2 Hounds Design, Inc. v. Brezinski et al
Filing
77
ORDER granting in part and denying in part 61 and 71 Motion for Summary Judgment. Signed by District Judge Robert J. Conrad, Jr on 9/8/2014. (eef)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
3:13-cv-101-RJC-DCK
2 Hounds Design, Inc.,
)
)
Plaintiff and
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Counterclaim Defendant, )
)
v.
)
)
)
Jessica Brezinski, USA Dog Shop, LLC
)
)
Defendants.
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____________________________________ )
ORDER
THIS MATTER comes before the Court on the parties’ respective motions for summary
judgment and relevant briefs. (Docs. 61-63, 65, 71). It is ripe for review.
BACKGROUND
The parties in this suit operate in the same field of business, namely manufacturing and
selling accessories such as harnesses, leashes, and collars, for use by dog owners and trainers.
Plaintiff 2 Hounds Design, (2 Hounds) is a North Carolina corporation, while Defendants
Brezinski and USA Dog Shop, LLC (collectively: Brezinski) are residents of New York. The
parties dispute whether 2 Hounds—who is Plaintiff in form only—violated a licensing agreement
when it agreed to manufacture, for a third party, a dog harness similar to that covered in the
agreement. 2 Hounds filed this suit seeking a declaratory judgment that its actions have been in
compliance with the licensing agreement. Brezinski, in turn, filed nine (9) counterclaims
alleging contractual violations and tortious behavior on the part of 2 Hounds.1 2 Hounds has
moved for summary judgment against Brezinski’s claim, while Brezinski has filed a motion for
1
Brezinksi initially filed eleven (11) counterclaims, but has since withdrawn claims for unjust enrichement and good
faith and fair dealing as those claims subsist in the claim for breach of contract.
cross-summary judgment.
The relevant facts turn on a licensing agreement entered into by the parties on March 25,
2009. (Doc. 43-1). In that agreement, Brezinski, along with Wiggles, Wags & Whiskers, LLC,
(WWW), granted 2 Hounds an exclusive license to use patented material, know-how, and the
WWW trademark in return for various payments. The product at issue here was known as the
“Freedom No-Pull Harness,” (“Freedom Harness” or “Licensed Product”), a dog harness
patented by Brezinski and sold by WWW.
At the same time, the parties also executed an asset purchase agreement whereby 2
Hounds acquired all of the assets of WWW, and Brezinski agreed to change the name of her
company to USA Dog Shop, LLC.
The Licensing Agreement contained various provisions of significance to this dispute.
Among those provisions are the following:
2 Hounds received an exclusive non-transferable license to manufacture and sell the
Licensed Product and to use the Know-How in the manufacture of that product, as well as
collars and leashes. (Id. ¶1).
The rights obtained by 2 Hounds under the Licensing Agreement are “entire” and operate
to exclude all others, including Brezinski, from manufacturing collars, harnesses, and
leashes during the term of the agreement. (Id.).
Brezinski shall be obligated at her sole discretion to enforce the Licensed Patents,
including the filing of patent litigation at her expense, and the parties shall equally divide
proceeds from such litigation minus litigation costs incurred by Brezinski. (Id. ¶6).
The rights granted to 2 Hounds cannot be sublicensed without the permission of
Brezinski. (¶9).
2 Hounds shall “use . . . its best efforts, as determined in 2 Hounds’ sole discretion
exercised in good faith, to supply the public demand for the Licensed Product . . . [and] to
create and promote . . . demand” for the Licensed product.” (¶10).
2
Brezinski will perform consulting, training, sales, and marketing services related to the
manufacture and sale of the Licensed Product (Know-How) until December 31, 2009 (the
Know-How transfer period). (¶11)
As consideration, 2 Hounds will pay Brezinksi $36,000 in installments. (¶12).
Use of the Licensed Trademarks on the Licensed Product, collars, and leashes shall be in
a form approved by Brezinski. (¶17).
Advertising on the Licensed Product shall be in a form approved by Brezinski. (Id.).
2 Hounds agrees to pay royalties on “all Licensed Product sold by 2 Hounds” during the
agreement. (¶21).
2 Hounds agrees to keep complete and accurate accounting of all Licensed Product sold
by 2 Hounds with sufficient detail to enable Brezinski to ascertain the royalties payable to
her. (¶22).
Brezinski will not offer for sale the Licensed Product except where purchased at
wholesale from 2 Hounds. (¶32).
The parties “each agree to maintain discussions and proprietary information of the other
party revealed pursuant to this Agreement in confidence. . . .” (¶34).
By all appearances, the relationship between 2 Hounds and Brezinski was harmonious
during the initial periods of the licensing agreement. At some point in 2010, the parties had
communications about how to broaden the promotion and create a larger public demand for the
Freedom Harness. (¶35). To that end, 2 Hounds personnel communicated to Brezinski its intent
to promote the product by bringing it to the attention of Victoria Stilwell, a dog-trainer who hosts
a popular television show dedicated to demonstrating positive reinforcement training techniques.
In addition to her television show, Ms. Stilwell oversees a global network of likeminded trainers,
who often coordinate their use of various training methods and products.
The problems began shortly thereafter. The evidence forecast by Defendants shows that,
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at some point in 2011, 2 Hounds ceased obtaining her approval for advertising or design changes
to the Freedom Harness. (¶¶ 28-29). By 2013, 2 Hounds had removed the WWW trademark
from items and sold these items under a new 2 Hounds label instead. (¶30). Finally, on October
15, 2013, 2 Hounds entered into a manufacturing agreement with Victoria Stilwell Enterprises
(VSE) to manufacture the “Positively No Pull Harness,” (PNP harness), a harness containing
similar features and design as the licensed product. (Doc. 64-8). 2 Hounds arrived at the
particular design of the PNP by “tweaking” the design specifications of the Freedom Harness.
(Doc. 64-3 ¶20). To date, 2 Hounds has manufactured approximately 308 PNP harnesses to be
sold by VSE. (Id. ¶44). In her affidavit, Brezinski maintains that, prior to entering into the
manufacturing agreement, VSE expressed to 2 Hounds the possibility of selling the Freedom
harness using a VSE label and paying royalties as part of a sub-license such. (Id. ¶19). 2
Hounds, however, neither pursued such an opportunity nor informed Brezinski about it. (Id.).
Finally, Brezinski claims that, at some point in 2013, 2 Hounds stopped using the WWW
brand mark on advertisements and altered the WWW website so that it re-directs customers to
the 2 Hounds site. (Id. ¶11).
On February 19, 2013, 2 Hounds filed suit in this Court seeking declaratory relief that
their actions were not in violation of the licensing agreement. Shortly thereafter, Brezinski filed
a range of counterclaims. Since then, both parties have amended their pleadings. (Docs. 42-43).
2 Hounds added a claim for breach of contract to its claim for declaratory relief, alleging that
Brezinski violated the licensing agreement by selling the licensed product as a wholesaler.
Brezinski has filed counterclaims for the following: (1) breach of contract; (2)
misappropriation of trade secrets; (3) unfair and deceptive trade practices under N.C. Gen. Stat. §
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75-1.1; (4) false advertising in violation of 15 U.S.C. § 1125; (5) trademark infringement in
violation of 15 U.S.C. § 1114; (6) unlawful use of Brezinski’s name or likeness; and, (7)
conversion of Know-How. Finally, Brezinksi has moved for a full accounting for the licensed
product and a permanent injunction prohibiting, among other things, 2 Hounds from any use of
the Know-How, trademark or logo of WWW.
II.
STANDARD OF REVIEW
A.
Declaratory Judgment
Under the Declaratory Judgment Act, a district court having jurisdiction “may declare the
rights and other legal relations of any interested party seeking such declaration, whether or not
further relief is or could be sought.” 28 U.S.C. § 2201(a). The Supreme Court has “repeatedly
characterized the Declaratory Judgment Act as ‘an enabling Act, which confers a discretion on
the courts rather than an absolute right on the litigant.” Wilton v. Seven Falls Co., 515 U.S. 277,
287 (1995) (quoting Pub. Serv. Comm’n of Utah v. Wycoff Co., 344 U.S. 237, 241 (1952).
Courts have interpreted the Act’s permissive language to “provide discretionary authority to
district courts to hear declaratory judgment cases.” United Capitol Ins. Co. v. Kapiloff, 155 F.3d
488, 493 (4th Cir. 1998). “[A] declaratory judgment action is appropriate when the judgment
will serve a useful purpose in clarifying and settling the legal relations at issue, and . . . when it
will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to
the proceeding.” Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 256 (4th Cir. 1996)(internal
quotation omitted).
The North Carolina Declaratory Judgment Act (NCUDJA) is designed to provide an
expeditious method of procuring a judicial decree construing wills, contracts and other written
5
instruments and declaring the rights and liabilities of the parties thereunder. Farthing v.
Farthing, 70 S.E.2d 664, 665 (1952). In contrast to the federal declaratory judgment statute, the
NCUJDJA explicitly gives courts discretion to decline requests for declaratory relief. N.C.G.S. §
1-257; Augur v. Augur, 573 S.E.2d 125, 128 (N.C. 2002).
B.
Summary Judgment Standard
Summary judgment shall be granted “if the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” FED. R. CIV. P.
56(a). A factual dispute is genuine “if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
A fact is material only if it might affect the outcome of the suit under governing law. Id. The
movant has the “initial responsibility of informing the district court of the basis for its motion,
and identifying those portions of the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, which it believes demonstrate the absence
of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal
citations omitted). “The burden on the moving party may be discharged by ‘showing’ . . . an
absence of evidence to support the moving party’s case.” Id. at 325.
Once this initial burden is met, the burden shifts to the nonmoving party. The nonmoving
party “must set forth specific facts showing that there is a genuine issue for trial.” Id. at 322 n.3.
The nonmoving party may not rely upon mere allegations or denials of allegations in his
pleadings to defeat a motion for summary judgment. Id. at 324.
The nonmoving party must
present sufficient evidence from which “a reasonable jury could return a verdict for the
nonmoving party.” Anderson, 477 U.S. at 248; accord Sylvia Dev. Corp. v. Calvert County,
6
Md., 48 F.3d 810, 818 (4th Cir. 1995).
When ruling on a summary judgment motion, a court must view the evidence and any
inferences from the evidence in the light most favorable to the nonmoving party. Anderson, 477
U.S. at 255. “Where the record taken as a whole could not lead a rational trier of fact to find for
the nonmoving party, there is no genuine issue for trial.” Ricci v. DeStefano, 557 U.S. 557, 586
(2009) (internal citations omitted).
When faced with cross-motions for summary judgment, the court must review each
motion separately on its own merits to determine whether either of the parties deserves judgment
as a matter of law. Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003) (citation omitted).
When considering each individual motion, the court must take care to resolve all factual disputes
and any competing, rational inferences in the light most favorable to the party opposing that
motion. Id.
III.
DISCUSSION
A.
Breach of Contract
The crux of this dispute centers on whether the parties have complied with the licensing
agreement. Under North Carolina law, which governs the agreement, the elements for a breach
of contract are: (1) the existence of a valid contract, and, (2) breach of the terms of that contract.
Jackson v. California Hardwood Co., 463 S.E.2d 571, 572 (N.C. App. 1995). A breach of
contract is only actionable if a material breach occurs—one that substantially defeats the purpose
of the agreement or goes to the heart of the agreement, or can be characterized as a substantial
failure to perform. Fletcher v. Fletcher, 474 S.E.2d 802, 807-08 (N.C. App. 1996), disc. rev.
denied, 483 S.E.2d 706 (N.C. 1997).
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1.
Best Efforts
In seeking declaratory judgment, 2 Hounds posits that the license grants it the right to use
the know-how and licensed trademarks, but does not require it to use either. 2 Hounds maintains
that the determination of whether to use the know-how or trademarks is subject only to its
discretion exercised in good faith. 2 Hounds position, however, neglects to account for the most
relevant contractual provision, namely its obligation to “exercise its best efforts, as determined in
2 Hounds’ sole discretion exercised in good faith, to supply the public demand for the Licensed
Product, and . . . [to] use its best efforts, as determined in 2 Hounds sole discretion exercised in
good faith, to create and promote such demand.” (Doc. 62-5: Licensing Agreement ¶10).
Normally, the question of whether a party engaged in best efforts or reasonable efforts “is
a question of fact to be properly decided by the trier of fact.” Egan v. Guthrie, 380 S.E.2d 135,
(N.C. App. 1989). In other words, the inquiry is a fact intensive one and normally centers on the
omissions of a party, that is, whether a failure to perform certain actions constituted a failure to
exercise one’s best efforts. Here, the inquiry centers on actions committed rather than omitted,
namely whether the production of a similar product for a competitor violates a best efforts
clause, irrespective of any efforts to promote the product that is the object of the licensing
agreement.
This issue has not been litigated extensively. Nonetheless, the courts that have examined
it have concluded that it violates a “best efforts” provision to promote the product of a competing
company. In PRC Realty Systems, Inc. v. Nat’l Ass’n of Realtors, the Fourth Circuit, analyzing
a Colorado contract, held that a party violated the best efforts provision where it marketed
publishing software substantially similar to that which it had agreed to promote as part of a
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licensing agreement. 972 F.2d 341 (4th Cir. 1992) (unpublished). The Fourth Circuit held that:
Any potential ambiguity concerning the extent of the best efforts obligation is not
at issue given the facts of the present case. It is clear that no party can provide
“best efforts” to promote the business of two separate and competing parties . . . .
A party might be capable of providing “darn good” efforts to more than one party,
but any reasonable definition of the term “best” indicates that only one party may
be the beneficiary of any individual’s “best” efforts . . . .
Id. at * 9.
Significantly, the provision at issue in PRC Realty contained language establishing that
the determination as to what constituted best efforts lay within the discretion of the party
exercising such efforts. Id. Such discretion, however, was not so broad as to allow for actions
directly contrary to the fundamental purpose of the agreement. Id. at *2.
Similarly, the Third Circuit examined the term “best efforts” in the reviewing the
appropriateness of jury instructions that compared the duty of good faith to obligations to exert
best efforts. Writing for the panel, then-Judge Alito focused on the nature of an exclusive
agreement as it relates to the question of best efforts, noting that “[t]he obligation placed on the
buyer to use best efforts reflects its monopoly power; the exclusivity arrangement makes the
seller as subject to the decisions of the buyer as a subsidiary within the buyer’s firm. The
obligation of best efforts forces the buyer/reseller to consider the best interests of the seller and
itself as if they were one firm.” Tigg Corp. v. Dow Corning Corp., 962 F.2d 1119, 1125 (3d Cir.
1992).
Notwithstanding the disparate nature of the agreements at issue, the principle at the heart
of the Third Circuit’s decision applies equally to this case. 2 Brezinksi, for valuable
consideration, provided 2 Hounds with an exclusive right to sell the Freedom Harness wholesale.
2
Tigg was a dispute over a requirements contract providing that a purchaser deal exclusively with one seller.
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To receive royalties, Brezinski was wholly reliant on 2 Hounds’ willingness to promote and sell
the product as she lacked legal authority to seek other parties as alternatives in the event that 2
Hounds efforts flagged.
Ultimately, the Court can find no way to reconcile an obligation of a party to use its best
efforts to supply the demand for a product with the development by that same party of a
competing product to meet the very same demand. This holding is directed by the similarity of
the products and markets at issue here; were they different in meaningful respects, one could
presume the development of one product to have less bearing on the other. Here, the facts are
overwhelming (2 Hounds arrived at the design of the PNP harness by “tweaking” the
specifications for the Freedom Harness) that the products were substantially similar and occupied
overlapping space in the marketplace. The Court is unpersuaded by 2 Hounds contention that no
violation occurs where the party manufactures the competing product for a competitor but does
not actively promote it. It follows that at least some PNP harnesses were sold to customers who
may otherwise have purchased a Freedom Harness, and that 2 Hounds played a vital role in
enabling this to happen. By facilitating such sales, 2 Hounds failed in its obligation to exercise
its best efforts to promote and supply the demand for the Freedom Harness. A failure to comply
with a duty imposed by contract terms constitutes a breach. See Sale v. State Highway
Commission, 89 S.E.2d 290, 296 (N.C. 1955).
For these reasons, the Court denies Plaintiff’s request for declaratory judgment as its
actions cannot be deemed to be in compliance with the terms of the licensing agreement.
2.
Trademark Provisions
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Brezinski alleges that, for the last two years, 2 Hounds has used the Licensed Trademark
without her permission and has ceased placing the Trademark on the Licensed Product, collars,
and leashes. Additionally, by maintaining a website containing the WWW brand that redirects
customers to the 2 Hounds website, 2 Hounds has used and advertised the product without
seeking Brezinski’s approval.
Paragraph 17 of the contract is the controlling provision and provides that: “Use of the
Licensed Trademarks on the Licensed Product, collars, and leashes and advertising therefor shall
be in a form approved by Brezinksi.” (Doc. 62-5 ¶17). The dispute over advertising is a
straightforward one as it is addressed squarely by the contract. Insofar as 2 Hounds has engaged
in advertising for the licensed product without seeking Brezinski’s approval, it has failed to
comply with the terms of the licensing agreement.
The more difficult question is whether, assuming the proper payment of royalties, 2
Hounds has a right to produce a version of the licensed product not bearing the WWW
trademarks. 2 Hounds contends that they have the right, not the obligation to use the trademark,
and that it is not a violation of the agreement to sell the licensed product without the trademark.
Indeed, as there is nothing in the express language of the contract that mandates the use of the
Trademark on specific products. The question that follows is whether such obligation was
implied in the contract.
“The controlling purpose of the court in construing a contract is to ascertain the intention
of the parties as of the time the contract was made.” Hillard v. Hillard, 554 S.E.2d 374, 377-78
(N.C. App. 2001). “The trial court’s determination of original intent is a question of fact.”
Potter v. Hilemn Labs., Inc., 564 S.E.2d 259, 263 (N.C. App. 2002) (citations omitted).
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Reviewing the record, the Court concludes that the evidentiary record is not sufficiently clear to
establish whether or not the parties intended to require 2 Hounds to use the WWW trademark on
its products. The issue presents a genuine dispute as to a material fact that prevents the entry of
summary judgment on the question.
3.
Proprietary Information
Paragraph 34 of the agreement requires the parties to maintain proprietary information
revealed to the other party in confidence; that such information be disclosed only to persons
“having a need to know”; and that “assurances” will be furnished that the persons to whom such
information is revealed “understand this duty of confidentiality.” (Doc. 62-5 ¶34). The
agreement defines proprietary information as “all scientific, business, or financial information
relating to the parties.” (Id.).
Brezinski has forecast evidence to suggest that 2 Hounds, without her consent, has
disseminated the Know-How to VSE and other trainers in attempts to create a work-around
harness and 2 Hounds has provided no evidence disputing this. Significantly, Brezinski alleges
that 2 Hounds acknowledged the proprietary nature of such information as it required the nonparties to enter into non-disclosure agreements.
The evidence forecast by 2 Hounds disputes this contention. Here, the Court declines to
grant summary judgment as the evidence forecast does not make certain of the exact nature of
the proprietary information covered by the agreement and disseminated improperly. The Court
finds that factual questions still predominate as to this dispute and declines to grant summary
judgment on this.
4.
Failure to Pay Royalties
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Brezinski alleges that 2 Hounds failed to pay royalties on items that it sold, or alternately,
gave away at trade shows. Having reviewed the evidence forecast, the Court finds genuine
issues of material facts to exist as to whether 2 Hounds failed to pay royalties on items sold and
whether the licensing agreement required the payment of royalties for items given away at trade
shows and for promotional reasons.
5.
Failure to Keep Accurate Books
Paragraph 22 of the agreement requires 2 Hounds keep complete books of account in
sufficient detail to enable Brezinski to ascertain royalties accruing and payable to her. (Doc. 625 ¶22). Based on the evidence forecast by the parties, a genuine dispute of fact exists as to this
claim and summary judgment is not proper.
6. Damages
2 Hounds argues that, because Defendants cannot prevail on their breach of contract
claims as they have not demonstrated a fixed amount of damages. Unlike other jurisdictions,
North Carolina courts do not require proof of a certain amount of damages to prove a claim for
breach of contract. “In a suit for damages for breach of contract, proof of the breach would
entitle the plaintiff to nominal damages at least.” Bowen v. Bank, 183 S.E.2d 266, 268 (N.C.
1936). However, this does not dispense with the necessity of proving damages. “A plaintiff has
an obligation to prove such facts as will furnish the basis for a calculation of damages. Biemann
and Rowell Co. v. Donahoe Companies, Inc. 556 S.E.2d 1 (2001). Having found liability for
breach of contract as to various aspects of the contract, the Court cannot at this point grant
summary judgment for Defendants on the breach of contract claims as there remains a genuine
issue of material fact as to the nature and amount of damages.
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In summary, for the reasons discussed above, the Court grants partial summary judgment
for Brezinski as to liability and finds that 2 Hounds breached various provisions of the contract
including, using its best efforts to promote the licensed product, obtaining Brezinski’s approval
for advertising. However, finding that genuine issues of material fact persist as to the amount of
damages, the intent of the parties in whether to require the use of the WWW trademarks, the
nature of the proprietary information involved and the failure to keep accurate books, the Court
denies summary judgment as to those discrete issues.
7. Breach of Licensing Agreement by Brezinksi
Finally, 2 Hounds has alleged that Brezinski sold items at wholesale in violation of the
terms of the licensing agreement. Brezinski does not dispute that such sales occurred but claims
that they occurred with 2 Hounds’ consent and that they were not material to the contract.
Finding that such sales would constitute a material breach of the agreement, the Court
nonetheless declines to grant summary judgment in light of the factual dispute over whether
consent to make such sales existed.
B.
Trade Secrets
Although Brezinski has not cited to any particular law, it appears that she has alleged that
2 Hounds misappropriated her trade secrets in violation of North Carolina’s Trade Secrets
Protection Act. N.C. Gen. Stat. § 66-152 defines a trade secret as business or technical
information that “[d]erives independent actual or potential commercial value from not being
generally known or readily ascertainable through independent development . . . and [is] the
subject of efforts that are reasonable under the circumstances to maintain its secrecy.” N.C. Gen.
Stat. § 66-152(3)(a)-(b) (2003). Factors to consider when determining whether an item is a trade
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secret are:
(1) the extent to which information is known outside the business; (2) the extent
to which it is known to employees and others involved in the business; (3) extent
of measures taken to guard secrecy of information; (4) the value of information to
business and its competitors; (5) the amount of effort or money expended in
developing the information; and (6) the ease or difficulty with which the
information could properly be acquired or duplicated by others.
State v. ex rel. Utils. Comm’n v. MCI, 514 S.E.2d 276, 282 (1999).
Finally, it is generally accepted that “a plaintiff must identify a trade secret with
sufficient particularity so as to enable a defendant to delineate that which he is accused of
misappropriating and a court to determine whether misappropriation has . . . occur[ed].” Analog
Devices Inc. v. Michalski, 579 S.E.2d 449 (N.C. 2003). Examining the factors listed above, the
Court is not convinced that the proprietary information at issue constitutes a trade secret as
Brezinski has provided no evidence to demonstrate that the proprietary information satisfies any
of the factors enumerated under North Carolina law. The information was obtained by 2 Hounds
as part of a licensing agreement, which provided that Brezinski would impart to Plaintiff and
various associated trainers certain Know-how related to the Freedom Harness. Significantly,
Brezinski never identifies the nature of the secret material beyond a general description as
consisting of the “Know-How” referenced in the licensing agreement. In this light, the
allegations and evidence put forward by Brezinski support a claim for breach of the
confidentiality provisions rather than an action at tort for violation of trade secrets. Accordingly,
the Court grants 2 Hounds motion for summary judgment as to this claim.
C.
Unfair and Deceptive Trade Practices
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In order to recover under North Carolina’s Unfair and Deceptive Trade Practices Act
(UDTPA), a party is obligated to show: (1) that the defendant committed an unfair or deceptive
act or practice, (2) that was in or affecting commerce, and, (3) proximately caused injury. Dalton
v. Camp, 548 S.E.2d 704, 711 (N.C. 2001). North Carolina courts have established rigorous
standards for a statement or action to qualify as an unfair or deceptive trade practice. A mere
breach of contract cannot sustain a UDTPA claim without a showing of “substantial aggravating
circumstances.” Griffith v. Glen Wood Co., 646 S.E.2d 550, 558 (N.C. App. 2007).
In considering the North Carolina statute, the Fourth Circuit offered the following
guidance: “We think it unlikely that an independent tort could arise in the course of contractual
performance, since those sorts of claims are most appropriately addressed by asking simply
whether a party adequately fulfilled its contractual obligations.” Broussard v. Meineke Discount
Muffler Shops, Inc., 155 F.3d 331, 347 (4th Cir. 1998) (citations omitted).
Where, as here, the crux of the dispute is contractual, an unfair and deceptive trade
practices claim is generally not appropriate. The type of conduct that has been found sufficient
to constitute a substantial aggravating factor has generally involved forged documents, lies, and
fraudulent inducements. See, e.g., Garlock v. Henson, 435 S.E.2d 114, 115-16 (N.C. App. 1993)
(forgery of bill of sale); Foley v. L & L Int’l, Inc., 364 S.E.2d 733, 736 (1988) (retaining deposit
under false pretenses). No such “substantially aggravating” factors exist in this case and to allow
such a claim to go to trial based on the evidence forecast would be contrary to the Fourth
Circuit’s admonition against allowing unfair trade practices claims to “piggyback” on a breach of
contract action. Broussard, 155 F.3d at 347.
For this reason, the Court denies Defendants’ motion for summary judgment and grants
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Plaintiff’s motion for summary judgment on Defendants’ counterclaim for unfair and deceptive
trade practices.
D.
Trademark Infringement
To establish trademark infringement under the Lanham Act, a plaintiff must prove: (1)
that it owns a valid mark; (2) that the defendant used the mark in commerce without plaintiff’s
authorization; (3) that the defendant used the mark (or an imitation of it) in connection with the
sale, offering for sale, distribution, or advertising of goods or services; and (4) that the
defendant’s use of the mark is likely to confuse consumers. 15 U.S.C. §1114(a); see Rosetta
Stone Ltd. V. Google, Inc., 676 F.3d 144 (4th Cir. 2012).
Here, the second and fourth factors are significant in light of the terms of the licensing
agreement. Where a trademark holder has authorized another to use its mark, there can be no
likelihood of confusion and no violation of the Lanham Act if the alleged infringer uses the mark
as authorized. See Segal v. Geisha NYC LLC, 517 F.3d 501 (7th Cir. 2008). A use by a licensee
which is outside of the scope of the license is both trademark infringement and breach of
contract. Masters v. UHS of Delaware, 631 F.3d 464 (8th Cir. 2011), cert denied, 131 S. Ct. 2920
(2011).
Brezinski makes two concrete allegations of trademark infringement, namely that the
removal of the WWW mark from products covered by the licensing agreement constituted
infringement, and that the altering the WWW website to re-direct traffic to the 2 Hounds site
constitutes an unauthorized act of ownership over the WWW trademark. The Court disagrees in
light of the plenary and exclusive nature of the licensing agreement. At best, it is a question of
material fact whether the licensing and asset agreements effectively divested Brezinski of
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meaningful ownership interest in the WWW trademark and replaced it with a contractual right to
inspect merchandise bearing the trademark for quality control purposes and to approve certain
advertising.3 In this regard, the exclusive nature of the agreement is significant; it not only
prevents others from using the WWW trademark, but it also prohibits Brezinski from
manufacturing and selling wholesale items bearing this trademark.
This question is largely academic, however, because the Court finds that Plaintiff cannot
establish customer confusion.4 Courts consider a variety of factors in determining whether a use
of a mark is likely to cause confusion, including:
(1) the strength or distinctiveness of the plaintiff’s mark as actually used in the
marketplace; (2) the similarity of the two marks to consumers; (3) the similarity
of the goods and services that the marks identify; (4) the similarity of the facilities
used by the markholders; (5) the similarity in advertising used by the
markholders; (6) the defendant’s intent; (7) actual confusion; (8) the quality of the
defendant’s product; and, (9) the sophistication of the consuming public.
George & Co., LLC v. Imagination Entm’t Ltd., 575 F.3d 383, 393 (4th Cir. 2009). This list of
factors is not intended to be exhaustive or mandatory, but to serve as “a guide—a catalogue of
various considerations that may be relevant in determining the ultimate statutory question of
likelihood of confusion.” Rosetta Stone, 676 at 154 (quoting Anheuser-Busch, Inc. v L & L
Wings, Inc., 962 F.2d 316, 320 (4th Cir. 1992)).
3
The Court reads Paragraph 16 of the agreement as primarily a quality control provision. It establishes that: “The
Licensed Product and leashes and collars manufactured by or for 2 Hounds using the Know-how and sold under the
Licensed Trademarks is to be of comparable or better quality, to that of the same products currently sold by
Brezinski. Brezinski shall have the right exercised in good faith to inspect products sold under the Licensed
Trademarks and to specify changes necessary to maintain this quality. . . .” Paragraph 17 reads: “Use of Licensed
Trademarks on the Licensed Product, collars, and leashes and advertising therefor shall be in a form approved by
Brezinski.
4
Much of the evidence on “customer confusion” submitted by Brezinksi turns on potential confusion between the
Freedom Harness and the Positively No Pull Harness manufactured by 2 Hounds and sold by VSE under its own
mark. As VSE is not a party to this suit, this evidence has no relevance to the claim for trademark infringement and
is relevant only insofar it addresses potential damages for breach of contract.
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The factors here do not demonstrate a likelihood of confusion. 2 Hounds had already
purchased all of the assets of WWW as well as the exclusive right to sell its products at
wholesale. A customer who went to WWW’s website to be re-directed to 2 Hounds would
merely conclude that the two entities had undergone some form of merger or sales agreement—
exactly what had occurred in this case. Whatever risk of confusion that might have occurred by
2 Hounds selling WWW’s products would have occurred under the normal terms of the licensing
agreement as such arrangement was contemplated by the parties; indeed, it was the primary
purpose of the agreement for goods bearing the WWW trademark to be sold by 2 Hounds. The
agreement did not require 2 Hounds to take significant measures to ensure that the WWW
trademark be used in such manner as to avoid clear association with 2 Hounds. Likewise, none
of the other factors support a finding that customer confusion existed in this case.
For these reasons, the Court denies Defendant’s Cross-motion for Summary Judgment on
the Claim for Trademark Infringment and grants Plaintiff’s motion as to this claim.
E.
False Designation of Origin and False Advertising
Similar to trademark infringement, the analysis for false designation and false advertising
contains five elements. To prevail under these actions, a trademark holder must prove:
(1) that it possesses a mark; (2) that the opposing party used the mark; (3) that the
opposing party’s use of the mark occurred in commerce; (4) that the opposing
party used the mark in connection with a sale, offering for sale, distribution, or
advertising of goods or services; and, (5) that the opposing party used the mark in
a manner likely to confuse consumers.
People for the Ethical Treatment of Animals v. Doughney, 263 F.3d 359, 364 (4th Cir. 2001)
(citing 15 U.S.C. §§ 1114, 1125, and Lone Star Steakhouse & Saloon, Inc. v. Alpha of Virginia,
Inc., 43 F.3d 922, 930 (4th Cir. 1995)).
19
For the same reasons expressed in the claim for trademark infringement, the Court finds
no genuine issue of material fact and that no rational factfinder could find a violation of for false
designation of origin or false advertising. Therefore, the Court denies Defendant’s motion for
summary judgment and grants Plaintiff’s motion for summary judgment as to these claims.
F.
Unlawful Use of Name or Likeness
North Carolina courts have recognized the right to one’s name or likeness as grounded in
the right to one’s privacy. See Hall v. Post, 372 S.E.2d 711, 713 (N.C. 1988). In Renwick v.
News and Observer Pub. Co., the North Carolina Supreme Court engaged in an extended review
of torts related to the use of a person’s name or likeness. 312 S.E.2d 405. (N.C. 1984). The
Court wrote:
A review of the current tort law of all American jurisdictions reveals cases
identifying at least four different interests in privacy: (1) appropriation, for the
defendant’s advantage, of the plaintiff’s name or likeness; (2) intrusion upon
plaintiff’s seclusion or solitude or into his private affairs; (3) public disclosure of
embarrassing private facts about the plaintiff; and, (4) publicity which places the
plaintiff in a false light in the public eye.
Id. at 411.
Having considered whether 2 Hounds committed infringement by failing to offer
sufficient tribute to the WWW trademark (and, by extension, Brezinski), the Court now turns to
whether 2 Hounds has been tortiously profligate in asserting overmuch its association with
Brezinski. It has not. The facts in dispute surrounding the use of the WWW trademark and the
public association with Ms. Brezinski form the basis of a legitimate contract dispute; they do not
implicate matters of privacy in such manner as to fall within the ambit of tortious behavior. This
claim is wholly without merit. Accordingly, the Court denies summary judgment for Defendants
and grants summary judgment to Plaintiff on this claim.
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G.
Conversion of Know-How
North Carolina courts have defined conversion as “an unauthorized assumption and
exercise of the right of ownership over goods or personal chattels belonging to another, to the
alteration of their condition or the exclusion of an owner’s rights.” Variety Wholesalers, Inc. v.
Salem Logistics Traffic Services, LLC, 723 S.E.2d 744 (N.C. 2012). Brezinski has not alleged
that 2 Hounds converted any goods or personal chattels and the claim fails as a matter of law. In
North Carolina only goods and personal property are properly the subjects of a claim for
conversion. Norman v. Nash Johnson & Sons’ Farms, Inc., 537 S.E.2d 248, 264 (N.C. App.
2000). Nor are intangible assets such as intellectual property, business opportunities or
expectancy interests subject to a conversion claim. Id. The Court grants summary judgment for
Plaintiff’s on this claim.
H.
Accounting
Brezinksi moves this Court in equity to order 2 Hounds to conduct a full accounting of its
activities. Unfortunately, Brezinski has not included any supporting precedent of courts
awarding such relief in similar situations. Absent such support, the Court declines to offer
equitable relief. The facts alleged by Brezinski show that 2 Hounds performed under the
contract for a not-insubstantial period of time before breaching on its agreements. Brezinski
possesses sufficient information to make reasonable calculations of the lost revenues suffered as
a result of 2 Hounds breach of contract. Accordingly, Defendants’ Demand for Accounting is
denied.
G.
Injunction
21
It is a general rule that damages recoverable in an action at law ordinarily afford an
adequate compensation for the breach of a contract for the sale of goods. See Bell v. Concrete
Products, Inc., 139 S.E.2d 629, 630 (1965). “Jurisdiction to enforce specific performance rests . .
. on the ground that damages at law will not afford a complete remedy.” Id. Here, the Court
finds no reason to presume that a remedy is not available at law in the form of monetary
damages. For this reason, the Court denies without prejudice Defendants’ motion for a
permanent injunction.
IV.
CONCLUSION
IT IS, THEREFORE, ORDERED that:
1.
Plaintiff’s Request to for Declaratory Judgment on its claim for Declaratory is
DENIED;
2.
Plaintiff’s Motion for Summary Judgment for Breach of Licensing Agreement by
Jessica Brezinski is DENIED;
3.
Plaintiff’s Motion for Summary Judgment on Defendant’s claim for Breach of
Contract is denied;
4.
Defendant’s Motion for Summary Judgment for Breach of Contract is
GRANTED in part and DENIED in part as genuine issues of fact exist as to
whether the parties intended to mandate the use of the WWW trademark on the
licensed product, collars, and leashes; the payments of royalties on items given
away; whether 2 Hounds paid proper royalties; the nature of the proprietary
information; and the amount of damages ascertainable on various claims.
5.
Plaintiff’s Motion for Summary Judgment on misappropriation of trade secrets is
22
GRANTED and Defendants’ cross motion is DENIED;
6.
Plaintiff’s Motion for Summary Judgment for Unfair and Deceptive Trade
Practices is GRANTED and Defendants’ cross motion is DENIED;
7.
Plaintiff’s Motion for Summary Judgment for Trademark Infringement is
GRANTED and Defedants’ cross motion is DENIED
8.
Plaintiff’s Motion for Summary Judgment for False Designation or Advertising is
GRANTED and Defendants’ cross motion is DENIED;
9.
Plaintiff’s Motion for Summary Judgment for Unlawful Use of Name or Likeness
is GRANTED; and Defendants’ cross motion is DENIED;
10.
Plaintiff’s Motion for Summary Judgment for Conversion is GRANTED; and
Defendants’ cross motion is DENIED;
11.
Plaintiff’s Motion for Summary Judgment as to an Accounting is GRANTED;
and Defendants’ cross motion is DENIED;
12.
Plaintiff’s Motion for Summary Judgment for a Permanent Injunction is
GRANTED; and Defendants’ cross motion is DENIED without prejudice.
Signed: September 8, 2014
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