Classroomdirect.Com v. Draphix

Decision Date25 April 2008
Docket Number1060739.,1060740.
Citation992 So.2d 692
PartiesCLASSROOMDIRECT.COM, LLC v. DRAPHIX, LLC, f/k/a Re-Print/Draphix, LLC. Draphix, LLC, f/k/a Re-Print/Draphix, LLC v. Classroomdirect.com, LLC.
CourtAlabama Supreme Court

Paul M. Sykes, John H. Morrow, and Marc James Ayers of Bradley Arant Rose & White, LLP, Birmingham, for appellant/cross-appellee Classroomdirect.com, LLC.

Will Hill Tankersley, Ed R. Haden, and Kristin K. Henson of Balch & Bingham, LLP, Birmingham, for appellee/cross-appellant Draphix, LLC, f/k/a Re-Print/Draphix, LLC.

LYONS, Justice.

Classroomdirect.com, LLC ("Classroom Direct"), obtained a jury verdict in its favor and against Draphix, LLC, in its claims brought pursuant to the Lanham Trademark Act, 15 U.S.C. § 1051 et seq. ("the Lanham Act"). In addition to the compensatory damages awarded by the jury, the trial court exercised its prerogative to award additional compensatory damages postjudgment pursuant to authority conferred on it by the Lanham Act. Classroom Direct appeals from those aspects of the trial court's postjudgment order granting it less injunctive relief than it had sought, denying its motion for attorney fees, and awarding it only one-half of the costs in this action. Draphix, formerly known as Re-Print/Draphix, LLC, cross-appeals from that aspect of the trial court's postjudgment order awarding additional damages to Classroom Direct pursuant to the Lanham Act. We affirm.

I. Factual Background and Procedural History

Classroom Direct and its predecessor companies, the Re-Print Corporation and Re-Print LLC, sell and distribute educational and school supplies. The Re-Print Corporation began selling architectural and engineering supplies under the name "Re-Print" in 1921, eventually becoming a family business operated by Don Pate and his children. In 1988, Don Pate's son, Ray Pate, assumed control of the business. In 1992, the corporation also began selling educational and school supplies through direct-mail catalogs under the name Re-Print. Re-Print Corporation later reorganized and changed its name to Re-Print LLC. Re-Print LLC hired Jack Womack as its chief financial officer in 1993. In 1994, the company employed Don Pate's daughter, Celita Carmichael, who was also employed as an elementary-school teacher, as the spokesperson for the school-supply business. In 1996, the Pate family sold Re-Print LLC to an out-of-state corporation. In late 1998, Re-Print LLC began selling its line of educational and school supplies under the name Classroom Direct. Re-Print LLC changed its name to Classroomdirect.com, LLC, in 1999; however, its educational- and school-supply catalogs continued to bear the name "Re-Print" for several years. Classroom Direct markets its products by direct-mail catalog and Internet Web site to customers on a national basis, most of whom are teachers in grades pre-kindergarten to sixth and school districts that order supplies requested by teachers. The corporation continued to sell architectural and engineering supplies under the name Re-Print until 2001. At that time, Ray Pate was asked to step down as president, and Carmichael was discharged as spokesperson. Carmichael's discharge activated a two-year noncompetition clause in her employment agreement with Classroom Direct. Womack was promoted to general manager, but he refused to sign a noncompetition agreement, declining an offer of stock options by refusing.

In July 2001, Kneeland Wright, a former employee of Classroom Direct, formed Re-Print/Draphix, LLC, and purchased certain assets from Classroom Direct. Classroom Direct sold its architectural- and engineering-supply business to Re-Print/Draphix pursuant to an asset-purchase agreement and a service-mark agreement, under which Classroom Direct licensed to Re-Print/Draphix the use of the Re-Print service mark in connection with the sale of architectural and engineering supplies. The service-mark agreement prohibited Re-Print/Draphix from using the Re-Print service mark in connection with any sales in the educational- and school-supply market. From July 2001 to July 2004, Classroom Direct's employees assisted Re-Print/Draphix with accounting, catalog production, and computer services.

In early 2004, Womack, while in the employ of Classroom Direct, ordered Classroom Direct's information-technology manager, Jeff Cabaniss, to reserve the Internet domain name "www.teacherdirect. net" on behalf of Classroom Direct. In April 2004, Wright, acting on behalf of Re-Print/Draphix, contacted a trademark attorney about registering a trademark for the name "Teacher Direct." Between April and July 2004, Cabaniss prepared a report at Womack's instruction of Classroom Direct's best-selling items. The 300-page report showed that of the 13,615 school-supply items in Classroom Direct's inventory, 90% of the company's sales revenue was derived from only 3,590 items (26% of the total inventory). In addition to providing detailed information about Classroom Direct's best-selling items, the report also showed the type and quantity of warehouse equipment that would be needed to stock a warehouse with these items.

In July 2004, Womack left Classroom Direct to become Wright's partner at Re-Print/Draphix, taking with him a paper copy of the report prepared by Cabaniss. At that time, Womack informed his superiors at Classroom Direct that he intended to start a competing school-supply catalog sales business at Re-Print/Draphix. In July 2004, Re-Print/Draphix's trademark attorney filed an application with the United States Patent and Trademark Office for the registration of "Teacher Direct" as a trademark for the fledgling school-supply division of Re-Print/Draphix. In August 2004, Womack requested that Cabaniss send him an electronic copy of the report concerning Classroom Direct's best-selling items and transfer to Re-Print/Draphix the reserved Internet domain name www. teacherdirect.net. Cabaniss refused both requests.

On August 23, 2004, Classroom Direct's president, John Jeffery, wrote a letter to Wright informing him that after December 31, 2004, Classroom Direct would no longer provide the various services it had been assisting Re-Print/Draphix (hereinafter referred to as "Teacher Direct") with, including computer services, and that Teacher Direct should "aggressively begin the process of looking for another solution for its information systems needs." Jeffery's letter stated that the services of all Classroom Direct employees were no longer available to Teacher Direct.

"[T]here have been some functions performed by Classroom Direct personnel in the past that should cease immediately. Classroom Direct associates will no longer be able to provide any service in kind or otherwise to Re-Print/Draphix. This includes, but [is] not limited to[,] accounting functions, month-end processing, custom reporting, catalog production, website design, graphic arts, etc. Please take the appropriate steps now to take over these functions because they will no longer be done by a Classroom Direct associate either during normal business hours or after hours on the associate's own time."

Jeffery also informed Wright that Classroom Direct's employees were "not able to perform any work on your new systems" because that "would constitute a conflict of interest on their part and would be grounds for termination." Nevertheless, from November 2004 to January 2005, Teacher Direct paid Larry Riley, who was employed at that time by Classroom Direct, to create the first Teacher Direct catalog and to build Teacher Direct's Web site. Riley performed this work from his home at night. Shortly after the first Teacher Direct catalog was published, Riley left Classroom Direct to work for Teacher Direct.

In February 2005, Teacher Direct published its first catalog and mailed it to approximately 300,000 teachers nationwide. Despite the fact that Teacher Direct was a newcomer to the school-supply business, the cover of the first Teacher Direct catalog stated in large, bold type: "We're Baaack." The cover prominently displayed Carmichael, the former spokesperson for Classroom Direct, using a distinctive pointing gesture with her thumb and forefinger at a 90-degree angle, a gesture she had used previously on Classroom Direct's catalogs. The inside cover page contained the following message from Carmichael:

"`Crazy Days' are here again, and we are back and better than ever!

"Several years ago we sold our Company. I resumed teaching full time and discovered first hand that value, selection, and service are of primary importance in choosing a supplier. ..."

The message was signed "Celita P. Carmichael" as "president." Classroom Direct's catalogs had also referred to Carmichael as the "president" of its school-supply division. The term "Crazy" had appeared in Classroom Direct's catalogs in which Carmichael was its spokesperson using the slogan "Carmichael's Crazys" to advertise special bargain prices. The table of contents of the Teacher Direct catalog was organized with almost identical section headings arranged in the same order and highlighted in the same colors as the table of contents in Classroom Direct catalogs. The Teacher Direct catalog also used the same system of numbering catalog items as the Classroom Direct catalogs used, a three-digit numeric prefix identifying the catalog number, followed by the item number for a specific product, except that Teacher Direct began its three-digit prefix with the number "3" instead of the number "1" used by Classroom Direct.

In March 2005, Classroom Direct began receiving orders by telephone and mail from customers that indicated confusion between Classroom Direct and Teacher Direct. On March 24, 2005, Classroom Direct's counsel wrote a letter to Teacher Direct concerning the customer confusion, which Classroom Direct claimed resulted from the Teacher Direct catalog. The letter demanded that Teacher Direct stop using the Teacher Direct name and that it change other...

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