436 F.3d 1228 (10th Cir. 2006), 03-6218, Australian Gold, Inc. v. Hatfield

Docket Nº:03-6218.
Citation:436 F.3d 1228
Party Name:AUSTRALIAN GOLD, INC.; Advanced Technology Systems, Inc.; Ets, Inc., Plaintiffs-Appellees, v. Brenda HATFIELD; Mark Hatfield; Matthew Hatfield; Palm Harbor Tanning & Distributing, Inc., doing business as Miti-Fine Tan & Tone; Internet Marketing Guys; Bubba's Tanning Salon; Internet Marketing Guys Tanning Salon; Joanna Hatfield; Tan Time, Inc.; Qual
Case Date:February 07, 2006
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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436 F.3d 1228 (10th Cir. 2006)

AUSTRALIAN GOLD, INC.; Advanced Technology Systems, Inc.; Ets, Inc., Plaintiffs-Appellees,

v.

Brenda HATFIELD; Mark Hatfield; Matthew Hatfield; Palm Harbor Tanning & Distributing, Inc., doing business as Miti-Fine Tan & Tone; Internet Marketing Guys; Bubba's Tanning Salon; Internet Marketing Guys Tanning Salon; Joanna Hatfield; Tan Time, Inc.; Quality Tanning & Distributing L.L.C., doing business as United Domain Management, Defendants-Appellants.

No. 03-6218.

United States Court of Appeals, Tenth Circuit.

Feb. 7, 2006

Appeal from the United States District Court for the Western District of Oklahoma, D.C. No. 02-CV-143-C.

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Jack S. Dawson, Miller Dollarhide, Oklahoma City, Oklahoma (James A. Scimeca, Mark S. Edmondson, Miller Dollarhide, Oklahoma City, Oklahoma, with him on the briefs), for Defendants-Appellants.

Michael A. Wukmer, Ice Miller, Indianapolis, Indiana (Scott D. Matthews, Ice Miller, Indianapolis, Indiana; D. Kent Meyers, Crowe & Dunlevy, P.C., Oklahoma City, Oklahoma, with him on the brief), for Plaintiffs-Appellees.

Before EBEL, Circuit Judge, TYMKOVICH, Circuit Judge, and BROWNING, District Judge.[*]

EBEL, Circuit Judge.

This case stems from Defendants' unauthorized resale over the internet of indoor tanning lotions manufactured and distributed by Plaintiffs. Plaintiffs sued Defendants for trademark infringement, false advertising, and tortious interference with the contracts between Plaintiffs and their distributors. Defendants filed this appeal after a jury awarded Plaintiffs over $5 million in compensatory and punitive damages.

In this appeal, Defendants assert that the district court erred in denying Defendants' motion for judgment as a matter of law on Plaintiffs' claims. Defendants also challenge the district court's jurisdiction to consider Plaintiffs' state-law tortious interference claim, the entry of an injunction barring Defendants from selling Plaintiffs' products over the internet or using Plaintiffs' trademarks in connection with Defendants' Web sites, and the imposition of sanctions on Defendants for discovery abuses.

Exercising jurisdiction pursuant to 28 U.S.C. 1291, we affirm the judgment of the district court.

BACKGROUND

I. Plaintiffs

Plaintiffs are three related businesses that manufacture and distribute indoor tanning lotions. Plaintiff Australian Gold, Inc., manufactures Australian Gold and Caribbean Gold tanning lotions and owns all trademarks related to those two brands. Plaintiff Advanced Technology

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Systems, Inc., manufactures Swedish Beauty tanning lotions and owns all trademarks related to that brand. Plaintiff ETS, Inc., is the exclusive distributor of Australian Gold, Caribbean Gold, and Swedish Beauty indoor tanning lotions and related products ("Products").1

Approximately fifty to sixty percent of the 25,000 tanning salons in the United States carry Products. ETS does not distribute Products directly to these tanning salons, but rather contracts with independent distributors who in turn sell Products to salons. Indeed, in order to contract with ETS, these independent distributors must agree to market, distribute, or sell Products only to "a tanning salon or hair and beauty care salon" that "offers indoor tanning and instruction of the use of Products as an on-premises service." Since 2001, these agreements have generally prohibited distributors from selling Products over the internet or selling Products to anyone else who will sell them to the general public over the internet.2 Plaintiffs enforce the integrity of these agreements by attempting to stem the flow of Products to businesses other than tanning salons, and have spent over $1 million on such efforts.

All the distributors with whom ETS contracts also must participate in training programs, make their sales associates available to Plaintiffs twice each year for training, and hold two seminars to train salons on the proper use of Products. In 2003, Plaintiffs spent $1.5 million on training, using some 600 presentations to reach over 20,000 people employed by distributors and salons. Plaintiffs emphasize training in part because a consumer's use of the wrong product could cause an adverse reaction, which could harm Plaintiffs' prospects for follow-on sales. Training also makes distributors and salon owners aware of "up-selling" possibilities: Customers who purchase indoor tanning lotion may also purchase body spray, moisturizers, and facial products.

II. Defendants

Defendants resell Products over the internet without Plaintiffs' authorization. Husband and wife Mark and Brenda Hatfield; their son, Matthew; and Matthew's wife, Joanna, all play a role in their business. The other named Defendants-Palm Harbor Tanning and Distributing, Inc.; Internet Marketing Guys, Inc.; Bubba's Tanning Salon; Internet Marketing Guys Tanning Salon; Tan Time, Inc.; and Quality Tanning & Distributing LLC d/b/a/ United Domain Management-are all businesses created by the Hatfields through which the Hatfields have resold Products over the internet.

Because the Hatfields were aware that Plaintiffs objected to the sale of Products on the internet, the Hatfields concealed their activities. For example, by switching the original name of the business from "The Internet Marketing Guys" to "Palm Harbor Tanning and Distributing" to make it appear that it was operating a tanning salon, the Hatfields could purchase Products from an ETS-authorized distributor without being detected by Plaintiffs. Moreover, the Hatfields used fictitious

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names to register the multiple Web sites that they used to sell Products. The Hatfields also used other fictitious business names-including Yukon Tan, Tulsa Tanning Supply, Oklahoma Tanning, Internet Marketing Guys Tanning Salon, and Bubba's Tanning Salon-to place orders from ETS-authorized distributors who had been warned not to sell to the Hatfields. Finally, in an effort to appear to be legitimate purchasers of Products, the Hatfields stated to at least one supplier that they operated a network of ten tanning salons, when in fact they did not.

Defendants initially obtained Products from ETS-authorized distributors who violated their distributor agreements with ETS by supplying Products to Defendants. One such ETS-authorized supplier was AETS. During the seven- month tanning season, Defendants placed orders with AETS for $10,000-$18,000 worth of tanning supplies-of which forty to fifty percent were Products-three times per week. During the five-month offseason, Mark Hatfield on average placed orders for $5,000-$8,000 worth of Products once or twice per week.

In 2003, ETS discovered this activity and terminated its contract with AETS. Defendants then turned to an anonymous supplier of Products who sold Products to the Hatfields out of a van for cash only. Each of the Hatfields' cash transactions with this supplier was worth more than $24,000; one exceeded $64,000.

The Hatfields used up to seven Web sites to sell Products to the general public. The Web sites displayed pictures and descriptions of Products and used Plaintiffs' trademarks. The Hatfields also used Plaintiffs' trademarks in the metatags of their Web sites.3 Further, Defendants paid a company called Overture.com for an "Overture Premium Listing" for "Australian Gold" and "Swedish Beauty," guaranteeing that one of Defendants' Web sites would be among the first three listed if either of Plaintiffs' trademarks was used in an internet search query.

Once customers arrived at the Hatfields' Web sites, they could buy lotions from a variety of manufacturers, not just Plaintiffs. Moreover, beginning in October or November 2002 and ending in January 2003, Defendants removed Products from their Web sites altogether. However, during this time, Defendants continued to use the trademarks "Australian Gold" and "Swedish Beauty" on the metatags for their Web sites to attract customers to the Web sites, and to pay Overture.com for a premium placement if either trademark was used in a search query.

III. Plaintiffs' Lawsuits against Defendants

Plaintiffs uncovered Defendants' actions in January 2001. After notifying Defendants that they objected to the sale of Products over the internet, Plaintiffs filed suit in an Indiana state court against The Internet Marketing Guys. The Internet Marketing Guys failed to answer the complaint, and the court entered a default judgment against the company.4

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Plaintiffs brought this suit in Oklahoma state court in December 2001, and Defendants removed the case to federal court shortly thereafter. In their amended federal-court complaint, Australian Gold and Advanced Technology Systems alleged that Defendants infringed upon their respective trademarks. Australian Gold and Advanced Technology Systems also asserted claims against Defendants for false advertising and for unfair competition under state law. ETS alleged that Defendants interfered with ETS's agreements with various distributors and that Defendants engaged in a civil conspiracy to breach those agreements.

The court granted summary judgment in favor of Brenda and Joanna Hatfield on Plaintiffs' claims of trademark infringement and false advertising. Plaintiffs proceeded to trial on their other claims. At trial, Defendants moved for judgment as a matter of law on all the claims after Plaintiffs rested and at the close of all evidence. The district court granted Defendants' motion as to Plaintiffs' claims of unfair competition. However, the district court allowed the remaining claims to go to the jury.

The jury returned a verdict in Plaintiffs' favor. Australian...

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