Liberto v. D.F. Stauffer Biscuit Co., Inc.

• Decision Date: 21 February 2006
• Docket Number: No. 04-50308.,04-50308.
• Citation: 441 F.3d 318
• Parties: Frank G. LIBERTO, Plaintiff-Appellee, v. D.F. STAUFFER BISCUIT COMPANY, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 318

441 F.3d 318

Frank G. LIBERTO, Plaintiff-Appellee, v. D.F. STAUFFER BISCUIT COMPANY, INC., Defendant-Appellant.

No. 04-50308.

United States Court of Appeals, Fifth Circuit.

February 21, 2006.

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Gary M. Grossenbacher (argued), Law Office of Gary M. Grossenbacher, Austin, TX, John E. Clark, Goode, Casseb, Jones, Riklin, Choate & Watson, Glenn D. Grossenbacher, San Antonio, TX, for Plaintiff-Appellee.

Randolph P. Tower (argued), Clemens & Spencer, San Antonio, TX, Cynthia Clarke Weber, Sughrue, Mion, Zinn, Macpeak & Seas, Washington, DC, for Defendant-Appellant.

Appeal from the United States District Court for the Western District of Texas.

Before JONES, Chief Judge, and JOLLY and HIGGINBOTHAM, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

The parties to this dispute over trademarks and the packaging of animal crackers have been negotiating a settlement of their dispute over the past eleven years-while continuing their businesses and continuing to litigate. Today, we only add a chapter to their saga, unable to find a principled closing. So, we address trademarks, licenses, and unenforceable agreements to agree, and final judgments are anything but that.

I

Frank G. Liberto manufactures and distributes snack foods, employing a design with red and yellow stripes on his packaging since 1950. Liberto registered his mark with the U.S. Patent and Trademark Office in 1986. D.F. Stauffer Biscuit Co., Inc., is a snack food company specializing in animal crackers. In 1987, Stauffer began using red and yellow stripes on packaging similar to Liberto's mark, in connection with the sale of its animal crackers.

In 1988, Stauffer applied for registration of its package design. Although the Principal Register of Trademarks already contained Liberto's mark, Stauffer's application was approved and published in the PTO's official Gazette. Liberto did not file an opposition to the registration within the statutory period, and Stauffer's registration, number 1,561,212 ("the 212 registration") issued on October 17, 1989. Stauffer's mark became incontestably registered after October 17, 1994.

Nonetheless, in March of 1995, Liberto contacted Stauffer, alleging that Stauffer's use of the red and yellow stripes infringed upon his trademark. Stauffer denied the allegation, and Liberto filed his initial action against Stauffer, "the 1996 litigation."

Over three years later on May 29, 1998, the parties executed a settlement agreement, by which Liberto agreed to inter alia dismiss his infringement action, to grant an exclusive license to Stauffer for use of the striped design on Stauffer packaging. Stauffer also agreed to enforce the mark against other food manufacturers. Despite its incontestable right to use its own mark, Stauffer agreed to pay Liberto royalties for use of his design in connection with the sale of animal crackers. Stauffer further agreed to join Liberto in a motion asking the district court to adopt the Settlement Agreement as its Final Judgment in the 1996 litigation.

The Settlement Agreement also contemplated that the parties would continue to negotiate "the specific terms of [the] license to be agreed upon." After executing the agreement, but before the joint motion for final judgment was filed, the parties negotiated the details of the license for approximately ten months without success. Liberto then urged the district court to approve the settlement agreement and enter judgment. Stauffer did not oppose the request, and, on March 22, 1999, the district court entered the Settlement Agreement as Final Judgment in the case. Neither party appealed, "ending" the 1996 litigation without an agreement over the details of the license.

After judgment was entered, the parties continued to negotiate the details of the license agreement. In particular, the parties could not agree whether Stauffer owed back-royalty payments from the date the Settlement Agreement was originally executed. Without resolving that issue, Stauffer agreed that it was obligated to "make quarterly royalty payments" from the date of Final Judgment and issued a check in June 1999 to "confirm the agreement," followed by the first quarterly payment in August 1999.

Meanwhile, Liberto asked the district court to order arbitration of the back-royalty issue. Stauffer did not object, and the court ordered the parties into arbitration.

In November 1999, before any progress was made in the arbitration proceeding, Stauffer informed Liberto that it would make no further royalty payments. By the consent of both parties, the arbitration was held in abeyance for the next 21 months, in order to permit the parties to resolve their differences through negotiation. By May 2001, however, no agreement had been reached, and Liberto sought to resume arbitration.

Stauffer attempted to expand the scope of the arbitration proceedings to visit issues of the 1996 litigation, such as ownership of the mark, but the district court confined the arbitration to the start-date issue. Finally, in October 2002, the arbitrator concluded that the obligation to make royalty payments to Liberto commenced upon execution of the Settlement Agreement.

While the arbitration was pending, Liberto filed this action, "the 2002 litigation," seeking payment of royalties under the Settlement Agreement. Liberto plead federal trademark infringement, including cross-merchandising, common law trademark infringement, unfair competition, dilution, and bad faith negotiation. So, when negotiations dissolved for the last time in 2002, the parties returned to the district court to resolve "any and all remaining disputes between them."

In April 2003, while the litigation was in progress, Liberto gave notice to Stauffer that its license to use the striped mark on its packaging would be terminated in May, if it failed to pay accrued royalties back to the execution date of the Settlement Agreement. Stauffer refused, and Liberto formally terminated the license, although Stauffer continued to use the design.

Then, on March 10, 2004, the district court ruled on the parties' cross-motions for summary judgment, granting partial judgment for Liberto on his claim of federal trademark infringement, Texas trademark infringement, trademark dilution, unfair competition, and breach of contract. The district court enjoined Stauffer from use of the striped design and ordered the surrender or destruction of all packaging, advertisements, or other materials on which the mark appeared. Stauffer appeals the grant of injunctive relief.

II

"We review a grant of injunctive relief for abuse of discretion; findings of fact for clear error; and conclusions of law de novo."¹ "The district court abuses its discretion if it (1) relies on clearly erroneous factual findings when deciding to grant or deny the permanent injunction (2) relies on erroneous conclusions of law when deciding to grant or deny the permanent injunction, or (3) misapplies the factual or legal conclusions when fashioning its injunctive relief."²

III

In support of the injunction, the district court held that the Settlement Agreement was an enforceable contract under Texas law. Stauffer argues that the Settlement Agreement is an unenforceable "agreement to agree." We agree.

The validity of the Settlement Agreement turns largely on the text of the agreement itself, with repairs to the reading given it by the parties in their performance, such as Stauffer's quarterly royalty payment made under the Settlement Agreement.

Under Texas law, settlement agreements are "enforceable in the same manner as any other written contract."³ A contract is "legally binding only if its terms are sufficiently definite to enable a court to understand the parties' obligations."⁴ An agreement to make a contract at a future time is enforceable if it is "specific as to all essential terms."⁵ By contrast, where an agreement leaves essential terms open for future negotiations, it is not a binding contract but, rather, an unenforceable "agreement to agree."⁶ Thus, whether the Settlement Agreement is an enforceable contract turns upon whether its "essential terms" are set forth in the agreement or are left to future negotiation.

Whether a given term is "essential" to a contract is matter of law to be reviewed de novo,⁷ a determination turning largely on the type of contract at issue,⁸ and Liberto contends that it is enforceable as a license agreement. We ask then whether, according to Texas law, the Settlement Agreement contains all of the essential terms of a trademark license agreement.

As a general matter, Texas courts have consistently held that a contract may be held void for indefiniteness if it fails to specify "the time of performance, the price to be paid, the work to be done, the service to be rendered, or the property to be transferred."⁹ The Settlement Agreement expressly enunciates the general scope of the license: an "exclusive license" to use Liberto's "red and yellow stripes Trademark. . . in the sale of Animal Crackers." The Settlement Agreement also stipulates the amount to be paid in royalties: "0.38% of gross revenue from sales of Animal Crackers," with an annual minimum and maximum of $62,500 and $150,000, respectively, "to be adjusted annually according to the U.S. Consumer Price index."

However, the grant language of the Settlement Agreement is in the future tense, for example: "Plaintiff will grant to Defendant an exclusive license . . ." (emphasis added). The Settlement Agreement expressly leaves open for future negotiation the "specific terms" of the license, and the "action to be taken [by the parties] to protect the trademark." Other terms are simply omitted-neither specified nor designated for future negotiation. Most notably, the Settlement Agreement fails to mention the duration of the license or the grounds for its renewal or termination.¹⁰ Also, the time of performance was not...