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Smart Choice: Survey Design Didn’t Render Survey Unreliable

by | Jul 18, 2024 |

Underscoring its faith in a jury’s competency to use its “common sense and experience” in evaluating evidence, the US Court of Appeals for the Ninth Circuit affirmed a district court’s judgment in favor of the defendants in a trademark infringement action following a trial, as well as its order partially denying the defendants’ motion for attorneys’ fees. BillFloat, Inc. v. Collins Cash, Inc., Case Nos. 23-15405; -15470 (9th Cir. July 1, 2024) (Thomas, McKeown, Christen, JJ.)

BillFloat and Collins Cash both provide financing to small businesses. In 2013, BillFloat began using SMARTBIZ as a trademark and registered the mark in 2014. That same year (2014), Collins Cash began using the mark SMART BUSINESS FUNDING, although it did not file an application to register the mark until 2020. Meanwhile, in 2018, BillFloat and Collins Cash entered into a partnership agreement under which Collins Cash would refer current and prospective customers to BillFloat in exchange for a referral fee. The parties’ agreement stated that “[i]f either Party employs attorneys to enforce any right arising out of or relating to this Agreement, the prevailing Party shall be entitled to recover reasonable attorneys’ fees.”

In 2020, upon learning of Collins Cash’s use of the SMART BUSINESS FUNDING mark, BillFloat brought claims for federal and state trademark infringement, breach of contract, unfair competition and unlawful business practices. The district court granted summary judgment to Collins Cash on the breach of contract claim and proceeded to trial on the trademark infringement claim.

Collins Cash engaged an expert to conduct a likelihood of confusion survey using the so-called “Squirt” methodology, which is used for lesser-known marks. BillFloat filed a motion to exclude the expert and his survey from trial, arguing that various errors made the survey unreliable and therefore inadmissible. The district court denied the motion and admitted the expert’s testimony and his survey. The district court also admitted testimony from BillFloat’s expert that challenged the survey. Both experts were cross-examined on their qualifications and on the merits of the survey.

The jury found that BillFloat had not established trademark infringement by a preponderance of the evidence. Post-trial, BillFloat moved for judgment as a matter of law and for a new trial, and Collins Cash moved for attorneys’ fees and non-taxable costs. The district court denied BillFloat’s motion and awarded Collins Cash attorneys’ fees under the partnership agreement for the breach of contract claim but declined to award Collins Cash attorneys’ fees for the trademark infringement claim or non-taxable costs for either claim. Both parties appealed.

BillFloat argued that the district court abused its discretion in admitting Collins Cash’s expert testimony and survey evidence. It also argued that the district court erred in declining to give BillFloat’s proposed jury instruction not to draw any inferences about the fact that BillFloat did not offer its own survey evidence.

The Ninth Circuit found no abuse of discretion on these issues. The Court pointed to the distinction between the admissibility of survey evidence as opposed to the relative weight a [...]

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Fifth Circuit Rejects Recruiter’s Trade Secret Misappropriation and Contract Defenses

by | Apr 18, 2024 |

The US Court of Appeals for the Fifth Circuit affirmed a district court’s decision finding trade secret misappropriation and breach of contract based on a recruiter’s improper use of confidential client information. Counsel Holdings, Incorporated v. Jowers, Case No. 22-50936 (5th Cir. Apr. 1, 2024) (King, Ho, Engelhardt, JJ.) (per curiam).

In April 2006, Evan Jowers was hired by MWK (whose successor is Counsel Holdings) as a legal recruiter. Jowers signed an employment agreement with noncompete and nonsolicitation covenants. During his employment, Jowers relocated to Hong Kong, where he began recruiting for law firms in Asia. Jowers resigned from MWK in December 2006, after which he began working for another recruiting firm in Hong Kong called Legis Ventures.

MWK sued Jowers for trade secret misappropriation and breach of the restrictive covenants in the employment contract. MWK alleged that while Jowers was still employed with MWK, he submitted its candidates for employment through Legis Ventures. After a bench trial, the district court found in favor of MWK on both claims. As to the trade secret claim, the district court concluded that MWK’s customers’ “names, their clients, how much their practices were worth, their language skills, their goals for switching firms, and their law school records” constituted trade secrets. As for the contract claim, the district court found that enforcement of the restrictive covenants was justified because MWK’s client information was a legitimate business interest. Jowers appealed.

The Fifth Circuit affirmed. As to the trade secret claim, the Court explained that Jowers’s employment agreement explicitly required confidentiality and that MWK’s customers requested that Jowers keep their information secret. Despite the restrictions, Jowers divulged MWK’s customer information to others, including a competing recruitment firm, without authorization. The Fifth Circuit agreed with the district court’s determination that Jowers’s actions constituted trade secret misappropriation.

As to the breach of contract claim, Jowers argued that MWK lacked a “legitimate business interest.” The Fifth Circuit found no clear error with the district court’s determination that MWK’s client information was a legitimate business interest that justified enforcement of the restrictive covenant.



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Read the Fine Print: Covenant Not to Sue “At Any Time” Terminated Upon License Expiration

by | Mar 14, 2024 |

Illustrating the importance of carefully drafting and reviewing language in a covenant not to sue, the US Court of Appeals for the Federal Circuit found that the plain language of a covenant permitted a licensor to sue a licensee for breach of contract only after termination of the contract. AlexSam, Inc. v. MasterCard Int’l., Inc., Case No. 22-2046 (Fed. Cir. Feb. 28, 2024) (Lourie, Chen, Stoll, JJ.) (non-precedential).

In 2005, AlexSam and MasterCard entered into a patent licensing agreement that guaranteed AlexSam ongoing royalties under two of its patents that involved pre-paid cards used with point-of-sale devices. The agreement included a covenant not to sue, in which AlexSam agreed to “not at any time initiate, assert, or bring any claim . . . against MasterCard . . . relating to Licensed Transactions arising or occurring before or during the term of this Agreement.” The agreement also included a Term and Termination provision, which recited that the agreement would remain in full force for the life of the licensed patents unless a party breached, at which time, if the party failed to cure, the non-breaching party would have the right to terminate the agreement. The patents expired on July 10, 2017.

In May 2015, two years before the licensed patents expired, AlexSam sued MasterCard for breach of contract in the district court, claiming that MasterCard had not properly paid the royalties per transaction under the agreement. Separately, in March 2017, MasterCard filed a petition for Covered Business Method (CBM) Review, asking the Patent Trial & Appeal Board to review the patentability of the licensed patents. AlexSam argued that MasterCard lacked standing under 37 C.F.R. § 42.302(a), which required that MasterCard first be sued or charged with infringement of the patent on which it sought review. The Board determined that MasterCard lacked standing to bring the review. The Board also noted that it “need not, and do[es] not, address the question of whether [AlexSam’s] breach of contract claim in the New York Action itself violates the covenant not to sue.”

MasterCard moved for and was granted summary judgment in the district court on the grounds that AlexSam’s arguments before the Board regarding the covenant not to sue judicially estopped it from asserting its breach of contract claims. AlexSam filed its first appeal, and the Federal Circuit reversed the district court’s ruling, finding that it had abused its discretion in crediting AlexSam with a position it never actually took before the Board. The Court remanded the case for the district court to determine whether the covenant not to sue prohibited a claim for royalties. MasterCard again moved for summary judgment. The district court granted the motion, finding that the covenant not to sue barred AlexSam’s claim for unpaid royalties. AlexSam again appealed.

In this second appeal, AlexSam argued that the covenant not to sue in the 2005 License Agreement did not bar suit for breach of nonpayment of royalties since AlexSam would then have no remedy against a failure by MasterCard to pay [...]

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Disgorgement of Profits Appropriate Remedy for Breach of Contract, Trademark Infringement

by | Aug 24, 2023 |

In a trademark infringement and breach of contract case involving real estate companies with a shared name, the US Court of Appeals for the Fourth Circuit affirmed summary judgment in favor of the trademark owner, including almost $43 million in profit disgorgement. Dewberry Engineers v. Dewberry Group, Case Nos. 22-1622; -1845 (4th Cir. Aug. 9, 2023) (Gregory, Thacker, JJ.) (Quattlebaum, J., dissenting).

Dewberry Engineers and Dewberry Group (formerly Dewberry Capital) operate in the same states, and both provide commercial real estate services. Dewberry Engineers started in the mid-1950s as a civil engineering and surveying firm in northern Virginia. Over time, its business expanded to include real estate development services such as architecture and site development. Dewberry Group similarly provides real estate development services through its affiliates, including the Dewberry Hotel in Charleston, South Carolina.

In 2006, Dewberry Group sent Dewberry Engineers a cease-and-desist letter, asserting that Dewberry Group had “senior common law rights” to use “Dewberry” in real estate. In response, Dewberry Engineers sued Dewberry Group for infringing its federally registered DEWBERRY trademark. That litigation ended in 2007 when the parties entered a confidential settlement agreement (CSA). Among other things, the CSA stated that Dewberry Group:

  • Would not challenge Dewberry Engineers’ trademark registrations
  • Could use its “Dewberry Capital” name except in enumerated geographical areas where it instead must use “DCC”
  • Would use no logo other than its “column” logo.

In 2017, Dewberry Group rebranded and attempted to register DEWBERRY GROUP and other marks, which the US Patent & Trademark Office (PTO) repeatedly rejected.

In 2020, Dewberry Engineers filed suit claiming breach of contract and trademark infringement under the Lanham Act and Virginia common law. The district court granted summary judgment to Dewberry Engineers on the contract claim, finding that Dewberry Group had violated the unambiguous CSA by changing its logo, among other offenses. The district court also granted summary judgment to Dewberry Engineers on its trademark infringement claim, finding that Dewberry Engineers’ mark was not only valid, it was incontestable since it had been in continuous use for more than five years. The district court also found that the likelihood-of-confusion factors favored infringement. The district court entered a permanent injunction against Dewberry Group’s use of “Dewberry” and granted Dewberry Engineers its attorneys’ fees and profit disgorgement. Because the court believed the tax information Dewberry Group provided did not show the true “economic reality” of the close relationship between Dewberry Group and its affiliates, the disgorgement calculation also included some of Dewberry Group’s affiliated companies’ profits. Dewberry Group appealed, challenging the summary judgment grant, the permanent injunction and the monetary awards.

The Fourth Circuit began by noting that there was “uncontroverted evidence” that Dewberry Group used the DEWBERRY trademark, used a logo other than its column logo and failed to use “DCC” in restricted areas, all in breach of the undisputedly valid CSA. The Court therefore affirmed the district court’s finding that Dewberry Group breached the CSA.

The Fourth Circuit next addressed the trademark infringement claim. The Court rejected [...]

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Stryking Noncompete Preliminary Injunction

by | Mar 9, 2023 |

The US Court of Appeals for the Sixth Circuit upheld a district court’s grant of a preliminary injunction restricting a former employee from working for conflicting organizations or communicating with a competitor’s counsel. Stryker Emp. Co., LLC v. Abbas, Case No. 22-1563 (6th Cir. Feb. 16, 2023) (Clay, Bush, JJ.; Sutton, C.J.) The Court found that the preliminary injunction was an appropriate measure to protect the plaintiff’s confidential information that was consistent with the employee’s noncompete agreement.

Stryker develops and manufactures spinal implants and related medical products. From 2013 through mid-2022, Stryker employed Abbas in various roles relating to finance and sales. As part of his job duties, Abbas led sales and finance projects, assisted with Stryker’s litigation efforts, and cultivated relationships with customers, distributors and sales representatives. These responsibilities required Abbas to have access to Stryker’s confidential information and trade secrets.

In April 2022, Abbas entered into a confidentiality, noncompetition and nonsolicitation agreement with Stryker. This agreement prohibited Abbas from disclosing Stryker’s confidential information without its consent and barred Abbas from working for “any Conflicting Organization” in which Abbas could use Stryker’s confidential information to boost the marketability of a “Conflicting Product or Service.” The noncompete provision was time limited to one year following Abbas’s departure from Stryker.

In summer 2021, a competing spinal implant manufacturer, Alphatec, began recruiting Abbas for a finance position. After determining that the finance position was too similar to Abbas’s previous work at Stryker, Alphatec created a new “sales role” that was allegedly “crafted to protect Stryker’s confidential information.” Abbas resigned from Stryker in May 2022 to take the newly created role.

Shortly after Abbas resigned, Stryker sued for breach of contract, misappropriation of trade secrets and violation of the Michigan Uniform Trade Secrets Act. Stryker also requested a no-notice temporary restraining order (TRO) and preliminary and permanent injunctions. The district court granted Stryker’s motion for preliminary injunction prohibiting Abbas from the following:

  • Working in any capacity for Alphatec or any “Conflicting Organization”
  • Having any ex parte communications with Alphatec’s counsel or otherwise disclosing information concerning Stryker’s litigation strategies.

Abbas appealed, arguing that the noncompetition portion of the preliminary injunction amounted to an industry-wide ban and that the communication portion impermissibly disqualified counsel.

The Noncompetition Provision

The Sixth Circuit first noted that federal law, rather than state law, defines a court’s power to issue a noncompetition restriction in a preliminary injunction. Under federal law, courts have discretion to craft preliminary injunctions based on the equities of a case and can even “proscribe activities that, standing alone, would have been unassailable.” Applying this standard, the Sixth Circuit reasoned that the preliminary injunction was not overly broad but instead preserved the status quo. First, the district court found that Abbas often worked beyond the scope of his position. Second, the district court agreed to entertain a motion to vacate the injunction if Alphatec created a new position for Abbas that Stryker found acceptable. Third, the injunction merely sought to enforce the noncompetition agreement, which [...]

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Color Me Unsurprised: No Preclusion of Plaintiff’s Claims

by | Oct 27, 2022 |

The US Court of Appeals for the Seventh Circuit reversed the lower court’s order determining that the plaintiff’s federal lawsuit was barred under the doctrines of claim and issue preclusion, noting an Illinois law exception on claim preclusion and finding no issue preclusion. Creation Supply, Inc. v. Selective Ins. Co. of the Southeast, Case No. 21-3172 (7th Cir. Oct. 19, 2022) (Rovner, Hamilton, Scudder, JJ.)

Creation Supply is a producer of markers. In 2012 one of its competitors sued it for trademark violations. Creation requested that Selective Insurance provide coverage for the lawsuit, but Selective refused. Creation entered into a settlement agreement with its competitor that prevented Creation from selling one of its primary lines of markers. As a result, Creation lost much of its business and struggled financially.

Selective did not provide coverage for Creation’s legal defense. It also sought a declaration in Illinois state court that it owed Creation no duty to defend. Creation countersued, seeking a declaration that Selective did owe it a duty to defend. Creation also alleged that Selective breached the insurance policy between the parties. The Illinois circuit court entered partial summary judgment for Creation on its duty to defend the claim and finalized an award of incidental relief in October 2017.

In 2014, during the state court litigation, Creation filed a suit against Selective in federal court for breach of contract and a claim under the Illinois Insurance Code for vexatious and unreasonable conduct. In 2016, Creation requested voluntary dismissal of the state court breach of contract claim. The Illinois circuit court granted the motion and expressly reserved Creation’s right to maintain its federal action on its breach of contract claim. After the end of the state court litigation in 2017, the federal court case continued. The district court granted summary judgment for Creation on the insurance coverage question. After a bench trial on the Illinois Insurance Code claim, the court found for Creation and awarded almost $3 million in damages. On appeal, the Seventh Circuit reversed and remanded, instructing the district court to resolve the remaining issue of contract damages.

After the remand, Creation sought to amend the complaint to seek punitive damages. The district court denied that request. Selective then moved for judgment on the pleadings, contending that the doctrines of claim and issue preclusion barred Creation’s remaining contract claim. The district court agreed and entered judgment for Selective because the Illinois state courts had resolved the issue of Selective’s duty to defend. Creation appealed.

The Seventh Circuit affirmed the district court’s denial of Creation’s leave to amend, then turned to the issue of claim preclusion, a legal doctrine that prevents a party from repeatedly litigating the same cause of action against the same adverse party. Claim preclusion requires the following:

  • A court with proper jurisdiction must have issued a final judgment on the merits.
  • The claims in the two actions must be the same.
  • The parties in the second action must be the same (or in privity with) those [...]

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Play It Again and Again (Sam): Meanwhile No Injunction, No Fees

by | Sep 15, 2022 |

In its third opportunity to review the district court’s decision in this trade secret case involving flooring, the US Court of Appeals for the Eleventh Circuit again reversed, this time vacating a permanent injunction and an award of attorneys’ fees. The Eleventh Circuit noted that the district court failed to make the findings required to support an injunction and abused its discretion in awarding full fees notwithstanding prior reversal of relief awarded. AcryliCon USA, LLC v. Silikal GmbH, Case No. 21-12853 (11th Cir. Aug. 29, 2022) (Newsom, Marcus, JJ.; Middlebrooks, Distr. J.)

In an earlier appeal in this case, the Eleventh Circuit reversed a ruling on trade secret misappropriation rendered by the district court in favor of AcryliCon USA (AC-USA) and vacated the damages award. An aspect of the Court’s ruling was that the “permanent” injunction entered by the district court was only preliminary in nature (not permanent) and was, as a matter of law, dissolved because the district court did not include it in the original final judgment. On remand, the district court was ordered to determine the appropriate amount of attorneys’ fees the prevailing party should receive. However, the district court just entered the same amount of attorneys’ fees it had originally awarded and again entered a “permanent” injunction barring the use of the trade secret at issue, concluding that it was obliged to do so by the Eleventh Circuit’s ruling in the first appeal.

In the second appeal, the Eleventh Circuit held that AC-USA failed, as a matter of law, to prove its misappropriation claim and reversed the judgment entered in favor of AC-USA on that count. The Court also reversed the district court’s judgment that its $1.5 million damages award could be sustained on the basis of the contract claim once the misappropriation claim was reversed. The Court ruled that, as a matter of law, since AC-USA had failed to prove actual damages on its consequential damages theory, it could only recover nominal damages based on its breach of contract claim. Finally, the Court concluded that AC-USA was entitled to attorneys’ fees only on its breach of contract claim because, under Georgia law, even a nominal damages award would still materially alter the legal relationship between the parties.

In the second remand, the district court awarded essentially the same amount of attorneys’ fees ($1.3 million) to AC-USA but acknowledged that, since Silikal prevailed in vacating the award of compensatory and punitive damages, Silikal “was the prevailing party on the appeal under the terms of the [agreement]” and was entitled to almost $500,000 in attorneys’ fees for its successful appeal. The district court also awarded $100 in nominal damages to AC-USA for its successful appeal on the breach of contract claim. The district court then entered a permanent injunction enjoining Silikal “from disclosing or using in any way, directly or indirectly, the [ . . . resin . . . ] to anyone other than Plaintiff.”

Both parties appealed. AC-USA appealed the award of [...]

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No Breach of Contract Where Company Disclosed Its Own Non-Public Information

by | Apr 14, 2022 |

The US Court of Appeals for the Eighth Circuit affirmed a district court’s dismissal of a trade secret lawsuit against a consultant that allegedly failed to prevent its client from disclosing its own proprietary information during a call with a potential buyer. Protégé Biomedical, LLC v. Duff & Phelps Securities, LLC, and Philip I. Smith, Case No. 21-1368 (8th Cir. Apr. 4, 2022) (per curiam) (Erickson, J., dissenting).

Protégé entered into an agreement with Duff & Phelps to help Protégé find a buyer for its business. Under the agreement, Duff & Phelps received immunity from certain types of claims, its employees were shielded from individual liability and it owed no fiduciary duties to Protégé.

One of Protégé’s competitors, Z-Medica, was identified as a potential buyer. One of Duff & Phelps’s employees, Philip Smith, facilitated execution of the non-disclosure agreement (NDA) by a member of Z-Medica’s board of directors. Protégé assumed that the NDA would also bind Z-Medica and thus participated in conference calls with Z-Medica in which Protégé revealed non-public information. In Z-Medica’s view, however, the board member signed the NDA in his personal capacity and not as Z-Medica’s representative. As a result, Z-Medica used the information it received from Protégé to create its own competing product.

Protégé sued Z-Medica. After settling with Z-Medica, Protégé sued Duff & Phelps and Smith in state court for breach of contract, unlawful practice of law, negligence, breach of professional services and breach of fiduciary and principal-agent duties. Duff & Phelps removed the case to federal court on the ground that Smith, the only non-diverse defendant, had been fraudulently joined. The district court dismissed the case for failure to state a claim. Protégé appealed.

The Eighth Circuit first analyzed whether the case belonged in federal court. The Court upheld the district court’s determination that Smith was fraudulently joined. The Court stated that fraudulent joinder occurs when there is no reasonable basis in fact and law for the claims brought against the non-diverse defendant. Here, the Court found that there was no reasonable basis for Protégé to allege breach of contract against Smith since he was never a party to the contract between Protégé and Duff & Phelps. The Court found that Protégé’s unlawful practice of law claim against Smith also constituted fraudulent joinder because Smith never gave legal advice to Protégé. The Court noted that the contract immunized Smith from Protégé’s other claims and thus, without any viable claims against Smith, the case was properly in federal court under 28 U.S.C. § 1332.

Turning to the merits of the claims against Duff & Phelps, the Eighth Circuit affirmed the dismissal for failure to state a claim. The Court reasoned that Protégé’s breach of contract claim was predicated on an alleged failure by Duff & Phelps to prevent Protégé from disclosing its proprietary information. However, the agreement only made Duff & Phelps responsible for its own conduct, not for Protégé’s conduct. The Court explained that Protégé’s other claims failed for the same reason.

Judge Erickson [...]

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NDA Sunset Provision Means Trade Secret Use May Not Be Misappropriation

by | Sep 16, 2021 |

The US Court of Appeals for the Ninth Circuit reversed a district court ruling in a trade secret misappropriation case based on a non-disclosure agreement (NDA) that resulted in an award of more than $60 million, ruling that any disclosures that occurred after the termination date of the NDA were not subject to misappropriation claims. BladeRoom Group Ltd. v. Emerson Electric Co., Case No. 19-16583 (9th Cir. Aug. 30, 2021) (Murphy, J.) (Rawlinson, J., concurring).

BladeRoom and Emerson compete for contracts to design and build data centers. In August 2011, the companies explored a potential sale of BladeRoom to Emerson. BladeRoom drafted an NDA governed by English law, and the parties signed it. Critically, the 12th paragraph of the NDA provided that “this agreement shall terminate on the date 2 years from the date hereof.” The potential acquisition ultimately fell through.

Not long after, Facebook began plans to build a data center in northern Sweden. BladeRoom pitched a design in July 2012, and Emerson pitched a design several months later. In October 2012, Facebook verbally approved Emerson’s design although it was only 10% complete. Almost a year later, Facebook contacted BladeRoom asking about updates to its proposal. In November 2013, Facebook selected Emerson’s proposal. Facebook and Emerson signed a design-build contract in March 2014, at which point BladeRoom learned about the design Emerson had pitched. BladeRoom sued Facebook and Emerson, alleging that Emerson had breached the NDA and misappropriated BladeRoom’s trade secrets.

The case was tried to a jury. During trial, BladeRoom settled with Facebook but not Emerson. Before closing arguments, Emerson proposed a jury instruction excluding information disclosed or used after August 2013 (i.e., after the NDA allegedly expired). The district court denied the instruction. BladeRoom then moved in limine to prohibit Emerson from arguing that the NDA permitted it to use BladeRoom’s information after August 2013. The district court granted the motion. The jury found Emerson liable and awarded $10 million in lost profits and $20 million in unjust enrichment damages but did not distinguish between the breach and misappropriation claims in making its award. The district court awarded $30 million in punitive damages and further awarded pre-judgment interest beginning on October 30, 2012, and $18 million in attorney’s and expert witness’ fees. Emerson appealed.

The Ninth Circuit first considered whether the NDA expired after two years. Applying English law, the Court held that it did based on a primarily textual analysis. However, the Court could not determine from the record the date on which the alleged breach/misappropriation had occurred. Accordingly, it vacated the judgment and remanded for a new trial.

The Ninth Circuit also discussed several issues in the appeal that would be relevant if Emerson was found liable on remand. The Court stated that the punitive damages award was not supported by the record where the jury did not distinguish between the breach and misappropriation claims because punitive damages are not available for breach of contract under California law. The Court also discussed prejudgment interest, observing [...]

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Can’t Camouflage Express Trademark Contract Terms

by | Mar 17, 2021 |

Addressing a range of trademark licensing issues, including discretionary approval, exculpatory contract clauses and third party beneficiary standing, the US Court of Appeals for the Federal Circuit affirmed a lower court’s grant of summary judgment to the US Army, finding that the Army abided by the terms of a trademark licensing agreement with a brand management company that sold clothing bearing the Army logo. Authentic Apparel Grp., LLC v. United States, Case No. 20-1412 (Fed. Cir. Mar. 4, 2021) (Lourie, J.)

In a 2010 licensing agreement, the Army granted Authentic Apparel, a brand management company that licenses merchandise, a non-exclusive license to manufacture and sell clothing bearing the Army’s trademarks in exchange for royalties. The licensing agreement gave the Army sole and absolute discretion on whether to approve any products and marketing materials bearing the Army’s trademarks. The licensing agreement also included exculpatory clauses exempting the Army from liability for exercising this discretion. From 2011 to 2014, Authentic submitted 500 requests for product approval, and the Army disapproved of only 41. After a series of late or unpaid royalty payments, Authentic sent notice that it would not pay 2014 royalties. The Army then terminated the license to Authentic. In 2015, Authentic and its chairman, Ron Reuben, sued the US government for breach of contract of the licensing agreement. The alleged breaches included denial of the right to exploit the goodwill associated with the Army’s trademarks, refusal to permit Authentic to advertise its contribution to certain Army recreation programs, delay of approval for a financing agreement for a footwear line, and denial of approval for advertising featuring the actor Dwayne “The Rock” Johnson. The Court of Federal Claims granted summary judgment to the US government and dismissed Reuben as a co-plaintiff for lack of standing. Authentic appealed.

The two main issues on appeal were whether Authentic provided sufficient evidence to show there was a genuine dispute of material fact that the Army breached the terms of its contract or any implied duty of good faith, and whether Reuben was a third party beneficiary to have standing as a plaintiff to the suit.

As to the first issue, the Federal Circuit affirmed the lower court’s grant of summary judgment for the government because Authentic was unable to provide sufficient evidence that the Army breached the trademark licensing agreement. The Court found that:

The contracting parties contemplated the terms of the contract and voluntarily decided to include express language of broad discretionary approval and exculpatory clauses exempting liability for disapproval, and therefore they should be held to the express terms for which they bargained.

The Army did not act unreasonably or violate its duty of good faith and fair dealing in exercising its discretion because it did approve more than 90% of Authentic’s products.

Authentic’s argument that the Army’s discretion was too broad and restricted Authentic’s use of the trademarks to solely “decorative purposes” was without merit because (1) the Court was not evaluating the validity of the trademarks here, (2) Authentic still [...]

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