House v. Players' Dugout, Inc.

• Decision Date: 19 February 2020
• Docket Number: Civil Action No. 3:16-cv-00594-RGJ
• Citation: 440 F.Supp.3d 673
• Parties: Dr. Thomas HOUSE, et al., Plaintiffs/Counterclaim Defendants v. PLAYERS' DUGOUT, INC., et al., Defendants/Counterclaim Plaintiffs
• Court: U.S. District Court — Western District of Kentucky

440 F.Supp.3d 673

Dr. Thomas HOUSE, et al., Plaintiffs/Counterclaim Defendants

v.PLAYERS' DUGOUT, INC., et al., Defendants/Counterclaim Plaintiffs

Civil Action No. 3:16-cv-00594-RGJ

United States District Court, W.D. Kentucky, Louisville Division.

Signed February 19, 2020

Lee Scott Archer, Energy & Environment Cabinet Office of Legal Services, Frankfort, KY, Michael A. Valenti, Valenti Hanley, PLLC, Louisville, KY, for Plaintiffs/Counterclaim Defendants.

Clare Souleyrette, James E. McKiernan, III, Peter J. Rosene, McBrayer PLLC, Jack Allen Wheat, McBrayer, McGinnis, Leslie & Kirkland, PLLC, Louisville, KY, for Defendant/Counterclaim Plaintiff Player's Dugout, Inc.

MEMORANDUM OPINION AND ORDER

Rebecca Grady Jennings, District Judge

Plaintiffs and Counterclaim Defendants Dr. Thomas House ("Dr. House") and the National Pitching Association, Inc. (the "NPA") (collectively, "Plaintiffs") bring this action against Defendants and Counterclaim Plaintiffs Joseph A. Newton ("Joe Newton"), Joseph John Newton ("Joseph Newton") (collectively, the "Newtons"), and Players' Dugout, Inc. ("PDI") (collectively, "Defendants") seeking relief for alleged violations of federal and state law. [DE 39]. Defendants filed a Counterclaim. [DE 40]. The parties now move for partial summary judgment. [DE 43; DE 67]. Briefing is complete, and the motions are ripe. [DE 51; DE 57; DE 71; DE 72]. For the reasons below, the Court DENIES both motions for partial summary judgment. [DE 43; DE 67]

I. BACKGROUND

Plaintiffs develop programs and techniques to enhance athlete performance. [DE 39 at ¶ 12]. Plaintiffs have used these techniques while working with various athletes, including Hall of Fame pitcher Nolan Ryan and NFL quarterbacks Tom Brady, Drew Brees, and Andy Dalton. Id. Plaintiffs own the federally registered NPA Trademark, U.S. Reg. No. 3,202,667, for use in "clothing, namely, baseball jerseys, pants, and hats." [DE 39-2]. The NPA used the mark in commerce as early as 2004 and registered it on January 23, 2007. Id.¹

In February 2014, Dr. House and Joe Newton, representing PDI, entered into a license agreement (the "Agreement") in which Dr. House (the "Licensor") granted PDI (the "Licensee") an exclusive, worldwide license to train baseball and softball pitchers using the patented "Personally Adaptive Joint Threshold Training" (the "PAJTT program") method. [DE 39-1 at 255]. The Agreement permitted PDI to use Dr. House's "know-how," as defined in the Agreement, for the "purpose of commercializing" the PAJTT program as the "Velocity Plus Arm Care Program (‘Velocity Plus’)." [DE 39 at ¶14]. The Agreement does not explicitly provide for Defendants to use the NPA Trademark or Dr. House's name as part of the commercialization of the PAJTT Program. But since execution of the Agreement, PDI, with Dr. House's permission, has used the NPA Trademark and Dr. House's name on its website and other various promotional materials. [DE 39 at ¶ 21].

In January 2013, a year before execution of the Agreement, Dr. House sent a letter about the PAJTT program to Joe Newton and an NPA employee named James Evans. [DE 51-5]. In the letter, Dr. House claimed that he had "applied for a patent, copyright, and trademark" to protect his intellectual property. Id. Dr. House asked that a written agreement be drafted by February 1, 2013. Id. When the parties executed the Agreement over a year later, the Agreement stated that "the Program is patented under a patent issued to the Licensor under the name, PERSONALLY ADAPTIVE JOINT THRESHOLD TRAINING." [DE 39-1 at 255] (capitalization in original).

Despite the Agreement's language, Dr. House never received a patent for the PAJTT program. The parties disagree about whether Defendants knew this when they executed the Agreement, as discussed below in Section III(A)(1). [See DE 43-1 at 368-69; DE 51 at 482-83].

Along with the exclusive right to use the patented training methods with baseball and softball players, the Agreement stipulated that Plaintiffs would prevent third parties from using the training program by enforcing its intellectual property rights against potential infringers. [DE 39-1 at 260]. The Agreement required the Licensor to "defend and protect all infringements upon its patent of the PAJTT Program licensed hereunder at its sole cost." Id. The Licensor warranted "to take all action necessary to restrain any third party which the Licensee deems to be selling a product in competition with the Program licensed to the Licensee which product appears to be an infringement of this Licensor's patent rights." Id. (emphasis added).

After the execution of the Agreement, PDI notified Dr. House and the NPA of multiple unauthorized providers using the PAJTT program. For instance, on November 4, 2014, Joseph Newton emailed Plaintiffs informing them that an individual in Florida was pirating the PAJTT program. [DE 51-6]. Three days later, Joseph Newton emailed Plaintiffs to share that one of NPA's regional directors was pirating the PAJTT program. [DE 51-7]. Joseph Newton again emailed Plaintiffs on June 2, 2015, this time with a list of academies promoting the PAJTT program on their websites. [DE 51-8]. According to Defendants, "[t]he purpose of these notifications was to assist House and the NPA in meeting their contractual duty to [take] ‘all action necessary to restrain any third party which the Licensee deems to be selling a product in competition with the Program licensed to the Licensee.’ " [DE 51 at 485 (quoting [DE 39-1 at 260] ) ]. Other than sending a few letters, Plaintiffs never sought to stop this alleged pirating, and Dr. House never investigated the alleged instances of pirating outlined in the June 2, 2015 email. [DE 51-9 at 587–92].

Under the Agreement, PDI was required to pay royalties and commissions to Dr. House on the 10^th day of each month. [DE 39-1 at 256–57]. The Agreement required PDI to maintain and submit reports showing the royalties and commissions payable during the preceding month with supporting information. Id. The Agreement also required PDI to maintain records in enough detail to determine royalties and commissions payable under the Agreement, as well as to permit Dr. House or a designee to examine the records during the term of the Agreement and two years thereafter. Id.

Following execution of the Agreement, PDI complied with the Agreement and promptly paid all royalties and commissions. [DE 43-1 at 348]. But PDI stopped paying royalties and commissions in August 2015. Id. At that time, neither party sought to terminate the Agreement. [DE 39 at ¶ 24]. PDI also stopped complying with the Agreement's reporting requirements, and it has not paid royalties or commissions since August 8, 2015. Id. at ¶ 22. PDI continued to use the NPA Trademark and Dr. House's name on its website and other promotional materials. [DE 43-4 at 414–15].

Defendants claim that because Plaintiffs never patented the PAJTT Program, as outlined in the Agreement, PDI suspended payment of royalties to Dr. House and the NPA, began paying the royalties into an escrow account, and issued a formal demand for assurances that Plaintiffs perform the contract. [DE 5-2 at 75-80]. "Because those assurances were never forthcoming, [PDI] eventually ceased even escrowing the royalty payments which would have been owing had there not been a complete failure of consideration." [DE 51 at 487].

On October 13, 2015, Plaintiffs sent a letter to PDI purporting to cancel the License Agreement because Dr. House and the NPA "ha[d] become aware of a disturbing number of young athletes who claim to have been injured ... [T]hese letters have [come] ... directly from the aggrieved parties." [DE 51-11]. Plaintiffs emailed NPA certified coaches telling them that PDI's services were inconsistent with the PAJTT program's methods and that PDI's program is not "safe and effective, and ... we have learned that several of his customers have been hurt." [DE 51-10]. Defendants claim that they have never received information of a participant being injured because of their program [DE 51-4 at 577], and thus the statements in the October 2015 email were false.

Plaintiffs claim that the statements in the October 13, 2015 email were true because they were based on Dr. House's personal knowledge and two emails received by Plaintiffs in August 2015. [DE 71 at 757-758]. Robert Hurley ("Hurley") of Salisbury, Maryland sent the first email to Plaintiffs on August 25, 2015. In his email, Hurley claims that several youth baseball players in Salisbury were seriously injured after participating in a Salisbury native's "Velo" program. [DE 71-9 at 839-840] ("[M]any baseball players in our small rural area have paid to participate in this Salisbury native's ‘Velo’ program including my son ... My son did not last long ... because he had tremendous pain in his arm ... However, many other youths remained and from our small area there have been upwards of 10 arm surgeries ... I feel as if the Salisbury area is an epidemic"). Mark Sheehan ("Sheehan"), an NPA affiliate, sent the second email to Plaintiffs on August 26, 2015. In his email, Sheehan writes that, after visiting the "Newton's facility in Elizabethtown," he was "taken aback" by Defendants' deviations from proper protocols and "naivete when it comes to proper instruction or understanding of mechanics." [DE 71-4 at 805].

On February 6, 2016, Plaintiffs sent written notice of PDI's alleged breach of the Agreement, as required by the procedures outlined in the Agreement. [DE 39-1 at 259; DE 43-5 at 429]. The letter notified Defendants of Plaintiffs' intent to terminate the Agreement if the default was not cured within sixty days. [DE 43-5 at 429]. The letter also reiterated that Defendants could prevent termination of the Agreement within ninety days of the notice with a payment of $500,000 to Plaintiffs under the Agreement's liquidated damages clause. Id. Defendants acknowledged receipt of the letter and responded by phone call. [DE...