Progressive EMU Inc v. Nutrition & Fitness Inc

Filing 120

MEMORANDUM OPINION Signed by Judge William M Acker, Jr on 6/25/14. (SAC )

FILED
2014 Jun-25 AM 11:59
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
PROGRESSIVE EMU, INC., f/k/a
JOHNSON EMU, INC.
Plaintiff and
Counterclaim Defendant,
v.
NUTRITION & FITNESS, INC.
Defendant and
Counterclaim Plaintiff.

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CIVIL ACTION NO.
2:12-cv-01079-WMA

MEMORANDUM OPINION
This

case

arises

out

of

an

exclusive

dealings

contract

between Progressive Emu, Inc. (“Pro Emu”), a company that raises
emus and sells emu oil and related products, and Nutrition &
Fitness, Inc. (“NFI”), a seller of health products.
dispute

the

ownership

of

relationship.

meaning
the

and

status

intellectual

of

their

property

The parties

contract

associated

and

with

the
their

Before the court are the parties’ cross-motions

for summary judgment.

Both motions will be granted in part and

denied in part, as will be hereinafter explained.
Background
An emu is an exotic, flightless, six-foot-tall Australian
bird.

The

learned

historian

Wikipedia

recounts

that,

in

centuries gone by, the aboriginal Australians rubbed their bodies
with

emu

fat

as

“bush

medicine”

1

and

as

body

adornment

for

ceremonial

occasions.

See

Wikipedia,

Emu,

http://en.wikipedia.org/wiki/emu (last visited June 18, 2014).
The more things change, the more they stay the same.

In the

late 20th century, there came to be an Alabama company called
Johnson Emu, Inc., more recently known as Progressive Emu, Inc.,
(“Pro

Emu”),

devoted

to

the

business

of

raising

emus,

slaughtering them, and processing their fat for people to rub on
their bodies.

See Compl. ¶ 5.

According to Pro Emu, it added

blue coloring to the processed fat on its own initiative in the
early 2000s, Compl. ¶ 6, and thus birthed “Blue Emu,” the nowstaple

drugstore

spray/lip

balm,

sports
see

Blue

rub/foot
Emu,

therapy

cream/pain

http://www.blue-emu.com

relief
(last

visited June 18, 2014).
With a potential commercial behemoth now in hand, it was
time for Pro Emu to take its product to the people.

In 2001, Pro

Emu was introduced to Nutrition & Fitness, Inc. (“NFI”), a North
Carolina company specializing in marketing health products on a
large scale.

Pl.’s Facts ¶ 2.

Over the next few years, the two

companies hammered out a number of agreements, including a 2001
“Confidentiality Agreement,” Pl.’s Facts ¶ 3, a 2002 “Operating
Agreement Letter of Intent,” Pl.’s Facts ¶ 7, and finally, a 2003
“Sales, Marketing, and Operating Agreement,” Pl.’s Facts ¶ 9.
2

The result was a contractual relationship in which, in short, Pro
Emu would supply emu oil to NFI, and NFI would produce and sell
Blue Emu and related products.
The relationship between the parties appears to have been
undermined from the beginning, as are so many relationships, by
disagreement as to the exact meaning of “exclusivity.”

The 2003

agreement underwent substantive modifications in 2004 and 2008,1
with both modifications seeking to clarify when and what Pro Emu
could sell to third parties.
lasting peace.

These modifications did not bring

In August, 2011, the parties began to trade

letters in which they alternately accused each other of contract
breaches, with each ineffectively reassuring the other that no
such

breaches

were

occuring.

NFI’s

main

concerns,

real

or

imagined, were that Pro Emu was selling oil to third parties and
that Pro Emu was providing barrels that contained less oil than
they were supposed to contain.

Pro Emu’s main concerns, real or

imagined, were that NFI was purposely ordering more oil than it
needed, thus preventing Pro Emu from selling at a higher price on
the market and damaging Pro Emu’s business; that NFI was calling
1

The 2003 Agreement, the two substantive agreements, and two
other minor modification documents are collectively referred to as
“the contract.” But citations to the contract will be made to the
precise document at issue: “2003 Agreement at __”; “2004 Amendment
at __”; and “2008 Amendment at __.”
3

third parties and sabotaging Pro Emu’s relationship with them;
and that NFI was underpaying Pro Emu.
These disputes came to a head in March, 2012.

Pro Emu wrote

NFI to say that Pro Emu had no birds ready to “process” and thus
could not fill any of NFI’s recent orders, and furthermore that
Pro Emu had filed suit in an Alabama state court to resolve the
parties’ differences.
own,

in

federal

NFI responded with a civil action of its

court

in

North

Carolina,

and

with

a

letter

declaring that it would not be paying Pro Emu any more money.
The resulting litigation has been ongoing for more than two
years, and the court has not been entirely idle during that time.
To wit:
- The Alabama action was remanded to this court, and the
North Carolina action was transferred to this court.

All of the

parties’ claims against each other are now consolidated in this
action.
- The court has defined the scope of the claims through
opinions on a motion to dismiss by NFI and a motion to amend the
complaint by Pro Emu.

See (Docs. 22, 96).

- The court has ruled, (Doc. 45), that Georgia law applies
to

all

breach-of-contract

claims,

Alabama

law

to

Pro

Emu’s

declaratory intellectual property claims, and North Carolina law
4

to NFI’s unfair trade practices and tortious interference with
business relations claims.
- The court has entered partial summary judgment (Doc. 82)
resolving all disputes concerning the meaning of the contract
terms.
- The parties have completed discovery.
What remains is a final summary judgment phase with which to
knock out any non-viable claims before proceeding to trial.

The

parties have filed cross-motions for summary judgment, and the
motions are fully briefed.

The issues under consideration are

these:
(I)
active?

Is the contract between the parties still viable and
The court finds that the contract was abandoned by the

parties at around the time this lawsuit was filed.

This finding

resolves two of the parties’ breach of contract claims: Pro Emu’s
claim for continuing royalty payments, and NFI’s claim for lost
profits.
(II)

With the contract between the parties out of the way,

who owns the intellectual property associated with the Blue Emu
product going forward?

The court finds that NFI possesses sole

ownership of the Blue Emu trademark.

5

(III)

With

all the

parties’

obligations to

each

other

established, or disestablished, does either party owe the other
damages for past contract breaches or other harms?

The court

finds that neither party is entitled to damages, and that both
actions are due to be dismissed.
I.

Abandonment; Royalties; Lost Profits
A.

Pro Emu’s Claim for Continuing Royalty Payments

Under

the

contract,

NFI

was

royalties for sales of Blue Emu.
D, § 2.4.

required

to

pay

Pro

Emu

2003 Agreement, NFI’s Mem. Ex.

One of Pro Emu’s primary arguments bearing on the

instant cross-motions is that NFI jumped the gun by suspending
the royalty payments in spring 2012, at the time this action
began.

See Pro Emu’s Mem. at 8-13.

According to Pro Emu, the

contract was still in effect in 2012, and, in fact, is still in
effect, so that NFI had and still has an ongoing obligation to
pay royalties for sales of Blue Emu and related products.
NFI defends with the argument that the contract between the
parties is no longer binding because, among other things, “the
parties have consented to and agreed to the termination of the
contract.”

NFI’s Opp’n at 13.

This argument is well taken.

In

Georgia, a “suit on contract for damages on account of a breach
thereof

cannot

be

maintained

except
6

by

affirmance

of

[the

contract’s] continuing validity.”

Allen Housemovers, Inc. v.

Allen, 135 Ga. App. 837, 839 (1975) (quoting Kelly v. Morris, 46
Ga. App. 353, 355 (1933)).

In Allen, plaintiff had contracted to

sell his business, including its equipment and certifications, to
defendant under an installment payment plan.

When defendant

missed a payment, plaintiff decided that “he knew defendant was
not going to make any more payments on the contract,” cancelled
the transfer of his business certifications, and retook control
of the property.

Id. at 838-39.

He subsequently sued for breach

of contract, and the jury awarded him damages.

The Georgia Court

of

the

Appeals

reversed.

As

a

matter

of

law,

court

held,

“[p]laintiff's acts and conduct were inconsistent with any rights
under the contract, and he was debarred from any right to sue on
the contract.”
195,

197

Id. at 839; see also Holloway v. Giddens, 239 Ga.

(1977)

(“Parties

may

by

mutual

consent

abandon

an

existing contract between them so as to make it not thereafter
binding and the contract may be rescinded by conduct as well as
by words.”) (citations omitted).
Pro

Emu’s

conduct

since

spring

2012

is

similarly

inconsistent with its having any rights under the contract.

Pro

Emu is correct that NFI’s royalty payments were a significant and
indisputable part of the contract.
7

See 2003 Agreement § 2.4.

So

too was Pro Emu’s obligation to “not market, sell, or distribute
emu oil or emu fat to any third party without the express consent
of NFI.”
continuing

Id. § 3.1.
royalties,

At the time Pro Emu made its claim to
it

had

already

long

performing its own obligations under the contract.

since

stopped

As NFI points

out, Pro Emu “has not supplied NFI with one drop of emu oil since
the month before this lawsuit was filed,” NFI’s Mem. at 24, and
instead has been selling its emu oil to LB Processors, a third
party, see Martin Dep., NFI’s Mem. Ex. H, at 174-81.

This type

of have-its-cake-and-eat-it-too behavior by Pro Emu is precisely
the kind disallowed by Allen.

By going their own separate ways,

the parties have successfully disavowed their obligations to each
other.
Pro Emu very briefly argues, in its reply brief, that under
the contract as previously interpreted by the court, “Pro Emu was
not required to supply oil to NFI if NFI did not order oil, and .
. . was free to sell any oil not ordered by NFI on the open
market.”

Pro Emu’s Reply at 23 (citing Opinion of June 7, 2013

(Doc. 82), at 31).

Thus, according to Pro Emu, it did not shirk

any obligations under the contract because it had no obligations
that could be shirked.

This argument is not persuasive.

Pro Emu

ignores the contract provisions that require that, even when Pro
8

Emu is permitted to sell to third parties, NFI first must either
give “express consent,” or notify Pro Emu that “it cannot or will
not use emu oil or emu fat [Pro Emu] has available.”
Amendment ¶ 1.

2004

There is no evidence that Pro Emu sought or

received NFI’s consent before any of its sales to third parties.
Indeed, there is no evidence of any business communications of
any kind, as opposed to litigation communications, since spring
2012.

Under these circumstances, Pro Emu’s conduct cannot be

said to demonstrate “affirmance of [the contract’s] continuing
validity.”

Allen Housemovers, Inc., 135 Ga. App. at 839.

Importantly,
temporally
plaintiff’s

limited

the

court’s

effect.

holding

The

abandonment-type

Allen

conduct

of

abandonment

rule

applies

occurs

when

before

plaintiff’s action for breach of contract is filed.

has
a

the

Once the

action is brought, any subsequent or continuing abandonment of
the contract can only influence claims of subsequent breaches.
In this case, Pro Emu’s original complaint, brought in spring,
2012, alleged breaches of contract that occurred the previous
year, while performance under the contract was still ongoing.
See Compl. ¶¶ 28-38.

These claims are not prejudiced by Pro

Emu’s subsequent abandonment of the contract.

Pro Emu’s claim to

continuing royalties, however, is different.

This claim was not

9

presented in the original complaint, see id., nor did it deal
with behavior that occurred prior to the filing of the original
complaint.
discovery

Instead, it was first disclosed to NFI during the
process,

at

least

six

months

after

the

original

complaint was filed, and dealt exclusively with behavior that
occurred in the interim.

The claim thus arose after the parties

had abandoned the contract by ceasing all performance under it.
NFI’s motion for summary judgment will therefore be granted as to
this issue.
B.

NFI’s Lost Profits Claim
It

should

go

without

saying

that

the

court’s

above

abandonment holding bars NFI’s claims to the same extent it bars
Pro

Emu’s.

Abandonment,

like

modification, requires mutuality.

other

types

of

contract

“The consideration on the part

of each [party],” in the abandonment context, “is the other’s
renunciation.”

Holloway, 239 Ga. at 197.

Among NFI’s claims as plaintiff is a claim for breach of
contract seeking damages in the form of lost profits related to
lost third party contracts.

The root of this claim is the fall

2012 decision of Sam’s Club, a mass retailer, to replace all the
Blue

Emu

in

its

stores

with

“Blue

Stop

Max,”

manufactured by Clavel, one of NFI’s chief rivals.
10

a

product

NFI attempts

to recover the resulting lost profits by pinning them, through a
rather extravagant chain of causation, on Pro Emu.

NFI alleges

that Pro Emu sold to LB Processors, that LB Processors then sold
to Clavel, that Clavel then increased its production of emu cream
by a certain amount, and that this amount of increase was the
difference-maker in Sam’s Club’s decision to sign an exclusive
contract with Clavel instead of NFI.
In

light

of

the

court’s

See NFI’s Opp’n at 26-27.

above

abandonment

holding,

NFI

cannot recover on this claim even if it is able to prove this
elaborate, Palsgraffian chain of causation.

The emu sales from

Pro Emu to LB Processors that bother NFI were made in late 2012
and throughout 2013.

See id. at 26.

The sales thus began

approximately six months after the start of this litigation and
six

months

contract’s

after

exclusivity

under the contract.
that

Pro

NFI

Emu

was

ceased

paying

requirement,

royalties,
and

heeding

otherwise

the

performing

It is ironic that NFI’s main complaint is
doing

business

with

a

third

party,

LB

Processors, when NFI was simultaneously doing business with the
same third party.

See Pro Emu’s Mem., Ex. 8 (invoices of sales

from LB Processors to NFI throughout 2012).

NFI’s claim is

barred for the same reason that Pro Emu’s claim for continuing
royalties is barred: that the contract was abandoned prior to the
11

alleged breaches.

Pro Emu’s motion for summary judgment will be

granted as to this issue.
II.

Intellectual Property
A.

The Nature of Pro Emu’s Claim

With the contract gone, the question remains of what the
parties’ respective rights are concerning Blue Emu, the valuable
commerical product that spurred the contract in the first place.
The background of this case, as Pro Emu describes it, is that Pro
Emu invented on its own the product called Blue Emu, and brought
NFI on board only to market and sell the product.
process

of

marketing

and

selling

the

product,

But in the

NFI

long

ago

registered a trademark acquiring the “Blue Emu” name with the
U.S. Patent

and

Trademark

Office

(USPTO), and

has

held

that

registration, unchallenged, since 2002.

Can it be that, because

the

because

contract

has

now

evaporated

and

NFI

holds

the

official trademark registration, Pro Emu has lost all rights to
the product that it created itself just 15 short years ago?

Pro

Emu hopes the answer is “no,” and so a crucial part of its
complaint, as amended, is a request for declaratory judgment that
Pro Emu retains intellectual property rights to the Blue Emu name
and product.

12

Pro Emu’s original theory of trademark ownership was that
the contract between the parties gave Pro Emu 50% ownership of
the

Blue

Emu

mark.

unavailing.

As

the

See

Compl.

court

held

¶
in

55.
an

This

argument

was

earlier

opinion,

the

contract makes no mention of any 50% ownership interest, and is
explicit

that

the

parties

would

have

a

relationship

independent contractors, not as joint venturers.

of

See (Doc. 82)

at 29-30.
Pro Emu subsequently amended its complaint to state its
claim under a different theory: that NFI’s trademark registration
with the USPTO must be cancelled, presumably so that rights to
the Blue Emu mark can revert to or be acquired by Pro Emu.
Am. Compl. ¶¶ 27-9 to 27-17; 65 to 71.

See

Under the Lanham Act, 15

U.S.C. §§ 1051-1127 (2006), a party may file with the USPTO a
“petition to cancel a registration of a mark” for a number of
reasons, including, as relevant here, that the “registration was
obtained

fraudulently.”

technically

creates

only

Id.
a

§

1064.

cancellation

And

though

procedure

§

before

1064
the

USPTO, another section of the statute, § 1119, gives courts the
power to “determine the right to registration” and “order the
cancellation

of

registered marks.

registrations”

in

civil

actions

involving

Pro Emu argues that NFI’s registration was
13

obtained

fraudulently

because,

as

part

of

the

registration

application, NFI was required to sign and did sign a declaration
swearing that it “believes the applicant to be the owner of the
trademark/service mark sought to be registered” and that “to the
best

of

[its]

knowledge

and

belief

no

other

person,

firm,

corporation, or association has the right to use the mark in
commerce.”

Am. Compl. ¶ 27-16.

In Pro Emu’s view, this was

blatantly untrue because NFI was well aware that Pro Emu also had
an ownership interest in the Blue Emu trademark.

After all, the

declaration

indeed

was

signed

directly

after,

and

as

a

consequence of, negotiations with Pro Emu about the Blue Emu name
and product.
Whether Pro Emu ought to have been allowed to assert this
belated claim at all is a reasonable question.

Pro Emu did not

move to amend its complaint to add this claim until August 2013,
approximately 16 months after the litigation began, and indeed
only added the claim immediately following, and probably as a
direct reaction to, an unfavorable ruling by the court on motions
for partial summary judgment.

Furthermore, even allowing for the

lateness of the amended complaint, the cancellation claim comes
more than 10 years after NFI’s initial registration of the Blue
Emu mark, with continuous use by NFI in the interim, raising
14

questions of whether a statute of limitations or the equitable
doctrine of laches should bar the claim.

Nevertheless, for the

reasons expressed in an earlier opinion, the court has allowed
Pro

Emu

to

amend

its

complaint

cancellation claim is not barred.

and

ruled

that

the

new

See (Doc. 96) at 9-17.

The

court therefore now proceeds to the merits of the cancellation
claim.
B.

Legal Standards

NFI is incredulous that a cancellation claim of this type
could ever work.

Its arguments are various, but all convey the

general sense that Pro Emu’s claim is virtually impossible to
assert for a procedural reason.

For example, in addition to the

statute of limitations and laches arguments, NFI argues, e.g.,
that “the Blue Emu trademark is incontestable under federal law
and this incontestability precludes [Pro Emu] from challenging
NFI’s

trademark

practical
trademark,

matter
as

ownership,”
it

[Pro

is
Emu]

NFI’s

next

to

seeks

to

Mem.

at

27;

impossible
do,

based

to

that

“[a]s

a

invalidate

a

solely

upon

the

assertion that representations made in a trademark application
were fraudulent,” id. at 33; and that “the evidentiary burden to
sustain a claim for cancellation under 15 U.S.C. § 1064(3) is
also notoriously high,” id. at 34.
15

NFI

is

statute.

overly

bogged

down

in

the

weeds

of

the

federal

The Lanham Act allows for registration of trademarks in

the federal register and provides various rights associated with
registration, but registration itself is not what creates the
trademark.

Actual creation can only occur by the common law

method–-by use in the marketplace.

See Miller v. Glenn Miller

Prods., Inc., 454 F.3d 975, 979 (9th Cir. 2006) (“Registration
does not create a mark or confer ownership; only use in the
marketplace

can

establish

a

mark.”);

see

also

3

McCarthy

Trademarks and Unfair Competition § 19:3 (4th ed.).
cancellation claim is built upon this premise.

on

Pro Emu’s

The idea is that

Pro Emu, not NFI, was the one with common law trademark rights to
the

Blue

Emu

name,

and

therefore

that

NFI

had

nothing

to

register.
A similar claim was presented in Country Fare LLC v. Lucerne
Farms, 3:11-CV-722-VLB, 2011 WL 2222315 (D. Conn. June 7, 2011).
In

that

case,

plaintiff

Country

Fare

was

the

creator

proprietary mulch composition called “Mainely Mulch.”

of

a

Id. at *1.

It contracted with Lucerne, a larger company, for the latter to
“manufacture, package, and ship” the mulch.

Id. at *2.

While

this business relationship was still ongoing, Lucerne registered
a trademark on the Mainely Mulch name.
16

Id. at *3.

Years later,

when the parties’ relationship soured, Country Fare challenged
Lucerne’s trademark on the same grounds that Pro Emu invokes
here–-that

the

trademark

must

be

cancelled

because

Lucerne

obtained it by fraudulently holding itself out as the sole owner
of the mark.

Lucerne defended with the same defense that NFI

offers here–-that the burden of showing intentional fraud was too
high for Country Fare to overcome.
Fare

had

shown

likely

success

The court found that Country

on

the

preliminary injunction in its favor.
Country
incredulity,

Fare

thus

Pro

Emu’s

theory of recovery.
wins on this claim.

indicates

merits

and

granted

a

See id. at *6-*9.
that,

cancellation

notwithstanding

claim

presents

a

NFI’s
viable

However, this does not mean that Pro Emu
The crucial fact to the Country Fare court’s

analysis was that “Country Fare had superior ownership of the
mark.”2

Id. at *7; see also Sengoku Works Ltd. v. RMC Int'l,

Ltd., 96 F.3d 1217, 1220 as modified, 97 F.3d 1460 (9th Cir.
1996) (“[A] non-registrant can rebut [a registrant’s presumption
of ownership] by showing that the registrant had not established
2

Though not part of the court’s legal analysis, other indicia
of fraud were noted by the court and were probably relevant to its
decision.
See id. at *3 (indicating that Lucerne filed its
appliction for registration only after it “anticipat[ed] a
breakdown in the parties’ business relationship,” and disguised in
its application all references to Country Fare that appeared on the
original mulch packaging). Such other indicia are not present in
this case.
17

valid

ownership

rights

in

the

mark

at

the

time

of

the

registration–-in other words, if the non-registrant can show that
he used the mark in commerce first, then the registration may be
invalidated.”).

If Pro Emu is to win here, it must similarly

show that it has superior ownership, through use in commerce, of
the Blue Emu trademark.

Pro Emu cannot do so.

“It is axiomatic in trademark law that the standard test of
ownership is priority of use.”

Sengoku Works Ltd., 96 F.3d at

1219; see Tactica Int'l, Inc. v. Atl. Horizon Int'l, Inc., 154 F.
Supp. 2d 586, 599 (S.D.N.Y. 2001) (“It is well established that
the standard test of ownership is priority of use.”) (citing
McCarthy, § 16.1).

Neither party appears to fully understand the

importance of this foundational principle.

Pro Emu believes the

key fact is that “Pro Emu developed the formula for Blue Emu and,
through corroboration with people other than NFI, came up with
the name ‘Blue Emu.’”

Am. Compl. ¶ 27-9.

NFI, meanwhile,

believes the key fact is that NFI is the one that registered the
trademark.

But “[t]o acquire ownership of a trademark, it is not

enough to have invented the mark first or even to have registered
it first.”

Sengoku Works Ltd., 96 F.3d at 1219.

“[T]he party

claiming ownership must have been the first to actually use the
mark in the sale of goods or services.”
18

Id.

Neither NFI nor Pro Emu has presented any evidence of sales
of a product called “Blue Emu” in the marketplace prior to the
beginning of the parties’ business relationship.

Pro Emu has

provided evidence of sales to NFI of something described in the
invoice as “Super Strength Blue-Emu,” see Pro Emu’s Mem., App. 1,
at 29-32 (pages marked “NFI 00012” to “NFI 00015”), but these
sales were part of a collaborative effort to put Blue Emu into
the market.
Pro Emu.

They were not themselves a marketing operation by

The question of who owns a trademark for a product that

is sold through such a collaberative effort is neither new nor
unsettled.

See Sengoku Works Ltd., 96 F.3d at 1220 (“Disputes

over trademark ownership often arise when the mark is used on
goods that are manufactured by one company, but are marketed by
another pursuant to an exclusive distributorship agreement.”).
The

standards

governing

this

question,

as

explained

by

the

Sengoku court, collecting cases from across the country, are
these:
First, the court looks to whether any agreement between the
parties governs the trademark rights.

Id.

In this case, as the

court has already explained, the contract between the parties
does not grant trademark rights to either party.
at 29-30.

See (Doc. 82)

The question is a close one, and worth revisiting.
19

The “Letter of Intent” that preceded the contract did provide
that

the

parties

would

trademarks of products.”
But

the

Letter

of

“jointly

own

any

current

and

future

Letter of Intent, NFI’s Mem., Ex. O.

Intent,

as

the

court

has

explained,

was

superseded in whole by the 2003 Agreement, and any provisions in
the former that did not make it into the latter, did not make it
into the latter.

The 2003 Agreement, meanwhile, provided that

“any . . . trademarks associated with the business of [Pro Emu],
. . . shall be the sole property of [Pro Emu].”
7.1.

But

this

language

begs

the

question.

2003 Agreement §
Any

trademarks

associated with Pro Emu will belong to Pro Emu, but is the Blue
Emu trademark associated with Pro Emu or with NFI?

Indeed, just

as § 7.1 of the Agreement preserves Pro Emu’s trademark rights, §
2.1 of the Agreement accomplishes the same effect for NFI.

2003

Agreement § 2.1 (“Nothing in [the] Agreement shall be construed
as granting to [Pro Emu] any express or implied license to any
NFI trademarks or other NFI intellectual property.”).
So, the contract does not conclusively determine ownership
of any trademark, present or future.

The court therefore must

proceed to the second stage of the analysis, in which it applies
a presumption that the manufacturer owns the trademark.
Sengoku Works Ltd., 96 F.3d at 1220.
20

See

In this case, NFI is more

deserving

of

this

presumption.

At

the

very

outset

of

the

parties’ relationship, in spring, 2002, it appears that Pro Emu
sold fully formed Blue Emu cream to NFI for distribution.

See

Pro Emu’s Mem., App. 1, at 29-32 (pages marked “NFI 00012” to
“NFI 00015”) (invoices describing sales of “Super Strength BlueEmu” from Pro Emu to NFI).

But by June, 2002, Pro Emu’s sales to

NFI had taken the form of of emu oil, rather than “Blue Emu.”
See Pro Emu’s Opp’n, Ex. 5, at 15 (page marked “NFI 02950”)
(invoice describing sales of “Emu Oil - Gallon”).

When the

contract between

in

2003, it

provided purchase prices for emu oil, not “Blue Emu.”

See 2003

the

Agreement § 2.3.

parties

was

finally signed

And the contract further provided that “NFI

will be responsible for designing and paying for labels for the
Emu Products,” including, presumably, the manufacturer of the
Blue Emu packaging.

Id. § 1.4.

The court therefore concludes

that NFI has a substantially greater claim to the “manufacturer”
presumption of ownership.
The

third

and

final

step

is

to

determine

whether

presumption in favor of the manufacturer can be overcome.

the
The

court must balance a variety of factors, including: “(1) which
party invented and first affixed the mark onto the product; (2)
which party's name appeared with the trademark; (3) which party
21

maintained the quality and uniformity of the product; and (4)
with which party the public identified the product and to whom
purchasers made complaints.”
(citation

omitted).

Sengoku Works Ltd., 96 F.3d at 1220

“Furthermore,

courts

will

also

consider

which party possesses the goodwill associated with the product,
or which party the public believes stands behind the product.”
Id.

(citation

omitted).

Of

these

factors,

only

(invention of the name) weighs in Pro Emu’s favor.

the

first

As to the

second and fourth factors, NFI is the company whose name and
contact information is printed on Blue Emu bottles.

As to the

third factor, Pro Emu’s participation in “maintaining the quality
and uniformity” of Blue Emu appears to be limited to providing
one ingredient, the emu oil.
not

Pro

Emu,

to

“be

Finally, the contract required NFI,

responsible

for

any

representations

or

warranties . . . to any customer,” 2003 Agreement § 1.3; to “be
responsible for designing and paying for labels,” id.; and to
undertake “all marketing or promotional activity,” id. § 1.5.

It

is thus much more likely that the public associates NFI, not Pro
Emu, with Blue Emu, and that NFI is the party possessing any
goodwill associated with the product.
To succeed on its cancellation claim, Pro Emu not only must
prove fraud, but the fraud “must be proven to the ‘hilt.’”
22

E.

Gluck Corp. v. Rothenhaus, 585 F. Supp. 2d 505, 513 (S.D.N.Y.
2008) (citing McCarthy, § 31:68).

Because the evidence in this

case shows that NFI has the superior claim to ownership, Pro
cannot

carry

this

heavy

burden.

NFI’s

motion

for

summary

judgment will therefore be granted on this issue.
III.

Equity
In equity and good conscience, this court cannot, and will

not, force these parties, who, except for this lawsuit which both
are so fond of, have walked away from each other, to reconstitute
an unworkable business relationship that would not fit their
current

objectives

and

would

only

get

in

their

way,

not

to

mention invite further litigation.
IV.

Other Claims
With the major, complicated disputes resolved, the lay of

the land is much clearer.

The contract between the parties is

abandoned, and the parties have no further obligations to each
other.

Pro Emu can sell its emu oil to whomever it wants, or use

the oil itself.

NFI can buy emu oil from whomever it wants.

NFI

will have an exclusive right to the Blue Emu trademark.
What remains are a number of more finite claims to damages
for breaches of the contract that occurred while the contract was

23

more or less still alive, i.e., from 2003-2012.

These claims are

resolved as follows:
A.

Claims Related to the Amount of Oil Per Barrel

The parties’ original agreement, as signed in 2003, provided
that NFI would buy emu oil from Pro Emu by the gallon.

On March

11, 2008, however, the parties amended the agreement to list emu
oil prices by the barrel.

The 2008 Amendment did not define the

word “barrel,” so naturally a disagreement between the parties
promptly arose.

NFI felt that it should get 55 gallons of oil in

every barrel, while Pro Emu felt that only 52.65 gallons were
required.
This

dispute

gave

rise

to

a

second

dispute.

While

investigating the amount of oil that a “barrel” should contain
under the 2008 Amendment, NFI discovered that Pro Emu had already
switched to 52.65 gallons of oil per barrel in 2007, despite the
fact that Pro Emu’s sales invoices specifically reflected sales
of 55 gallons of oil.

See NFI’s Mem. at 46.

Pro Emu admits that

its barrels started containing only 52.65 gallons in 2007, but it
explains that this is not as bad as it seems.

Pro Emu’s barrels

are filled by a third party emu processor, and that processor
changed the amount of oil per barrel, pursuant to a change in
industry practice, in 2007.

See Pro Emu’s Opp’n at 11; Compl. ¶
24

32 (“Barrels of oil can only hold 52.63 gallons of oil due to
expansion.”).

Pro Emu claims that it only learned about change

at the same time as did NFI, and that it was just as surprised to
learn about the change as NFI was.

See id.

The court need not decide whether either of these two issues
amounted to a breach of contract by either side.

This dispute

arose in 2008, and if the parties had brought actions against
each other then, this dispute would have been featured.
the

parties

involvement.

chose

to

resolve

their

dispute

Instead,

without

court

NFI agreed to allow Pro Emu to provide barrels

containing only 52.65 gallons, and Pro Emu agreed to accept a
slightly lower price for them.3

See (Doc. 82) at 25.

“Under

Georgia law, a written agreement may be modified by a subsequent
parol agreement between the parties, provided the modification is
supported by consideration.”
Corp.,

5

F.

Supp. 2d 1365,

Coffee v. Gen. Motors Acceptance
1376

3

(S.D.

Ga.

1998).

This

is

Pro Emu briefly argues that NFI provided no consideration for
this compromise solution, and indeed achieved it by duress: “NFI
knew that Pro Emu was struggling financially and would have great
difficulty feeding the birds without [the contract payments].” Pro
Emu’s Opp’n at 13.
This argument is not persuasive.
The
consideration provided by NFI was that it agreed to accept the
barrels containing less emu oil, and “the mere fact that a person
enters into a contract as a result of the nature of business
circumstances, financial embarrassment, or economic necessity is
not sufficient [for a claim of duress].” A-T-O, Inc. v. Stratton
& Co., Inc., 486 F. Supp. 1323, 1325 (N.D. Ga. 1980).
25

precisely

the type

of

modification

that

occurred

here.

The

parties happily performed under their compromise arrangement for
three years before the instant case arose.

They cannot now go

back, in light of their newer disagreements, and say that, had
they known litigation was going to occur anyway, they would have
sought damages against each other for the 2008 breaches.

If any

such breaches occurred, the parties agreed to settle them on
their own terms, and that agreement will not now be disturbed.
Pro Emu’s motion for summary judgment will therefore be granted
as to NFI’s claim for overpayments, and NFI’s motion for summary
judgment will be granted as to Pro Emu’s claim for recovery for
NFI’s reduced price-per-barrel payments.
B.
Pro

Royalties for Off-the-Books Sales
Emu’s

amended

complaint

added,

in

addition

to

the

trademark cancellation claim, a claim that NFI shortchanged it on
royalty payments for sales made even prior to the dissolution of
the parties’ relationship.
claim are quite serious.

The allegations that underlie this

Pro Emu argues, in short, that NFI has

falsified its financial records, both in its business dealings
with Pro Emu and before this court, in order to disguise some
percentage of its sales so as to avoid royalty payments on them.

26

Pro Emu has not alleged or shown facts sufficient to proceed
beyond summary judgment on this claim.

The sum of Pro Emu’s

evidence is this: Pro Emu sold NFI 207 barrels of emu oil, and
207 barrels can produce 5,120,372 units of Blue Emu, but NFI
reported (and paid royalties on) sales of only about 3,900,000
units

of

Blue

Emu.

See

Pro

Emu’s

Opp’n

at

17-20.

The

discrepancy alleged by Pro Emu might have countless causes.

NFI

suggests a few: that perfect production efficiency is impossible,
and

there

is

a

certain

amount

of

unavoidable

waste

in

the

production process; that NFI gives away large amounts of emu oil
and Blue Emu for promotional purposes; and that NFI sells Blue
Emu in various bottle sizes and so Pro Emu’s math is speculation
and/or

overly

explanations,

simple.
not

See

suggested

NFI’s

by

NFI,

Mem.
are

at
also

14-16.
possible.

Other
For

example, perhaps a few barrels fell out of the back of NFI’s
truck, or NFI failed to properly refrigerate them, or the like.
None of these explanations would create liability for NFI.

NFI

had no obligation under the contract to meet a certain sales
figure; it was simply required to pay royalties for the sales it
actually made.

2003 Agreement § 2.4.

Of the countless explanations for the sales discrepancy, the
only one that would entitle Pro Emu to recovery is that NFI
27

actually did make more sales than reported and lied to Pro Emu
about them.

A jury might select this explanation among all the

others, but only if Pro Emu were to first put forward some
evidence on which the jury could rely for its selection.
Celotex Corp.

v.

Catrett,

477

U.S.

317,

322

(1986)

See

(holding

summary judgment against a party appropriate when the party fails
to make a “showing sufficient to establish the existence of an
element essential to that party's case, and on which that party
will bear the burden of proof at trial”).

Pro Emu has put

forward

other

no

evidence

of

concealed

sales

than

conjectural, best-case-scenario mathematical calculation.
on

the

other

hand,

has

produced

all

of

its

sales

its
NFI,

records,

compiled by computer during the ordinary course of business, and
has further retained an expert witness, an accountant, who has
reviewed all of NFI’s records and found that they appear to be
correctly compiled and maintained.
to

carry

its

Celotex

burden,

Pro Emu has therefore failed

and

NFI’s

motion

for

summary

judgment will be granted as to this issue.
C.

NFI’s Claims for Unfair Trade Practices and Tortious
Interference with Contract

NFI

also

claims

damages

for

unfair

trade

practices

and

tortious interference with its contracts.

Both of these claims

require

a

conduct

that

goes

well
28

beyond

normal

breach

of

contract.

Unfair trade practices claims require a “practice

[that] offends established public policy and [that] is immoral,
unethical, oppressive, unscrupulous or substantially injurious to
consumers.”

Miller v. Nationwide Mut. Ins. Co., 112 N.C. App.

295, 301 (1993).

These claims are often construed to “provide a

remedy in the nature of a private action” for violations of other
statutes.
provide

Id.

(using

recovery

omitted).

for

the

unfair

violation

of

trade

practices

insurance

law)

theory

to

(citation

Tortious interference with contract requires proof

that the defendant “prevent[ed] people by force, threats, or
intimidation from trading with” the plaintiff.

Mkt. Am., Inc. v.

Christman-Orth, 135 N.C. App. 143, 157-58 (1999).
The behavior relied on by NFI in this case does not rise to
this level.

A jury could possibly find, as NFI believes, that

Pro Emu breached the contract by failing to fill NFI’s March,
2012 orders, and that Pro Emu was simultaneously selling to third
parties

at

occurred,

a

higher

was

not

price.
illegal

But
or

such

conduct,

“substantially

even

if

it

injurious

to

consumers,” Miller, 112 N.C. App at 301, and did not involve
force or intimidation, see Mkt. Am., Inc., 135 N.C. App at 158.
Any harm that occurred was harm to NFI, not harm to the public.
These harms should thus be addressed by contract claims, not by
29

unfair trade practices nor tortious interference claims.

Pro

Emu’s motion for summary judgment will therefore be granted as to
these claims.
D.

Other

To the extent the parties may believe the following other
claims from the cross-complaints to be active:
- Pro Emu’s claim for improper deductions for advertising
was dealt with in a previous opinion.
For the

reasons

expressed

in

that

See (Doc. 82) at 10-17.

opinion, NFI’s

motion

for

summary judgment on this claim will be granted.
- NFI’s claims for breach of the covenant of good faith has
been conceded.
-

All

other

claims

are

not

briefed,

and

are

deemed

abandoned.
Conclusion
For all the foregoing reasons, the parties’ motions for
summary judgment will both be granted in part and denied in part.
The

contract

between

the

parties

is

deemed

abandoned,

ownership of the Blue Emu trademark rests with NFI.

and

All claims

of both parties for damages will be dismissed with prejudice.
The court will contemporaneously issue an order consistent
with this opinion.
30

DONE this 25th day of June, 2014.

_____________________________
WILLIAM M. ACKER, JR.
UNITED STATES DISTRICT JUDGE

31