Material Supply Intern., Inc. v. Sunmatch Indus. Co., Ltd.

Citation146 F.3d 983
Decision Date10 July 1998
Docket NumberNo. 97-7093,No. 97-7092,97-7092,97-7093
Parties, 41 Fed.R.Serv.3d 242, 47 U.S.P.Q.2d 1341 MATERIAL SUPPLY INTERNATIONAL, INC., Appellant/Cross-Appellee, v. SUNMATCH INDUSTRIAL CO., LTD., Appellee/Cross-Appellant. Consolidated with
CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)

Appeals from the United States District Court for the District of Columbia (No. 94cv01184).

Larry Klayman argued the cause for appellant/cross-appellee, with whom Paul J. Orfanedes was on the briefs.

Louis S. Mastriani argued the cause for appellee/cross-appellant, with whom Michael L. Doane was on the briefs.

Before: EDWARDS, Chief Judge; GINSBURG and SENTELLE, Circuit Judges.

GINSBURG, Circuit Judge:

Material Supply International, Inc., an Oregon corporation, sells pneumatic power tools. Sunmatch Industrial Co., Ltd., a Taiwanese company, manufactures and exports pneumatic tools. Both claim ownership of the SUNTECH trademark for pneumatic tools. The Trademark Trial and Appeal Board (TTAB) ruled in favor of Sunmatch. The district court held a bench trial on MSI's challenge to the ruling of the TTAB and submitted the other issues to a jury. Both parties appeal from various of the district court's decisions.

I. Background

The key issue in the case is which party first used the SUNTECH trademark. Daniel L.S. Chen, president and general manager of Sunmatch, testified that he created the SUNTECH mark in March 1985. In April of that year Sunmatch applied to register the SUNTECH mark in Taiwan; its application was granted in November. Between April and August Sunmatch used the mark in advertisements, in catalogues, on letterhead, on sample tools, at a display at the National Hardware Show in Chicago, and in meetings after the show with potential distributors, including MSI. In August Chen traveled to Oregon to meet with Chuck Minnick, then the president of MSI, and they began negotiations regarding Sunmatch's sale of pneumatic tools to MSI. In November 1985 the parties entered into an Exclusive Sales Agreement under which Sunmatch would manufacture pneumatic tools and MSI would "represent and sell [the tools] on an exclusive basis for the entire North American continent and the State of Hawaii." The Agreement states that

[t]he Supplier [Sunmatch] agrees to give the Agent [MSI] exclusive rights to sales of all Suntech Pneumatic Tools and accessories for the period of this contract with the exception of special tools now being supplied to AIM Corporation.

(Emphases in original.)

In October 1985 MSI began importing, advertising, and selling SUNTECH tools to various customers. In 1990 the relationship between MSI and Sunmatch began to deteriorate. MSI discovered that Sunmatch was advertising SUNTECH tools in the United States and became concerned about Sunmatch's sales of private label tools in the U.S., which MSI contends caused it to lose sales and distributors.

In January 1990, without Sunmatch's knowledge, MSI applied to the Patent and Trademark Office to register the SUNTECH trademark, and in October 1991 the PTO issued the registration. Sunmatch petitioned the TTAB for cancellation of MSI's mark. In 1994 the TTAB granted summary judgment in favor of Sunmatch and canceled MSI's registration; the only affidavit MSI submitted did not raise a dispute over any material fact because it was not based upon the affiant's personal knowledge of the events surrounding the beginning of the relationship between the two companies. See Sunmatch Indus. Co. v. Material Supply Int'l, Inc., Cancellation No. 20,482, at 16-17 (T.T.A.B.1994) (citing Federal Rule of Civil Procedure 56(e)).

In May 1994 MSI sued Sunmatch and Mr. Chen pursuant to 15 U.S.C. § 1071(b)(1), which authorizes a party "dissatisfied" by a decision of the TTAB to bring a civil action in district court. In addition, MSI sought a declaratory judgment that it owned, and an injunction against Sunmatch using, the SUNTECH mark. MSI also sought damages from Sunmatch for trademark infringement and unfair competition under the Lanham Act, unfair competition under state law, breach of contract, breach of fiduciary duty, fraud upon the TTAB, and fraud upon MSI. Sunmatch counterclaimed for trademark infringement and unfair competition under the Lanham Act, fraud upon the PTO, unfair competition under state law, and breach of contract.

The district court simultaneously held a bench trial of MSI's challenge to the decision of the TTAB and a jury trial of all the other claims in the case. After the close of evidence but before charging the jury the court upheld the decision of the TTAB. The court determined that Sunmatch owned the SUNTECH mark principally because it was the first to use it. Based upon this ruling, the court also dismissed, pursuant to Rule 50(a) (judgment as a matter of law), MSI's claims for trademark infringement and unfair competition. The court informed the jury that Sunmatch owned the mark and submitted the remaining claims for the jury's consideration.

The jury upheld MSI's claim against Sunmatch for breach of fiduciary duty, for which it awarded MSI $50,000 in compensatory and $100,000 in punitive damages, but it rejected MSI's claims against Sunmatch for breach of contract and for fraud. The jury upheld Sunmatch's counterclaims against MSI for trademark infringement, fraud upon the PTO, and breach of contract, for which it awarded Sunmatch $908,500, but it rejected Sunmatch's claim of unfair competition under both the Lanham Act and state law. Both parties appealed.

II. Analysis

On appeal MSI argues that the district court (1) violated its Seventh Amendment right to a jury trial when the court itself decided that Sunmatch owns the SUNTECH mark and so informed the jury; and (2) erred in the course of rejecting MSI's challenge to the TTAB decision that Sunmatch owned the SUNTECH mark, by (a) placing upon MSI the burden of proof, (b) admitting into evidence various documents showing Sunmatch's first use of the mark, (c) deciding that there was "clear and convincing" proof of the date Sunmatch first used the SUNTECH mark, and (d) giving insufficient weight to MSI's evidence regarding customer perception. MSI also challenges the district court's rulings (3) denying MSI's posttrial motion for judgment upon, or for a new trial of, Sunmatch's counterclaims for trademark infringement, breach of contract, and fraud upon the PTO; (4) declining to eliminate or reduce the jury's award of MSI's profits to Sunmatch; (5) granting Sunmatch's motion to amend its answer in order to assert a statute-of-limitations defense while denying MSI's motion to amend its answer in order to assert assignment as a defense; (6) instructing the jury regarding Sunmatch's statute-of-limitations defense; and (7) denying MSI's motion to compel discovery.

For its part Sunmatch argues that the district court erred in denying Sunmatch's motions (1) for judgment as a matter of law upon MSI's claim for breach of fiduciary duty; (2) to vacate or reduce the jury's award of damages to MSI; and (3) to award Sunmatch (a) enhanced damages, (b) costs, and (c) attorney's fees under the Lanham Act; and (4) for prejudgment interest.

A. MSI's Right to a Jury Trial

As noted above, the district court itself resolved MSI's challenge to the decision of the TTAB. At the close of evidence but before the case was submitted to the jury, the court upheld the TTAB's decision that Sunmatch owned the SUNTECH mark and informed the jury of its decision as follows:

I have decided the appeal affirming the decision of the TTAB ... which found in favor of the defendant in this case. From my decision two facts flow. One, Sunmatch is the owner of the trademark and, two, MSI, the plaintiff in this action, did not own the trademark at the time it filed its application for registration for the Suntech trademark.

While the jury was deliberating the court placed on the record its findings of fact and conclusions of law relevant to its decision affirming the TTAB. The court indicated that it found many of the witnesses for both sides to be less than truthful and that it "closely scrutinized the manner and content of the testimony and applied what all jurors are required to use and that is common sense." The court found that Sunmatch was the first to use the SUNTECH mark and therefore it held that Sunmatch owned the mark. The court then outlined the "consequences" of that decision:

The factual issue[s] of ownership and first use have a presence of [sic] other aspects of this case as it proceeds to the jury in that the parties have brought jury triable claims that implicate this issue. But as in any case in which a decision for the court [has an] impact on what remains for the jury to decide, this court recognizes that pursuant to Rule 50, the determination of an issue against a party may re-configure what remains for the jury to decide.

Having determined the fact de novo that first use renders the defendant [Sunmatch] the owner and rightful registrant of the trademark in this case as a matter of law, this issue cannot be redetermined by the jury and consequently the plaintiff's claims are affected as we have already discussed on the record, dropping certain things out and eliminating certain things for the jury's decision-making.

MSI contends that the district court violated its right to a jury trial when the court decided that Sunmatch owned the trademark before submitting the parties' other claims to the jury. We agree. The Seventh Amendment to the Constitution of the United States provides:

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law.

As a general matter the Seventh Amendment affords the right to a jury trial "in those...

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