Vais Arms, Inc. v. Vais

• Decision Date: 26 August 2004
• Docket Number: No. 03-50287.,03-50287.
• Citation: 383 F.3d 287
• Parties: VAIS ARMS, INC., Plaintiff-Appellee, v. George VAIS, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

383 F.3d 287

VAIS ARMS, INC., Plaintiff-Appellee, v. George VAIS, Defendant-Appellant.

No. 03-50287.

United States Court of Appeals, Fifth Circuit.

August 26, 2004.

Wayne Joseph Colton (argued), San Antonio, TX, for Plaintiff-Appellee.

Allen Francis Cazier, David Snell (argued), Bayne, Snell & Krause, San Antonio, TX, for Defendant-Appellant.

Appeals from the United States District Court for the Western District of Texas.

Before JOLLY, WIENER, and PICKERING, Circuit Judges.

WIENER, Circuit Judge:

Defendant-Appellant George Vais appeals from the district court's grant of summary judgment and entry of permanent injunction in favor of Plaintiff-Appellee Vais Arms, Inc. on claims for (1) unfair competition under § 43(a) of the Lanham Act, (2) trademark dilution and injury to business reputation under the Texas commercial code, (3) trademark infringement and unfair competition under Texas common law, and (4) breach of a covenant not to compete ("non-compete agreement") under the Texas commercial code. We affirm.

I. FACTS AND PROCEEDINGS

From 1996 until May 15, 2000, Defendant-Appellant George Vais ("George") manufactured and sold firearm muzzle brakes¹ through his unincorporated proprietorship, "Vais Arms." During that time, George moved his business to various locations across the United States, including Houston, Texas; Boise, Idaho; Prescott, Arizona; and finally, Kerrville, Texas. He marketed his muzzle brakes primarily through telephone and mail order catalogues, recognizing sales throughout the United States, as well as in some foreign countries.

During the early days of the operation of his business, George developed a severe allergy to household and industrial chemicals and solvents, including those he used in the manufacture of his muzzle brakes. In summer 1999, George's condition worsened significantly, and he decided to leave the United States and return to his native Greece in the hope that the change in environment would improve his health. In preparing for his departure, George asked Ronald Bartlett ("Bartlett"), a gunsmith at a nearby San Antonio sporting goods outlet, whether he would be interested in purchasing George's muzzle brake business and continuing the production and sale of Vais muzzle brakes. Bartlett ultimately agreed to purchase George's business and formed the plaintiff corporation "Vais Arms, Inc." for that purpose.

On December 30, 1999, George and Bartlett executed a Bill of Sale in which "Vais Arms," as seller, agreed to sell to "Vais Arms, Inc.," as buyer, all of Vais Arms's assets and equipment, for a lump sum payment of $40,000. The Bill of Sale specified that the transfer would take place on May 15, 2000. It also referenced an attached exhibit listing the assets and equipment to be sold. The total cost of the items listed was $39,848.97, roughly $150 less than the amount of the purchase price.

In addition, the parties executed an Attachment to the Bill of Sale which reads as follows:

The following is agreed to by George Vais and Ronald Bartlett

1. George Vais agrees to the following:

A. To get a trade name patent for Vais Arms, Inc. and include it in the sale of assets.

B. To help move the equipment to the new location and make sure everything works. To give instructions for the first two weeks after the move.

C. If Ronald Bartlett dies before the transfer of all assets, all payments on the note will be refunded to Ronald's estate.

2. Ronald Bartlett agrees to the following:

A. If George dies before all payments are made on the note, Ronald will make remaining payments on the note to a trust fund for George's children, This trust fund will be established by George's estate.

Finally, the parties executed a non-compete agreement which states, in pertinent part:

Non-Compete Covenant. For a period of 10 years after the effective date of this Agreement, George Vais Arms will not directly or indirectly engage in any business that competes with Vais Arms, Inc. This covenant shall apply to the geographical area that includes all U.S. states and countries which are included in the current customer bases.

Vais Arms, Inc. immediately began operations on May 15, 2000. For approximately two weeks thereafter, George worked alongside Bartlett in Bartlett's store, assisting him in the production of the muzzle brakes. When Vais Arms, Inc. became fully operational, George went home to Greece.

Vais Arms, Inc. soon began marketing its muzzle brakes nationwide and, like its predecessor, Vais Arms, quickly recognized sales throughout this country. Early in 2001, however, George returned from Greece and began manufacturing and marketing muzzle brakes under the VAIS mark.

In March 2001, after receiving a series of customer inquiries prompted by George's national advertising campaign, Bartlett applied for federal registration of the VAIS trademark in connection with "firearms components and accessories, namely muzzle brakes." George filed a notice of opposition. As of the time of this appeal, Bartlett's application was still pending.

In September 2001, Vais Arms, Inc. filed suit in the district court alleging that George's use of the VAIS mark infringed Vais Arms, Inc.'s rights as senior user of the mark and that George's sales and marketing efforts violated the terms of the non-compete agreement. Vais Arms, Inc. brought claims for (1) unfair competition under § 43(a) of the Lanham Act,² (2) trademark dilution and injury to business reputation under § 16.29 of the Texas Business and Commerce Code,³ (3) breach of the non-compete agreement under § 15.50 of the Texas Business and Commerce Code,⁴ and (4) trademark infringement and unfair competition under Texas common law. A year later, Vais Arms, Inc. filed a motion for summary judgment on all its claims. It also filed a motion for a preliminary injunction prohibiting George from using the VAIS mark in connection with the sale of muzzle brakes and from manufacturing, selling, and marketing firearm muzzle brakes in contravention of the non-compete agreement.

In January 2003, the district court granted summary judgment in favor of Vais Arms, Inc. on its claims for unfair competition, trademark dilution and injury to business reputation, and trademark infringement and unfair competition under Texas common law ("the trademark claims"). The district court based its decision on a determination that no genuine issue of material fact existed as to whether George had abandoned the VAIS mark in selling his business to Bartlett and leaving the country. The court declined to grant summary judgment in Vais Arms, Inc.'s favor as to its claim for breach of the non-compete agreement, however, choosing instead to hold the motion in abeyance pending further briefing on the reasonableness of the agreement's geographic and temporal limitations. Accordingly, the district court entered a preliminary injunction prohibiting George's use of the VAIS mark but reserved ruling on Vais Arms, Inc.'s request for an injunction enforcing the terms of the non-compete agreement.

Following further briefing on the reasonableness of the temporal and geographic limitations of the non-compete agreement, the district court granted Vais Arms, Inc.'s motion for summary judgment on its claim for breach of the non-compete agreement. The court also permanently enjoined George from competing with Vais Arms, Inc. in the manufacturing and marketing of firearm muzzle brakes anywhere in the United States until May 15, 2010. After judgment was entered in its favor, Vais Arms, Inc. filed a motion to alter or amend the judgment to make permanent the court's earlier injunction prohibiting George's use of the "VAIS" mark.

Before the district court could rule on that motion to alter or amend, however, George filed a motion to reconsider the grant of summary judgment on Vais Arms, Inc.'s trademark claims. George advanced that Vais Arms, Inc. waived its abandonment argument by failing to assert it in its complaint, and that he had not had adequate time to respond to Vais Arms, Inc.'s abandonment argument before the district court granted summary judgment. George noted that the issue of abandonment was raised for the first time in Vais Arms, Inc.'s reply brief. The district court rejected George's first ground for reconsideration but allowed the parties additional time to submit supplemental briefs and evidence on abandonment.

After considering the supplemental briefing and evidence on abandonment, the district court determined that no genuine issue of material fact existed as to whether George had abandoned the mark. Accordingly, the court denied George's motion to reconsider its prior grant of summary judgment on Vais Arms, Inc.'s trademark claims. The court then granted Vais Arms, Inc.'s motion to alter or amend the judgment and permanently enjoined George from using the mark in connection with the manufacturing, marketing, or selling of firearm muzzle brakes. The court denied George's motion to stay the injunction pending appeal.

George timely filed notices of appeal from the district court's rulings granting summary judgment, enjoining his use of the VAIS mark, and enjoining his activities in contravention of the non-compete agreement.

II. ANALYSIS

A. Standard of Review

We review de novo a district court's grant of summary judgment.⁵

B. Trademark Abandonment

George asserts that genuine issues of material fact exist as to whether he abandoned the VAIS mark when he sold his business to Bartlett and moved back to Greece. He argues that, as a result, the district court erred in holding that Vais Arms, Inc. was the senior holder of the mark and granting summary judgment on Vais Arms, Inc.'s trademark claims. Specifically, George contends that (1) as a matter of law, a person cannot abandon his surname, and (2) even assuming arguendo that a person can abandon his surname, genuine issues of material fact exist as to whether he intended to abandon the VAIS mark. Because he did...