Rainbow Nails Enterprises v. Maybelline, Inc.

• Decision Date: 12 April 2000
• Docket Number: No. 99-70079.,99-70079.
• Citation: 93 F.Supp.2d 808
• Parties: RAINBOW NAILS ENTERPRISES, INC., Plaintiff, v. MAYBELLINE, INC., Maybelline Sales, Inc., Cosmair, Inc., Tevco, Inc., Jane Doe and John Doe, unidentified individual co-conspirators, and XYZ Corporation, an unidentified corporate co-conspirator, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

93 F.Supp.2d 808

RAINBOW NAILS ENTERPRISES, INC., Plaintiff, v. MAYBELLINE, INC., Maybelline Sales, Inc., Cosmair, Inc., Tevco, Inc., Jane Doe and John Doe, unidentified individual co-conspirators, and XYZ Corporation, an unidentified corporate co-conspirator, Defendants.

No. 99-70079.

United States District Court, E.D. Michigan, Southern Division.

April 12, 2000.

Andrew W. Mychalowych, Farmington Hills, MI, for plaintiff.

Daniel J. Stephenson, Detroit Mi, Rock A. Wood, Grand Rapids, MI, Karen B. Benjamin, Bloomfield Hills, MI, for defendants.

OPINION AND ORDER REGARDING CROSS-MOTIONS FOR SUMMARY JUDGMENT

ROSEN, District Judge.

I. INTRODUCTION

On December 9, 1998, Plaintiff Rainbow Nails Enterprises, Inc., a Michigan corporation, brought this suit against Defendants in Oakland County Circuit Court, State of Michigan, asserting claims of breach of contract, fraud, misappropriation of trade secrets, and civil conspiracy arising from Defendants' alleged misappropriation of fingernail polish technology allegedly developed by Plaintiff. Defendants removed the case to this Court on January 11, 1999, citing complete diversity of citizenship among the parties. See 28 U.S.C. §§ 1332(a), 1441(a).

By motions filed on September 30, 1999, both Plaintiff and Defendants seek an award of summary judgment in their favor. The parties responded to these cross-motions on December 2, 1999, and filed replies in support of their respective motions on December 20, 1999. In addition, the Court permitted the parties to file supplemental briefs regarding these cross-motions on March 1, 2000. Finally, on March 23, 2000, the Court conducted a hearing on the parties' motions.

Having reviewed the voluminous briefs and exhibits filed by the parties in support of their motions, as well as the other materials in the record, and having heard and considered the arguments of counsel at the March 23 hearing, the Court is now prepared to rule on the cross-motions for summary judgment. For the reasons set forth below, the Court finds that Defendants are entitled to summary judgment in their favor.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. The Parties to This Action

Although the parties have been largely unable to conform their filings to the page limits set forth in the Local Rules of this District, and have inundated the Court with exhibits in support of their motions,¹ the facts of this case are not terribly complex, and are in all material respects undisputed. Plaintiff Rainbow Nails Enterprises is a Michigan corporation established in the early 1990s by its principal and sole employee, Ted Jacob, as a vehicle to market Mr. Jacob's concepts and products in the fingernail polish industry. Although Plaintiff worked on various products within this industry, the technology at issue in this case relates to "the introduction and application of metal flakes into nail polish." (Complaint at ¶ 7.) According to Plaintiff, this approach causes nail polish to dry more quickly, primarily through a process known as "leafing." In particular, the metal flakes "leaf," or assume a flattened orientation, thereby holding open the surface of the applied nail polish and allowing the solvents to escape at a faster rate. (Jacob Dep. at 102.)

Defendants Maybelline, Maybelline Sales, and Cosmair² together are a wellknown presence in the cosmetics industry. Maybelline holds two patents on a quick-drying nail polish formula marketed under the product name "Express Finish." However, Maybelline and its competitors in the nail polish business — including such firms as Pavion Ltd., Orly International, and Revlon — do not themselves manufacture the nail polish sold under their respective names. Instead, these companies rely largely on a handful of manufacturers, including Defendant Tevco, to make their products. Although Tevco was at one time a significant manufacturer of Maybelline products, Maybelline currently relies almost exclusively on one of Tevco's competitors, Kirker Chemical, as its nail polish manufacturer. In particular, Kirker, and not Tevco, manufactures Maybelline's "Express Finish" line of nail polish.

B. Plaintiff's Business Relationship with Avery Dennison

In early 1992, Plaintiff began experimenting with nail polish formulas that included small, flat metal flakes with an approximate size of 10 to 20 microns. During this same time period, Plaintiff also was working with "thermochromic" nail polish formulas, which are designed to change colors in response to temperature changes. Only the "metal flake" technology, however, is at issue in this suit, and Plaintiff has neither alleged nor offered evidence that Defendants misappropriated any thermochromic technology.

In order to obtain metal flakes of the desired size and shape, Plaintiff contacted Avery Dennison, a company that manufactures aluminum dispersions under the brand name "Metalure." According to a company brochure, "Metalure dispersions are supplied as a slurry of aluminum platelets having a controlled particle size, dispersed in various solvents," and are designed "for use in printing inks, coatings and paints." (Plaintiff's Response to Maybelline's Motion, Ex. 5.) This brochure further indicates that the particle size of the aluminum platelets found in Metalure products ranges from 3.6 to 45.3 microns. (Id.)

It is not clear whether Plaintiff simply used a standard Metalure product in its nail polish formulas, or whether it instead used Avery Dennison's manufacturing capabilities and expertise to create specialized metal dispersions that were better suited to Plaintiff's theories and formulas. A February 2, 1993 letter from Plaintiff's attorney, William Hanlon, to Avery Dennison seems to suggest that Plaintiff was using "off the shelf" Metalure products, (see Maybelline's Motion, Ex. 8), and a patent application prepared by Ted Jacob and his attorney similarly refers to the "preferred embodiment" of Jacob's invention as using a "commercially available" aluminum dispersion sold by Avery Dennison "under the trade name METALURE," (id., Ex. 3, at 6). However, Jacob testified that he worked with Avery Dennison personnel to develop a product "from scratch" with a specific metal particle size. (Plaintiff's Motion, Ex. 3, Jacob Dep. at 114-15.) As further purported evidence of Plaintiff's separate technological contribution to the product it obtained from Avery Dennison, Plaintiff points to a written agreement between the two parties, which in turn refers to an attached "proprietary non-disclosure agreement" that "provides bi-lateral protection" for the two firms' respective technologies. (Id., Ex. 7 at 2.)³ This agreement also includes Avery Dennison's promise "not to supply direct to [Plaintiff's] licensed manufacturers," (id.), but does not list these licensed manufacturers or indicate the products encompassed within this promise.

C. Plaintiff's Business Relationship with Defendant Tevco

In mid-1992, Plaintiff contacted Defendant Tevco to seek its assistance in manufacturing nail polish using Plaintiff's formulas. These discussions led to the execution of an August 18, 1992 "Manufacturing Agreement" between Plaintiff and Tevco, under which (i) Plaintiff agreed to disclose certain technology to Tevco, (ii) Tevco was granted an exclusive license to use this technology in manufacturing products, and (iii) Tevco agreed to use this technology only in connection with the manufacturing activities encompassed within the Agreement.

1. The Terms of the Tevco Manufacturing Agreement

As discussed below, the parties disagree as to the exact scope of the "technology" covered by the Manufacturing Agreement. The Agreement itself addresses this issue through a series of somewhat circular definitions set forth in Section 1. First, the Agreement defines "Technology" as information "relating to the manufacture, design, marketing, distribution and use of the Licensed Products." (Tevco's Motion, Ex. A, Manufacturing Agreement, § 1.8.) "Licensed Products," in turn, are defined as "topically applied thermochromic nail polish and other nail care products incorporating the Licensed Technology." (Id. at § 1.6.) "Licensed Technology" is defined as referring "collectively to the Know-How and the Licensed Patents." (Id. at § 1.7.) "Know-How" encompasses "all Technology not covered by a patent or patent application," while "Licensed Patents" includes all patents and patent applications "relating to the Licensed Products." (Id. at §§ 1.4, 1.5.) Finally, the definition of "Licensed Patents" incorporates an accompanying "Schedule A" of the relevant "Licensed Patents," and this Schedule lists a patent application filed on March 13, 1992, "in the name of Theodore A. Jacob, III and entitled `Thermochromic Nail Composition'." (Id., Schedule A.)

Having defined the covered technology, the Agreement then recites the parties' duties with respect to this technology. First, Plaintiff agreed to "promptly disclose" to Tevco all "existing Licensed Technology reasonably related to the manufacture of the Licensed Products, unless such disclosure is not permitted under pre-existing agreements with third parties." (Id. at § 2.1.) Plaintiff further promised to provide to Tevco "any Licensed Technology which is developed or acquired by [Plaintiff] after the date of this Agreement and is reasonably related to the manufacture of the Licensed Products." (Id. at § 2.2.) However, this transferred technology remained "the exclusive property" of Plaintiff, with Tevco obtaining only a "beneficial interest," and Tevco was entitled to use this technology "only in connection with the manufacture of the Licensed Products in the Territory under the terms of this Agreement." (Id. at § 2.4.)⁴

Under the Manufacturing Agreement, Tevco was granted an "exclusive license to use the Licensed Technology to manufacture the Licensed Products in the Territory solely for" Plaintiff, without any right of assignment or transfer. (Id. at § 3.1.) Tevco was...