors, Inc. v. Oak Country Camouflage, Inc., 957 F.Supp. 835, 42 U.S.P.Q.2d 1812 (N.D.Miss. 1997); Judge Center

Plaintiff, one of the country’s largest manufacturers and distributors of camouflage fabric, clothing and accessories, brought suit for copyright and trademark infringement against defendant.  As part of its marketing strategy, plaintiff produced an annual catalog which included unique charcoal drawings of the various items offered by sale by plaintiff.  The drawings were unique because while each article of clothing was sans a human body, it took the shape of human movement.  These drawings had been utilized in plaintiff’s catalog since 1989 and its 1996 catalog  entitled “America’s Most Effective Concealment System” is protected by copyright, vis-a-vis registration with the Copyright Office.

In 1997, defendant produced a catalog containing charcoal drawings of its clothing, many of which were in the exact style and pose of the charcoal drawings of clothing offered in plaintiff’s catalog.  Additionally, defendant’s 1997 magazine contained the following text:

For those mornings and evenings afield when the situation requires the ultimate in silence.  Picture an old gobbler, head cocked, eyes strained, trying to locate the hen that made the last soft purr, or a trophy buck quietly slipping past your stand, with every sense fine tuned for the slightest noise.  These are the times you’ll have extra confidence because you chose OAK COUNTRY.  Comfort and quality, attention to detail, and the very latest cutting edge technology give you that needed assurance to concentrate only on the shot.

Plaintiff’s 1996 catalog contained the following:

For those cool mornings and evenings afield when the situation requires the ultimate in silence.  Picture an old gobbler, head cocked, eyes strained, trying to locate the hen that made the last soft yelp, or a nice buck anxiously slipping past your stand, every sense alert.  These are the times you’ll want our Traditional Woodsman Series.  Comfort and quality related to the past, with the technology, patterns, features and designs of the future.

On a motion for preliminary injunction, the court found that the above facts were sufficient to warrant a finding that plaintiff would likely succeed on the merits of its copyright infringement claims, i.e. proving both ownership of a valid copyright and copying of the work claimed to be infringed..  The court also found that plaintiff proved that irreparable injury would result if no injunction were granted.  The court granted an injunction prohibiting defendant from copying or distributing any portion of plaintiff’s copyrighted materials.

II. PATENT

Circuit Decisions

A. Permissive Anti-trust Counterclaims in Patent Infringement Suits

Tank Insulation International, Inc. v. Insultherm, Inc., 104 F.3d 83, 41 U.S.P.Q.2d 1545 (5th Cir. 1997); No. 96-400019; Judge Jolly writing for a unanimous panel which also included Judges Garza and DeMoss

 Factual and Procedural Background

In 1993, Insultherm, Inc. (“Insultherm”) filed a patent infringement action in the Southern District of Texas, Galveston Division, against Tank Insulation International, Inc. (“TII”).  The district court dismissed the case under Fed.R.Civ.Pro. 52(c), holding that the patent was unenforceable.  Insultherm appealed to the Federal Circuit which reversed and remanded.  While that appeal was pending, TII filed an antitrust action against Insultherm, Thermacon, Inc. (“Thermacon”) and Mark McBride (“McBride”) in the Southern District of Texas, Victoria Division, alleging a conspiracy to file a wrongful patent infringement suit.  With the parties’ consent, that action was transferred to the Galveston Division and consolidated with the then remanded infringement action.  Subsequently, the trial court vacated its consolidation order and dismissed the antitrust suit on the ground that it was a compulsory counterclaim to the patent infringement action.  The court ruled that TII had waived the counterclaim by failing to plead it in its answer to the infringement complaint.  After this ruling, TII filed a motion requesting leave to file an amended answer which the district court denied.  TII appealed the denial of its motion for leave to file an amended answer to the Federal Circuit and simultaneously filed an appeal to the Fifth Circuit on the dismissal of its antitrust claim.  The Federal Circuit denied TII’s appeal.  Three issues were considered by the Fifth Circuit: 1) whether it had appellate jurisdiction over TII’s appeal; and 2) whether the antitrust action was a compulsory counterclaim to the patent infringement action; and 3) if the antitrust claim was a compulsory counterclaim, was there an exception for antitrust claims based on patent infringement actions to the rule of Fed.R.Civ.Pro. 13(a) that compulsory counterclaims not raised in the answer are waived.

Reasoning and Holdings

With respect to the jurisdictional question, the Fifth Circuit held that it did have jurisdiction over the appeal.  According to the Fifth Circuit, § 1295 “unquestionably vested the Federal Circuit with exclusive jurisdiction over the entire action” but only “so long as the actions were consolidated.”  However, upon the vacation of the consolidation order, the district court lost jurisdiction under § 1338.  Jurisdiction was retained over the case solely through the general federal question provisions of 28 U.S.C. § 1331 and the Sherman Act, 15 U.S.C. § 15(a).  Accordingly, the Fifth Circuit held that the appeal was properly taken to it pursuant to 28 U.S.C. § 1291.

With respect to the classification of the antitrust claim, the Fifth Circuit concluded that the antitrust counterclaim was properly classified as compulsory because it was logically related to the infringement claim made by Insultherm.  The court reasoned that the “core tenet of TII’s antitrust claim (was) that Insultherm violated the antitrust laws by instituting an infringement action for the allegedly invalid patent.”  Much of the alleged conduct which would support TII’s antitrust claim would also support TII’s defenses to the charge of patent infringement including the alleged inequitable conduct in the prosecution of the patent before the Patent Office, the alleged invalidity of the patent, and the alleged absence of infringement.  The common issues of fact and law between the two claims supported the court’s classification of the counterclaim as compulsory.

 Finally, the Fifth Circuit held that there was an exception to the compulsory counterclaim rule specifically for antitrust claims arising from charges of patent infringement.  It based its decision on Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S. 661, 64 S.Ct. 268, 88 L.Ed. 376 (1944).  The Fifth Circuit ruled that Mercoid created a limited exception to rule 13(a) for antitrust claims based upon patent infringement lawsuits initiated by the counterclaim defendant.  Such claims, according to the Fifth Circuit, should be considered permissive counterclaims under rule 13(b), and are not barred by rule 13(a) if they are not raised in the defendant’s answer.  Accordingly, the lower court’s dismissal was reversed and the case was remanded. The court declined to consider whether Mercoid’s holding would apply to every antitrust counterclaim arising in the patent infringement context because the factual similarity between Mercoid and the case before it made any additional holding unnecessary.

B. Appellate Jurisdiction

Scherbatskoy v. Halliburton Co., 125 F.3d 288, 44 U.S.P.Q.2d (5th Cir. 1997); No. 97-20287; Chief Judge Politz writing for a unanimous panel which also included Judges Davis and Benavides

Factual and Procedural Background

The father of the plaintiffs invented certain oil field procedures relating to “measuring while drilling (MWD)” technology.  The process allowed measurements to be taken while a well is being drilled rather than using costly wire line and logging testing.  A patent was issued to Mr. Scherbatskoy for his invention which was eventually transferred to the Scherbatskoy Family Trust, (collectively “Scherbatskoy”).  In 1992 the Halliburton Co. (“Halliburton”) entered into a license agreement with Scherbatskoy which gave it the right to practice the invention of the Scherbatskoy Patent in exchange for payment of royalties.  Significantly, the license also provided that if Halliburton later acquired a “New Company” which offered MWD services prior to its date of acquisition, Halliburton was to pay additional defined royalties.  On January 14, 1993, Halliburton purchased certain assets of Smith International, Inc. (“Smith”) including all of its MWD technology.  In response to inquiries from Scherbatskoy, Halliburton stated in a letter dated June 16, 1993, that it did not intend to pay the additional royalties called for in the license agreement because the Smith transaction did not result in the acquisition of a “New Company.”  In response to this letter, Scherbatskoy filed suit in Texas state court against Halliburton alleging breach of contract and breach of fiduciary duty.  Halliburton removed the action to federal court, arguing that the suit invoked the patent laws and that exclusive jurisdiction, therefore, lay with the federal judiciary pursuant to 28 U.S.C. § 1338(a).  The district court agreed and refused to remand.  Subsequently, the lower court dismissed the complaint on Halliburton’s motion for summary judgment.  Scherbatskoy appealed to the Fifth Circuit.  Halliburton requested that court to dismiss for lack of subject matter jurisdiction or in the alternative to transfer the appeal to Federal Circuit.

Reasoning and Holdings

 The Fifth Circuit first considered whether it had the jurisdiction to decide whether it had jurisdiction.  The question was whether the Federal Circuit had the exclusive right to decide if the district court’s exercise of jurisdiction under § 1338(a) was proper or if that right was concurrent with the regional circuits.  The Fifth Circuit noted a split within the Federal Circuit on the issue: C.R. Bard, Inc. v. Schwartz, 716 F.2d 874 (Fed. Cir. 1983)(exclusive Federal Circuit jurisdiction) and Smith v. Orr, 855 F.2d 1544 (Fed. Cir. 1988)(concurrent jurisdiction).  It also noted that the Eighth Circuit and the Third Circuit had considered the issue in Smith v. Gwatney, 795 F.2d 1351, 1353 n. 2 (8th Cir. 1986) and Chabal v. Reagan, 822 F.2d 349 (3d Cir. 1987), and that both regional circuits had held that jurisdiction was concurrent.  The Fifth Circuit sided with the other regional circuits on the issue, holding that it had concurrent jurisdiction with the Federal Circuit to decide whether   § 1338(a) jurisdiction had been properly invoked.

Next the Fifth Circuit considered whether invoking federal jurisdiction under § 1338(a) was proper.  The court noted that an action arises under the federal patent laws if “the complaint includes allegations that federal patent law creates the cause of action or federal patent law is a necessary element of the claim.”  According to the Fifth Circuit, for Scherbatskoy to recover under its contract claim, it must establish that Smith infringed the Scherbatskoy Patents.  Because the complaint involved an issue of substantive patent law, jurisdiction under § 1338(a) was proper and exclusive appellate jurisdiction lay with the Federal Circuit.

Finally, the Fifth Circuit transferred the appeal to the Federal Circuit.  It declined to dismiss the appeal, noting that a new appeal by Scherbatskoy would be time barred and there was no evidence indicating that Scherbatskoy acted in bad faith.

C. Indemnity of Purchaser by Manufacturer of Goods Accused of Patent Infringement

The Bonneau Co. v. AG Industries, Inc., 116 F.3d 155, 43 U.S.P.Q.2D 1530 (Fifth Cir. 1997); No. 96-10073; a per curiam opinion for a panel consisting of Judges Jolly, Jones, and Parker

Factual and Procedural Background

The Bonneau Co. (“Bonneau”) is a manufacturer and distributor of non-prescription reading glasses.  It sells its glasses from a point of purchase display stand that uses a “hang-tag” system.  AG Industries, Inc. (“AGI”) manufactures custom point of purchase display stands among other products.  AGI manufactured a display stand for Bonneau which was the object of several patent infringement lawsuits brought against Bonneau in federal courts in California and Florida by a third party.  Subsequently, Bonneau filed suit in Texas state court alleging breach of warranty under Texas Business & Commerce Code § 2.312(c) which provides:

Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications.

 Bonneau sought the cost of defending the infringement suits and attorneys’ fees.  AGI counterclaimed for breach of contract arising from Bonneau’s failure to make payment on the display stands.  AGI removed the case to federal court and later filed summary judgment motions both on Bonneau’s breach of warranty claim and on its breach of contract claims.  The district court granted both AGI motions.  Bonneau appealed.

Reasoning and Holdings

The district court based its ruling that Bonneau did not breach the warranty provided by § 2.312(c) on its conclusion that the parties had “otherwise agreed” within the meaning of the statute.  The Fifth Circuit disagreed on this point.  It reasoned that without a substantive difference between the parties’ agreement and the language of the statute, the parties could not have “otherwise agreed” within the meaning of the statute.  It then held that the parties’ agreement effectively tracked the language of the statute and thus, did not impact the applicability of the statute.

Next, the Fifth Circuit considered the alternative basis for summary judgment relied upon by AGI.  AGI argued that Bonneau supplied the design specification for the accused product and that Bonneau must hold AGI harmless pursuant to § 2.312(c).  The court concluded that the design provided by Bonneau to AGI qualified as a specification under § 2.312(c) because the design provided by Bonneau to AGI was sufficiently specific for a competent manufacturer to construct the product.  Because Bonneau furnished the specification to AGI, the court held that § 2.312(c) mandated that Bonneau bear its own expenses in defending itself against the charges of patent infringement.  Accordingly, the summary judgment to AGI on the breach of warranty claim was affirmed.

Finally, the court addressed the breach of contract claim brought by AGI against Bonneau.  The court concluded that the only issue in dispute was whether Bonneau was entitled to claim offset for the monies owed to AGI for AGI’s alleged breach of warranty.  Because the court had already decided the breach of warranty issue against Bonneau, it affirmed the summary judgment against Bonneau for breach of contract.

District Court Opinions

D. Preliminary Injunction - Granted

Dippin’ Dots v. Mosey, 44 U.S.P.Q.2D 1812 (N.D. Tex. 1997); No. 3:96-CV-1959-X; Judge Kendall

Factual and Procedural Background

 Curt D. Jones (“Jones”), president of Dippin’ Dots, invented and patented a new method of manufacturing, storing, and serving a new ice cream product.  The method comprises dripping an ice cream mixture into a freezing chamber, flash freezing the ice cream droplets into small free-flowing beads, storing the beads at a temperature sufficiently low to ensure that the beads remain in their free flowing state, and serving the beads at a slightly higher temperature but still in a free flowing state.  Dippin Dots manufactures its beaded ice cream itself and sells the product to its authorized distributors who sell the ice cream to retail consumers.  Thomas R. Moses (“Moses”), President, Vice-President, and Secretary of International Laser Expressions, Inc. (“I.L.E.”) and apparently sole proprietor of Dots of Fun, an entity doing business as I.L.E., attempted unsuccessfully to become an authorized distributor of Dippin’ Dots.  Defendants began selling their own beaded ice cream on or about March 21, 1996.  Dippin’ Dots sued the Defendants for patent infringement on July 12, 1996, and sought a preliminary injunction.

Reasoning and Holdings

In considering the Plaintiff’s likelihood of success on the merits, the two contested issues were infringement and validity.  The principal infringement issue was whether the defendant’s method of serving its ice cream between -5? and -8? F. would satisfy the limitation of plaintiff’s claim that its ice cream be “serv(ed) . . . at a temperature between substantially -10? F. and -20? F. so that said beads are free flowing when served.”  Noting that the Federal Circuit had defined ‘substantially’ as “the same as or very close to” in Amhill Enterprises, Ltd. v. Wawa, Inc., 81 F.3d 1554, 1561 (Fed. Cir. 1996), the court held that the phrase “between substantially -10? F. and -20? F.” allows for “reasonable deviation from exactly -10? F. to -20? F.”  The court found that the -5? to -8? F. serving temperature alleged by the Defendants was sufficiently close to the claimed “between substantially -10? F. and -20? F.” to come within the reasonable deviation allowed by the phrase. The court also found that the Defendant’s promotional material showed its beads to be free flowing when served.  Thus, the court concluded that the Defendants’ process satisfied the only disputed element of the Jones Patent and that it, therefore, literally infringed claim 1 of the Jones Patent.

 In assessing validity, the only issue was obviousness.  The court concluded that there was no motivation for those skilled in the art to combine the asserted prior art references to achieve the invention of the Jones Patent.  The court also found that the plaintiff presented substantial evidence of secondary considerations of non-obviousness, including evidence of widespread commercial success and industry acceptance, awards and praise received from within the amusement park and fair concessions industry, and evidence of copying by others in the industry.  Based on the foregoing, the court concluded that the Plaintiff had established that its patented method was not obvious.   The Defendants apparently did not raise any other grounds for invalidity or unenforceability.  Because the court concluded that Dippin’ Dots had established infringement and validity, it had established a likelihood of success on the merits.

Next the court considered the threat of irreparable harm.  The court noted that because Dippin’ Dots had established a likelihood of success on the merits, it was entitled to a presumption of irreparable harm, Citing, Polymer Technologies, Inc. v. Birdwell, 103 F.3d 970, 973 (Fed. Cir. 1996).   The only argument advanced by the Defendants in an attempt to counter the presumption of irreparable harm was that Dippin’ Dots had unreasonably delayed in bringing suit.  The court rejected this argument, noting that the delay had only been three months and that Dippin’ Dots had used this time to confirm that the Defendants were actually infringing as mandated by Fed.R.Civ.Pro. 11.

The court then weighed the balance of the hardships imposed by granting a preliminary injunction versus those imposed by denying it.  The court weighed Plaintiff’s strong showing of likelihood of success on the merits and unrebutted presumption of irreparable harm against the Defendants’ arguments that they would be put out of business if the preliminary injunction was entered. Relying on Federal Circuit precedent, the court stated that “one who elects to build a business on a product found to infringe cannot be heard to complain if an injunction against continuing infringement destroys the business so elected.” Citing, Windsurfing Int’l, Inc. v. AMF, Inc., 782 F.2d 995, 1003 n.12 (Fed. Cir. 1986).  Thus, the court found that the balance of the hardships “does not tip heavily, if at all, in defendants’ favor.”

Finally, the court considered the public interest.  Finding that, “the process and product at issue involve ice cream, not heart valves, medical catheters, drug therapies or the cure for the common cold,” the court concluded that “there can be no serious argument that one manufacturer, more or less, of the ‘ice cream of the future’ will affect the public interest in any way.”  It contrasted this with the strong public interest in the protection of patents and concluded that the public interest favored the entry of an injunction.

Based on the foregoing, the court granted Plaintiff the preliminary injunction, subject to payment of a $25,000.00 bond.

E. Preliminary Injunction - Denied

Progressive Games, Inc. v. Bally’s Olympia, L.P., 967 F.Supp. 193 (S.D. Miss. 1997); No. 3:96-CV-607WS; Judge Wingate

Factual and Procedural Background

 Plaintiff Progressive Games, Inc. (“Progressive”) brought suit against several Mississippi Casinos and Bally’s Olympia, L.P. alleging that the “tournament feature” of Defendant’s Patented “Let it Ride The Tournament” game infringes Plaintiff’s Patent and sought a preliminary injunction preventing the continued use of the same.

Reasoning and Holdings

The court denied the motion for a preliminary injunction.  First, it found that Progressive had failed to establish a likelihood of success on the merits.  The court determined that there had been no showing of literal infringement because the accused device lacked the “progressive jackpot” element of Plaintiff’s claims.  Curiously, this was apparently determined by comparing the specification language of the defendant’s patent with the specification language of plaintiff’s patent.  The court also held that there was no infringement under the doctrine of equivalents because “Progressive has not shown that defendant’s Let It Ride game performs substantially the same overall function or work, in substantially the same way, to obtain substantially the same overall result as Progressive’s ‘893 apparatus.”   The court also found that Progressive had failed to establish that it would suffer any damages for which it could not be fully compensated monetarily.  Therefore, the court concluded that there was no showing of irreparable harm.  Based on these two factors alone, the court refused to grant the preliminary injunction.

F. Claim Construction and Literal Infringement

Altech Controls Corp. v. E.I.L. Instruments, 44 U.S.P.Q.2D 1890 (S.D. Tex. 1997); No. H-92-3189; Judge Harmon

Factual and Procedural Background

Altech Controls Corp. (“Altech”) is the exclusive licensee of several patents issued to Richard H. Alsenz (“Alsenz”) that relate to the control of compressors in cooling and refrigeration systems.  Altech accuses E.I.L. Instruments, Inc. (“E.I.L.”) of infringing these patents.  Numerous motions were pending before the court.  Defendant E.I.L. had moved the court to construct the claims, for summary judgment that it did not infringe literally or under the doctrine of equivalents, that one of the asserted patents was invalid if the court gave it the construction proposed by the plaintiffs, to strike plaintiff’s bench brief, to strike plaintiff’s supplemental exhibits, and to strike an appendix to plaintiff’s proposed findings of fact and conclusions of law.  Plaintiff Altech moved the court to construct the claims, to limit testimony of defendant’s expert, and to exclude deposition testimony of various E.I.L. witnesses because they were not unavailable within the meaning of Fed.R.Civ.Pro. 32. The court held a three day Markman hearing on the construction to be given to the claims.
 Reasoning and Holdings

The principal dispute between the parties was whether the claims covered a binary or “smart” compressor selection mechanism or whether it was limited to a first-on/first-off or FIFO system.  In answering this question, the court first addressed whether the claim elements which were alleged to cover the defendant’s binary systems were means-plus-function clauses under 35 U.S.C. § 112,  6.  The court concluded that the elements at issue were means-plus-function clauses.  This conclusion mandated that the court look to the specification for structure that would satisfy the recited functions.  The court found that, in all but one of the asserted patents, no structure was recited in the specification for a binary or “smart” compressor selection mechanism.  This patent, the court found, was limited to compressor selection mechanisms that switched two or fewer compressors at a time.  It based this conclusion on the claim language itself and the fact that the patentee had given up claims without these restrictions during prosecution of the claims.  Because the accused products all utilized binary switching systems that could switch more than two compressors at a time, the court ruled that there was no literal infringement.  However, the court refused to take the question of infringement under the doctrine of equivalents away from the jury.  The only motions specifically addressed by the court were the motions for claim construction and summary judgment.  The remaining motions were either denied or rendered moot.

G. Claim Construction, Infringement, Validity, Willfulness, Enhancement of Damages, and Attorney’s Fees

Signtech USA Ltd. v. Vutek, Inc., 44 U.S.P.Q.2D 1741 (W.D. Tex. 1997); No. SA-95-CA-0226; Magistrate Judge Nowak

Factual and Procedural Background

Signtech USA Ltd (“Signtech”) brought suit against Vutek, Inc. (“Vutek”) alleging that Vutek’s ink jet printers infringed its patent, U.S. patent 5,376,957 (the ‘957 patent).  Vutek denied infringement and countered that the ‘957 patent was invalid and unenforceable.  Vutek also charged Signtech with infringement of its patent, U.S. Patent 4,914,522 (the ‘522 patent) and sought increased damages and attorney’s fees on the grounds that Signtech’s alleged infringement was willful.  Signtech denied infringement and alleged that the ‘522 patent was invalid.  Trial was had to a magistrate by consent of the parties.  Prior to trial, the magistrate had concluded that Signtech’s printers infringed the ‘522 patent.  The issues addressed at trial were the construction of the ‘957 patent, infringement of the ‘957 patent, validity of the ‘522 patent, and enhancement of damages for infringement of the ‘522 patent.

Reasoning and Holdings

 The claim construction issues the court faced involved means-plus-function clauses.  One of the issues was whether the “ink delivery means” of claim 1 of the ‘957 patent required a second high pressure air source.  Signtech argued that the air source performed a cleaning function and should not be considered part of the ink delivery means.  However, the court relied upon the consistent description of the invention in the specification as achieving a solution to the ink accumulation problem that involved the second high pressure air source.  Therefore, the court concluded that the second high pressure air source was part of the ink delivery means.  Because there was no second high pressure air source in the accused products, there was no literal infringement.  The court also concluded that there was no infringement under the doctrine of equivalents because the plaintiff had not shown that “the accused device performed the same overall function or work, in substantially the same way, to produce substantially the same overall result as the claimed invention.”   Because the court concluded that the ‘957 patent was not infringed, it declined to address the questions of validity or enforceability.

The court next addressed the validity of the ‘522 patent and concluded that Signtech had failed to establish invalidity by clear and convincing evidence.  Signtech argued that U.S. Patent 4,839,666 to Jayne (the “Jayne patent” or “Jayne”) anticipated the ‘522 patent or rendered it obvious.  Although the court explained the anticipation standard, it did not explain which element of the ‘522 patent was missing from Jayne.  However, in discussing obviousness, it noted that the Jayne patent taught the use of a modulator that controlled air flow to the ink jet.  According to the court, Jayne did not teach modulation of only the duration of a constant air pressure, apparently a limitation of the ‘522 patent.  The court also relied upon several other secondary indicia of nonobviousness including the absence of evidence that the invention described in Jayne had ever been successfully reduced to practice, the commercial success of the Vutek printers incorporating the invention of the ‘522 patent, and the fact that Signtech had previously taken a license to sell Vutek printers embodying the ‘522 patent.

 In assessing willfulness, the court relied heavily upon the testimony of a former employee that had been instructed to “acquire” the Vutek computer hardware and software and to otherwise copy the Vutek printer.  There was a document the court called a “smoking gun” telling the employee that he could terminate his efforts to “acquire” the Vutek software because it had been obtained elsewhere.  The court found that the former employee’s testimony was corroborated by the complete absence of any documentation supporting the independent development of the Signtech printers.  Finally, the court refused to credit the testimony of Signtech’s president and its patent attorney that an infringement and invalidity opinion had been prepared for Signtech.  The court’s refusal arose from the fact that all copies of the opinion had been lost, that no billing records or research notes were produced that would corroborate the preparation of the opinion, and from the fact that Signtech waited until the eve of trial to reveal that it ever procured an opinion despite discovery requests seeking the same.  Based on the foregoing, the court ruled that Signtech’s infringement was willful and that the case was exceptional.   It trebled the damages and awarded attorney’s fees.  Pre-trebling damages were calculated to be $140,000.00 based upon fourteen infringing printers at a stipulated reasonable royalty of $10,000.00 per unit.  The court also awarded prejudgment interest at the three-month Treasury Bill rate for the months since the filing of suit.  Finally, the court granted a permanent injunction precluding future infringement of the ‘522 patent.

H. Claim Construction

ELK Corp. of Dallas v. GAF Building Materials Corp., 45 USPQ 1011 (N.D. Tex. 1997); Nos. 3:94-CV-0249-P and 3:94-CV-2607-P; Judge Solis

Factual and Procedural Background

Plaintiff ELK Corporation of Dallas (“ELK”) is the owner of two patents, U.S. Design Patent 344,144 (the ‘144 patent) and U.S. Utility Patent 5,369,929 (the ‘929 patent).  Both patents relate to laminated roofing shingles.  ELK sued GAF Building Materials Corporation, Inc. (“GAF”) for patent infringement.  The court conducted a two day Markman hearing on the meaning of the claims of both patents.  The opinion addressed only the meaning to be given to terms of the claims.

Reasoning and Holdings

The court first considered whether it would consider extrinsic evidence as well as intrinsic evidence in determining the meaning to be given to the claims.  The court elected to consider both over the objection of GAF.

The principal dispute between the parties appears to be whether the claims of the patents were drawn to an entire shingle or only to the “novel feature” of the shingle: the color striations on the backer sheet.  ELK argued that the patent was only drawn to the novel feature while GAF argued that it was drawn to the entire shingle. Curiously, the court concluded that the claims were drawn only to the color striations on the backer sheet rather than the entire shingle, despite the fact that the claim appears to recite a complete shingle. The court based its conclusion on the fact that laminated shingles were generally well known at the time of the ‘929 invention and that those skilled in the art would “understand that the patent claims only the novel feature, as described in the patent, as opposed to claiming the entire shingle.”  For the same reasons, the court concluded that the design patent was drawn only to the novel feature of the shingle despite the fact that the claim specifically recites a “laminated shingle as shown and described” and despite the fact that the figures illustrated a complete shingle.  No mention is made in the opinion of how the construction provided might affect the infringement inquiry in the case.  However, on its face, the court’s construction appears to have eliminated several elements from the plaintiff’s claims.

I. Accrual of Damages After Amendment of Claims in Reexamination

The Laitram Corp. v. NEC Corp., 44 U.S.P.Q.2d 1286 (E.D. La. 1997); No. 89-1571; Judge Clement

Factual and Procedural Background

 The Laitram Corporation (“Laitram”) filed suit against NEC Corporation (“NEC”) in 1989 alleging that NEC was infringing its patent.  Prior to trial, a third party requested reexamination of the patent.  Claims 1 and 2 were rejected.  After Laitram amended the claims, they were allowed.  At trial, the jury concluded that the claims were infringed, that the infringement was willful, and that the amended claims were identical in scope to the original claims.  NEC filed JMOL motions seeking findings of noninfringement, of nonwillfulness, and of nonidenticality between the claims.  The trial court granted the JMOL motion regarding noninfringement and denied the others as moot.  Laitram appealed, and the Federal Circuit reversed and ordered the reinstatement of the jury verdict.  The trial court believed that the Federal Circuit’s mandate precluded it from considering either of NEC’s other JMOL motions on remand.  It, therefore, calculated damages from the original issue date rather than the date of the issuance of the reexamination certificate.  If the claims that emerged from the reexamination proceedings were not identical in scope to the original claims, damages would only have been available from the reexamination issue date.  The court also exercised its discretion to refuse to enhance damages for the willful infringement in view of the closeness of the infringement question.  NEC appealed and the Federal Circuit reversed-in-part and affirmed-in-part.  The appeals court concluded that the trial court should have considered the two JMOL motions, but that the willfulness motion was rendered moot by the trial court’s decision not to increase damages.  It, therefore, remanded to the trial court to determine the issue of claim identicality.

Reasoning and Holdings

NEC’s argued that because the claims were rejected in view of the prior art by the Patent Office and only allowed after they were amended, the claims must necessarily have been changed in scope.  The district court rejected this argument.  It compared the language added to the claims to the language of the claims prior to the reexamination and found that all of the limitations added to the claims were inherently present in the original claim.  Accordingly, the court concluded that the claims were identical in scope, and the original damage award was upheld.

J. Requested Stay of Proceedings During Reexamination of Patent

Agar Corp. v. Multi-Fluid, Inc., 44 U.S.P.Q.2d 1158 (S.D. Tex. 1997); No. 95-5105; Judge Hittner

Factual and Procedural Background

Plaintiff Agar Corporation (“Agar”) filed suit against Multi-Fluid, Inc. (“Multi-Fluid”) alleging infringement of four of its patents.  Multi-Fluid requested that the Patent Office reexamine three of those patents it was accused of infringing and simultaneously filed a motion to stay the litigation pending reexamination.  The Patent Office declined the request for reexamination for all but one of the patents.  The patent for which reexamination was granted, U.S. Patent 4,774,680 (the ‘680 patent) had been previously reexamined.  The basis for the second reexamination was that certain references cited by Multi-Fluid were not considered in the earlier prosecution of the patent, although they were considered in the prosecution of the other patents.

Reasoning and Holdings

The court declined to stay the litigation pending reexamination.  It based its decision on several factors.  The fact that there had already been one reexamination of the patent diminished the need for a stay.  The court also considered the reexamination unlikely to affect the other patents because the Patent Office had already considered the references during their prosecution.  Finally, the court noted that the late stage of the litigation weighed against a stay.  Therefore, the motion for stay was denied.

K. Motion to Dismiss for Lack of Proper Venue or to Transfer to a More Convenient Forum

Batiste v. OK-1 Manufacturing Co., Inc., 966 F.Supp. 437 (M.D. La. 1997); No. 97-13-B-M2; Judge Polozola

Factual and Procedural Background

Plaintiff Elie P. Batiste (“Batiste”) is the holder of U.S. Patent 4,726,077.  Batiste brought suit against Defendants OK-1 Manufacturing, Inc., Royce Medical Co., Inc. and FLA Orthopedics, Inc. (“FLA”) alleging patent infringement.  Subsequent to the filing of the lawsuit in the Middle District of Louisiana, Defendant FLA filed a declaratory judgment suit against Batiste in the Southern District of Florida.  FLA then filed a motion requesting the Louisiana court to dismiss the case for lack of proper venue, to stay as to FLA, to sever as to FLA or to transfer the case against FLA to the Southern District of Florida.

Reasoning and Holdings

The court considered venue under 28 U.S.C. § 1400(b).  It was undisputed that pursuant to § 1400, venue is proper over a corporate defendant where the defendant is subject to personal jurisdiction at the time the suit was filed.  The court found that it had personal jurisdiction over FLA because FLA’s president had testified by affidavit that 1) FLA had a sales representative based in Houston, TX who solicited orders from customers in Louisiana, 2) that FLA sold its products in Louisiana, and 3) that Batiste had purchased the FLA accused product at a store within the Middle District of Louisiana.  Because the court had personal jurisdiction over FLA, venue was proper in the Louisiana court.

 In considering FLA’s motion to change venue, Batiste challenged the proposed transfer under 28 U.S.C. § 1404(a) on the grounds that the Southern District of Florida was not a district where the suit “might have been brought” because the State of Florida lacked personal jurisdiction over Batiste.  The court held that for Florida to have personal jurisdiction over Batiste it must utilize the Florida Long Arm Statute to effect service (Fla. Stat. ch. 48.193).  The only contact between Batiste and the State of Florida was a letter written to FLA informing it of the filing of the Louisiana suit and seeking to enter into settlement discussions.  The court concluded that this contact alone was insufficient to satisfy any of the provisions of the Florida Long Arm Statute, and that the State of Florida lacked personal jurisdiction over Batiste.  Accordingly, FLA’s motion to transfer was denied.

With regard to FLA’s other motions, the court denied the motion to stay because the Louisiana suit was filed first.  FLA’s motion to sever was denied without discussion.
 

L. Motion to Dismiss for Lack of Proper Venue or to Transfer to a More Convenient Forum

Crystal Semiconductor Corp. v. OPTi, Inc., 44 U.S.P.Q.2D 1497 (W.D. Tex. 1997); No. A 97-CA-026 SS; Judge Sparks

Factual and Procedural Background

Plaintiff Crystal Semiconductor Corp. (“Crystal”) is a Delaware corporation having its principal place of business in Austin, Texas.  Defendant TriTech, Inc. is a Delaware corporation with its principal place of business in California; Defendant TriTech, Pte (collectively, “TriTech”) is a Singapore corporation with its principal place of business located in Singapore; and Defendant OPTi, Inc. (“OPTi”) is a California corporation with its principal place of business located in California.  OPTi moved to dismiss the case under 28 U.S.C. § 1406 for improper venue or alternatively to transfer the case to the Northern District of California pursuant to either § 1404 or § 1406.  TriTech also sought to transfer the case to the Northern District of California under § 1404.

Reasoning and Holdings

In deciding whether venue was proper, the court applied 28 U.S.C. §§ 1391(c), 1400 and noted that in order to establish that venue is proper over a corporate defendant, the plaintiff must only establish personal jurisdiction over the defendant in the district in which suit was filed.  This inquiry ordinarily comprises two steps: 1) whether the defendant is within the reach of the forum state’s long arm statute and 2) whether due process is satisfied.  Because the Texas long arm statute is co-extensive with the limits of due process, the inquiry only required that due process be satisfied.  The court concluded that OPTi had sufficient contacts with the Western District to support the exercise of both specific and general jurisdiction over it.  The court found that the exercise of specific jurisdiction was warranted by the provision of a single price quote on an allegedly infringing product to Dell Computer Corp. in Austin, Texas.  Noting that offers for sale constitute an act of infringement, the court analogized OPTi’s offer to a tort committed within the district and  concluded that this act was sufficient to establish specific jurisdiction.  The court found that the exercise of general jurisdiction over OPTi to be supported by OPTi’s maintenance of a place of business in Houston which did business in the Western District by offering for sale and selling OPTi products in the Western District, OPTi’s use of a sales representative in Austin, Texas who offered for sale and sold OPTi’s products, as well as the numerous trips to the Western District made by OPTi employees to visit OPTi customers and prospective customers.  Because the Western District had personal jurisdiction over OPTi, venue was proper there as well, and OPTi’s motion to dismiss was denied.
 
The court also denied the motions of TriTech and OPTi to transfer to the Northern District of California.  While the court recognized that the defendants would be inconvenienced by trying the case in Texas, it also pointed out that the plaintiff would be inconvenienced by trying the case in California.  There being no forum convenient to every party, and finding that the Western District would not be vexatious or oppressive to any defendant, the court declined to deny the plaintiff its choice of forum.

M. Motion to Transfer to a More Convenient Forum

American Dental Technologies, Inc. v. Kreativ, Inc., 45 U.S.P.Q.2d 1221 (S.D. Tex. 1997); No. C-97-374; Judge Jack

Factual and Procedural Background

American Dental Technologies, Inc. (“ADT”) filed suit against Kreativ, Inc. (“Kreativ”) in the Southern District of Texas alleging patent infringement.  Kreativ conceded that venue was proper in the Southern District, but moved for a transfer of venue to either the District of Oregon or the eastern District of Michigan under 28 U.S.C. § 1404(a).

Reasoning and Holdings

The court denied Kreativ’s motion to transfer.  It found that Kreativ had not borne its burden of establishing that the convenience of the parties would be served by transferring the case to another district.  Specifically, the court noted that Kreativ had named no specific witness nor presented any evidence that any specific witness would be inconvenienced by a trial in the Southern District of Texas and that Kreativ had failed to show that the parties would incur greater trial expenses in the Southern District than would be incurred in another forum.  Therefore, the court declined to disturb the plaintiff’s choice of forum.

III. TRADEMARK

A. Naked licensing; Tarnishment

Exxon Corp. v. Oxxford Clothes, Inc., 109 F.3d 1070, 42 U.S.P.Q.2d 1417 (5th Cir. 1997); Judges King, Garwood, and Parker

In 1993, Oxxford modified its longstanding “Oxxford” trademark to incorporate an interlocking “xx” design virtually identical to Exxon’s registered trademark.  Exxon brought suit against Oxxford, alleging federal trademark infringement and Texas state law claims for dilution and unfair business practices.  On motions for summary judgment, the district court dismissed Oxxford’s affirmative defense of naked licensing and counterclaim for trademark dilution under Texas law.  The Fifth Circuit affirmed.

 Oxxford’s affirmative defense of naked licensing was based on settlement agreements between Exxon and third parties, in which Exxon allowed the third parties to phase out use of allegedly infringing marks.  Oxxford argued that the settlement agreements constituted naked licenses because the agreements did not provide for protection of the quality of the goods or services provided under the marks being phased out, thereby resulting in abandonment of Exxon’s marks.  The Fifth Circuit expressed doubt as to whether Exxon’s settlement agreements could properly be classified as licenses.  The court concluded that even if the agreements were classified as licenses, there was no evidence to support the requisite finding that Exxon’s course of action resulted in abandonment of its marks, i.e. that Exxon’s marks lost their significance as indicators of origin.  Oxxford’s counterclaim for dilution was based on the novel theory that Exxon’s alleged reputation for corporate greed and environmental destruction tarnished Oxxford’s marks.  The Fifth Circuit held that a valid mark which distinguishes the quality and source of goods is not lost merely because the owner of the mark incurs a bad reputation in matters unrelated to the quality of its products.  The court concluded that the activities complained of by Oxxford, such as the Valdez oil spill, had no relationship to the quality or reputation of the products sold or services provided under the Exxon or Oxxford marks.  Moreover, Oxxford’s claim for dilution was barred by laches, since Oxxford was aware as early as 1972 that Exxon’s mark could possibly influence the distinctiveness and corollary goodwill of the Oxxford mark.

B. Appellate jurisdiction

Exxon Corp. v. Oxxford Clothes, Inc., 109 F.3d 1069, 42 U.S.P.Q.2d 1428 (5th Cir. 1997); Judges King, Garwood, and Parker

In answering Exxon’s complaint for trademark infringement, Oxxford asserted affirmative defenses of abandonment through naked licensing, misuse of trademark, and third party use.  The district court dismissed Oxxford’s affirmative defenses on Exxon’s motion for summary judgment, and certified the order as an appealable partial final judgment pursuant to Federal Rule of Civil Procedure 54(b).  Oxxford appealed the judgment pursuant to 28 U.S.C. § 1291.  On appeal, the Fifth Circuit asked the parties to brief whether the order striking Oxxford’s affirmative defenses was certifiable under Rule 54(b) and appealable under 28 U.S.C. § 1291.  Oxxford argued that the order was appealable because the dismissal of Oxxford’s affirmative defenses determined the outcome of the case as to Exxon’s dilution claim.  The Fifth Circuit disagreed, noting that the term “claim,” upon which an appealable judgment may be entered, is defined as a cause of action.  Because there was no dispositive final judgment on Exxon’s dilution claim, the Fifth Circuit held that the district court erred in certifying the order under Rule 54(b), and that the Fifth Circuit did not have jurisdiction under 28 U.S.C. § 1291.

C. Gray market goods

Martin’s Herend Imports, Inc. v. Diamond & Gem Trading USA, Co., 112 F.3d 1296, 42 U.S.P.Q.2d 1801 (5th Cir. 1997); Judges Reavley, King, and Barksdale

 Herendi and Martin’s Herend brought trademark infringement and false designation of origin claims against Juhasz.  Juhasz counterclaimed for wrongful seizure, alleging that plaintiffs improperly seized goods and records under an order of seizure.  Herendi is a Hungarian manufacturer of high end hand painted porcelain pieces.  Martin’s Herend is Herendi’s exclusive United States distributor.  Juhasz admitted that it sold Herendi porcelain, but asserted that it sold only gray market goods, i.e. genuine Herendi products which were legitimately purchased abroad.  Plaintiffs were unable to prove counterfeiting.  It was undisputed, however, that Juhasz sold Herendi designs which Herendi had specifically decided not to sell in the United States.  The district court found infringement, entered a permanent injunction, awarded damages of $685,000 and attorney fees of $328,825, and granted summary judgment dismissing Juhasz’s counterclaim for wrongful seizure.  The district court later entered a contempt order against Juhasz for violation of the permanent injunction.

The Fifth Circuit affirmed the finding of trademark infringement.  The Court held that infringement occurs if the goods sold by an authorized distributor and the defendant’s gray market goods are materially different, at least when the goods in question are highly artistic luxury goods.  The Court further held that the first sale rule, which provides that the buyer of a genuine trademarked product may resell the product without incurring trademark liability, applies only when the goods are identical to goods which are legally sold.  The Court noted that maintaining the goodwill of Herendi’s mark for luxury goods might depend on which stores the goods are sold in, advertising, and the selection of which of the thousands of Herendi pieces would be sold in the United States.  Because Juhasz sold Herendi pieces which were different from the Herendi pieces which Herendi had authorized for sale in the United States, Juhasz’s sales were not protected under the first sale rule.

The Fifth Circuit modified the injunction to allow Juhasz to sell all Herendi pieces which plaintiffs had ever sold in the United States.  The Fifth Circuit affirmed the damage award, but reversed the award of attorney fees.  The Court found that this was not an extraordinary case meriting attorney fees because there was no evidence that Juhasz knew that it was violating the law.  The Court noted that counsel for defendants, counsel for plaintiffs, and even the district court, had all erred in some respect in their interpretation of the applicable law pertaining to grey market goods.  The Fifth Circuit affirmed the contempt order, finding that Juhasz violated the permanent injunction.

The Fifth Circuit remanded for further proceedings on Juhasz’s claim for wrongful seizure.  The Fifth Circuit held that the seizure provision of 15 U.S.C. 1116(d) does not apply to gray market goods, even if they are materially different from goods selected for the domestic market.  The Court noted that plaintiffs had failed to establish as a matter of law that Juhasz was selling counterfeits, and that there was substantial evidence to the contrary.

D. Trade dress infringement

Sunbeam Products, Inc. v. The West Bend Co., 123 F.3d 246, 44 U.S.P.Q.2d 1161 (5th Cir. 1997); Judges Jolly, Smith, and Dennis

 Sunbeam sued West Bend for trade dress infringement, alleging that West Bend replicated the product configuration of Sunbeam’s American Classic Mixmaster® (“Mixmaster”) stand mixer.  The district court found a substantial likelihood that Sunbeam would prevail on its trade dress claim, and entered a preliminary injunction pursuant to the Lanham Act, 15 U.S.C. § 1125(a).  West Bend took an interlocutory appeal pursuant to 28 U.S.C. § 1292(a)(1).  The Fifth Circuit affirmed.

The Fifth Circuit first considered whether the product configuration of the Mixmaster was entitled to trade dress protection, either as inherently distinctive or through acquired secondary meaning.  The Fifth Circuit found a substantial likelihood that Sunbeam would succeed in proving secondary meaning.  Although Sunbeam’s evidence of secondary meaning was not sufficient to support a permanent injunction, it was sufficient to support the district court’s entry of a preliminary injunction.  Having found that the Mixmaster was entitled to trade dress protection through secondary meaning, the Fifth Circuit specifically declined to address the controversial issue of whether a product configuration can be considered inherently distinctive.

The Fifth Circuit then considered whether the product design of the Mixmaster was functional, and thus not entitled to trade dress protection.  The court applied the utilitarian standard of functionality, which considers whether characterizing a configuration as protected will hinder competition or impinge upon the rights of others to compete effectively in the sale of goods.  West Bend argued that the Mixmaster product configuration is functional because it incorporates features from patents.  The Fifth Circuit disagreed, holding that a particular arbitrary combination of functional features, the combination of which is not itself functional, enjoys trade dress protection.  Sunbeam submitted evidence that other manufacturers compete successfully in the stand mixer market without pirating the product configuration of the Mixmaster.  West Bend presented no evidence demonstrating that the Mixmaster was optimal in terms of engineering, economy of manufacture, or accommodation of utilitarian function.  The Fifth Circuit concluded that equally efficient design options were available to competitors and that free competition would not be unduly harmed by according trade dress protection.  Accordingly, the Fifth Circuit affirmed the district court’s holding that the design of the Mixmaster was not functional.

The Fifth Circuit concluded its analysis by considering whether there was a likelihood of confusion between Sunbeam’s Mixmaster and West Bend’s stand mixers.  In affirming the district court’s finding of likelihood of confusion, the Fifth Circuit focused on three arguments raised by West Bend.  Although there was no direct evidence of intent to derive benefit from Sunbeam’s reputation, the Fifth Circuit concluded that the district court was not clearly erroneous in inferring that West Bend intended to copy the Mixmaster design and usurp Sunbeam’s goodwill.  The district court also did not err in focusing on the overall similarity of the products, rather than on certain key design features.  Finally, although the fact that West Bend’s stand mixers were labeled with West Bend’s mark was a factor tending to alleviate the likelihood of confusion, the Fifth Circuit concluded that this factor was insufficient to demonstrate that the district court clearly erred in finding a likelihood of confusion under the unique facts of the case.

The Fifth Circuit also applied the “safe distance rule” in affirming the scope of the district court’s injunction.  Once a business has been found guilty of unfair competition, the safe distance rule permits the court to issue an injunction which sweeps more broadly than the Lanham Act, in order to ensure that the Lanham Act is not frustrated by manufacturers who seek to circumvent injunctions with subsequent modifications.  The Fifth Circuit concluded that the district court did not abuse its discretion in fashioning the injunctive relief.
 
 

E. Criminal counterfeiting

United States v. Sultan, 115 F.3d 321, 43 U.S.P.Q.2d 1276 (5th Cir. 1997); Judges Duhé, Benavides, and Stewart

Sultan was convicted under the Trademark Counterfeiting Act of 1984, 18 U.S.C. § 2320, for selling counterfeit GM automobile parts.  The Fifth Circuit overturned Sultan’s conviction, concluding that there was insufficient evidence to support the jury’s finding that Sultan knew he was purchasing and selling counterfeit parts.  Sultan owned an auto parts surplus warehouse.  He shared warehouse space with and bought a large amount of merchandise from an individual named Jerjerian.  Although it was undisputed that Jerjerian was dealing in counterfeit GM parts, the case against Sultan was entirely circumstantial.  The government’s evidence of knowledge was based on inferences drawn from the following six areas of proof:  (1)  Sultan’s penchant for thriftiness and his attention to detail would have put him on notice that the parts he received, at the low prices he was paying, were counterfeit; (2) Sultan made inconsistent statements from which the jury could have reasonably concluded that he lied because he had guilty knowledge; (3) on one occasion Jerjerian presented Sultan with a counterfeit bag to test whether Sultan could tell that the bag was counterfeit; (4) by sharing space with Jerjerian, Sultan should have seen signs of counterfeiting; (5) Sultan’s experience would have put him on notice that the low prices he was paying could not have been for genuine GM parts; and (6) Sultan’s knowledge of GM packaging would have made him aware that Jerjerian was not legally in possession of genuine GM packaging.  The Fifth Circuit analyzed and rejected the evidence submitted in support of each of the six factors, and summed up its conclusion as follows: “In sum, we hold that the evidence presented by the government on the issue of knowledge falls short of the requisite evidence from which a conviction could be sustained beyond a reasonable doubt.  The government’s case against Sultan goes beyond making reasonable inferences and requires making unreasonable leaps to bridge the gaps in the evidence.”

 F. Distinctiveness

Mid City Bowling Lanes & Sports Palace, Inc. v. Don Carter’s All Star Lanes-Sunrise, Ltd., 44 U.S.P.Q.2d 1372 (E.D. La. 1997); Judge Livaudais

Mid City owns a federal registration for the mark “Rock ‘N’ Bowl.”  Mid City uses the mark to promote its bowling alley, which features evenings of live music and dancing.   Mid City brought suit under the Lanham Act, alleging that defendants infringed Mid City’s mark by advertising music videos under the mark “Rock and Bowl,” and by playing the videos in bowling alleys.  Defendants moved for summary judgment on three grounds:  (1) that defendants first used “Rock and Bowl” prior to Mid-City’s federal registration; (2) that “Rock and Bowl” and substantially similar phrases are generic and widely used throughout the bowling industry; and (3) that “Rock and Bowl” and substantially similar phrases are descriptive and have not acquired secondary meaning.  The Court denied defendants’ motion, concluding that a genuine issue of material fact existed as to all three issues.
 
 

G. Enhanced damages

Neles-Jamesbury, Inc. v. Bill’s Valves, 974 F.Supp. 979 (S.D. Tex. 1997); Judge Atlas

Neles-Jamesbury brought suit against Bill’s Valves, asserting federal Lanham Act claims for trademark infringement, false advertising, and trademark dilution, and Texas state law claims for conversion and unfair competition.  Following trial on the merits, the jury returned a verdict finding trademark infringement, false advertising, conversion, and unfair competition.  The jury awarded $19,824 for past damages and $30,000 for future damages.  The jury declined to award defendants’ profits based on a finding that defendants’ infringement, false advertising, and unfair competition were without wrongful intent.  The jury further awarded punitive damages of $200,000 for willful conversion of plaintiff’s trademark.  The parties filed numerous post-trial motions.

The court granted defendants’ motion for judgment as a matter of law that Texas law does not recognize claims for conversion of a trademark.  The court noted that Texas law recognizes conversion of intangible property only where the underlying intangible right has merged into a document and there has been a conversion of the document.  The court pointed out that it was unaware of any case which recognized a conversion claim in the context of trademark infringement.  Because plaintiffs did not prevail on the conversion claim or on any other basis for awarding punitive damages under Texas law, the court concluded that it could not enter judgment on the jury’s punitive damage award of $200,000.

The court denied defendants’ motion to set aside the award of future damages, concluding that the $30,000 award was supported by the evidence.

 The court denied plaintiff’s motion for judgment for enhanced damages under 15 U.S.C. § 1117(a) (compensatory damages) and 1117(b) (enhanced damages).  The court concluded that § 1117(b) did not apply because the jury found that defendants did not intentionally infringe.  Although the court found that defendants engaged in reckless conduct, the court concluded that in the absence of willful and deliberate conduct, it was only authorized to award compensatory damages in accordance with § 1117(a).  The court further denied plaintiff’s motion for prejudgment interest because § 1117(a) does not provide for prejudgment interest.

The court granted plaintiff’s motion for attorney fees under § 1117(a), which provides that “[t]he court in exceptional cases may award reasonable attorney fees to the prevailing party.”  Based on the court’s independent examination of the testimony and evidence, the court concluded that this was an exceptional case because defendants acted in bad faith and with reckless disregard for plaintiff’s rights.  In particular, the court concluded that defendants ignored their responsibilities to learn, understand, and adhere to policies to avoid infringing plaintiff’s trademark.  The court then applied the “lodestar method” to calculate an attorneys’ fee award of $273,544.03.  The opinion sets forth a detailed analysis of the court’s application of the lodestar factors.

H. Personal jurisdiction through Internet activity

Haelan Products, Inc. v. Beso Biological Research, Inc., 43 USPQ.2d 1672 (E.D. La. 1997); Judge Berrigan

Haelan brought suit against Beso, alleging that Beso infringed Haelan’s federally registered trademark “Haelan 851" for use on health beverages.  Beso moved to dismiss for lack of personal jurisdiction.  During the previous two years, Beso had made only four sales to Louisiana, one of which was initiated by Haelan.  Plaintiff’s basis for jurisdiction was limited to the following contacts:  (1) Beso’s advertisements in four nationally distributed publications which circulated in Louisiana; (2) a nationwide toll-free number that Beso published in at least one trade magazine; and (3) Beso’s Internet website, through which Beso advertised and solicited business in Louisiana.  The district court concluded that Beso’s contacts were systematic and continuous, such that the court had general personal jurisdiction over Beso.  The court indicated that the presence of any one of the three contacts alone would not have been sufficient to confer personal jurisdiction, but that all three in combination constituted “a ‘purposeful availment’ of the facilities of Louisiana.”  The court noted that Beso’s website advertising was available 24 hours a day in Louisiana, and that Beso made no attempt to limit the states in which its products were marketed.  The court cited two conflicting points of view as to whether personal jurisdiction can arise through Internet activity:  (1) because modern technology makes nationwide commercial transactions simpler and more feasible, it must broaden correspondingly the permissible scope of jurisdiction exercised by the courts; and (2) allowing jurisdiction through the Internet would be tantamount to a declaration that every court throughout the world may exercise jurisdiction over all information providers on the World Wide Web.  The court appears to have attempted to balance these conflicting points of view by considering Internet activity as but one factor in a totality of the circumstances inquiry.  However, the court’s conclusion that defendant’s contacts were systematic and continuous, and therefore give rise to general jurisdiction, appears to expose an Internet provider to suit for claims unrelated to its Internet activities.

I. Default judgment

 Pearl Brewing Co. v. Trans-USA Corp., 1997 WL 340940 (N.D. Tex. 1997) (not reported in F.Supp.); Judge Sanders

Plaintiffs sold beer under the marks “Texas Pride” and “Texas Select.”  Trans-USA, acting under the direction of a Japanese supplier, arranged for the preparation of beer bearing the mark “Texas Pride” to be exported directly to Japan.  Plaintiffs filed suit against Trans-USA, alleging federal claims of trademark infringement and false designation of origin and Texas state law claims for unfair competition and trademark dilution.  Trans-USA failed to answer, and plaintiffs obtained a default judgment in the amount of $163,882.71, which included treble damages and attorney fees.  When plaintiffs tried to execute the judgment, Trans-USA moved to set aside the default judgment.  After determining that it had subject matter and personal jurisdiction, the district court denied Trans-USA’s motion to set aside the judgment.  The court found that the default was not the result of mistake, inadvertence, surprise, or excusable neglect, and that Trans-USA had not asserted a meritorious defense.  However, the court set aside its awards of treble damages and attorney fees, reducing plaintiffs overall recovery to $54,627.57.

IV. TRADE SECRET

A. Misappropriation of Trade Secrets, Breach of Contract, Diversion of Corporate Opportunity, and Punitive Damages

DSC Communications v. Next Level Communications, 107 F.3d 322 (5th Cir. 1997); No. 96-40622; Judge Duhé writing for a unanimous panel that also included Chief Judge Politz and Judge Smith

Factual and Procedural Background

 DSC Communications Corporation (“DSC”) designs communications systems.  In 1994, DSC was working on a new product which could deliver television and computer services as well as telephone services.  Two options being considered were the hybrid fiber coax (“HFC”) system and the switched digital video (“SDV”) system.  DSC instructed one of its engineers, Thomas Eames (“Eames”), to focus on the HFC system but to continue work on the SDV system.  In the middle of the following year Eames and a DSC marketer, Peter Keeler (“Keeler”), left DSC to form Next Level Communications (“Next Level”).  Next Level focused its efforts on developing SDV technology.  Within a few months Next Level was low on funds and was seeking additional investors.  DSC was one of Next Level’s suitors.  Ultimately another corporation, General Instruments (“GI”) agreed to invest $6.5 million in Next Level for 10% of the company plus an option to purchase the remainder.  DSC sued Next Level after the announcement by GI of its investment in Next Level.  Subsequently, GI exercised its option and agreed to indemnify Eames and Keeler for any liability they might incur in the pending lawsuit.  The jury found Eames, Keeler, and Next Level liable for breach of contract, diversion of corporate opportunity, and misappropriation of trade secrets and also awarded punitive damages of $10,200,000.00  Total damages awarded by the jury were $369,200,000.00.  The district court held that the legal theories underlying the three causes of action were duplicative and refused to enter an aggregate award.  Under objection, DSC elected the damages awarded for diversion of corporate opportunity.  The court entered a judgment for $126,532,000.00 plus the $10,200,000.00 in punitive damages.  Finally, the court refused to enter a permanent injunction against Next Level preventing it from disclosing the trade secrets obtained from DSC.  Both parties appealed.

Reasoning and Holdings

Next Level first challenged the diversion of corporate opportunity award.  It based its challenge on the Fifth Circuit’s recent decision that under Texas law, the usurpation of corporate opportunity doctrine does not apply to all corporate fiduciaries, but only to officers, directors, and major shareholders who are fiduciaries.  Eames and Keeler were none of these in relation to DSC; however, they did not raise this argument at trial nor initially on appeal.  After oral argument the first opinion addressing the issue, United Teacher’s Assoc. Ins. Co. v. MacKeen & Bailey, Inc., 99 F.3d 645 (5th Cir. 1996), was published.  Next Level first raised the argument, based upon United Teacher’s, in a supplemental brief.  Despite the fact that the argument had not been raised earlier, the Fifth Circuit decided that the diversion of corporate authority award could not stand in view of United Teacher’s.

Next Level challenged the misappropriation of trade secrets award on two grounds.  First, it argued that the special interrogatory presented to the jury was inadequate because it did not separately ask the jury whether DSC’s alleged trade secrets were in fact secret and then whether Next Level had misappropriated them.  The interrogatory also failed to delineate among the six trade secrets which were allegedly misappropriated.  The Fifth Circuit held that the use of a single interrogatory was not an abuse of discretion.  Second, Next Level argued that the trial court erred in excluding the use of a trade journal article written by one of DSC’s vice-president’s which allegedly disclosed one of the trade secrets.  The trial court excluded the article because Next Level had not disclosed it to DSC nor included the article on its pretrial exhibit list.  Next Level argued that DSC had withheld the article from it, and that it had only just discovered the article.  The appellate court ruled that the article’s exclusion was not an abuse of discretion.

Next Level also argued that the court committed reversible error when it allowed the introduction of evidence that GI had agreed to indemnify Eames and Keeler.  Next Level argued that the agreement was the equivalent of an insurance agreement and was, therefore, inadmissible under Fed.R.Evid. 411.  The district court rejected this argument on several grounds, including the argument that Next Level’s attorney had opened the door to the argument when he told jurors in voir dire that the case was a “question of life or death to Mr. Eames and Mr. Keeler.”  The Fifth Circuit ruled that the district court had not abused its discretion in allowing evidence of the indemnity agreement because the record showed that the price paid by GI for Next Level was far below its actual worth and that the jury was entitled to know the details of the agreement to understand the parties’ actual relationship - the relevance of which is not immediately apparent given that GI was not a party to the suit.

 Finally, Next Level argued that the damage award was speculative.  It based its arguments primarily upon the fact that DSC had never sold its SDV product and that no market had been established for DSC’s SDV system.  The Fifth Circuit declined to find that the awards were unduly speculative.  It noted that “even if a product is not yet fully developed, a plaintiff is not prevented from recovering future lost profits if it was hindered in developing that product, and the evidence shows the eventual completion and success of that product is probable.”

DSC appealed the court’s refusal to grant a permanent injunction.  The appellate court affirmed the lower court’s refusal.  To obtain a permanent injunction, the plaintiff must show irreparable harm.  The lower court found, and the Fifth Circuit agreed, that the monetary award was sufficient to fully compensate DSC for its injury, and therefore, no irreparable harm was suffered.

DSC also appealed the district court’s failure to award attorney’s fees.  It argued that it was entitled to attorney’s fees because of the award of punitive damages.  The Fifth Circuit disagreed.  It held that while attorney’s fees are allowed in connection with an award of punitive damages, an award of punitive damages does not compel an award of attorney’s fees.

The case was remanded for reinstatement of the judgment for misappropriation of trade secrets.

B. Louisiana Uniform Trade Secrets Act and Louisiana Unfair Trade Practices Act

Reingold v. Swiftships, Inc., 126 F.3d 645 (5th Cir. 1997); No. 96-30173; Judge Dennis writing for a panel that also included Judges Jolly and King; Judge Jolly dissenting-in-part

Factual and Procedural Background

Irving Reingold (“Reingold”) purchased a 90 foot female fiberglass boat mold from Thompson Industries (“Thompson”).  The mold had taken nine months to build at a cost of $1 million.  Thompson had used the mold to build two fiberglass hulls which it had sold to third parties.  Swiftships, Inc. (“Swiftships”) contracted with the U.S. Navy to build two fiberglass-hulled research survey vessels (“RSV’s”).  Subsequent to entering this contract, Swiftships leased the mold from Reingold for $100,000.00 up-front plus $145,000.00 for the first two uses of the mold plus $20,000.00 for each subsequent use.  Swiftships used the mold to make the government vessels and paid Reingold the contractually agreed upon amount.  Swiftships also made a “test” sheet from the mold for which it did not pay Reingold.  After Swiftships had completed the U.S. Navy contract, it contracted with the Egyptian Navy to construct three 110 foot coastal mine hunting vessels (“CMV’s”).  Swiftships used the first 45 feet of the “test” sheet to make its own mold for the CMV hulls. Swiftships refused to pay Reingold for these uses, and it terminated the lease agreement with Reingold.  Reingold sued Swiftships in the Western District of Louisiana for breach of contract, conversion, fraud, negligent misrepresentation, violation of the Louisiana Uniform Trade Secrets Act (“LUTSA”), and violation of the Louisiana Unfair Trade Practices Act (“LUTPA”).  On motion for summary judgment by Swiftships, the trial court dismissed the LUTSA and LUTPA claims without a statement of reasons.  Reingold appealed.

 Reasoning and Holdings

In its attempt to support the summary judgment ruling in its favor, Swiftships argued that Reingold’s mold could not be a trade secret under LUTSA because the requirement of secrecy is not satisfied.  Specifically, it argued that the mold design was in the public domain because anyone that wanted to could have taken one of the five known 90 foot hulls made from the mold and, using the direct molding process described in Bonito Boats v. Thunder Craft Boats, 489 U.S. 141, 109 S.Ct. 971, 103 L.Ed.2d 118 (1989), made another mold to create additional hulls.  In reversing the summary judgment ruling, the Fifth Circuit rejected this argument on several grounds.  First, it concluded that the fact that third parties had purchased the hulls did not mean that those hulls were necessarily in the public domain.   Second, it held that even if the hulls were in the public domain, the mold itself may still be a trade secret because to qualify as a trade secret, a thing need only derive independent economic value from not being generally known.  Third, the court reasoned that Swiftships’ contention that it could have reversed engineered the mold was beside the point, because a trade secret holder is entitled to protection against disclosure gained by improper means even if others might have discovered the secret by legitimate means.

In addressing the LUTPA dismissal, Swiftships argued that Reingold’s LUTPA action was prescribed because the statute provides for a one year prescription period running from the “transaction or act which gave rise to the right of action.”  The Fifth Circuit concluded that at least two acts occurred within the period of limitations, and reversed the dismissal.  The court believed that the termination of the lease and the simultaneous conversion of the 110 foot mold which had been derived at least in part from Reingold’s 90 foot mold could each constitute violations of LUTPA.  On this point alone, Judge Jolly dissented.  He argued that the termination of the lease was clearly within the contractual rights of the parties and that the court’s interpretation of the lease was in error to the extent that it held that the lease gave Reingold ownership of the 110 foot mold.  Because the only other acts had occurred over two years prior to the filing of suit, Judge Jolly believed that the LUTPA action was prescribed.

V. NON-COMPETE AGREEMENTS

A. Enforceability; illusory promises

Ireland v. Franklin, 950 S.W.2d 155 (Tex.Ct.App. 1997); Chief Justice HARDBERGER, Justices STONE and ANGELINI

Plaintiff worked for defendant for six years.  During this time, two employment contracts were entered into, each lasting three years and containing non-compete provisions.  The second contract also listed items which the defendant considered to be trade secrets and conditioned disclosure of these secrets on plaintiff’s agreement not to disclose them nor use them after her termination.
 Thereafter, plaintiff sued defendant for breach of contract and requested declaratory relief on the issue of the enforceability of the non-compete clause.  Plaintiff then began competing with defendant.  Defendant counterclaimed for breach of the covenant not to compete and moved for a temporary injunction, which the trial court granted.

On appeal, plaintiff argued that her employment contract was at-will and therefore an illusory promise.  Thus, the non-compete agreement was unenforceable under Texas law.  The appellate court disagreed noting that the inclusion of the trade secret provision in the employment contract was enough for the court to find that the employment contract contain at least one non-illusory promise  to which the non-compete agreement is ancillary.  The court found the covenant not to compete ancillary to the trade secret provision because defendant’s consideration gives rise to its interest in restraining plaintiff from competing, and the covenant not to compete was designed to enforce plaintiff’s consideration not to disclose or use trade secrets.

B. Overly broad clauses; Appellate jurisdiction

McNeilus Companies, Inc. v. Sams, 1997 WL 634538 (Tex.App.-Dallas) (slip op.); Justices LAGARDE, MORRIS and WRIGHT

Plaintiff brought an action pursuant to a covenant not to compete to enjoin the defendant, a former employee of plaintiff, from working for plaintiff’s competitor.    The non-compete agreement between the parties prohibited defendant from working “in any capacity ...  whatsoever ... in any business activities ... competitive with those” of plaintiff.  Defendant testified that no one ever told him any of the information he received while working for plaintiff was confidential or proprietary nor that he could not disclose it to others.  Defendant further testified that the information given to him by plaintiff was of no use to him at his new job.

The trial court denied the injunction finding the non-compete clause overly broad.  Plaintiff appealed the trial court’s denial of the temporary injunction and the denial of the motion for reformation of the non-compete clause.  The appellate court, noting the significant differences between defendant’s new job and his old one, affirmed the trial court’s decision that the non-compete clause was too broad in restraint.  The appellate court also found that it had no jurisdiction over plaintiff’s appeal regarding the trial court’s denial of its motion for reformation.  The court noted that the appeal of the denial of the temporary injunction was an interlocutory appeal and as such, review of the trial court’s denial of the motion was unavailable.

C. Reformation of overly broad clauses

Dixie Parking Service, Inc. v. Hargrove, 691 So.2d 1316 (La.App. 4 Cir. 1997); Judges CIACCIO, JONES and WALTZER

 Plaintiff brought suit to enforce a covenant not to compete and sought injunctive relief.  Defendant was a former employee of plaintiff who had access to proprietary and confidential information about plaintiff’s operations.  Plaintiff and defendant entered into a non-compete agreement limited to parishes listed in an attached exhibit and within any parishes to be listed at a later time wherein plaintiff operated at the time defendant ceased to be employed by plaintiff.  The attached exhibit listed Orleans, Jefferson and nine other Louisiana parishes.  Thereafter, defendant left the employ of plaintiff and went to work for plaintiff’s competitor.

The trial court granted plaintiff the injunctive relief it sought.  On appeal, defendant argued that because the attached exhibit listing parishes where competition was prohibited could be amended at any time upon defendant’s termination, the scope of the clause was overly broad.  The Court of Appeal disagreed noting that plaintiff had not done so and only sought to enforce the agreement with respect to Orleans and Jefferson parishes.  The court, citing Amcom of Louisiana, Inc. v. Battson, 670 So.2d 1223 (La. 1996), also found that the agreement contained a severability clause which would allow it to sever all other parishes except Jefferson and Orleans and still hold the agreement enforceable.

D. Similar business

Summit Institute v. Prouty, 691 So.2d 1384 (La.App. 2 Cir. 1997); Judges WILLIAMS, GASKINS and CARAWAY

Plaintiff filed an action for injunctive relief against the defendant.  Defendant was a former employee who signed a non-compete agreement with the following non-compete provision:

Employee will not ... for a period of one year following ...  the date of termination ... be or become an officer, director, partner, or employee of or consultant to or act in any managerial capacity with or own any equity interest in any entity which manages or provides long term acute medical services and/or physical rehabilitation in [geographic area].

Defendant went to work for a competing company.  The trial court granted the injunction sought.  Defendant appealed and claimed that the non-compete clause was overly broad, in violation of La. R.S. 23:921.C, because it prevented him from taking any and all jobs with companies that may compete with plaintiff.  The appellate court agreed and reversed, finding that La. R.S. 23:921.C imposes two restraints to allow employers to prevent an employee from engaging in a similar business for himself, i.e. an entire business venture, or from being employed in a competitor’s business in a position wherein he solicits customers of his former employers.  The court noted that the language in the non-compete provision above goes beyond the limited exception in La. R.S. 23:921.C. by preventing defendant from accepting employment in any capacity with other employers in the medical community.  The court then rendered the agreement null and void.