Edelmann v. National Patent Development Corp.

Citations: 656 F. Supp. 1073; 1987 U.S. Dist. LEXIS 2115Docket: 85 Civ. 7926 (MP)

Court: District Court, S.D. New York; March 24, 1987; Federal District Court

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Defendants National Patent Development Corporation and National Hydron Incorporated moved for summary judgment on various claims presented by plaintiffs Paul Edelmann and Robert Schultz, who allege breach of a licensing agreement, trademark infringement, unfair competition, and fraud. The plaintiffs are partners in Solarband Sports Associates (SSA), which entered into a License Agreement with MXL Industries on May 20, 1981. This agreement granted MXL an exclusive worldwide license to manufacture, use, and sell a combination sweatband and sun visor product, alongside the right to use the "Solarband" trademark.

Under the License Agreement, MXL agreed to pay SSA a royalty of 8.5% on the first $5 million of net sales and 7.5% on any amount exceeding that, along with a $50,000 flat fee. From 1981 to 1985, MXL paid total royalties of $148,139.92. In 1983, MXL sold its inventory to Deerfield Communications Corporation for $200,000, structured as a cash payment and barter credits. MXL paid SSA an 8.5% royalty on the cash received but did not initially pay royalties on the barter credits until they were utilized. To date, royalties on used barter credits amounted to $1,363.99, while unused credits remain with MXL. The litigation centers on whether MXL must pay royalties on these unused barter credits or only upon their actual exchange and utilization. The court granted the defendants' motion for summary judgment in part and denied it in part, addressing each claim individually.

MXL argues that receiving barter credits does not obligate them to pay royalties since these credits cannot be converted to cash, lack immediate ascertainable value, and do not qualify as "net sales" under the License Agreement. Plaintiffs assert that royalties are due upon receipt of the barter credits based on their face value of $3.00 per unit in merchandise, while defendants claim a tax value of ten cents per dollar of this stated value. For summary judgment to be granted, there must be no genuine issue of material fact, as stated in Fed. R. Civ. P. 56(e). Genuine material questions remain regarding the intent of the License Agreement regarding royalties on non-cash exchanges, the ascertainable market value of the barter credits, and their actual market worth. Defendants' reliance on precedent cases is deemed inappropriate, as these cases did not establish that barter transactions automatically negate contractual obligations for commissions or royalties. The term "sale" is not fixed and may encompass exchanges for various forms of consideration, depending on the parties' intent. The trial must determine the commercial significance of the barter transaction, the parties' intentions, and relevant trade customs. Additionally, the License Agreement dated May 20, 1981, granted MXL rights to the "Solarband" trademark, while a related trademark application was filed by Solarband International, controlled by plaintiff Edelmann, shortly thereafter. The motion for summary judgment on the contract claim is denied, allowing for further hearings.

The Patent and Trademark Office accepted NPDC's trademark application for "Sunbandit" on May 3, 1983, after it was filed on June 16, 1982. MXL began marking its manufactured product as "Sunbandit," prompting plaintiffs to assert their right to prohibit MXL from selling the product under that mark, claiming confusion was created. However, the court found plaintiffs’ trademark and unfair competition claims unsupported, noting no evidence that plaintiffs reserved control over MXL’s use of the mark under the License Agreement, which allowed MXL to select any mark for the product without restrictions. Defendants’ Rule 3(g) statement was deemed admitted due to lack of contestation, affirming that SSA retained no control over MXL's trademark use. The plaintiffs also claimed fraud, asserting they were misled by defendants regarding advertising and royalties, but failed to provide evidence of fraudulent intent behind the promises made. The court ruled that the claims of fraud did not meet legal standards, merely suggesting a breach of promise rather than fraud. Consequently, the motion for summary judgment dismissing the trademark, unfair competition, and fraud claims was granted, while the contract claim remains for trial on May 11, 1987. Notably, the License Agreement defined "net sales" and indicated that trademark rights arise from actual use, a point underscored by the lack of evidence from plaintiffs demonstrating their use of the "Solarband" mark.