362 F.3d 17 (2nd Cir. 2004), 03-7432, Sunward Electronics, Inc. v. McDonald

Docket Nº:03-7432.
Citation:362 F.3d 17
Party Name:69 U.S.P.Q.2d 2002 SUNWARD ELECTRONICS, INC., Plaintiff-Appellee, v. Keith L. McDONALD, Robert D. McDonald and Dog Guard Out-of Site Fencing, Inc., Defendants-Appellants.
Case Date:March 03, 2004
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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362 F.3d 17 (2nd Cir. 2004)

69 U.S.P.Q.2d 2002

SUNWARD ELECTRONICS, INC., Plaintiff-Appellee,

v.

Keith L. McDONALD, Robert D. McDonald and Dog Guard Out-of Site Fencing, Inc., Defendants-Appellants.

No. 03-7432.

United States Court of Appeals, Second Circuit

March 3, 2004

Argued: Oct. 16, 2003.

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James W. Hulme, Cooper Erving & Savage, LLP (Phillip G. Steck, on the brief), Albany, NY, for Plaintiff-Appellee.

William Dunnegan, Perkins & Dunnegan, New York, NY, for Defendants-Appellants.

Before: OAKES, JACOBS, and POOLER, Circuit Judges.

POOLER, Circuit Judge.

Defendants-Appellants Dog Guard Out-of-Site Fencing, Inc., and Keith L. McDonald and Robert D. McDonald, the owners and officers of Dog Guard Out-of-Site Fencing, Inc. (collectively "Defendants") appeal from the April 23, 2003 judgment of the United States District Court for the Northern District of New York (Lawrence E. Kahn, District Judge) granting Plaintiff-Appellee Sunward Electronics, Inc.'s ("Plaintiff") request for a preliminary injunction

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enjoining Defendants' use of Plaintiff's trademark and specifically, requiring Defendants to assign to Plaintiff any of its telephone numbers that feature Plaintiff's trade name or trademark in its phone book listing.

BACKGROUND

Plaintiff, a New York corporation, manufactures and distributes pet fencing systems using the trade names and trademarks "Dog Guard" and "Out-of-Sight Fencing" ("Dog Guard"). The system functions by administering an electrical shock through a collar worn by the animal when the animal approaches a boundary established by an underground wire. On November 15, 1995, Defendants, an Alabama corporation and Alabama citizens, entered into an exclusive dealership agreement with Plaintiff's predecessor-in-interest whereby Defendants became authorized dealers of Dog Guard products in the Birmingham, Alabama region ("Dealership Agreement"). At one point, according to Plaintiff, Defendants were the top three DOG GUARD dealers in the country. Moreover, Defendant Keith L. McDonald helped recruit other Dog Guard dealers, frequently spoke at Dog Guard meetings and seminars, and tested new Dog Guard products.

Pursuant to the Dealership Agreement, Defendants were required to use Plaintiff's trade name and trademarks for "Dog Guard" and "Out-of-Sight Fencing" in connection with the sale of its pet containment systems. Section 7 of the Dealership Agreement states:

DEALER has the right to use and, unless otherwise instructed by [Plaintiff], shall use the tradename "DOG GUARD," for the term of this agreement. DEALER shall obtain necessary licenses, registrations and appropriate governmental authorities, as they pertain to DEALER'S business and territory. DEALER will obtain a telephone listing under the tradename as specifically outlined by the [Plaintiff] in the territory assigned to DEALER. The tradename registrations will automatically become the property of, and revert to, [Plaintiff] on termination of this agreement, and DEALER shall cause any such transfer to be made within 30 days of termination.

The Dealership Agreement also required Defendants to cease any use of Plaintiff's trade names following the dissolution of the dealership: "DEALER shall have no right after termination of this agreement to use the name 'DOG GUARD' or any similar name which may confuse or tend to confuse the general public."

The Dealership Agreement contained a one-year non-compete provision, whereby Defendants agreed to refrain from managing or joining any entity engaged in the production or sale of pet fence products within a certain sales territory.

Defendants' relationship with Plaintiff eventually deteriorated and they began selling pet fencing systems manufactured by Pet Stop, Inc., a competitor of Plaintiff. On or about February 27, 2003, Plaintiff terminated the Dealership Agreement. Plaintiff alleges that Defendants, however, continued to use the trademarks Dog Guard and Out-of-Site Fencing at their store and were passing off other products as manufactured by Plaintiff.

Most importantly, Defendants' listings in local phone books featured Plaintiff's trademark and trade name. The listings state "Dog Guard" and "Out-of-Sight Fencing" near the top of the ad and in bold, and then provide Defendants' phone number and web address (www.dogguardalabama.com). The listed phone numbers go to the Defendant's office, and at one point after the dissolution of the dealership,

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Defendants' office answering machine stated that it was "Pet Stop of Alabama (formerly Dog Guard of Alabama)." A copy of the listing at issue is attached hereto as Appendix A.

On March 20, 2003, Plaintiff filed a complaint against Defendants alleging false designation and unfair competition under the Lanham Act, common law trademark infringement, breach of contract, common law unfair competition, injury to business reputation and dilution, tortious interference, and cyber piracy. At that time, Plaintiff also moved by order to show cause for a preliminary injunction. On April 2, 2003, the district court heard oral argument on Plaintiff's motion. At that time, Plaintiff sought an order enjoining only Defendants' continued use of phone numbers featuring Plaintiff's trade name and trademark in its phone book listings. Plaintiff requested that Defendants discontinue using the phone numbers, or alternatively, that the phone numbers be sent to a neutral intercept operator who would provide the new phone numbers of both Plaintiff and Defendants. Defendants rejected these proposals on the grounds that (1) the district court lacked personal jurisdiction over them; and (2) even if personal jurisdiction was properly asserted, they had not violated the Lanham Act.

On April 23, 2003, the district court issued a preliminary injunction ordering Defendants to assign to Plaintiff the phone numbers at issue. On May 5, 2003, Defendants made a motion to stay the injunction pending appeal, which the district...

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