Harley-Davidson, Inc. v. William Morris D/B/A Bill's Custom Cycles

Citations: 19 F.3d 142; 30 U.S.P.Q. 2d (BNA) 1165; 1994 U.S. App. LEXIS 6208; 1994 WL 90348Docket: 93-7327

Court: Court of Appeals for the Third Circuit; March 20, 1994; Federal Appellate Court

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Harley-Davidson, Inc. appeals a decision from the United States District Court for the Middle District of Pennsylvania that denied its motion to hold William Morris, operating Bill's Custom Cycles, in contempt for violating a consent judgment and permanent injunction. The Third Circuit Court of Appeals, led by Judge Restani, reversed the lower court's judgment and remanded for further proceedings. Harley-Davidson, a motorcycle manufacturer, alleged that Morris infringed its trademarks by selling used motorcycle parts, displaying unauthorized Harley-Davidson memorabilia, and using trademarks in promotional materials without authorization. A settlement agreement was reached in late 1991, resulting in a consent judgment that permanently prohibited Morris and his associates from using Harley-Davidson trademarks in any form that could cause confusion or deception in connection with unauthorized goods or services. The consent judgment specifically barred Morris from using Harley-Davidson trademarks, displaying related advertising, or misrepresenting products as authorized by Harley-Davidson.

Harley-Davidson filed a contempt motion on September 1, 1992, after discovering that Morris continued to display signs and sell T-shirts featuring Harley-Davidson trademarks. A hearing occurred on November 17, 1992, and the district court denied the motion on December 4, 1992, stating that Morris did not operate his business in a manner likely to cause confusion regarding the trademarks. The court's jurisdiction arose under the Lanham Act, and the appellate jurisdiction was based on 28 U.S.C. § 1291, as the district court's order was final. The appellate review standard for a contempt order denial is whether there was an abuse of discretion, with the possibility of reversal only for legal errors or clearly erroneous factual findings. The district court found no ambiguity in the consent judgment and ruled that Morris was not in violation of its terms.

On appeal, Harley-Davidson contended that the district court incorrectly interpreted the consent judgment, which it argued prohibited only conduct likely to cause confusion. The judgment language restrained Morris from using signs incorporating Harley-Davidson trademarks or similar marks that could cause confusion. Morris acknowledged liability in the consent judgment but argued that he removed only signs he believed were not likely to confuse consumers. Harley-Davidson countered that the language in the judgment indicated that the "likelihood of confusion" clause modifies only "any similar mark," implying that actual trademarks do not require proof of confusion for their use to be prohibited. Additionally, Morris's prior admission of trademark infringement in the consent judgment precluded him from contesting the issue in contempt proceedings.

Harley-Davidson's interpretation of the consent judgment regarding the 'likelihood of confusion' language is supported by its plain meaning and logic. Morris' interpretation would necessitate the district court to reassess trademark infringement after liability was already acknowledged, which contradicts established legal policy and could deter parties from settling disputes. To prove contempt, Harley-Davidson needed to show by clear and convincing evidence that Morris violated the consent judgment's terms, which explicitly prohibited the use of Harley-Davidson trademarks. Evidence presented indicated Morris was aware of the judgment and continued displaying signs with the trademarks. Although Morris argued that his business practices did not mislead the public, the district court ultimately ruled that he did not operate in a manner likely to cause confusion regarding trademark use. The court's acceptance of likelihood of confusion evidence exceeded the limitations set by the consent judgment. Morris cited Vertex Distributing Inc. v. Falcon Foam Plastics, Inc. to argue for a broader interpretation, but the court clarified that Vertex's context of vague terms does not apply to the clear terms of the current consent judgment.

Morris' interpretation of the consent judgment is deemed unreasonable, as the inquiry into the likelihood of confusion regarding the defendant's marks was unnecessary. The district court incorrectly revisited the consent judgment's plain terms concerning liability for infringement, leading to an erroneous finding of no contempt. Morris' ongoing display of signs bearing the Harley-Davidson trademarks violates the clear terms of the consent judgment. Regarding the sale of infringing T-shirts, Morris argued the judgment was vague for not explicitly prohibiting the use of Harley-Davidson marks alongside his store name. He claimed a prior oral agreement with Harley-Davidson employee William Wood, permitting the sale of T-shirts until his existing supply was sold out. The district court's denial of the contempt motion partially relied on this conversation. Consent judgments are interpreted as contracts, adhering to standard contract interpretation rules. The interpretation should be confined to the document's text, not extrinsic intentions. The consent judgment is found unambiguous, specifically prohibiting the use of Harley-Davidson's name and designs on T-shirts, as stated in paragraph 5(c). Morris' assertion of a lack of integration in the judgment is rejected; the judgment sufficiently addresses unauthorized use of the marks on any sold items.

Morris contends that evidence related to his understanding of the agreement with Wood, although potentially barred by the parol evidence rule, is pertinent to assessing his willfulness in violating a consent judgment. During the contempt hearing, the district court allowed Morris to testify about his interpretations of the settlement agreement, overruling objections based on the relevance of such testimony to willfulness. While willfulness is not a requisite for civil contempt, Morris' testimony was deemed relevant solely for determining sanctions. The Ninth Circuit has indicated that good faith interpretations of court orders can negate contempt findings, but this defense has been increasingly limited across circuits. Evidence of good faith does not absolve Morris from contempt findings regarding violations related to sign displays and T-shirt sales. Consequently, the district court's denial of the contempt motion is set to be reversed, and the case will be remanded to determine appropriate sanctions. The consent judgment and permanent injunction were agreed upon by both parties on August 15, 1991, with a judgment entered on September 3, 1991. In a later motion for reconsideration, Harley-Davidson argued that the absence of confusion was incorrectly determined by the district court, which stated that likelihood of confusion was essential in evaluating the alleged violations of the consent judgment.

Section 32 of the Lanham Act establishes liability for individuals who use a registered trademark without the owner's consent in a manner likely to cause confusion or deception regarding the goods or services. Similarly, Section 43(a) prohibits misleading representations that could confuse consumers about the origin or sponsorship of goods and services. Harley-Davidson accused Morris of violating these provisions. Paragraph 5(b) aligns with Section 2(d) of the Lanham Act, which prevents the registration of trademarks that closely resemble existing ones to avoid confusion. Harley-Davidson holds exclusive rights to its registered marks, including its name without design. A settlement agreement required Morris to remove all Harley-Davidson signage from his business, allowing only private display at home. During proceedings, the district court excluded evidence of this agreement when assessing whether Morris's signs violated the consent judgment, prompting Harley-Davidson to appeal. The consent judgment explicitly bans the display of all registered Harley-Davidson marks, including the name alone, making the settlement agreement irrelevant to the case. Morris was also informed prior to the consent agreement that back imprints on licensed Harley T-shirts were not permitted.