Forry, Inc. v. Neundorfer, Inc.

• Decision Date: 11 January 1988
• Docket Number: No. 87-3411,87-3411
• Citation: 837 F.2d 259,5 U.S.P.Q. 1510
• Parties: , 56 USLW 2435, 1988 Copr.L.Dec. P 26,222, 5 U.S.P.Q.2d 1510 FORRY, INC., Plaintiff-Appellee, v. NEUNDORFER, INC. and Michael Neundorfer, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 259

837 F.2d 259

113 A.L.R.Fed. 857, 56 USLW 2435,

1988 Copr.L.Dec. P 26,222,

5 U.S.P.Q.2d 1510

FORRY, INC., Plaintiff-Appellee, v. NEUNDORFER, INC. and Michael Neundorfer, Defendants-Appellants.

No. 87-3411.

United States Court of Appeals Sixth Circuit.

Argued Nov. 4, 1987.

Decided Jan. 11, 1988.

Thomas M. Hanculak, Joseph W. Diemert, Jr. & Assoc. Co., L.P.A., Cleveland, Ohio, Richard Raysman, Barry G. Felder (argued), Brown, Raysman & Millstein, New York City, for defendants-appellants.

Raymond Rundelli, Bruce O. Baumgartner, Charles E. Jarrett (argued), Baker & Hostetler, Cleveland, Ohio, for plaintiff-appellee.

Before ENGEL and KENNEDY, Circuit Judges, and EDWARDS, Senior Circuit Judge.

CORNELIA G. KENNEDY, Circuit Judge.

Defendants-appellants ("Defendants") Neundorfer, Inc. and Michael Neundorfer appeal the District Court's judgment granting plaintiff-appellee Forry, Inc. ("Plaintiff") a preliminary injunction in this copyright infringement action. On appeal, Defendants argue that the District Court did not have subject matter jurisdiction over this suit, and that the court erred in finding that the Plaintiff has a substantial likelihood of success on the merits and has suffered irreparable harm. The principal questions raised with respect to the matter of substantial likelihood of success on the merits are whether a mutual release the two parties previously signed bars this suit, and whether the Plaintiff's copyright notice complied with the Copyright Act, 17 U.S.C. Secs. 101-810. Since we find that the District Court did not abuse its discretion in granting the preliminary injunction, we affirm.

The factual background of this litigation is as follows. In the mid-1970's Elliot Drysdale, the president of the Plaintiff, became acquainted with Defendant Michael Neundorfer. Drysdale, an electrical engineer, designed a rapper control ¹ for the Defendants. They arranged that Defendant Neundorfer, Inc. would buy the parts for the rapper controls, and that Drysdale would manufacture them and sell them back to Neundorfer, Inc., which would then sell them to its customers. The arrangement continued until 1978, when Drysdale formed Drysdale, Inc. In November, 1978 Drysdale, Inc. and Neundorfer, Inc. entered into an agreement whereby Neundorfer, Inc. became the exclusive sales agent for electrostatic equipment applicable to ESPs manufactured by Drysdale, Inc. This arrangement continued until sometime in 1984, when Neundorfer, Inc. filed suit against Drysdale, Inc. for breach of contract, tortious interference with contractual relationships, misappropriation of trade secrets, breach of fiduciary duty, and unfair competition. Drysdale, Inc. counterclaimed for breach of contract, tortious interference with contract, unfair competition and interference with business relationships, breach of fiduciary duty, prima facie tort, and violations of state antitrust law. The parties settled the suit by a Settlement Agreement on October 30, 1984, which provided that they would execute a mutual release with regard to all claims between them.

In 1980 or 1981 Drysdale and a microprocessor specialist, Mecklenburg, used the technology involved in rapper controls to develop an automatic voltage control ("AVC"), which is also used in an ESP. The computer program for the AVC, the subject of this law suit, was completed in 1983. In December of 1984 Drysdale, Inc. obtained a registered copyright on the program. In April, 1985 a second corporation of Drysdale's, Forry, Inc., merged into Drysdale, Inc. Drysdale, Inc., the surviving corporation, changed its name to Forry, Inc., and is the plaintiff in this litigation.

Immediately before the settlement of the 1984 litigation, Neundorfer, Inc., began to market its own AVC. Drysdale learned of this after the settlement was consummated. Believing that Neundorfer, Inc.'s AVCs contained copies of Forry, Inc.'s copyrighted computer program, Drysdale acquired and examined a Neundorfer, Inc. AVC. After concluding that the Defendants were infringing the Plaintiff's copyright, the Plaintiff filed the instant action. The District Court granted the Plaintiff's motion for a preliminary injunction. Defendants appeal.

I.

Initially, Defendants challenge the District Court's subject matter jurisdiction over this action. They argue that the Plaintiff failed to record the transfer of the copyright from Drysdale, Inc. to the Plaintiff, and that therefore the Plaintiff is unable to bring suit under the Copyright Act. 17 U.S.C. Sec. 205(d). The Plaintiff responds that the copyright was never transferred, and that therefore no recording was required. The District Court found that the copyright was properly assigned to Drysdale, Inc., who properly registered the copyright. The District Court further found that the merger of Forry, Inc. into Drysdale, Inc., which resulted in the Plaintiff, did not effect a transfer of the copyright, and that consequently the Plaintiff did not need to record a transfer under section 205.

Under 17 U.S.C. Sec. 205(d) the owner of a transferred copyright must record the transfer in order to institute an infringement action. It has been held that recordation of the transfer of a copyright is a jurisdictional prerequisite to suit. Nation's Choice Vitamin Co. v. General Mills, Inc., 526 F.Supp. 1014, 1017 (S.D.N.Y.1981). We agree with the District Court, however, that the copyright was never transferred. The merger agreement provided that Drysdale, Inc. would be the surviving corporation, and that the effect of the merger would be governed by Ohio Rev.Code Ann. Sec. 1701.82. Under section 1701.82(A)(3) the surviving corporation possesses all the assets of the two corporations after the merger. Since Drysdale, Inc. was the registered owner of the copyright before the merger, and as the surviving corporation possessed it after the merger, the merger did not effect a transfer of the copyright.

II.

The Defendants' remaining issues all relate to alleged errors in granting the Plaintiff's motion for a preliminary injunction. A district court, when determining whether to issue a preliminary injunction, should address four factors: 1) the likelihood of success on the merits of the action; (2) the irreparable harm that could result if the court did not issue the injunction; (3) the impact on the public interest; and (4) the possibility of substantial harm to others. Christian Schmidt Brewing Co. v. G. Heileman Brewing Co., 753 F.2d 1354, 1356 (6th Cir.), cert. dismissed, 469 U.S. 1200, 105 S.Ct. 1155, 84 L.Ed.2d 309 (1985). Our standard of review on appeal from the grant of a preliminary injunction is whether the District Court abused its discretion. Id. Moreover, the reviewing court should not overturn the District Court's findings of fact unless it finds them to be clearly erroneous. Id. The Defendants make three arguments with respect to the first factor and one argument with respect to the second.

A. THE LIKELIHOOD OF SUCCESS ON THE MERITS OF THE ACTION

1. The Mutual Release

The Defendants contend that the District Court erred in finding that the Plaintiff is likely to succeed on the merits of its action. They argue that a mutual release signed as a settlement of the state court litigation bars the Plaintiff's claim. The pertinent portion of that release is as follows:

2. Drysdale, for themselves and their respective subsidiaries, affiliates, predecessors, successors, assigns, officers, directors, employees, agents and their heirs and executors do hereby release and forever discharge Neundorfer, its subsidiaries, affiliates, predecessors, successors, assigns, officers, directors, employees, agents and their heirs and executors from any and all claims, demands or courses of action of any nature whatsoever, whether or not now known, and particularly, but without limiting the generality hereof, (1) each and every claim, demand or cause of action arising out of "Agreement By and Between Drysdale, Inc. and Wm. Neundorfer & Co., Inc., dated November 6, 1978 ["], (2) all claims of any right, title or interest in and to any product presently manufactured by Neundorfer, and (3) each and every claim alleged implicitly or explicitly in Case No. 71199, Court of Common Pleas, Cuyahoga County, Ohio.

Joint Appendix at 81 (emphasis added). The Defendants argue that three different clauses of the release bar the Plaintiff's claim. The Plaintiff, naturally, disputes their interpretation, and further asserts that even if the release bars claims for infringement occurring prior to the execution of the release, it cannot bar infringement that took place after it.

a. The general release clause

The Defendants first argue that the language whereby Drysdale released them from "any and all claims ... of any nature whatsoever, whether or not now known" bars the Plaintiff's copyright infringement action. ² The District Court refused to read the general language of release as including copyright rights, stating that if it did it would find "strong evidence to point to Neundorfer's having fraudulently induced the signing of the release." Joint Appendix at 41.

It has been held that the meaning to be given the words of a contract must be the one that carries out the intent of the parties as determined by the circumstances under which the contract was made. Ohio State Life Ins. Co. v. Clark, 274 F.2d 771, 777 (6th Cir.), cert. denied, 363 U.S. 828, 80 S.Ct. 1599, 4 L.Ed.2d 1523 (1960). It has also been held that general language of release will not encompass claims of which the releasor was unaware, particularly if the releasee concealed them from him. See, e.g., Parker v. DeKalb Chrysler Plymouth, 673 F.2d 1178, 1182 (11th Cir.1982) (release stating that car buyer was releasing car dealer from all claims arising out of new car did not encompass car buyer's claim under the Truth In Lending Act because car buyer was unaware that release would encompass such a claim); See generally Annot., 171...