Opinion
Civil No. 99-2011(DSD/FLN).
January 15, 2002
Peter M. Lancaster, Esq. and Dorsey Whitney, Minneapolis, MN, counsel for plaintiff.
Lindsay G. Arthur, Jr., Esq., Thomas A. Forker, Esq., Douglas D. McGhee, Esq. and Arthur, Chapman, Kettering, Smetak Pikala, Minneapolis, MN, counsel for defendants.
ORDER
This matter is before the court upon plaintiff's motion for partial summary judgment [Docket No. 50]. Based upon a review of the file, record and proceedings herein, and for the reasons stated, the court grants plaintiff's motion in part and denies plaintiff's motion in part.
BACKGROUND
In the 1970's, Julian Osbon and his late father developed and popularized the use of vacuum therapy devices to treat erectile dysfunction. In 1983, Osbon Medical Systems ("Osbon Medical") was formed to market the vacuum therapy devices. Julian Osbon ("Osbon") headed Osbon Medical and owned 80 percent of its stock. In 1990, the company obtained a federal trademark registration for "Osbon Medical Systems." (Lancaster Decl. Tab H at 14.)
In 1995, Osbon sold Osbon Medical to UroHealth Systems, Inc. ("UroHealth") for stock then worth $45 million. (Lancaster Decl. Tab A at 82-83.) Osbon Medical transferred to UroHealth its rights to the federally registered trademark "Osbon Medical Systems." The parties dispute whether UroHealth also received intellectual property rights to the word "Osbon" alone.
UroHealth subsequently changed its name to Imagyn Medical Technologies, Inc.
In 1998, plaintiff Timm Medical Technologies, Inc. ("Timm") purchased the former Osbon Medical assets from UroHealth, including all rights to its trade names and trademarks. Plaintiff therefore received the trademark to "Osbon Medical Systems." The parties dispute whether plaintiff received the right to the word "Osbon" as a common law trademark. (Defs.' Mem. in Opp'n to Mot. for Summ. J. at 3, 18; Pl.'s Reply Mem. in Supp. of Mot. for Partial Summ. J. at 3.)
Until 1999, Julian Osbon was precluded from re-entering the vacuum therapy business by the terms of his employment agreement with UroHealth. After the non-compete agreement expired, Osbon founded defendant SOMA Blue. Osbon is now the sole owner of defendant SOMA Blue, defendant Vet-Co, Inc. and defendant Renaissance Medical, L.L.C. . (Lancaster Decl. Tab A at 3-4.) All three defendants market vacuum therapy devices.
Plaintiff claims that defendants have misused the word "Osbon" and related trademarks and trade names, while defendants assert that they used the word "Osbon" properly because it is Julian Osbon's name. (Defs.' Mem. in Opp'n to Mot. for Summ. J. at 7.) Defendants use the word "Osbon" in several ways. The SOMA Blue website references "Julian Osbon — CEO — SOMA Blue." In addition, defendant SOMA Blue has distributed company literature which includes references to Julian Osbon as Chief Executive Officer of SOMA Blue. (Lancaster Decl. Tab D at 5-6.)
Defendants have also used the phrase "A Julian Osbon Company" (McGhee Aff. Tab A at 70) and the phrase "The Osbon Technique" (Id. at 67-68). Defendants alleged that they have only used the trademark "Osbon Medical Systems" to recount Julian Osbon's personal history and the history of Osbon Medical Systems when he owned it. (Defs.' Mem. in Opp'n to Mot. for Summ. J. at 9.) Moreover, defendants claim that they are entitled to use the "Osbon Medical Systems" trademark because they assert that plaintiff abandoned this mark. (Defs.' Mem. in Opp'n to Mot. for Summ. J. at 26.)
Plaintiff also asserts that defendants have illegally solicited former Osbon Medical employees and customers. Defendant acknowledges that two of SOMA Blue's current sales representatives were associated with Osbon Medical Systems. (Defs.' Mem. in Opp'n to Mot. for Summ. J. at 6-7.) While defendants claim that they do not possess an Osbon Medical Systems customer list, they assert that plaintiff and defendants nevertheless compete for customers because both parties target urologists. (Defs.' Mem. in Opp'n to Mot. for Summ. J. at 7.) Plaintiff filed this lawsuit against defendants SOMA Blue, Vet-Co, and Renaissance Medical for misuse of plaintiff's trademarks and trade names, false advertising, and unfair competition under the Lanham Act, 15 U.S.C. § 1051 et seq., the Minnesota Uniform Deceptive Trade Practices Act, Minn. Stat. §§ 325D.43 — 325D.48, and the Minnesota common law. Plaintiff seeks partial summary judgment and asks the court to determine as a matter of law (1) that Julian Osbon is not entitled to seek to reclaim the goodwill he sold in 1995 by soliciting former customers and employees to move from plaintiff to defendants; (2) that defendants' principal defense — that they are entitled to use the names Osbon or Julian Osbon to sell their products because they are their owner's name — lacks merit; (3) that there is no evidence that plaintiff or its predecessors ever abandoned use of the Osbon marks and that defendant's abandonment defense accordingly lacks merit; and (4) that defendants have waived any right to rely upon certain aspects of their defense to plaintiff's damage claim. The court grants plaintiff's motion for partial summary judgment in part and denies the motion in part.
DISCUSSION
I. Standard for Summary Judgment
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." In order for the moving party to prevail, it must demonstrate to the court that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed.R.Civ.P. 56(c)). A fact is material only when its resolution affects the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is genuine if the evidence is such that it could cause a reasonable jury to return a verdict for either party. See id. at 252. On a motion for summary judgment, all evidence and inferences are to be viewed in a light most favorable to the nonmoving party. See id. at 255. The nonmoving party, however, may not rest upon mere denials or allegations in the pleadings, but must set forth specific facts sufficient to raise a genuine issue for trial. See Celotex, 477 U.S. at 324. Moreover, if a plaintiff cannot support each essential element of its claim, summary judgment must be granted because a complete failure of proof regarding an essential element necessarily renders all other facts immaterial. Id. at 322-23.
II. Soliciting Former Customers and Employees
Plaintiff seeks partial summary judgment confirming that defendants are not entitled to take back the goodwill Osbon Medical sold by soliciting former Osbon Medical customers and employees. (Mem. in Supp. of Pl.'s Mot. for Partial Summ. J. at 14.) While the court finds that defendants cannot privately solicit former Osbon Medical customers and grants plaintiff's motion for partial summary judgment on this matter in part, the court is unpersuaded by plaintiff's claim that defendants violated the law by employing former Osbon Medical employees and denies plaintiff's motion for summary judgment on that issue.
A seller of a business and its goodwill is entitled to engage in a rival business, absent restrictive covenants. See, e.g., Gibbons v. Hansch, 240 N.W. 901, 902 (Minn. 1932); Mohawk Maintenance Co. v. Kessler, 419 N.E.2d 324, 328 (N.Y. 1981). The long-standing law in most jurisdictions, however, clearly prohibits a seller of a business and its goodwill from soliciting its former customers. See, e.g., Mutual Life Ins. Co. v. Menin, 115 F.2d 975, 978 (2d Cir. 1940) ("voluntary sale of a business deprived the seller of the right to solicit the old customers. . . ."); Sager Spuck Statewide Supply Co. v. Meyer, 273 A.D.2d 745, 747 (N.Y.App.Div. 2000) (same); In re Thomas, 231 B.R. 581, 589 (Bankr.E.D.Pa. 1999) (same); Slomin's Inc. v. Gray, 176 A.D.2d 934, 935 (N.Y.App.Div. 1991) (same); Mohawk Maintenance Co., Inc. v. Kessler, 419 N.E.2d at 329; Soeder v. Soeder, 77 N.E.2d 474, 477 (Ohio Ct.App. 1947) (seller cannot solicit former customers for a period of 3 years); J.L. Cooper Co. v. Anchor Securities Co., 113 P.2d 845, 849 (Wash. 1941) (sale of goodwill implies seller will not solicit former customers);Johnson v. Stumbo, 126 S.W.2d 165, 173 (Ky.Ct.App. 1938) (same); Sheehan v. Sheehan-Hackley Co., 196 S.W. 665, 666 (Tex.Civ.App. 1917) (same);Snyder Pasteurized Milk Co. v. Burton, 83 A. 907, 908 (N.J. 1912) (same); Fairfield v. Lowry, 93 N.E. 598, 599 (Mass. 1911) (same);Zanturjian v. Boornazian, 55 A. 199, 200-01 (R.I. 1903) (same).
Minnesota law prohibits only private solicitation of former customers.Gibbons v. Hansch 240 N.W. 901 , 902 (Minn. 1932). In Gibbons, plaintiff sold her interests in a dry cleaning business to defendants. Id. at 901. To induce defendants to buy her interest, plaintiff represented to defendants that her cleaners had a large volume of business, including the College of St. Thomas. Id. at 902. After the sale, plaintiff associated herself with another dry cleaner. She then solicited and secured the business of the College of St. Thomas. Id. In evaluating plaintiff's actions, the court noted:
The weight of authority is that the vendor of a business or interest therein, including the good will, may re-enter a rival or competing business in an adjacent locality and publicly advertise for and solicit customers, if there was no covenant or agreement in the contract of sale not to re-enter a like business.Id. at 902. The court, however, held that "a vendor of a business including good will may so unfairly conduct a new business of the same kind in which he may engage by privately soliciting the patrons of the former business to leave it that he may be enjoined, but that would be on the ground of wrongful attempt to destroy the good will he sold. . . ."Id. Thus, under Minnesota law, defendants cannot privately solicit former Osbon Medical customers.
While plaintiff also asserts that defendants are not entitled to take back the goodwill they sold by hiring former Osbon Medical employees, the court is unpersuaded by plaintiff's argument. Because plaintiff provides no evidence to support this contention, the court denies plaintiff's claim for summary judgment on the matter.
In fact, plaintiff cites no cases holding that a seller of a trademark cannot solicit former employees.
III. The Osbon Trademarks
15 U.S.C. § 1125(a) makes it unlawful for any person to use any mark that is likely to cause confusion or to deceive "as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person." Minnesota's Uniform Deceptive Trade Practices Act similarly prohibits consumer confusion by deception as to the affiliation or sponsorship of services.See Minn. Stat. § 325D.44. Plaintiff claims that defendants violated these provisions by trading off the Osbon trademarks that they previously sold, including "Osbon" and "Osbon Medical Systems."
While defendants claim that "Osbon" is not a valid trademark, this argument lacks merit. Osbon Medical in fact used "Osbon" as a trademark, (see Lancaster Declar. Tab E at 2), and thus transferred this mark to UroHealth. Moreover, after Julian Osbon sold his corporation, including goodwill, to UroHealth, plaintiff bought and Medical System sold:
All rights in. . . trademarks, service marks, trade names, corporate names. . . or other intellectual property owned by. . . [Osbon Medical Systems] or used in or necessary to the business as now conducted or planned to be conducted. . . .
(Lancaster Decl. Tab H at 4.) As plaintiff points out, it bought and Osbon Medical Systems sold, not just the registered trademark Osbon Medical Systems and design, but also the rights to and goodwill associated with:
any combination of words in which any of such names appear or any rights associated with such names or any right to use such names in all jurisdictions in which [Osbon Medical Systems] either currently uses any such name or has any right to use any such names. . . .
(Lancaster Decl. Tab H at 5(1.01(i) and (r)).) Plaintiff therefore also purchased the rights to the word "Osbon."
Defendants assert that they are entitled to use the names "Osbon" and "Julian Osbon" to sell products because they are Julian Osbon's name. Plaintiff, however, asks the court to determine on summary judgment that this defense lacks merit. While the court concludes that defendants are not entitled to trade off the Osbon trademarks, the court holds that defendants are entitled to use Julian Osbon's personal name to advertise the fact that he is now affiliated with defendant companies.
In particular, defendants are not entitled trade off the Osbon trademark by publicizing Julian Osbon's prior connection with Osbon Medical Systems or using the "Osbon" name to sell products. In Levitt Corp. v. Levitt, 593 F.2d 463 (2d Cir. 1986) defendant Mr. Levitt sold his company, its goodwill, and trademarks to "Levitt," "Levitt and Sons," and "Strathmore," as well as the common law trademark "Levittown." Id. at 464-65. When Levitt Corporation, the company which acquired this intellectual property, was in the process of developing residential communities in Florida, Mr. Levitt announced that he and the International Construction Corporation (ICC) would build a "Levittown" near Orlando, Florida. Id. at 466. He purchased advertisements bearing the names "Levittown Florida," "Strathmore" and referring to "Levitt and Sons" and to "Levitt's Engineering and Planning Department." Most significant to the Second Circuit was the fact that Mr. Levitt identified himself as the founder of the company that had built the Levittowns of New York, New Jersey and elsewhere. Id.
While the court noted that it was unfair to bar absolutely an infringing party from using his personal name, the court found that "[w]here, as here, . . . the infringing party has previously sold his business, including use of his name and goodwill, to the plaintiff, sweeping injunctive relief is more tolerable." Id. at 468. The Second Circuit therefore affirmed the district court's order permanently enjoining Mr. Levitt from issuing press releases, brochures, advertising or publicity concerning his prior association with Levitt and Sons in connection with any future residential developments which he might undertake. Id. at 469. The court reasoned that any attempt to call public attention to Mr. Levitt's achievements as president of Levitt and Sons would inevitably create confusion with the mark of Levitt Corporation and dilute the goodwill plaintiff's purchased. Id.
Under Levitt, plaintiffs are not entitled to use the "Osbon" or "Osbon Medical Systems" trademark to recount Julian Osbon's personal history with Osbon Medical Systems or the history of Osbon Medical Systems when he owned it. Similarly, defendants are not entitled to market their products using the Osbon name. As in Levitt, these uses of the Osbon trademarks would dilute the goodwill plaintiff purchased when it acquired Osbon Medical System's assets, including the rights to its trademarks and trade names, and would allow Osbon "to link his name to those marks and profit from the ensuing confusion." Id. at 470.
Defendants concede that they use the Osbon trademarks to describe the personal history of Julian Osbon and the corporate history of Osbon Medical Systems during the time that it was owned by Julian Osbon. (Defs.' Mem. in Opp'n to Mot. for Summ. J. at 23.)
Defendants, however, are entitled to use Julian Osbon's personal name to advertise the fact that he is now affiliated with defendants. See Madrigal Audio Laboratories, Inc. v. Cello, Ltd., 799 F.2d 814, 821 (2d Cir. 1986). In Madrigal, Mark Levinson, a well-known designer of audio-equipment, and Cello, Ltd., a company founded and partially managed by him, which produced audio equipment designed by him, appealed a district court judge's order enjoining Cello and Levinson from, among other things, publicizing the fact that Levinson works for Cello. Id. at 816. Plaintiff purchased the Levinson trade name and trademark. Id. The Second Circuit stated:
When an individual sells no more than the right to use his name as a trade name or trademark he is precluded only from using his personal name as part of that of another company or on other products, and not from taking advantage of his individual reputation (as opposed to the reputation of the company which bore his personal name as a trade name) by establishing the company which competes against the purchaser of the trade name, or from advertising in a not overly intrusive manner, that he is affiliated with a new company. Id. at 823 (citations omitted).
The court found that while Levinson sold the right to use the Levinson trade name, the trade name did not preclude Levinson from engaging in the audio business through another company or advertising his affiliation with the new company. Id. at 825. The court emphasized that plaintiff at most acquired such goodwill as was associated with the use of the trade name "Levinson," but not the right to use Levinson's personal name as a symbol of his individual reputation. Id.
Here, as in Madrigal, plaintiff purchased the right to the Osbon trademarks and goodwill but Julian Osbon retains the right to use his personal name. Thus, the court declines to prohibit Osbon from using his personal name as a symbol of his individual reputation and advertising his affiliation with defendants. Such a use of his personal name does not diminish the goodwill associated with plaintiff's trademark and trade names. Thus, the court grants plaintiff's motion for summary judgment on this matter in part.
IV. Abandonment
Plaintiff also requests that the court grant partial summary judgment finding that there is no evidence that plaintiff or its predecessors ever abandoned use of the mark "Osbon Medical Systems" and that defendants' abandonment defense accordingly lacks merit. (Mem. in Supp. of Pl.'s Mot. for Partial Summ. J. at 1.) Plaintiff asserts two arguments: (1) that the doctrine of "assignor estoppel" precludes defendants from asserting abandonment, and (2) that the mark "Osbon Medical Systems" was not abandoned. The court grants plaintiff's motion for summary judgment on this matter because the court finds that plaintiff did not abandon the "Osbon Medical Systems" mark.
Because defendants only assert that plaintiff has abandoned the mark "Osbon Medical Systems," (Defs.' Mem. in Opp'n to Mot. for Summ. J. at 24 n. 4), the court will address plaintiff's claim for summary judgment on defendants' abandonment defense only as it relates to the mark "Osbon Medical Systems."
1. Assignor Estoppel
Plaintiff contends that the doctrine of assignor estoppel prevents defendants "from asserting abandonment during any period prior to the time Julian Osbon, or anyone in privity with Osbon, assigned those trademark rights to Timm." (Mem. in Supp. of Pl.'s Mot. for Partial Summ. J. at 18.) Jurisdictions that have recently addressed the question are divided on whether the assignor estoppel doctrine is even valid afterLear, Inc. v. Adkins, 395 U.S. 653 (1969) (abolishing licensee estoppel). See Diamond Scientific Co., v. Ambico, Inc., 848 F.2d 1220, 1223 (Fed. Cir. 1988) ("The federal court cases, decided either shortly before Lear or since then, that discuss the doctrine of assignor estoppel reveal some uncertainty about the continued validity of the doctrine.");compare Nationwide Chemical Corp. v. Wright, 458 F. Supp. 828, 840 (M.D.Fla. 1976) (recognizing the doctrine but rejecting its application to the facts); Brand Plastics Co. v. Dow Chemical Co., 267 F. Supp. 1010, 1013 (C.D. Cal. 1967) (same); with Coastal Dynamics Corp. v. Symbolic Displays, Inc., 469 F.2d 79 (9th Cir. 1972) (holding the doctrine invalid); Contour Chair Lounge Co. v. True-Fit Chair, Inc., 648 F. Supp. 704 (E.D.Mo. 1986) (same); Interconnect Planning Corp. v. Feil, 543 F. Supp. 610 (S.D.N.Y. 1982) (same); National Welding Equip. Co. v. Hammon Precision Equip. Co., 165 F. Supp. 788 (N.D.Cal. 1958) (same). While the Eighth Circuit has not addressed the doctrine's validity since 1910, it did conclude in Johnson Furnace Engineering Co. v. Western Furnace Co., 178 F. 819, 822 (8th Cir 1910) that a seller of a patent was estopped from denying its validity. Even assuming the doctrine is still valid in this circuit, and that is applies to trademarks, the court concludes that plaintiff failed to prove that it applies in this case.
Assignor estoppel is an equitable doctrine that prevents an assignor of intellectual property rights from later claiming that they are worthless. Diamond Scientific Co. v. Ambico, Inc., 848 F.2d at 1224 (applying the doctrine to patents). This doctrine, if valid, prevents defendants from claiming abandonment prior to Osbon Medical Systems sale to UroHealth. Plaintiff, however, presents no evidence to support its claim that the doctrine prevents defendants from claiming that either UroHealth or plaintiff abandoned the marks after UroHealth purchased them from Julian Osbon. As a result, the court declines to grant partial summary judgment based on this claim.
2. Abandonment Through Nonuse
The Lanham Act provides that:
A mark shall be deemed to be "abandoned" . . . (1) When its use has been discontinued with intent not to resume such use. Intent not to resume may be inferred from circumstances. Non-use for 3 consecutive years shall be prima facie abandonment. "Use" of a mark means the bona fide use of that mark made in the ordinary course of trade, and not made merely to reserve a right in a mark.15 U.S.C.A. § 1127. "Because it constitutes a forfeiture of a property right, abandonment of a mark must be strictly proved. . . ."General Cigar Co. v. G.D.M. Inc., 988 F. Supp. 647, 658 (S.D.N.Y. 1997). Defendants have the burden of proving abandonment. Roulo v. Russ Berrie Co., 886 F.2d 931, 938 (7th Cir. 1989). To prove abandonment, defendants must show that plaintiff actually abandoned use of the mark and that plaintiff intended to abandon the mark. See e.g., Saxlehner v. Eisner Mendelson Co., 179 U.S. 19, 30 (1900); Sands, Taylor and Woods Co. v. Quaker Oats Co., 978 F.2d 947, 955 (7th Cir. 1992); Citibank, N.A. v. Citibanc Group, Inc., 724 F.2d 1540, 1545 (11th Cir. 1984). Here, defendants contend that sometime after Julian Osbon's sale of Osbon Medical Systems in 1995 either UroHealth or plaintiff abandoned the mark "Osbon Medical Systems." Defendants, however, fail to produce sufficient evidence of intent to abandon. In particular, defendants fail to allege facts showing that either UroHealth or plaintiff intended to abandon the mark.
While "[n]onuse for 3 consecutive years shall be prima facie evidence of abandonment," 15 U.S.C. § 1127, defendants fail to establish evidence of 3 years of nonuse. One fact alone illustrates UroHealth's use of the mark: the name of Julian Osbon's former company, "Osbon Medical Systems" remained unchanged up through the time that plaintiff purchased its assets. (Lancaster Decl. Tab H at 1.) Moreover, both plaintiff and defendants offer several examples of plaintiff's use of the "Osbon Medical Systems" mark. (McGhee Aff. Tab D; Lancaster Decl. Tab D at 24, 25, 26, 27, 28, 29, 31.) Although the record reveals dates for only three of these many uses, the record clearly shoes that, at the very least, plaintiff used the mark in November, 1999 and March, 2000. (McGhee Aff. Tab D.) Thus, the court finds that defendants failed to satisfy their burden of establishing a prima facie case of abandonment during any consecutive three-year period. The court therefore grants plaintiff's motion for summary judgment on the issue of abandonment.
V. Waiver
Finally, plaintiff requests that the court grant summary judgment on two aspects of plaintiff's damage claim:
(1) defendants' waiver of any right in defending trademark claims to seek to reduce or to exclude revenues reported on their own financial statements through evidence of costs or other exclusions, and (2) defendants' waiver of any right to assert that some revenues, advertising or marketing expenditures are not attributable to their use of the name "Osbon." Because the court concludes that it is more appropriate for plaintiff to bring these matters before the court as motions in limine at a later time, the court denies plaintiff's request for partial summary judgment on these damages matters.