First Flight Associates, Inc. v. Professional Golf Co., Inc.

• Decision Date: 23 December 1975
• Docket Number: Nos. 75--1489 and 75--1490,s. 75--1489 and 75--1490
• Citation: 527 F.2d 931
• Parties: FIRST FLIGHT ASSOCIATES, INC. and Robert G. Wynn, Plaintiffs-Appellants, Cross-Appellees, v. PROFESSIONAL GOLF COMPANY, INC. and John M. Tucker, Defendants-Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 931

527 F.2d 931

189 U.S.P.Q. 497

FIRST FLIGHT ASSOCIATES, INC. and Robert G. Wynn, Plaintiffs-Appellants, Cross-Appellees, v. PROFESSIONAL GOLF COMPANY, INC. and John M. Tucker,

Defendants-Appellees, Cross-Appellants.

Nos. 75--1489 and 75--1490.

United States Court of Appeals, Sixth Circuit.

Argued Oct. 13, 1975.

Decided Dec. 23, 1975.

William M. Hill, San Diego, Cal., James P. Anderson, Jr., Thrasher, Sherrill & Anderson, Chattanooga, Tenn., for plaintiffs-appellants, cross-appellees.

Thomas A. Caldwell, Jr., Stophel, Caldwell & Heggie, William H. Horton, Charles J. Gearhiser, Gearhiser, Carpenter & Peters, Chattanooga, Tenn., for defendants-appellees, cross-appellants.

Before PHILLIPS, Chief Judge, LIVELY, Circuit Judge, and MARKEY, Chief Judge, U.S. Court of Customs and Patent Appeals. ^*

MARKEY, Chief Judge, U.S. Court of Customs and Patent Appeals.

These cross appeals arise out of diversity actions and counterclaims which followed termination of the relationship between Professional Golf Company (Pro Golf) a manufacturer of golf equipment, and First Flight Associates, Inc. (FFA), its foreign sales representative and trademark licensee. FFA sued for commissions earned as sales representative, for damages resulting from an alleged breach of contract, trade libel and inducement to breach of contract by Pro Golf. The counterclaims of Pro Golf sought damages resulting from alleged breach of duty by FFA under its trademark license. The district court awarded FFA its earned commissions and dismissed the remainder of the complaint and the counterclaims. We affirm.

Background

Pro Golf is based in the United States and engaged in the manufacture and marketing of golf equipment under the trademark FIRST FLIGHT, which has been registered in the United States and certain foreign countries. In 1961 Robert G. Wynn (Wynn) became the Far East sales representative for FIRST FLIGHT golf clubs and balls. Wynn established FFA under Japanese law and conducted his affairs as Pro Golf's sales representative under the FFA corporate name.

The relationship between FFA and Pro Golf was informal and was never memorialized in a formal contract. An exchange of letters evidenced that relationship and the rather casual approach of the parties to the understanding and agreement between them. With respect to the Japanese civilian market and golf equipment (clubs and balls), a 1970 letter from Pro Golf to Wynn stated:

First, we do agree that you will continue to have the exclusive right to import and promote the sale of First Flight golf equipment in the Japan civilian market, however, this is not an irrevocable right but would remain in effect only so long as you did a satisfactory business in this market.

During the period of 1966--67 the parties entered into a second, equally informal agreement, which was in law a trademark license. That agreement permitted FFA to use Pro Golf's FIRST FLIGHT trademark on golf 'soft goods' made by or for FFA and sold by FFA in the Far East. The term 'soft goods' encompassed golf bags, headcovers, gloves, shirts, caps, sweaters, windbreakers, and the like. In a letter of June 7, 1967, Pro Golf's president referred to the trademark license as follows:

Now as to the royalty agreement, for exclusive permission to use First Flight's name on other golf products, our Executive Committee has agreed to accept your suggestion as to the first year's royalty to be a flat $2,500.00 to cover the period November 1, 1966, through October 31, 1967. One half to be paid now, the balance to be paid at the end of the year. The second and third year of this agreement should be on a continuing $2,500.00 minimum basis with a 4% royalty to apply against the minimum. It is my intention to come to Japan in September or October and will work out the details with you at that time.

On August 4, 1967, Wynn paid the semi-annual royalty, stating 'the second and third year of this agreement should also be on a continuing $2,500 guarantee basis.' FFA continued to pay the annual royalty, in semi-annual payments, for about five years, the last such payment being for the six months prior to May 1, 1972.

In Japan, FFA had used subdistributors to promote sales of its own 'soft goods' under the trademark FIRST FLIGHT. In a 1972 distribution agreement, FFA sub-licensed Teito Company, Ltd., to use the FIRST FLIGHT trademark on golf 'soft goods' sold by Teito. For that sub-license, Teito was to pay to FFA an annual royalty in the amount of $25,000.

After the Teito agreement was reached, a dispute arose between Pro Golf and FFA concerning the terms of the trademark license agreement between them. Attempts to negotiate more definite terms failed, but investigations conducted during and as a result of the negotiations disclosed that Pro Golf's registrations of FIRST FLIGHT in Japan, for use on 'soft goods,' were incomplete. Third parties had obtained registrations of FIRST FLIGHT in Japan, entitling them to use the mark on goods in other classes of goods established under Japanese law. Those classes included sports clothing and sport bags. Pro Golf's trademark difficulties and the trademark license dispute with FFA apparently led to deterioration of the sales representation relationship between the parties. Indeed, the briefs before us have not fully recognized the legal distinctions between the two different agreements entered into by the parties. ¹

Wynn refused to disclose to Teito the absence of total trademark control in Japan, though Pro Golf had instructed him to do so. Wynn also rejected Pro Golf's Tucker's letter produced additional friction between Pro Golf and FFA. Finally, on March 6, 1973, Wynn was notified that he and FFA were being terminated as sales representatives for Pro Golf clubs and balls and that orders submitted for such equipment after July 1973 would not be accepted.

repeated requests for details of the FFA-Teito sub-license, particularly the amount of Teito's royalty obligation to FFA. On February 16, 1973, John M. Tucker, Pro Golf's president, wrote Teito stating that neither Pro Golf nor FFA owned the Japanese rights for FIRST FLIGHT as applied to 'sportswear or golf bags and related items.' Tucker also stated that no royalty payment made by Teito to FFA was being received by Pro Golf and that Wynn was not an agent of Pro Golf authorized to execute contracts on its behalf.

Proceedings Below

Under the sales representation agreement with Pro Golf, FFA claimed a commission on orders for clubs and balls placed with Pro Golf prior to the March 6, 1973, termination date. Pro Golf took the position that no commission was due because it was its custom not to pay commissions until shipments were made. The district court, finding that the record failed to support the existence of the alleged custom, determined that commissions were earned on the date approved orders were submitted to Pro Golf. Whether actual payment may have been made after shipment did not influence determination, in the court's view, of the date on which the commission was earned.

FFA sought damages for breach by Pro Golf of the sales representation agreement. The district court characterized the agreement as 'in effect one terminable at the will of either party.' Led by the parties to an apparent intertwining of the two agreements, the court further observed that the conduct of FFA under its trademark license, including refusal to follow Pro Golf's instructions, amounted to 'unsatisfactory business' and provided Pro Golf good cause for termination of the sales representation agreement.

On the basis of Pro Golf's contacts with Teito, which inter alia disclosed the third party ownership of Japanese registrations of FIRST FLIGHT, FFA alleged slander of title and trade libel. The court below found Pro Golf's statements to be 'essentially true' and also that the communication was privileged in the 'protection of legitimate business interests.' FFA also alleged that such contacts constituted an unlawful inducement to breach of contract, in violation of Tenn. Code Ann. § 47--15--113. ² The district court found no violation of the statute, because FFA failed to show that its trademark sub-license contract with Teito had been terminated or breached and because the express terms of the FFA-Teito contract permitted its termination upon termination of the Pro Golf-FFA underlying trademark license contract. The court held that failure of the parties to negotiate renewal of the Pro Golf-FFA trademark license and the failure of FFA to pay royalties to Pro Golf for periods after May 1, 1972, evidenced the expiration of that license contract as of that date.

Pro Golf's counterclaims, for alleged losses resulting from fraud, misrepresentation, concealment, and self dealing by Wynn and FFA, had nothing to do with the sales representation relationship, but were grounded on FFA's sub-license to Teito at a royalty much larger than that paid to Pro Golf by FFA. Pro Golf also

sought to recover its expenses in attempting to perfect its Japanese trademark rights for all golf 'soft goods.' Because the original license was silent regarding sub-licenses, the court found that FFA was within its rights in sub-licensing, for its own profit, the trademark rights licensed by Pro Golf. As to its expenses in seeking to perfect its trademark rights, the court held that because Pro Golf had itself failed to provide its trademark with adequate Japanese registration coverage, its subsequent expenditures were not caused by any actions of...