Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-05-01471/USCOURTS-ca8-05-01471-0/pdf.json

Parties Involved:
A&L Laboratories
Appellant
Bou-Matic
Appellee
Bou-Matic Technologies Corporation
Appellee
Hypred
Not Party
Franck Monmont
Not Party

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 05-1469

___________

A&L Laboratories, Inc., *

*

Plaintiff - Appellee, *

*

v. *

*

Bou-Matic LLC, a Nevada corporation, * Appeals and Cross-Appeals from the

* United States District Court for the

Defendant - Appellant. * District of Minnesota.

--------------------------------------------

Bou-Matic LLC; *

*

Counter Claimant - Appellant, *

*

Bou-Matic Technologies Corporation, *

*

Counter Claimant, *

*

v. *

*

A&L Laboratories, Inc.; Hypred, S.A.; *

Franck Monmont, *

*

Counter Defendants - Appellees. *

Appellate Case: 05-1471 Page: 1 Date Filed: 11/17/2005 Entry ID: 1975746
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______________

No. 05-1471

______________

A&L Laboratories, Inc., *

*

Plaintiff - Appellant, *

*

v. *

*

Bou-Matic, LLC, a Nevada corporation, *

*

Defendant - Appellee. *

----------------------------------------------

Bou-Matic LLC; Bou-Matic *

Technologies Corporation, *

*

Counter Claimants - Appellees, *

*

v. *

A&L Laboratories, Inc., *

*

Counter Defendant - Appellant, *

*

Hypred, S.A.; Franck Monmont, *

*

Counter Defendants. *

___________

Submitted: September 14, 2005

 Filed: November 17, 2005

___________

Before BYE, BRIGHT, and SMITH, Circuit Judges.

___________

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The Honorable Paul A. Magnuson, United States District Judge for the District

of Minnesota.

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BRIGHT, Circuit Judge.

A&L Laboratories (“A&L”) brought this action against Bou-Matic LLC (“BouMatic”), seeking a declaration of non-infringement of sixty-seven common law or

foreign trademarks and asserting unfair competition, defamation and other claims

against Bou-Matic. Bou-Matic counterclaimed, asserting common law trademark

infringement and several other claims. The district court1

 dismissed the majority of

the parties’ claims, held A&L had a license in trademarks owned by Bou-Matic, and

ordered A&L to pay a 3% license fee to Bou-Matic for the use of the license. BouMatic appealed, and A&L cross-appealed. We affirm.

I. BACKGROUND

The conflict in this case centers on the ownership of trademarks for various

chemicals used in dairy sanitation and udder hygiene. A&L Laboratories

manufactures these chemicals and for many years engaged in a business relationship

with Bou-Matic’s predecessor, a distributor named DEC International (“DEC”).

A&L supplied DEC with chemicals and DEC then distributed these products to its

customers.

In June 2000, A&L and DEC entered into their last contract, the Global

Purchasing Agreement (“GPA”). Under the terms of this agreement, A&L and its

parent company, Hypred, manufactured products for DEC and, at DEC’s direction,

placed DEC’s “BOU-MATIC” trademark and other product-name trademarks on the

product labels. “BOU-MATIC” was the name of the division within DEC that did

business with A&L Laboratories. DEC bought these products from A&L and then

resold them to its customers. The GPA specified that A&L could sell directly to these

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customers only if it first obtained DEC’s permission and paid DEC a 5% commission

over the first $4,000 of those sales.

In August 2001, DEC filed for bankruptcy. Several months later, A&L and

DEC negotiated an Amendment to the GPA that would allow A&L to sell products

directly to consumers while DEC was in bankruptcy. Under the Amendment, DEC

no longer required A&L to obtain its permission before selling to its customers, and

A&L now agreed to pay DEC a 8.5% commission for each sale rather than the

original 5% rate. Paragraph 5 of the Amendment explains the purpose of the

commission rate:

DEC and HYPRED intend that:

a) the commission income to DEC will equal the income . . . that DEC

derived from the Sanitation and Udder Health program as operated prior

to this Amendment; [and,] 

b) the commission compensates DEC for, among other things,

HYPRED’s continued use of DEC’s trade name “BOU MATIC” during

the term of this Amendment.

Appellees' Add. at 16. The Amendment was intended to operate as an interim

agreement while DEC remained in bankruptcy. 

In September 2002, Bou-Matic LLC, a new company, purchased, through the

bankruptcy court, the division of DEC that did business with A&L. Shortly

thereafter, DEC rejected the GPA and the Amendment, which it was entitled to do

under the Bankruptcy Code. A&L; A&L’s parent company, Hypred; and Bou-Matic

LLC then entered into negotiations for a new supply agreement. The parties operated

under the terms of the amended GPA for several months while the negotiations were

ongoing. When the negotiations failed, this litigation ensued.

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II. PROCEDURAL HISTORY

A&L filed suit against Bou-Matic LLC, requesting a declaration of noninfringement of sixty-seven trademarks and asserting claims for unfair competition,

defamation, deceptive trade practices, and tortious interference with contract. BouMatic counterclaimed, asserting common law trademark infringement, unfair

competition, false advertising, misappropriation of trade secrets, breach of contract

and breach of fiduciary duty. In addition, Bou-Matic sought an accounting for

commissions owed by A&L. Both parties filed motions for summary judgment.

The district court judge dismissed the majority of both parties’ claims. It ruled

that Bou-Matic owned forty-one of the sixty-seven trademarks and that A&L held a

license in those trademarks by virtue of Paragraph 9 of the amended GPA. The case

went to trial before Judge Magnuson on the single issue of the license fee. The court

noted that, although A&L and Bou-Matic were initially partners, they became

competitors when the license arose. At trial, however, the parties presented evidence

of licenses only between partners. Neither party discussed evidence of licenses

between competitors in the industry. The parties presented evidence regarding the

value and benefits of the Bou-Matic product names versus those of the underlying

chemical formulations, the parties’ treatment of the products within their own

companies, the relationship between the parties, and the prior agreements between the

parties. Based on the evidence presented, the district court determined that 3% was

an appropriate license fee. 

III. DISCUSSION

We review the district court’s summary judgment decision de novo and apply

the same standards as the trial court. Summary judgment is appropriate if the

evidence, viewed in the light most favorable to the nonmoving party, shows that no

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genuine issue of material fact exists and that the moving party is entitled to judgment

as a matter of law. Krenik v. County of Le Sueur, 47 F.3d 953 (8th Cir. 1995).

On appeal, Bou-Matic first argues that the district court erred in concluding

that under Paragraph 9 of the amended GPA, DEC’s rejection of the agreement

created a license in favor of A&L. Paragraph 9 of the amended GPA states

If, after the effective date of this Amendment and before June 27, 2005,

DEC commits a new and material breach of the [GPA] which remains

uncured fourteen (14) days after DEC has received written notice of the

breach (it being understood that DEC’s continuing nonpayment of its

prepetition indebtedness does not constitute a material breach under this

paragraph), . . . [A&L] . . . will be entitled to continue to use the trade

names and product names associated with those Chemicals and Supplies,

but excluding the trade name “BOU MATIC.”

Appellees' Add. at 17.

According to Bou-Matic, rejecting the amended GPA did not constitute a new

breach and therefore did not give rise to a license under Paragraph 9. Title 11 U.S.C.

§ 365(g)(1)(2004) asserts that the rejection of an executory contract is a breach of that

contract that is deemed to have occurred immediately before the date of filing the

bankruptcy petition. Because DEC’s rejection is deemed to have occurred before the

Amendment was signed, Bou-Matic argues, it cannot constitute a new breach.

This argument ignores the intentions of DEC and A&L, which were clear and

were made after DEC entered bankruptcy. It also ignores the main purpose of §

365(g), which is to determine the priority of the creditor/non-debtor’s claim. Section

365(g) treats a rejection as a breach to ensure that the non-debtor will have a claim

against the debtor. It does not determine the rights of parties regarding the contract.

In re Lavigne, 114 F.3d 379 (2nd Cir. 1997). In this case, Paragraph 9, added postbankruptcy, clearly states that if DEC committed a new and material breach, A&L

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would "be entitled to continue to use the trade names and product names associated

with those Chemicals and Supplies." Section 365(g) does not operate to avoid this

result. 

If a license was created, Bou-Matic argues that the district court erred in

holding that the license bound Bou-Matic. Bou-Matic maintains that it did not

assume DEC’s obligations, because it bought DEC’s assets in a “free and clear” sale.

Because A&L and DEC entered into the Amendment post-bankruptcy and the

bankruptcy court approved the Amendment, only a specific order of the bankruptcy

court could subsequently alter or extinguish it. Neither DEC nor Bou-Matic asked

the bankruptcy court to issue such an order. A&L made this argument before the

district court, which considered it, and makes it again on appeal. DEC's sale of its

assets to Bou-Matic could not extinguish the license created by the Amendment,

because DEC and Bou-Matic never requested the bankruptcy court to do so.

If a license exists and is binding on Bou-Matic, Bou-Matic argues that the

district court erred in excluding twenty-six of the sixty-seven product-name

trademarks from its determination of ownership. Although Bou-Matic characterizes

the omission of the remaining twenty-six marks as inadvertent, it brought this issue

to the district court’s attention on several occasions. The court refused to amend its

order to include the additional marks because Bou-Matic had failed to present

evidence that DEC owned the twenty-six marks at issue. Trademark ownership may

be assigned, but the assignor may transfer only what it owns. J. Thomas McCarthy,

McCarthy on Trademarks and Unfair Competition § 18:14 (4th ed. 2004). Before

Bou-Matic may be declared owner of all sixty-seven marks, it must show DEC owned

or used all sixty-seven. However, Bou-Matic presented only evidence that DEC had

common law ownership of forty-one trademarks. The district court correctly

concluded there was not enough evidence to decide the ownership of the remaining

twenty-six marks.

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Bou-Matic also argues that the district court erred in not applying a higher

license fee. After a bench trial on this issue, the trial court found that, based on the

evidence presented, a 3% license fee was appropriate. We review a district court’s

factual findings for clear error. A finding is clearly erroneous when it is not

supported by substantial evidence. Substantial evidence means “such evidence as a

reasonable mind would accept as sufficient to support a conclusion.” Roberts v.

Browning, 610 F.2d 528, 532 (8th Cir. 1979). 

The district court’s finding is supported by substantial evidence. Because DEC

and A&L were cooperating businesses, there is no direct evidence regarding the

license fee that the two would have agreed to as competitors. In addition, although

the district court requested them to do so, the parties presented no evidence of license

agreements between competitors in the industry. However, the district court received

enough evidence from which it could determine an appropriate license fee. 

The parties presented evidence regarding the value and benefits of the BouMatic product names versus those of the underlying chemical formulations, the

parties’ treatment of the products within their own companies, the relationship

between the parties, and the prior agreements between the parties. Mr. Robert

Kmoch, Bou-Matic’s former president, testified that the individual product names

added significant value to the products. On the other hand, A&L’s president, Mr.

Franck Monmont, contended that the underlying chemical formulation creates

product value because customers purchasing the products reference their individual

effects rather than the Bou-Matic name. A&L began a transition process to phase out

the use of Bou-Matic’s name; this action demonstrates that there was value to both

the chemical formulations and the Bou-Matic trade names.

Comparing the parties’ prior agreements also provides evidence of an

appropriate license fee. As partners, the parties’ agreement provided that A&L could

sell directly to customers only if it first asked DEC’s permission and if it paid a 5%

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commission on each sale. After bankruptcy, DEC could not sell to its own customers.

The parties then amended the GPA to allow A&L to sell directly to customers. Under

the amended GPA, A&L was no longer required to ask DEC’s permission before each

sale, and it now became obligated to pay a commission rate of 8.5%. Paragraph 5 of

the Amendment explains the purpose of the commission:

DEC and HYPRED intend that:

a) the commission income to DEC will equal the income . . . that DEC

derived from the Sanitation and Udder Health program as operated prior

to this Amendment; [and,] 

b) the commission compensates DEC for, among other things,

HYPRED’s continued use of DEC’s trade name “BOU MATIC” during

the term of this Amendment.

Appellees' Add. at 16.

Under the original agreement, A&L paid a commission of 5% on sales that it

made with DEC’s permission. Under the amended GPA, the 8.5% commission rate

compensated DEC, and then Bou-Matic, for both the profits of A&L’s sales and for

A&L’s use of the “BOU-MATIC” brand trademark. The difference between the two

commission structures is 3.5%, and is representative of the value of the trademarked

product names as well as the “BOU-MATIC” brand trademark. The parties presented

evidence that there was value in both the “BOU-MATIC” mark and in the remaining

forty-one product names, so the appropriate license fee for the chemical product

names alone would be slightly less than 3.5%. In light of the above evidence, we

cannot say that the district court erred in determining a license fee of 3%. 

Next, Bou-Matic argues that the trial court erred in failing to add as a necessary

party and plaintiff A&L’s parent company, Hypred. We review for abuse of

discretion the district court’s decision on the inclusion of a party to a lawsuit. Guerra

v. Drake, 371 F.3d 404 (8th Cir. 2004). The district court denied Bou-Matic’s motion

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to join Hypred because Hypred uses the trademarks in Europe and the parties did not

raise issues of foreign trademark ownership. In addition, Bou-Matic has not shown

that A&L would not properly pay the license fee pursuant to the district court’s order

of August 2, 2000. We cannot say that the district court abused its discretion in

failing to join Hypred. 

Finally, Bou-Matic asserts that the district court erred in denying Bou-Matic’s

request for an accounting of A&L’s sales after November 25, 2002. The district court

permitted Bou-Matic “to make a monthly accounting of the payment of royalties

within 30 days of each calendar month until A&L completely phases out its use of the

Bou-Matic product names, or at the latest through July 2005.” During discovery and

trial, A&L provided Bou-Matic with sales information from November 25, 2002, until

May 31, 2004. Bou-Matic’s principal concern regarding its request for an accounting

appears to arise from the fact that the sales figures A&L initially provided were

erroneously calculated. When A&L discovered that the figures were inaccurate, it

brought the mistake to Bou-Matic’s attention and corrected it. Bou-Matic claims that

this entitles it to an accounting. The district court concluded, and we agree, that this

evidence does not show that A&L misstated its sales or failed to provide information

such that an accounting would be necessary.

A&L Laboratories cross-appeals, asserting that Bou-Matic LLC lacks standing

to pursue this appeal because the trademarks in question belong to its related

corporation, Bou-Matic Technologies. Bou-Matic LLC uses the trademarks at issue

and benefits from them. Bou-Matic LLC has standing to pursue this appeal because

it was aggrieved by the district court’s decision. 

A&L further maintains that the district court erred in determining that its

license to use the trademarks is subject to any fee because the clause that gave rise to

the license says nothing about a fee. However, in its complaint, A&L asked the

district court to award “any other relief the court deems just and equitable.” Once the

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court determined that a license existed, it concluded that it was just and equitable for

A&L to pay Bou-Matic a fee rather than pay nothing for the use of its license. The

district court did not err in this respect.

Finally, A&L argues that the district court should not have decided on

summary judgment that Bou-Matic owns the trademarks because factual disputes on

the issue of ownership remain. A&L and DEC established that A&L did not own the

trademarks when they entered into the Amendment to the GPA. The stated purpose

of the Amendment was to give A&L the “requisite approval to sell DEC-branded

products.” If A&L had owned the trademarks, it would not have needed DEC’s

permission to use them. Bou-Matic in turn acquired DEC’s trademark rights when

it bought DEC’s BOU-MATIC division. No factual dispute exists on this issue.

For the foregoing reasons, we affirm.

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