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Norwood Promotional Products, LLC v. Kustomkoozies, LLC
Citations: 835 F. Supp. 2d 685; 2011 WL 6415537; 2011 U.S. Dist. LEXIS 148558Docket: No. 1:09-cv-1378-JMS-WGH
Court: District Court, S.D. Indiana; December 20, 2011; Federal District Court
Trademark litigation often stems from straightforward disputes, as illustrated by this case concerning the term "koozie," used to describe beverage insulators. Both parties, Norwood Promotional Products, LLC ("Norwood") and KustomKoozies, LLC and Robert Liddle ("Kustom"), have a history of litigation over the "koozie" trademark, culminating in a 2006 settlement that included a settlement and licensing agreement. Norwood's Second Amended Complaint alleges that Kustom breached this agreement, infringed on Norwood's trademark, and engaged in unfair competition, while also seeking a declaratory judgment affirming that it complied with the licensing terms and that Kustom cannot contest the trademark's validity. Kustom's counterclaim seeks to invalidate Norwood's trademark and alleges that Norwood breached the licensing agreement.
Norwood operates as a large promotional products company, while Kustom is an internet retailer selling customizable beverage holders. Their prior disputes included two lawsuits in 2005 regarding the term "koozie," during which Old Norwood sought registration of "KOOZIE" and Kustom sought "KUSTOM KOOZIES." The settlement required Kustom to abandon its trademark registration efforts and allowed limited use of Norwood's mark under certain conditions, including adherence to brand standards and a prohibition against challenging Norwood's trademark. Kustom received $40,000 as part of the settlement, and both parties agreed to mutual releases and the dismissal of their lawsuits. Key aspects of the settlement and license agreements include confidentiality, payment terms, and limited use provisions.
Kustom agrees to abandon its attempt to register "KUSTOM KOOZIES" with the USPTO and will not seek ownership of any mark or domain incorporating "koozie" globally, except as permitted by the license from Old Norwood. Kustom also will not oppose Old Norwood's registration of "KOO-ZIE." Old Norwood grants Kustom a conditional, royalty-free, non-exclusive, non-transferable license to use the Licensed Mark "KOO-ZIE" limited to specific goods sold under defined conditions. Kustom can advertise and sell up to 3,000 Licensed Goods from a specified website and use certain names for its corporate identity and website. Kustom must not use any names other than the Licensed Mark as trademarks, and its use must comply with Old Norwood's brand standards, which include specific usage guidelines for the Licensed Mark. Old Norwood agrees to sell Kustom the Licensed Goods at cost and maintains ownership rights over the Licensed Mark. The license can be terminated by Old Norwood upon notice of breach if not remedied within thirty days. Additionally, if a competent authority determines that Old Norwood lacks rights in the Licensed Mark or that it is generic, the agreement becomes void. The agreement is binding on successors and stipulates that waivers of rights do not establish ongoing waivers.
Failure or delay by Old Norwood or Kustom in exercising rights under the Agreement does not waive those rights. Kustom is not authorized to use the Licensed Mark except as specified. Certain obligations, particularly those in Sections 4, 8, 9, 11, and 12, will survive termination of the Agreement. Communications required under the Agreement must be in writing and sent to specified addresses, with copies to attorneys.
Old Norwood received a trademark registration for "KOOZIE" on May 15, 2007. On May 6, 2008, Old Norwood's attorney notified Kustom of violations related to the use of the mark, demanding compliance within thirty days. This letter was Kustom's first notice of the trademark registration. In response, Robert Liddle made changes to Kustom's website, believing he addressed the issues, but Old Norwood's attorneys did not provide specific compliance examples. After correspondence, Old Norwood continued selling products to Kustom's printing supplier.
In mid-2009, Norwood acquired Old Norwood’s assets, including the trademark and agreements with Kustom, and subsequently filed a lawsuit on November 3, 2009, citing Kustom's breach of the License Agreement. Norwood's counsel claimed the May 6, 2008, letter served as the necessary notice of breach. Both parties have filed motions for summary judgment, with Norwood seeking judgment on five issues, including Kustom’s breach of agreements and trademark infringement, as well as Kustom's defenses regarding the trademark's distinctiveness and validity. Kustom has countered with its own motion addressing six issues.
Kustom seeks summary judgment on several grounds regarding alleged breaches by Norwood of settlement and license agreements. Specifically, Kustom claims Norwood failed to: 1) request in writing that Kustom cease or modify its use of the "Licensed Mark"; 2) provide notice of breaches and an opportunity to cure before terminating the agreements; 3) cooperate fully to implement the agreements; and 4) file the lawsuit in compliance with a covenant against legal action concerning Kustom’s use of "KOOZIE," unless it was a breach of the agreements. Additionally, Kustom argues for the cancellation of Norwood's KOOZIE trademark registration, asserting it was issued in error due to its descriptive nature and that Norwood did not overcome the USPTO's refusal to register it. Although Kustom’s motion does not explicitly request judgment on the unfair competition claim in Count IV, the Court will consider it as it has been addressed in the parties' briefs.
The Court emphasizes that cross-motions for summary judgment do not imply all material facts are resolved, necessitating individual consideration of each party's arguments under the summary judgment standard. The Court criticizes the parties for a lack of clarity in their briefs, which could have been improved with better organization aligned with specific counts of the complaint or defenses. Regarding Kustom's second counterclaim, the Court finds that Kustom has waived its right to challenge the KOOZIE mark's validity by accepting $40,000 and a conditional license in a prior settlement in 2006, thus complicating its current claims.
Kustom is estopped from contesting Norwood's rights to the "KOOZIE" mark due to provisions in their settlement and license agreements. Kustom explicitly agreed not to challenge Norwood's ownership or assist in cancelling the registration of the mark. The agreements reflect a clear intent: Norwood could pursue registration while Kustom received compensation and a limited license, provided it refrained from contesting Norwood's rights. Kustom's argument that Norwood's cancellation of the license without notice negates the "no challenge" provision is unfounded, as this does not alter Kustom's obligations under the settlement agreement once Norwood registered the mark. Additionally, the license agreement stipulates that the bar on inconsistent actions survives its cancellation.
The doctrine of "licensee estoppel" further reinforces that a trademark licensee cannot challenge the validity of the licensor's mark. While Kustom argues for a balance between public policy interests in challenging invalid trademarks and the private rights to contract, various circuit courts have upheld the estoppel doctrine, indicating that licensees must honor their commitments not to dispute their licensor's trademark rights. Although the Seventh Circuit has not explored this doctrine in depth, several district courts within the circuit have acknowledged that it prevents former licensees from contesting their licensor's trademarks based on circumstances during the licensing period.
Kustom is unable to prevail even if the Court weighs public policy and equity instead of strictly applying licensee estoppel. Public policy and judicial efficiency support resolutions between litigating parties, as established in Quad/Graphics, Inc. v. Fass. Kustom accepted cash and a conditional royalty-free license to settle prior litigation with Norwood, thus forfeiting its right to challenge the trademark. The equities do not favor Kustom, which should be held to the promises made in the settlement and license agreements. Although public policy encourages trademark challenges, others are poised to contest Norwood's mark independently of Kustom. Four challenges to the trademark's validity are pending before the Trademark Trial and Appeals Board, which should proceed regardless of Kustom's claims.
The licensee estoppel rule prohibits Kustom from challenging the mark's validity, as reiterated in Fair Isaac Corp. v. Experian Information Solutions, Inc. The Court's ruling does not dismiss Kustom's arguments regarding the mark's distinctiveness; it merely enforces the estoppel due to Kustom's acceptance of a substantial payment and license in exchange for dropping such challenges. Consequently, Norwood is entitled to summary judgment on Count II of Kustom's Counterclaim.
Regarding Counts I and II of Norwood's Second Amended Complaint for breach of contract, contract interpretation is a legal question suitable for summary judgment. The intent of the parties is paramount, and if the contract language is clear, summary judgment can be granted. The settlement agreement's incorporation of the licensing agreement means a breach of one constitutes a breach of the other. Both agreements represent the complete understanding between Norwood and Kustom. Evidence shows Kustom registered eight domain names containing "koozie" and operated websites selling insulated beverage holders, violating Paragraph 5 of the settlement agreement and Section 2 of the license agreement. Kustom's use of "koozie" on these sites directly contravenes the terms of the agreements.
LICENSEE is prohibited from using or allowing others to use the Licensed Mark, defined as "KOO-ZIE," or any similar mark, except as permitted by the license agreement. Kustom argues that the use of "koozie" in lower case creates ambiguity in the agreement, claiming this requires external evidence to interpret the parties' intent. The Court rejects this argument, asserting that Kustom's lowercase usage does not excuse its breach. Both agreements clearly prohibit unauthorized use of the mark and similar marks, preventing Kustom from evading restrictions by altering capitalization. Evidence indicates Kustom used "koozie" in both forms on its websites without distinguishing between trademark uses, undermining its position.
Kustom also claims Norwood breached the agreements, which it argues justifies defenses against Norwood's claims and supports its counterclaim. The Court will address the counterclaim later but notes that Kustom's arguments regarding Norwood’s breaches lack merit. Kustom contends that Norwood breached by not "immediately" terminating the license after a breach was identified, but the license grants Norwood the right, not the obligation, to terminate. The termination's validity does not affect Norwood's right to sue for breaches, including Kustom's registration of additional domain names containing "koozie." Kustom's assertion regarding the need for notice and opportunity to cure does not impede Norwood's right to sue for breach.
Furthermore, Kustom argues that the "Further Acts" provision required both parties to cooperate and that Norwood's swift termination and lawsuit violated this obligation. Kustom claims Norwood failed to discuss ongoing violations after acquiring Old Norwood's assets. The Court finds Kustom's arguments unpersuasive, indicating that Kustom is attempting to deflect responsibility for its breaches.
A "Further Acts" clause in a settlement agreement typically requires parties to cooperate in executing the terms of the agreement, including dismissing claims and filing necessary documents. Kustom attempts to extend this cooperation obligation to issues related to the licensing agreement, despite the settlement agreement not explicitly incorporating the licensing terms. The defined term "Agreement" in the settlement refers only to the Confidential Settlement Agreement. Evidence shows that Kustom was the first party to act inconsistently with the settlement terms, having registered websites with "koozie" in violation of the agreement. Under Indiana law, a party that commits the first material breach cannot enforce the contract against the other party for subsequent breaches. Although Kustom alleges Norwood's failure to cooperate or give proper notice, Kustom's prior breach prevents it from enforcing the settlement terms against Norwood. Kustom's argument regarding Norwood's lack of evidence for damages is also misplaced, as Norwood seeks partial summary judgment on the existence of a contract and Kustom's breach, not on damages. If there are no material facts in dispute regarding these two elements, the court can rule accordingly, allowing a jury to determine damages later.
Resolution of Norwood's breach of contract claims remains unresolved, as Norwood did not seek summary judgment on all claims, and Kustom did not seek summary judgment on the absence of damages. Kustom responded to Norwood's request for partial summary judgment regarding breach by citing a stipulation in which Norwood renounces claims for lost profits and corrective action damages. However, this stipulation does not prove that Norwood suffered no damages. A jury will determine any damages at trial, and if none are found, Norwood's claims will fail. Norwood is entitled to partial summary judgment on Kustom's breach of the Settlement and License Agreements concerning the first two elements of its claims, specifically addressing breaches noted. Norwood alleges additional breaches, including Kustom taking oversized orders, selling products without purchasing the required insulated blanks, and failing to meet brand standards. However, evidence presented is insufficient to establish these additional breaches as a matter of law, as testimony from relevant parties remains open to interpretation.
Norwood's final breach claim involves Kustom's continued use of the mark after Norwood terminated the license agreement, which hinges on whether Norwood properly notified Kustom of the breach, a prerequisite for termination. Regarding trademark infringement, Norwood seeks summary judgment solely on Kustom's continued use of the mark post-termination. Norwood’s argument is flawed, as its termination attempt did not comply with the license agreement's requirements. According to Section 7 of the agreement, Kustom could only be terminated if it received notice of a breach and failed to remedy it within 30 days. Kustom contends it was not given notice of a specific breach by Norwood, and even if a prior notice had been sent, Kustom's attempts to remedy the situation were effectively accepted by Norwood due to a lack of response.
Old Norwood's silence allowed Kustom to reasonably assume that Liddle's actions were satisfactory. Kustom argues that Norwood's lack of response to Liddle's communications either waived Norwood's right to terminate the license due to a 2008 alleged breach or estopped Norwood from claiming that right because of its silence until November 2009. Under Indiana law, silence typically does not equate to an intentional waiver of rights, but estoppel can arise from silence if a party in good faith would have been expected to respond. Kustom relied on Old Norwood's lack of response to assume that it had cured any alleged breach, especially since Old Norwood continued business with Kustom after Liddle's email. Kustom was unaware that Old Norwood's assets had been sold in bankruptcy, and this was only communicated in a letter dated November 3, 2009, which also claimed to terminate the license agreement. The successor Norwood is estopped from leveraging Old Norwood's 2008 notice due to Kustom's curative efforts and Old Norwood's silence. Consequently, Norwood was required to provide new notice and an opportunity for Kustom to cure any alleged breaches before terminating the agreement. Although Kustom was found to have committed the first material breach, this did not release Norwood from its obligations under the contract. The court determined that the license agreement was not properly terminated and that Kustom's continued use of the trademark after November 3, 2009, did not constitute trademark infringement as a matter of law. The license remained valid, allowing Kustom to continue using the trademark in line with the agreement, while the court did not address other potential infringement issues raised by Norwood's summary judgment motion.
Equitable estoppel prevents Norwood from claiming trademark infringement against Kustom based solely on Kustom's continued use of the mark after the alleged termination of the license agreement. Therefore, Norwood's motion for summary judgment regarding Count III of its Second Amended Complaint is denied. The Court distinguishes the implications of Norwood's failure to provide Kustom with a notice of breach, which affects its ability to terminate the agreement but does not preclude its right to sue for breach. Citing *Wisconsin Alumni Research Foundation v. Xenon Pharmaceuticals, Inc.*, the Court notes that while a notice provision allows a breaching party an opportunity to remedy a breach, it does not guarantee immunity from litigation for breach during the cure period unless explicitly stated in the contract.
Norwood argues that it owed no additional notice to Kustom based on a fourteen-month delay in the previous case. However, the circumstances differ because the breaching party in that case acknowledged the breach, unlike Kustom here. Consequently, Kustom's defenses of waiver, acquiescence, or estoppel concerning its trademark use post-November 2009 are compelling, leading the Court to grant Kustom summary judgment on the non-infringement of the trademark.
Regarding Kustom’s breach of contract counterclaim (Count I), Kustom seeks summary judgment, asserting that Norwood failed to: 1) request in writing that Kustom cease or modify its use of the “Licensed Mark,” 2) provide notice of alleged breaches with an opportunity to cure before terminating the license, 3) cooperate to effectuate the agreement terms, and 4) abide by the settlement agreement's covenant against legal action regarding Kustom's use of “KOOZIE.” Kustom claims damages due to the lawsuit's expenses and disruptions, emphasizing that Norwood was obligated to give written notice of any breaches, as outlined in section 6(c) of the license agreement, which specifically addresses product standards and quality control. However, the Court interprets section 6(c) as not requiring written notice for matters outside of product standards breaches.
Subsection (c), titled “Deficiencies,” states that if the LICENSEE fails to meet the Licensor’s Standards, it constitutes a breach of the Agreement. If the LICENSOR requests in writing that the LICENSEE cease or modify the use of an approved Licensed Mark, the LICENSEE must phase out such use by depleting its inventory. This provision requires Kustom to comply if notified by Norwood of a breach regarding product standards but does not allow Kustom to recover damages from Norwood. Norwood's failure to provide written notice may serve as a defense against a breach of contract claim based on product standards but does not enable Kustom to seek recovery. The Court previously ruled that Norwood did not terminate the license correctly, which aids Kustom in defending against certain infringement claims but does not obstruct Norwood’s breach of contract claims. Furthermore, Kustom cannot claim damages for the costs associated with being sued for breach. The Court also clarified that the “best efforts” clause in the settlement agreement pertains to logistical facilitation of the previous litigation's settlement and does not support Kustom's claims of contract breach related to discussions on license agreement breaches. Kustom's claim against Norwood for breaching the covenant not to sue, concerning KustomKoozies’ use of the term “KOOZIE,” remains, but Kustom has not substantiated its request for summary judgment, failing to articulate the claim or demonstrate damages beyond inconvenience and litigation costs. In contrast, Norwood has properly limited its summary judgment request to prove contract existence and breach. Consequently, Kustom's cross-motion for summary judgment on breach of contract claims is denied. Additionally, Count IV of Norwood's Second Amended Complaint involves a claim of unfair competition against Kustom.
Kustom contends that Norwood cannot bring an unfair competition claim under the Lanham Act due to the absence of direct competition, referencing L.S. Heath. Son, Inc. v. AT. T Information Systems, Inc., which establishes that a false advertising claim requires direct competition. The Lanham Act allows claims based on false representations regarding goods' origin or advertising, but the Seventh Circuit mandates direct competition for false advertising claims (15 U.S.C. 1125(a)(1)(A) and (B)). In contrast, claims based on false association do not require direct competition, as supported by case law. Norwood clarifies it is pursuing a false association claim, despite Kustom's argument citing references to advertising in Norwood's Second Amended Complaint. The court acknowledges Norwood's concession of having no false advertising claim and allows the false association claim to proceed due to sufficient notice-pleading and unresolved material questions of fact.
Regarding Kustom’s affirmative defenses, Norwood argues that many are subject to summary ruling, but fails to specify which defenses apply to its arguments. The court outlines the status of Kustom's defenses: 1) Failure to state a claim is not anticipated to be an issue for trial since it wasn’t included in Norwood's motion. 2) Forum non conveniens has not been raised as a motion and is also not expected to be an issue going forward. 3) The defense regarding trademark registration being granted in error has been noted but requires further context.
Kustom is estopped from raising several defenses, both contractually and equitably, allowing Norwood to receive summary judgment on these issues. Notably, Kustom's claim of "no valid assignment of the mark" remains unresolved, as it was not included in the summary judgment motions and will proceed to trial. Kustom's assertion of "unclean hands" due to Norwood's alleged knowledge of improper mark registration is dismissed; Norwood is entitled to summary judgment here as well. Additionally, Kustom's argument regarding unclean hands from a lack of notice about the successful registration of the mark is also rejected, as the settlement agreement does not mandate such notice.
Kustom's defenses citing waiver, acquiescence, or estoppel regarding the termination of the license agreement and the failure to provide notice for cure opportunities are deemed valid concerning the ineffective termination but lack merit regarding Norwood's breach of contract claims. The determination of these defenses' applicability to other potential infringements will be reserved for trial.
Further, Kustom’s defense of failure to cooperate and use best efforts is resolved in favor of Norwood, leading to summary judgment. The defense concerning the validity of claims from Old Norwood remains for trial, as it was not specifically raised in the summary judgment motions. Kustom's prior material breach, specifically its operation of websites using "koozie" in their domain names, is identified as the first breach, granting Norwood summary judgment on this point. Lastly, the defense claiming the trademark is generic is also resolved against Kustom, which is estopped from asserting it, allowing Norwood to secure summary judgment. Kustom’s argument regarding the notice and opportunity to cure breaches related to the settlement agreement is noted as potentially applicable, as it incorporates the license agreement.
The defense arguing for an implied notice requirement for breach of the settlement agreement is rejected, with Norwood entitled to summary judgment on this point. The implied duty of good faith and fair dealing is not addressed in the summary judgment motions and remains for trial. Kustom is estopped from claiming that the mark is inherently distinctive, and summary judgment is granted to Norwood on this defense. The defendants did not seek a declaration of rights, and this defense also remains for trial. Public policy favoring the invalidation of merely descriptive or generic trademarks is outweighed by the policy supporting the enforcement of voluntary litigation settlements, leading to summary judgment for Norwood. The assertion that Norwood breached agreements while Kustom used the mark in a generic sense negates a defense based on prior material breach, although Norwood's potential breach regarding notice affects only the license termination's propriety, not the right to sue for Kustom's breach. Kustom may assert additional Lanham Act defenses, but no new defenses can be introduced without court permission past the summary judgment phase. The defense concerning failure to require compliance from other dealers is barred by licensee estoppel, with Norwood entitled to summary judgment on this point. Norwood’s claim for lost profits is moot due to the parties' stipulation, while the defense regarding judicial estoppel from seeking damages other than disgorgement remains for trial. Finally, the absence of a contractual basis for attorney's fees is noted, and this defense is also set for trial, with the court to determine any fee awards.
Norwood's Motion for Partial Summary Judgment is partially granted concerning Counts I and II of the Second Amended Complaint, affirming that the settlement and license agreements are valid contracts that Kustom breached by using the term "koozie" in relation to internet domain names and product sales. The issue of damages for these counts is reserved for trial. Norwood also receives summary judgment regarding several affirmative defenses raised by Kustom, specifically defenses numbered 3, 5, 6, 9, 11, 12, 13, 15, 17, 18, and 20; however, the motion is denied on other grounds. Kustom's Cross Motion for Summary Judgment is granted in part concerning Count III, due to Norwood's failure to notify Kustom of breach and allow a cure period before terminating the license agreement, which precludes a finding of trademark infringement based solely on the use of the mark after the termination attempt. Kustom also receives partial summary judgment on affirmative defense number 8. All other motions, particularly those regarding expert reports, remain pending; the parties are instructed to clarify their relevance in light of the court's ruling on the invalidity of the mark. The court acknowledges that KustomKoozies, LLC and Robert Liddle are represented jointly and that Liddle's actions bind the LLC, although the need for legal distinction is not determined at this stage. The validity of the assignment of the "Koozie" mark is contested but not resolved in this ruling. Indiana law is applied to the breach of contract claim, with the relevant contractual language affirming the agreement's entirety and the enforceability of its terms, despite any potential invalidity of individual provisions. Kustom's repeated violations of the settlement agreement's prohibitions on the use of "koozie" are noted.