TMT North America, Inc. v. Magic Touch GmbH
| Decision Date | 08 October 1997 |
| Docket Number | No. 97-1894,97-1894 |
| Citation | 124 F.3d 876 |
| Parties | TMT NORTH AMERICA, INCORPORATED, Plaintiff-Appellee, v. MAGIC TOUCH GmbH, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
George W. Hamman, Marvin Benn (argued), Dawn M. Cassie, Hamman & Benn, Chicago, IL, for Plaintiff-Appellee.
Carol A. Genis, Robert T. Johnson, Jr., Sana Hakim, Bell, Boyd & Lloyd, Chicago, IL, Glenn F. Ostrager (argued), Dennis M. Flaherty, Joshua S. Broitman, Ostrager, Chong & Flaherty, New York City, for Defendant-Appellant.
Before CUMMINGS, KANNE and ROVNER, Circuit Judges.
This case involves a trademark dispute between a German company that developed a product and an American company that distributed it. Both companies claim ownership of two trademarks associated with the product. The American company, TMT North America ("TMT-2"), asserts that it now owns the trademarks because the German company, The Magic Touch GmbH 1 ("TMT GmbH"), acted inequitably when TMT-2 purchased the assets of the prior U.S. distributor, a company also named TMT North America ("TMT-1"). Both parties consented to disposition by a magistrate judge (pursuant to 28 U.S.C. § 636(c)), and after an evidentiary hearing, the magistrate judge issued a preliminary injunction in favor of TMT-2. See TMT North America, Inc. v. The Magic Touch GmbH, No. 96 C 4502, 1997 WL 136315 (N.D.Ill. Mar.18, 1997). The magistrate judge found that although TMT GmbH never transferred ownership of the trademarks to TMT-1, TMT-2 had shown a likelihood of success regarding whether TMT GmbH forfeited its rights to the marks by its conduct during TMT-2's purchase of TMT-1's assets. The magistrate judge therefore enjoined TMT GmbH from using the marks or asserting any ownership rights to them. On TMT GmbH's motion, we stayed the preliminary injunction pending appeal. We now vacate the injunction outright, finding that any acquiescence by TMT GmbH could not have forfeited all rights to the marks, but rather could only have put TMT-2 on equal standing with TMT GmbH regarding usage of the marks.
TMT GmbH is a German company that has developed a specially-coated paper for use in transferring images onto fabrics. Color photocopiers can transfer images onto the paper, and with the use of heat and pressure, the images can be transferred from the paper to the fabric. In 1990, TMT GmbH entered into an agreement with TMT-1, making TMT-1 the exclusive North American distributor of TMT GmbH's image transfer products. The distribution agreement stated that TMT-1 was "required to display the trademark and instructions supplied by TMT [GmbH] on all promotional materials, packaging and any other related materials produced by [TMT-1] in a manner agreed upon by both parties prior to production." TMT GmbH thereafter shipped the image transfer paper to TMT-1, which distributed the paper under the two trademarks at issue in this case, "The Magic Touch" and "The Magic Touch ... my one and only." Initially, TMT GmbH shipped the paper in its final form to TMT-1 for distribution. By the beginning of 1992, however, TMT GmbH began to ship only rolls of the raw paper from its French manufacturer, and TMT-1 would then have the paper converted into individual sheets and packaged for sale.
Early on in this contractual relationship, TMT-1 filed an application to register "The Magic Touch ... my one and only" with the U.S. Patent and Trademark Office. TMT-1's president and vice president both testified that they always understood TMT GmbH to own the trademarks, but TMT1's chairman of the board, Martin Schwartz, filed a federal trademark application that listed TMT-1 as the owner. Schwartz had discussions with TMT GmbH's principal, Juergen Hagedorn, regarding the registration, but it is unclear whether Hagedorn knew the registration was in TMT-1's name rather than TMT GmbH's. Schwartz testified that Hagedorn knew TMT-1 was filing on its own behalf, but Hagedorn denied such knowledge.
Over approximately the next two years, TMT-1's business did not go well. At one point in 1991, Hagedorn scheduled a meeting with TMT-1 to discuss conditions for continuing the business relationship. One of the conditions Hagedorn put on the agenda was for "[a]ll trademark applications" to be assigned to TMT GmbH. The agenda, however did not state specifically which applications would have to be assigned, nor did it state whether GmbH expected the trademark rights themselves (as opposed to the trademark applications) to be transferred.
When TMT-1 fell behind in its payments to TMT GmbH, three new investors were recruited to put money into either TMT-1 or its distribution arm, TMT Services, Inc. All three of these investors testified that they understood TMT-1 to own the trademarks and that Hagedorn, who was involved with recruiting the investors, never said anything to suggest otherwise. In late 1992, one of these investors, along with three new investors, formed TMT-2 which acquired the assets of TMT-1. In the Asset Purchase Agreement, TMT-1 explicitly represented that it owned and was transferring the trademarks. TMT GmbH was not a party to the Asset Purchase Agreement, but it did enter into a Memorandum of Agreement with the TMT-2 investors. The Memorandum called for the parties to sign a distributorship agreement and for the new company to pay TMT GmbH substantial consulting fees.
One of the new investors, Jerald Lavin, testified that his discussions with Hagedorn regarding the new arrangements led him to believe that TMT-1 had owned the trademarks. Hagedorn, by contrast, pointed to two drafts of a distribution agreement that Lavin prepared in November 1992 following the Memorandum of Agreement. Those drafts state that TMT GmbH "warrants and represents that it has sole right and interest in the ... registrations (Exhibit B) of trademarks" to be assigned to TMT-2 as part of the distributorship agreement. No exhibits, however, are attached to the drafts, leaving it somewhat uncertain whether Lavin was referring to the trademarks at issue in this litigation.
Despite these drafts, TMT GmbH and TMT-2 were unable to negotiate a distributorship agreement. In February 1993, TMT GmbH sent TMT-2 a letter terminating the Memorandum of Agreement and a second letter stating that "no Intellectual Art, Patents and/or Trademarks and/or related rights have been traded, transferred, provided and/or assigned." Both parties, meanwhile, attempted to secure federal trademark registrations. In February 1993, TMT-1 filed a federal trademark application for "The Magic Touch" (which was granted in 1994), and in April 1993, TMT GmbH filed its own federal trademark application (which apparently was unsuccessful). Nonetheless, TMT GmbH and TMT-2 continued their distribution relationship without a written contract until June 1996 when TMT-2 terminated its distributorship and filed suit against TMT GmbH. TMT-2 now has its own source of the raw paper product and thus no longer needs TMT GmbH's paper.
TMT-2's complaint pleaded numerous counts against TMT GmbH, invoking § 43(a) of the Lanham Act (15 U.S.C. § 1125(a)), § 35 of the Lanham Act (15 U.S.C. § 1117), and the state common-law torts of unfair competition and interference with business relationships. TMT-2 specifically requested a declaratory judgment establishing its ownership of the trademarks, both preliminary and permanent injunctive relief preventing TMT GmbH from using the marks in any way, and damages. TMT GmbH responded by filing 13 similar counterclaims, and both parties filed motions for preliminary injunctions.
In January 1997, the magistrate judge held a lengthy evidentiary hearing. In March, the magistrate judge ruled that TMT-2 was entitled to a preliminary injunction. The magistrate found the evidence convincing that "TMT GmbH knew that TMT-1 claimed ownership of the marks and intended to assign the marks in the Asset Purchase Agreement." Although TMT-1's use and registration did not transfer ownership of the marks to TMT-1, the magistrate judge found that Hagedorn's silence towards TMT-2 regarding the trademarks was inequitable conduct that, under the doctrines of acquiescence and equitable estoppel, could cause TMT GmbH to lose its rights to the marks. The magistrate judge therefore ruled that TMT-2 had shown a likelihood of prevailing on the merits and that TMT-2 would face irreparable harm without an injunction. In addition, the magistrate judge found that based on the public's identification of the trademarks with TMT-2 rather than TMT GmbH, both the balance of harms and the public interest weighed in favor of TMT-2.
When considering a motion for a preliminary injunction, a district court must first determine whether the moving party has demonstrated 1) some likelihood of prevailing on the merits, and 2) an inadequate remedy at law and irreparable harm if preliminary relief is denied. If the movant demonstrates both, the court must then consider 3) the irreparable harm the nonmovant will suffer if preliminary relief is granted, balanced against the irreparable harm to the movant if relief is denied, and 4) the public interest, meaning the effect that granting or denying the injunction will have on nonparties. Grossbaum v. Indianapolis-Marion County Building Authority, 100 F.3d 1287, 1291-92 (7th Cir.1996), cert. denied, --- U.S. ----, 117 S.Ct. 1822, 137 L.Ed.2d 1030 (1997). Our review of a district court's decision to grant or deny a preliminary injunction is limited. Although a district court's legal conclusions are subject to de novo review, we review its findings of fact for clear error and its balancing of the preliminary injunction factors only for an abuse of discretion. Id. at 1292; Storck USA, L.P. v. Farley Candy Co., 14 F.3d 311, 314 (7th Cir.1994).
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