Flexible Lifeline Sys. Inc. v. Precision Lift Inc.

• Decision Date: 22 August 2011
• Docket Number: No. 10–35987.,10–35987.
• Citation: 2011 Copr.L.Dec. P 30127,654 F.3d 989,2011 Daily Journal D.A.R. 12783,99 U.S.P.Q.2d 1837,11 Cal. Daily Op. Serv. 10770
• Parties: FLEXIBLE LIFELINE SYSTEMS, INC., Plaintiff–counter–claim–defendant–Appellee,v.PRECISION LIFT, INC.; John Tollenaere, Defendants–counter–claimants–Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

654 F.3d 989

2011 Copr.L.Dec. P 30,127

99 U.S.P.Q.2d 1837

11 Cal. Daily Op. Serv. 10,770

2011 Daily Journal D.A.R. 12,783

FLEXIBLE LIFELINE SYSTEMS, INC., Plaintiff–counter–claim–defendant–Appellee,

v.PRECISION LIFT, INC.; John Tollenaere, Defendants–counter–claimants–Appellants.

No. 10–35987.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 5, 2011.Filed Aug. 22, 2011.

Robert L. Sterup, Shane P. Coleman, and Michael P. Manning (argued), Holland & Hart LLP, Billings, MT, for the defendants-appellants.Lisa H. Meyerhoff (argued), Myall S. Hawkins, Baker & McKenzie LLP, Houston, TX; Jean E. Faure, Jason T. Holden, Faure Holden Attorneys at Law, Great Falls, MT, for the plaintiff-appellee.Appeal from the United States District Court for the District of Montana, Donald W. Molloy, District Judge, Presiding. D.C. No. 6:10–cv–00044–DWM.Before: MARY M. SCHROEDER, M. MARGARET McKEOWN, and CONSUELO M. CALLAHAN, Circuit Judges.

OPINION

PER CURIAM:

Defendants-appellants John Tollenaere and Precision Lift, Inc. (collectively “Precision”) appeal from the district court's grant of a preliminary injunction against them in an action for copyright infringement by plaintiff-appellee Flexible Lifeline Systems, Inc. (“Flexible”). The district court found that Flexible was likely to succeed in its infringement suit, and granted the injunction relying on long-standing precedent of this circuit that presumes irreparable harm in a copyright infringement case upon a showing of likelihood of success on the merits. Precision appeals, claiming that such a presumption runs afoul of two recent Supreme Court decisions, eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006) and Winter v. Natural Resources Defense Council, Inc., 555 U.S. 7, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008). We agree, and therefore vacate the injunction and remand.

BACKGROUND

John Tollenaere formed Precision in the 1990s to market a helicopter rescue lift product he had patented. In or around 2000, Precision expanded its business to include sales of aircraft maintenance stands and platforms for fixed- and rotorwing aircraft.¹ Precision did not manufacture any of its own stands or platforms. Rather, Precision sold stands or platforms manufactured by others, even though it claims that it also had the ability to independently design aircraft maintenance stands. In early 2001, Precision again sought to increase its business and became the sole distributor for aircraft maintenance stands designed and manufactured by West Coast Weld Tech, Inc. (“West Coast”).

West Coast allowed Precision to use the technical drawings of the stands manufactured by West Coast in order for Precision to market the stands, but West Coast always claimed ownership of the drawings.² All of the drawings at issue were stamped by West Coast as its confidential and proprietary information. West Coast never transferred or sold ownership of the drawings, or any of its intellectual property, to Precision. Precision never challenged West Coast's ownership or otherwise indicated that Precision believed it had any ownership interest in the drawings. In fact, in addition to the “confidential and proprietary information” stamp West Coast used on all of its drawings, at one point Precision requested that West Coast add a watermark across the face of the drawings that said, “Property of West Coast Weld Tech” to more clearly identify the drawings as West Coast's property.

In July of 2008, Precision and West Coast entered into a joint venture to compete for a United States Air Force contract to manufacture and sell maintenance stands for C–130 Hercules aircraft. Under this arrangement, West Coast was responsible for designing and manufacturing the stands, and Precision was responsible for submitting the bid to the government and handling the bid process. Rather than a single maintenance stand, the government requested bids for a wraparound maintenance platform comprised of several stands for use during extensive aircraft inspections.

West Coast included provisions to protect its ownership of intellectual property in the Joint Venture Agreement (“JVA”). First, the JVA expressly provides that each party acknowledges the need to disclose its confidential and proprietary information to the other for the purposes of the venture. Second, the JVA contains an agreement that each party will not disclose the confidential and proprietary information of the other party to anyone else, except to the government, and even then only as necessary to complete their duties in performing the venture. Third, the JVA expressly requires each party to promptly return the other party's confidential and proprietary information upon termination of the venture or at the request of the other party.

The parties dispute Precision's role in the actual design of the maintenance platforms and the creation of the drawings. Precision contends it assisted in the design of custom, wraparound stands, and claims that it owns, or at least co-owns, the drawings as a result of its part in their creation. Primarily, Precision claims that its employees assisted in the design process (and thus presumably had a role in creation of the design drawings) by going to on-site visits with West Coast engineers and employees to understand the customer's requirements.

Flexible disagrees, countering that Precision did not contribute to the design and could not have done so because it employed no engineers and did not have manufacturing or design capabilities. West Coast, on the other hand, employed an engineer and two draftsmen, and Flexible contends that West Coast alone designed the maintenance stands and created the drawings at issue here. Moreover, the JVA specified that West Coast was responsible for all engineering, technical design work, and manufacturing, while Precision was responsible for completing the bid proposal and dealing with the government during the bid process.

In July 2008, Precision submitted the initial proposal for the Air Force C–130 platform, which, as required, included the initial drawings. These drawings had to be submitted for evaluation and revisions prior to submitting the final bid. Thereafter, Precision communicated with the Air Force regarding the proposal and West Coast continued its design work on the stands, which included making revisions to the design and technical drawings.

In 2009, West Coast encountered significant financial problems. Unable to continue operating on its own, West Coast sold the majority of its assets, including much of its intellectual property, to Flexible. In particular, the purchase agreement specified that “ALL drawings, details, production schedules, etc. for design, construction and installation of maintenance platforms for aircraft and land vehicles” were included in the purchase. After the purchase, Flexible continued what had been West Coast's work on the final C–130 drawings and forwarded them to the Air Force in December 2009. Meanwhile, Precision asked Flexible to discuss formalizing their continuing business relationship in light of Flexible's purchase of West Coast's assets.

On January 27, 2010, Flexible responded to Precision's requests to formalize their business relationship by advising Precision that Flexible was not interested in continuing a joint venture. Flexible presented Precision with alternate proposals, including one by which Precision would become a sales agent for Flexible's products. Rather than proceed with either of Flexible's proposals, Precision found another joint venture partner to take West Coast's place in the C–130 maintenance stand bid proposal. Precision joined with Carbis, one of Flexible's competitors, and submitted a final bid for the project totaling over $61 million. Flexible did not submit a bid of its own for the proposal. The Air Force eventually awarded the contract to another competitor at a contract price approximately $9.5 million higher than Precision's bid, likely due to the dispute between Precision and Flexible as to the ownership of the drawings. Precision protested the award, but the Air Force ultimately denied the protest.

In the meantime, Flexible filed applications to register the drawings it had purchased from West Coast, and the Copyright Office granted the registrations effective June 23, 2010. Flexible then filed its complaint and an application for injunctive relief to enjoin Precision from using Flexible's intellectual property on the C–130 bid. The district court denied the motion for a temporary restraining order, but set a hearing on the preliminary injunction. Prior to the hearing, Flexible filed an amended application for injunctive relief, expanding the scope of the relief sought to include enjoining Precision from using any of the drawings for maintenance stands for aircraft other than the C–130. In both its application and supplemental application, Flexible argued only that it was entitled to a presumption of irreparable harm and did not offer any evidence of actual harm that it was likely to suffer in the absence of an injunction. The district court held a hearing on the preliminary injunction application on October 14 and 19, 2010. Following the hearing, the court granted the injunction except as to the use of the drawings for the C–130 bid.

The district court issued findings of fact and conclusions of law in granting Flexible's injunction application. It found that the C–130 drawings at issue were created by West Coast employees, and that West Coast gave Precision the drawings to use for the C–130 contract proposal. The court also found that: (1) the joint venture agreement required Precision to return all of West Coast's proprietary information upon the termination of the agreement; (2) Flexible was likely to show that Precision reproduced and used Flexible's drawings without permission or license; and (3) Precision had distributed copies of Flexible's drawings...