The HONORABLE RICHARD H. KYLE, United States District Judge * for the District of Minnesota, sitting by designation. No. 95-2127

Hardwick Airmasters, Inc. * d/b/a Airmasters, Inc., and * John R. Young, d/b/a * Appeal from the United States John Young & Associates, * District Court for the * Eastern District of Arkansas Appellees, * * v. * * Lennox Industries, Inc., * * Appellants. *

Submitted: January 11, 1996 Filed: March 19, 1996
Before BOWMAN, Circuit Judge, JOHN R. GIBSON, Senior Circuit Judge, and KYLE, District Judge

*

KYLE, District Judge.
Appellees Hardwick Airmasters, Inc., d/b/a Airmaster s (“Airmasters”) and John R. Young, d/b/a John Young and Associates (“Young”) commenced this copyright and trade secre t misappropriation action against Appellant Lennox Industries, Inc. (“Lennox”). Lennox appeals from a jury verdict on the infri ngement claim and a court judgment denying Lennox’s motion for attorney’s fees and costs. We reverse in part and affirm in part.23 I. BACKGROUND A. Parties

Lenn oxis engaged in the business of manufacturing an d distributing heating and air conditioning equipment through various dealers. Airmasters is engaged in the business of selling an d installing heating, ventilating and air conditioning (“HVAC” ) equipment to retail customers; Airmasters is a Lennox dealer in the Little Rock, Arkansas, area. Young is an individual engaged i n marketing in the HVAC industry.

B. Factual Background
The claimed copyrighted produc t in this case is a promotional “direct mail” advertising lett er (“WRS Letter”) Young designed for Airmasters to stimulate its wi nter HVAC sales. Young included the WRS Letter in a marketing manual entitled “Winter Replacemen t Sy stem” he created in 1987. The WRS Letter describes an offe r wher ebycustomers who purchase an air conditioner during winte r months receive a free heater. Airmasters and Young met with Lennox in January 1988 to discuss the WRS Letter and to obtain a discount
onthe HVAC products to be used in Airmasters’ proposed sale s promotion. (Tr. at A441-41.1, A491-94.) Young and Airmaster s claimthat Lennox agreed to the discount and not to use the WR S Letter for its own promotions. (Tr. at A441.0-41.2.)
The following month, Airmasters mailed approximately 10,000 of these letters to potential cus tomers in the Little Rock area. The WRS Le tter did not have a copyright notice affixed to it at thi s time. The mailing was successful, and Young began offering the WRS Letter, the marketing manual, and one hour of his consulting time to other HVAC dealers for $895.00. Airmasters mailed “thousands”4

of copie s of the WRS Letter to potential customers in 1989, 199 0 and 1991; these copies also did not contain a copyright notice.5

After Airmasters’ first season of sales with the WRS Letter, Lennox required Airmasters to submit a copy of the WRS Lette r to it as a condition for reimbursement of its advertising expenses . (Tr. at A501.) Young instructed Airmasters at that time (April 1988 ) “to pu t a notice of copyright on the front of the letter” befor e sending it to Lennox. ( Id. ) Beginning in late 1989, Lennox began usin g its own direct mail advertising letter (“Lennox Letter”) , which provided similar incentives to winter HVAC customers
. Airmasters received a copy of the Lennox Letter in February, 1990; Airmasters contacted Young andtold him “it looked like Lennox had taken [Young’s] replacement sy stem and copied it.” (Tr. at A536.)

Lenn oxmailed copies of the Lennox Letter to potentia l customers again in winter 1991. On April 2, 1991, Young reg istered the WRS manual, which included the WRS Letter, with the Copyright Office. Young did not separately register the WRS Letter. Based
on Lennox’s 1990 and 1991 mailings, Young and Airmasters sue d Lennoxfor trade secret misappropriation and copyrigh t infringement.
After commencing this action, Airmasters included a copyright notice on its 1992 promotional letters. Other dealers who ha d purchased the WRS system and the WRS Letter, however, did no t place
a copyrigh t notice on letters mailed in 1992. In 1993, afte r consul ting with a copyright attorney, Young required all dealer s who had purchased the WRS system and Letter to include notice o f copyright on their WRS Letter mailings.

C. District Court Proceedings

The d istrict court granted Lennox’s motion for summar y judgment with respect to Youngand Airmasters’ trade secret claims6

in April, 1992. Lennox moved for an award of attorney’s fees and costs incurred in connection with defending the trade secret claim. The district court denied this motion, and the copyright7

infringement claim proceeded to trial. The jury concluded Lennox inf ringedupon the WRS Letter and awarded Young $73,380.00 i n actual damages and the profits Lennox made as a result of us ing its infringing letter in the amount of $142,939.00. The jury awarded Airmas ters’ actual damages in the amount of $71,135.00. Th e district court denied Lennox’s post-trial motions for judgment as a matter of law. This appeal followed.

II. Discussion

Lenn oxappeals from the jury’s verdict of copyrigh t inf ringement. Lennox also claims the district court erred by failin g to correct the jury’s damage calculation, admitting int o evidence testimony regarding Lennox’s alleged oral agreement not to use the WRS Letter, and denying Lennox’s motion for attorney ’s fees
an dcosts incurred in connection with the trade secre t misappropriation claim.

This Court reviews de novo a t rial court’s denial of a motion for judgment as a matter of law. Norton v. Caremark, Inc. , 20 F.3d 330, 334 (8th Cir. 1994) (citation omitted.) This standar d requires the appellate court to
con sider the evidence in the light most favorable to th e prevailing party [Young and Ai rmasters], assume that the jury resolv edall conflicts of evidence in favor of that party , assume as true all facts which the prevailing party’s eviden ce tended to prove, give the prev ailing party the benefit of all favora ble inferences which may reasonably be drawn from th e facts, and [uphold the] den[ial of] the motion, if in th e light of the foregoing, reasonable jurors could differ as to the conclusion that could be drawn from the evidence. Id
. (quoting Minneapolis Community Dev. Agency v. Lake Calhou n Assoc. , 928 F.2d 299, 301 (8th Cir. 1991) (internal quotation s omitted)).817 U.S.C. § 405(a) provides in full: 1 (a) Effect of Omission on Copyright. -- With respect to copies and phonorecords publicly distributed by authority of the copyright owner before [March 1, 1989], the omission o f the copyright notice . . . from copies or phonorecord s publicly distributed by author ity of the copyright owner does not invalidate the copyright in a work if --

(1) the notice has been omitte d from no more than a rel ativelysmall number of copies or phono record s distributed to the public; or (2) registration for the work has been made before or is made within five years after the publicatio n wit hout notice, and a reasonable effort is made to ad d notice to all copies or phono records that ar e distributed to the public in t he United States after the omission has been discovered; or (3) the notice has been omitted in violation of an expres s requirement in writing that, as a condition o f the copyright owner’s authorization of the publi c distri butionof copies or phono records, that bear th e prescribed notice. 9 A. Copyright Infringement

Le nnoxmoved for judgment as a matter of law on Young an d Air masters’ copyright infringement claim on the grounds tha t Young’s failure to include a copyright notice on the WRS Lette r invalidatedthe copyright under 17 U.S.C. § 405(a). Pursuant t o this statute, no copyright protection is provided for works first publis hedprior to March 1, 1989, without a copyright notic e unless: (1) “reasonable” effort is made to add notice to all copies that are distributed after the omission of the notice has bee n “dis covered”; and (2) the copyright holder registers “the work ” with the Copyright Office within five years afte r publication. On 1 appeal, Lennox argues that no jury could reasonably conclude Young met either of § 405(a)(2)’s two requirements; Lennox further argues10

that even if the copyright is valid, no jury could reasonably find the Lennox Letter infringed upon any protectable elements co ntainedBy way of s pecial Interrogatories, the jury found: (1) Young 2 pr operly“registered” the WRS Letter for copyright within fiv e years after its first publication; (2) Young took “reasonabl e steps” to place a copyright notice on all publicly distribute d copies of the Letter after the “discovery of the omission to place a proper copyright” on previously distributed copies; and (3) the Lennox Letter was “substantial[ly] similar[]” to the WRS Letter
. (Tr. at A750-51.) 11 in the WRS Letter. 2

1. Failure to add copyright notice to the WRS Letter
Young first published the WRS Letter without notice in 1988. Young continued to permit copies of the WRS Letter to be released to the public without a copyright notice affixed through Marc h 1992. Lennox claims that as a matter of law, Young knew or should have known the WRS Letter did not comply with notice requirements prior to March, 1992, and that Young did not make reasonabl e eff orts to add notice to copies distributed after receiving thi s notice. This Court agrees.

The trial court set forth the law applicable to determinin g whena purported copyright holder “discovers” the omission o f notice for the purposes of the first requirement of § 405 in th e following instruction: You are instructed that a copyright claimant wh o knowingly omits the copyright notice is considered under the law to have discovered the omission no later than th e tim e when he believes that his rights may have bee n infrin ged
. An act is done ‘knowingly’ if don e voluntarily

and intentionally, and not because of mistak e or accident or other innocent reason. After th e copyright claimant learns that his rights may have been infringed, he must immediately take reasonable steps to add the correct notice to all copies distributed to the public
. (Tr. at A733 (emphasis added).) Neither party challenged thi s12

instruction.13 a. The parties’ claims
Applyi ng the standard of law correctly set forth by th e district court, Lennox claims Young received notice: (1) in April, 1988, when he instructed Airmasters “to put a notice of copyright
onthe front of the letter” before sending it to Lennox (Tr. a t A501); (2) in February, 1990 when Lennox mailed its Letter an d Airmas ters informed Young that “it looked like Lennox had take n [Young’s] replacement system and copied it” (Tr. at A536); (3) in April, 1991, when he registered the WRS manual after learning o f Lennox’s 1991 mailings; and/or (4) on August 23, 1991, when Young commenced this action against Lennox claiming Lennox had infringed
onhis copyrighted WRS Letter. Lennox further argues that Youn g did not “immediately take reasonable steps” to add the copyrigh t notice because he sent out and permitted various dealers to sen d out thousands of copies of the WRS Letter without the copyrigh t notice through 1992. In fact, the uncontested evidence show s Young did not require dealers to include a copyright notice on the WR S Letter until 1993.
In response to Lennox’s appeal, Young argues that he did not
re alize the law required him to affix notice on the WRS Lette r until after he consulted a cop yright lawyer in the summer of 1992. Young argues that he reasonably “believed that as long as h e registered within 5 years, he was protected.” (Appellees’ Br. at 19.) In other words, Young argues that he reasonably believed he could wait up to five years to register the copyright and that he could continue during this five-year period to knowingly publis h material without a copyright n otice. Young claims he reached this conclusion, albeit erroneous, because he relied on his const ruction of a summary of § 405(a) conta ined in a layman’s copyright manual. ( Id. ) Young claims that his erroneous construction of § 405 is a14

“mistake of law,” and that as such, “discovery” for the purp oses of § 405 did not occur until after he correctly understood § 405’ s requirements. As support for this position, Young cites Charles15

Garnier, Paris v. Adin Int’l, Inc. , 36 F.3d 1214 (1st Cir. 1994), whichstated in dicta that copyright holders may “discover” a n omissionof a copyright notice “when they are appraised of th e legal significance of their failure to provide notice.” Id. a t 1221.

b. Analysis
Notwithstanding the dicta in G arnier , Young’s construction of § 405( a)(2) is not permissible. Section 405 contains tw o independent requirements: (1) the claimant must make a reasonable effort to affix a copyright notice after discovering the not ice was omitted, and (2) the claimant must register the product with in five year s. Young claims he satisfied the first requirement, despit e act ual notice that the WRS Letter was being published withou t notice, because he reasonably thought § 405 only contained th e second requirement. Young’s p osition would completely nullify the first explicit requirement of § 405.

More over, this construction is not consistent with the la w correctlyset out by the district court. The district cour t instructed the jury that a claimant “discovers” the omissionof the copyright notice and must imme diately take reasonable steps to add notice to publicly distributedcopies when the claimant learns his rights may have been infringed. Young’s construction of § 4 05 does not relate to the date he learned Lennox infringed on hi s copyright . Rather, his construction relates to the date he learned notice was required in order to preserve his cause of action . This is a separate issue. Whether Young reasonably thought he coul d wait up to five years after fi rst publication to register and thus enforce his copyright rights is irrelevant. The only relevan t issue with respect to § 405(a)(2)’s requirements is whether Young16

timely placed notice on copies published after he thought thes e rights had been infringed. He did not.The district court, adopting the report a nd recommendation of 3 the magistrate judge, recognized that a property right in a trade 17 The events cited by Lennox are sufficient, as a matter of la w, to have put Young on notice that his rights may have been in fringed and, based on these events, no reasonable jury could find tha t waiting until 1993 to require dealers to affix a copyright notice constitutedreasonable steps to ensure subsequently publishe d copies had notice. The uncontested facts are compelling: Youn g sued Lennox for copyright infringement in August, 1991 . Based on this fact alone, no reasonable jury could find that Young did not knowhis rights may have been infringed as of this date. Th e un contestedevidence shows Young did not immediately cure thi s omission. Young allowed thousands of copies of the WRS Letter to be distributed in 1992 without notice, and he did not requir e notice on all copies until 1993 -- well over a year after th e latest date omission could have been “discovered.”

Young’ s alleged copyright is invalid as a matter of la w pursuant to § 405; the Court need not consider Lennox’s remaining challe nges to the validity of the copyright, infringement, tria l errors, or the jury’s damage calculation.

B. Attorney’s Fees and Costs

In t heir Complaint, Young and Airmasters claimed that the y disc losedtrade secrets to Lennox in their confidential Januar y 198 8 meeting, and that Lennox misappropriated these secrets
. Lennoxmoved for partial summary judgment on this claim on th e grounds Young and Airmasters r eleased the alleged trade secrets to the public when Airmasters mailed thousands of copies of the WR S Let ter to potential consumers. The district court agreed an d granted summary judgment in favor of Lennox on this claim. 3secret is extinguished under A rkansas law when the owner discloses

the s ecret to others who are under no obligation to protect it s confidentiality. (Tr. at A116.) The district court conclud ed that maili ng 15,000 to 30,000 copies of the WRS Letter to the publi c prior to the date these secrets were disclosed to Lenno x extinguishedthe rights to any secrets the WRS Letter may hav e contained. (Tr. at A118.) Ark. Code Ann. § 16-22-309 provides in pertinent part: 4 (a)(1) In any civil action in which the court havin g jurisdictionfinds that there was a complete absence of a justiciable issue of either law or fact raised by the losing party or his attorney, the court shall award an attorney’s f ee in an amount not to exceed five thousand dollars ($5,000) or ten percent (10%) of the amount in controversy, whichever is less, to the prevailing party . . . .

. . . (b) In order to find an action . . . to be lacking a justiciable issue of law or fact, the court must find that t he actio n. . . was commenced, used or continued in bad fait h solely for purposes of harassing or maliciously injurin g another party or delaying adjudication without just cause or that the party or the party’s attorney knew, or should hav e known, that the action . . . w as without any reasonable basis in law or equity and could not be supported by a good fait h argument for extension, modifi cation, or reversal of existing law. Ark. Code Ann. § 4-75-607 provides: 5

18 Lennox subsequently moved for attorney’s fees and costs incu rred in connectionwith defending this claim. This motion was denied
. (Tr. at A201-203.) Lennox appeals from that judgment.

1. Standard of Review
Lennox contends Young and Airmasters’ trade secret claim was objectively unreasonable and made in bad faith. Lennox moved for fees and costs pursuant to (1) Arkansas Code Annotated § 16-22

- 309, (2) Arkansas Code Annotated § 4-75-607, and (3) Rule 11 of 4 5Th e Court may award reasonable attorneys’ fees to th e

prevailing party if: (1) A claim of misappropriation [of trade secrets] is made in bad faith; (2) A motion to terminate an injunction is made or resisted in bad faith; or (3) Willful and malicious misappropriation exists. Rule 11 requires an attorney to attest, “after reasonabl e 6 inquiry” that a pleading is well gro unded in fact and is warranted by existing law or a goo dfaith argument for the extension, modification, o r reversal of existing law, and that it is not interposed fo r any improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation. 19 th e Federal Rules of Civil Procedure. Each of these statute s 6 requires a different standard of appellate review. With res pect to fees and costs under section 1 6-22-309, Arkansas law provides that “the quest ion as to whether there was a complete absence of a justiciable issue [under section 16-22-309] is determined de novo on the record of the trial court alone.” Ark. Code Ann. § 16-22- 309(d); Lawson v. Sipple , 893 S.W.2d 757, 763 (Ark. 1995). Section 4-75-6 07 does not contain similar language mandating de nov o review; the Court will accordingly review the denial of fees an d costs under this provision under the clearly erroneous standard
. See Camberos v. Branstad , 73 F.3d 174, 176 (8th Cir. 1995 ) (observing that appellate court reviews district court’s findings of fac t under clearly erroneous standard). Finally, this Cour t applies “an abuse-of-discretion standard in reviewing all aspects of a district court’s Rule 11 determination.” Isakson v. Firs t Nat’l Bank , 985 F.2d 984, 986 (8th Cir. 1993) (per curiam).

2. Section 16-22-309

In order to impose sanctions under section 16-22-309, th e Court must find that “there was a complete absence of a just iciable20

issue of either law or fact.” Ark. Code Ann. § 16-22-309(a)(1)
. Lennox claims it is entitled t o fees and costs pursuant to section 16- 22-309 because Young and Airmasters knew or should have know n that they could not maintain a trade secret claim after mail ing the WRS Letter to thousands of potential customers. Young an d Airmasters raised two separate arguments before the district court21

in opposition to Lennox’s moti on. First, they argued that the WRS Let ter did not disclose certain trade secrets revealed in th e January1988 meeting and that, as a result, these trade secret s were not extinguished when the y mailed the WRS Letter. (Tr. A179- 89.) Second, counsel for Young and Airmasters claims he rea sonably reliedon legal authority which he believed indicated he coul d pursue an action for trade sec ret misappropriation even though the secrets were available to the public.

Yo ung and Airmasters’ first argument is not responsive t o Lennox’s motion and is not a d efense to the imposition of fees and costs under section 16-22-309. Young and Airmasters did not su e Lennox for misappropriating trade secrets other than those r evealed in the WRS Letter. Their Complaint unequivocally identifies th e subject trade secrets in this action and states “[t]he secret , confidential information and trade secrets were the contents of the promotional sales letter made known to them by the plaintiffs o n January 20, 1988 .” (Compl. § XI, ¶ A (emphasis added).) As a result, the fact that Young and Airmasters believe Lenno x misappropriated trade secrets not contained in the WRS Letter and not referred to in the Complaint is irrelevant.

Young and Airmasters’ second argument is more persuasive
. Counsel for Young and Airmasters submitted an affidavit detailing the factual and legal investig ation undertaken prior to filing the Complaint. Counsel claims he relied, inter alia , on language from Franke v . Wiltschek , 209 F.2d 493 (2nd Cir. 1953). According t o counsel, this case indicates a trade secret misappropriation claim may li e, notwithstanding the public availability of th e information, if the accused pa rty in fact acquired the information through a confidential relationship and used it withoutSpecifically, counsel relied on language from Franke whic h 7 provided in pertinent part: Where defendants obtain secret information by means of a confidential relationship, the y shall be held accountable for its use to their own advantage at the expense of the rightful possessor. . . . Plaintiffs do not assert . . . a property right .

. . s uch as would give them exclusive development such a s wouldentitle them to exclusive enjoyment as against th e world. Theirs is . . . a trad e secret. The essence of their action is . . . breach of faith. In matters not tha t defend ants could have gained their knowledge from . .
. plaintiffs’ publicly marketed product. The fact is they did not. Instead they gained it from plaintiffs via thei r confidential relationship, and in so doing incurred a duty n ot to use it to plaintiff’s detriment. This duty they hav e breached. Franke , 209 F.2d at 494 (citations omitted). 22 permission. Although this is a strained interpretation of th e 7 law, especially when viewed against the authority cited in th e district court order granting Lennox’s motion for summary judgment ( s ee Tr. A116-18), the Court does not find on this record tha t Appellees asserted their trade secret claim for an improper purpose or that there was a “complete absence of a justiciable issue .” The Court will accordingly affirm the denial of fees and costs unde r section 16-22-309.

3. Section 4-75-607 and Rule 11
The Court need not provide a detailed analysis of the distri ct court’s denial of fees and costs under section 4-75-607 and Rul e 11. The district court conclu ded Young and Airmasters did not act in bad faith and that Rule 11 sanctions should not be imposed
. Based on the foregoing discuss ion in part 2, supra , and a thorough review of the record, the Court finds the district court’s ruling
was neither clearly erroneous nor an abuse of discretion. Th e23

dis trict court’s denial of fees and costs under section 4-75-60 7 and Rule 11 will be affirmed.24 III. Conclusion

For the foregoing reasons, we reverse the judgment of th e distri ct court on Young and Airmasters’ copyright infringemen t claim, affirm the denial of Lennox’s Motion for attorney’s f ees and costs, and remand with instructions to enter judgment in favor of Lennox.
A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.