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 Airmasters

(“Airmasters”) and John R. Young, d/b/a John Young and Associates

(“Young”) commenced this copyright and trade secret

misappropriation action against Appellant Lennox Industries, Inc.

(“Lennox”). Lennox appeals from a jury verdict on the infringement

claim and a court judgment denying Lennox’s motion for attorney’s

fees and costs. We reverse in part and affirm in part.
2
3

I. BACKGROUND

A. Parties

Lennox is engaged in the business of manufacturing and

distributing heating and air conditioning equipment through various

dealers. Airmasters is engaged in the business of selling and

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 in

marketing in the HVAC industry.

B. Factual Background

The claimed copyrighted product in this case is a promotional

“direct mail” advertising letter (“WRS Letter”) Young designed for

Airmasters to stimulate its winter HVAC sales. Young included the

WRS Letter in a marketing manual entitled “Winter Replacement

System” he created in 1987. The WRS Letter describes an offer

whereby customers who purchase an air conditioner during winter

months receive a free heater. Airmasters and Young met with Lennox

in January 1988 to discuss the WRS Letter and to obtain a discount

on the HVAC products to be used in Airmasters’ proposed sales

promotion. (Tr. at A441-41.1, A491-94.) Young and Airmasters

claim that Lennox agreed to the discount and not to use the WRS

Letter for its own promotions. (Tr. at A441.0-41.2.)

The following month, Airmasters mailed approximately 10,000 of

these letters to potential customers in the Little Rock area. The

WRS Letter did not have a copyright notice affixed to it at this

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 copies of the WRS Letter to potential customers in 1989, 1990

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 Letter to it

as a condition for reimbursement of its advertising expenses. (Tr.

at A501.) Young instructed Airmasters at that time (April 1988)

“to put a notice of copyright on the front of the letter” before

sending it to Lennox. (Id.) Beginning in late 1989, Lennox began

using 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 and told him “it looked like Lennox had

taken [Young’s] replacement system and copied it.” (Tr. at A536.)

Lennox mailed copies of the Lennox Letter to potential

customers again in winter 1991. On April 2, 1991, Young registered

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 sued

Lennox for trade secret misappropriation and copyright

infringement.

After commencing this action, Airmasters included a copyright

notice on its 1992 promotional letters. Other dealers who had

purchased the WRS system and the WRS Letter, however, did not place

a copyright notice on letters mailed in 1992. In 1993, after

consulting with a copyright attorney, Young required all dealers

who had purchased the WRS system and Letter to include notice of

copyright on their WRS Letter mailings.

C. District Court Proceedings

The district court granted Lennox’s motion for summary

judgment with respect to Young and Airmasters’ trade secret claims
6

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 copyright
7

infringement claim proceeded to trial. The jury concluded Lennox

infringed upon the WRS Letter and awarded Young $73,380.00 in

actual damages and the profits Lennox made as a result of using its

infringing letter in the amount of $142,939.00. The jury awarded

Airmasters’ actual damages in the amount of $71,135.00. The

district court denied Lennox’s post-trial motions for judgment as

a matter of law. This appeal followed.

II. Discussion

Lennox appeals from the jury’s verdict of copyright

infringement. Lennox also claims the district court erred by

failing to correct the jury’s damage calculation, admitting into

evidence testimony regarding Lennox’s alleged oral agreement not to

use the WRS Letter, and denying Lennox’s motion for attorney’s fees

and costs incurred in connection with the trade secret

misappropriation claim.

This Court reviews de novo a trial 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 standard

requires the appellate court to

consider the evidence in the light most favorable to the

prevailing party [Young and Airmasters], assume that the jury

resolved all conflicts of evidence in favor of that party,

assume as true all facts which the prevailing party’s evidence

tended to prove, give the prevailing party the benefit of all

favorable inferences which may reasonably be drawn from the

facts, and [uphold the] den[ial of] the motion, if in the

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 Calhoun

Assoc., 928 F.2d 299, 301 (8th Cir. 1991) (internal quotations

omitted)).
8
 17 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 of

the copyright notice . . . from copies or phonorecords

publicly distributed by authority of the copyright owner does

not invalidate the copyright in a work if --

(1) the notice has been omitted from no more than a

relatively small number of copies or phono records

distributed to the public; or 

(2) registration for the work has been made before

or is made within five years after the publication

without notice, and a reasonable effort is made to add

notice to all copies or phono records that are

distributed to the public in the United States after the

omission has been discovered; or

(3) the notice has been omitted in violation of an

express requirement in writing that, as a condition of

the copyright owner’s authorization of the public

distribution of copies or phono records, that bear the

prescribed notice.

9

A. Copyright Infringement

Lennox moved for judgment as a matter of law on Young and

Airmasters’ copyright infringement claim on the grounds that

Young’s failure to include a copyright notice on the WRS Letter

invalidated the copyright under 17 U.S.C. § 405(a). Pursuant to

this statute, no copyright protection is provided for works first

published prior to March 1, 1989, without a copyright notice

unless: (1) “reasonable” effort is made to add notice to all copies

that are distributed after the omission of the notice has been

“discovered”; and (2) the copyright holder registers “the work”

with the Copyright Office within five years after publication. On 1

appeal, Lennox argues that no jury could reasonably conclude Young

met either of § 405(a)(2)’s two requirements; Lennox further argues
10

that even if the copyright is valid, no jury could reasonably find

the Lennox Letter infringed upon any protectable elements contained
 By way of special Interrogatories, the jury found: (1) Young 2

properly “registered” the WRS Letter for copyright within five

years after its first publication; (2) Young took “reasonable

steps” to place a copyright notice on all publicly distributed

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 March

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 reasonable

efforts to add notice to copies distributed after receiving this

notice. This Court agrees.

The trial court set forth the law applicable to determining

when a purported copyright holder “discovers” the omission of

notice for the purposes of the first requirement of § 405 in the

following instruction:

You are instructed that a copyright claimant who

knowingly omits the copyright notice is considered under

the law to have discovered the omission no later than the

time when he believes that his rights may have been

infringed. An act is done ‘knowingly’ if done

voluntarily and intentionally, and not because of mistake

or accident or other innocent reason. After the

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 this
12

instruction.
13

a. The parties’ claims

Applying the standard of law correctly set forth by the

district court, Lennox claims Young received notice: (1) in April,

1988, when he instructed Airmasters “to put a notice of copyright

on the front of the letter” before sending it to Lennox (Tr. at

A501); (2) in February, 1990 when Lennox mailed its Letter and

Airmasters informed Young that “it looked like Lennox had taken

[Young’s] replacement system and copied it” (Tr. at A536); (3) in

April, 1991, when he registered the WRS manual after learning of

Lennox’s 1991 mailings; and/or (4) on August 23, 1991, when Young

commenced this action against Lennox claiming Lennox had infringed

on his copyrighted WRS Letter. Lennox further argues that Young

did not “immediately take reasonable steps” to add the copyright

notice because he sent out and permitted various dealers to send

out thousands of copies of the WRS Letter without the copyright

notice through 1992. In fact, the uncontested evidence shows Young

did not require dealers to include a copyright notice on the WRS

Letter until 1993.

In response to Lennox’s appeal, Young argues that he did not

realize the law required him to affix notice on the WRS Letter

until after he consulted a copyright lawyer in the summer of 1992.

Young argues that he reasonably “believed that as long as he

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 publish

material without a copyright notice. Young claims he reached this

conclusion, albeit erroneous, because he relied on his construction

of a summary of § 405(a) contained in a layman’s copyright manual.

(Id.) Young claims that his erroneous construction of § 405 is a
14

“mistake of law,” and that as such, “discovery” for the purposes of

§ 405 did not occur until after he correctly understood § 405’s

requirements. As support for this position, Young cites Charles
15

Garnier, Paris v. Adin Int’l, Inc., 36 F.3d 1214 (1st Cir. 1994),

which stated in dicta that copyright holders may “discover” an

omission of a copyright notice “when they are appraised of the

legal significance of their failure to provide notice.” Id. at

1221.

b. Analysis

Notwithstanding the dicta in Garnier, Young’s construction of

§ 405(a)(2) is not permissible. Section 405 contains two

independent requirements: (1) the claimant must make a reasonable

effort to affix a copyright notice after discovering the notice was

omitted, and (2) the claimant must register the product within five

years. Young claims he satisfied the first requirement, despite

actual notice that the WRS Letter was being published without

notice, because he reasonably thought § 405 only contained the

second requirement. Young’s position would completely nullify the

first explicit requirement of § 405.

Moreover, this construction is not consistent with the law

correctly set out by the district court. The district court

instructed the jury that a claimant “discovers” the omission of the

copyright notice and must immediately take reasonable steps to add

notice to publicly distributed copies when the claimant learns his

rights may have been infringed. Young’s construction of § 405 does

not relate to the date he learned Lennox infringed on his

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 could

wait up to five years after first publication to register and thus

enforce his copyright rights is irrelevant. The only relevant

issue with respect to § 405(a)(2)’s requirements is whether Young
16

timely placed notice on copies published after he thought these

rights had been infringed. He did not.
 The district court, adopting the report and 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 law,

to have put Young on notice that his rights may have been infringed

and, based on these events, no reasonable jury could find that

waiting until 1993 to require dealers to affix a copyright notice

constituted reasonable steps to ensure subsequently published

copies had notice. The uncontested facts are compelling: Young

sued Lennox for copyright infringement in August, 1991. Based on

this fact alone, no reasonable jury could find that Young did not

know his rights may have been infringed as of this date. The

uncontested evidence shows Young did not immediately cure this

omission. Young allowed thousands of copies of the WRS Letter to

be distributed in 1992 without notice, and he did not require

notice on all copies until 1993 -- well over a year after the

latest date omission could have been “discovered.”

Young’s alleged copyright is invalid as a matter of law

pursuant to § 405; the Court need not consider Lennox’s remaining

challenges to the validity of the copyright, infringement, trial

errors, or the jury’s damage calculation.

B. Attorney’s Fees and Costs

In their Complaint, Young and Airmasters claimed that they

disclosed trade secrets to Lennox in their confidential January

1988 meeting, and that Lennox misappropriated these secrets.

Lennox moved for partial summary judgment on this claim on the

grounds Young and Airmasters released the alleged trade secrets to

the public when Airmasters mailed thousands of copies of the WRS

Letter to potential consumers. The district court agreed and

granted summary judgment in favor of Lennox on this claim. 

3
secret is extinguished under Arkansas law when the owner discloses

the secret to others who are under no obligation to protect its

confidentiality. (Tr. at A116.) The district court concluded that

mailing 15,000 to 30,000 copies of the WRS Letter to the public

prior to the date these secrets were disclosed to Lennox

extinguished the rights to any secrets the WRS Letter may have

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 having

jurisdiction finds 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 fee

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 the

action . . . was commenced, used or continued in bad faith

solely for purposes of harassing or maliciously injuring

another party or delaying adjudication without just cause or

that the party or the party’s attorney knew, or should have

known, that the action . . . was without any reasonable basis

in law or equity and could not be supported by a good faith

argument for extension, modification, or reversal of existing

law.

 Ark. Code Ann. § 4-75-607 provides: 5

18

Lennox subsequently moved for attorney’s fees and costs incurred in

connection with 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 5
The Court may award reasonable attorneys’ fees to the

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 reasonable

6

inquiry” that a pleading is

well grounded in fact and is warranted by existing law or a

good faith argument for the extension, modification, or

reversal of existing law, and that it is not interposed for

any improper purpose, such as to harass or cause unnecessary

delay or needless increase in the cost of litigation.

19

the Federal Rules of Civil Procedure. Each of these statutes

6

requires a different standard of appellate review. With respect to

fees and costs under section 16-22-309, Arkansas law provides that

“the question 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

4-75-607 does not contain similar language mandating de novo

review; the Court will accordingly review the denial of fees and

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 fact under clearly erroneous standard). Finally, this Court

applies “an abuse-of-discretion standard in reviewing all aspects

of a district court’s Rule 11 determination.” Isakson v. First

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, the

Court must find that “there was a complete absence of a justiciable
20

issue of either law or fact.” Ark. Code Ann. § 16-22-309(a)(1).

Lennox claims it is entitled to fees and costs pursuant to section

16-22-309 because Young and Airmasters knew or should have known

that they could not maintain a trade secret claim after mailing the

WRS Letter to thousands of potential customers. Young and

Airmasters raised two separate arguments before the district court
21

in opposition to Lennox’s motion. First, they argued that the WRS

Letter did not disclose certain trade secrets revealed in the

January 1988 meeting and that, as a result, these trade secrets

were not extinguished when they mailed the WRS Letter. (Tr. A179-

89.) Second, counsel for Young and Airmasters claims he reasonably

relied on legal authority which he believed indicated he could

pursue an action for trade secret misappropriation even though the

secrets were available to the public.

Young and Airmasters’ first argument is not responsive to

Lennox’s motion and is not a defense to the imposition of fees and

costs under section 16-22-309. Young and Airmasters did not sue

Lennox for misappropriating trade secrets other than those revealed

in the WRS Letter. Their Complaint unequivocally identifies the

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 on

January 20, 1988.” (Compl. § XI, ¶ A (emphasis added).) As a

result, the fact that Young and Airmasters believe Lennox

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 investigation 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 to

counsel, this case indicates a trade secret misappropriation claim

may lie, notwithstanding the public availability of the

information, if the accused party in fact acquired the information

through a confidential relationship and used it without
 Specifically, counsel relied on language from Franke which

7

provided in pertinent part:

Where defendants obtain secret information by means of a

confidential relationship, they 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 .

. . such as would give them exclusive development such as

would entitle them to exclusive enjoyment as against the

world. Theirs is . . . a trade secret. The essence of their

action is . . . breach of faith. In matters not that

defendants could have gained their knowledge from . . .

plaintiffs’ publicly marketed product. The fact is they did

not. Instead they gained it from plaintiffs via their

confidential relationship, and in so doing incurred a duty not

to use it to plaintiff’s detriment. This duty they have

breached. 

Franke, 209 F.2d at 494 (citations omitted).

22

permission. Although this is a strained interpretation of the

7

law, especially when viewed against the authority cited in the

district court order granting Lennox’s motion for summary judgment

(see Tr. A116-18), the Court does not find on this record that

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 under

section 16-22-309.

3. Section 4-75-607 and Rule 11

The Court need not provide a detailed analysis of the district

court’s denial of fees and costs under section 4-75-607 and Rule

11. The district court concluded Young and Airmasters did not act

in bad faith and that Rule 11 sanctions should not be imposed.

Based on the foregoing discussion 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. The
23

district court’s denial of fees and costs under section 4-75-607

and Rule 11 will be affirmed.
24

III. Conclusion

For the foregoing reasons, we reverse the judgment of the

district court on Young and Airmasters’ copyright infringement

claim, affirm the denial of Lennox’s Motion for attorney’s fees 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.