SARAH EVANS BARKER, District Judge.
This cause is before the Court on three motions: (1) Defendants' motion to strike Plaintiffs' affirmative defenses to counterclaims [Docket No. 282], filed on March 17, 2014; (2) Plaintiffs' motion for summary
This matter has been pending on our docket for more than three years, and its antecedent disputes stretch back still further. The array of motions to strike, motions to dismiss, and motions for reconsideration filed by the parties have given us occasion to explore aspects of the case's factual background, but only now do we arrive at the merits of the intellectual property dispute lying at the core of this sprawling body of litigation. While we have summarized the record previously, we endeavor here to outline the undisputed facts, cognizant that the presence of cross-motions for summary judgment will require us to draw varying inferences from them as we address each of those motions in turn.
Plaintiffs Heckler & Koch, Inc. (HK USA) and Heckler & Koch GmbH (HKG) are firms engaged in the manufacture and sale of firearms — headquartered, respectively, in the United States and Germany.
Defendants are also engaged in the firearms business: German Sports Guns GmbH ("GSG") is an arms manufacturer based in Germany, and American Tactical Imports, Inc. ("ATI") is an arms importer and retailer incorporated and based in New York. Am. Compl. ¶¶ 7-8.
A number of the claims and counterclaims in this case are premised on differing interpretations of two parallel series of events that unfolded between 2008 and 2010: first, HK USA's initial suit against the Defendants ("the 2009 litigation"); and second, HKG's attempts to obtain a United States trademark registration for the MP5 weapon.
HK USA filed suit in the Southern District of Indiana against GSG, ATI, and a
Id. (emphasis added); see also id. at ¶ 9 ("Defendants make no admission of liability for the claims made against them."). As for the substance of the Agreement itself, the defendant parties agreed to pay HK USA $300,000 in exchange for the dismissal of the suit. Id. at ¶ 1. They also agreed to halt manufacture of the allegedly infringing GSG-5 design, and to cease selling the weapons once a "sell-off" date had passed. Id. at ¶ 2. For its part, HK USA covenanted not to sue GSG or any of its commercial partners in connection with a different weapon design, the "GSG-522" firearm:
Id. at ¶ 5.
While the 2009 litigation was pending, ownership of the MP5 registered trademark — together with any accompanying trade dress rights — changed hands between HK USA and HKG. The process began on June 8, 2008, when HKG filed an application for an "international registration under the Madrid Protocol" for the MP5 trademark within the United States, triggering a PTO office action. Cooper Decl. ¶ 7. On September 19 of the same year, the PTO wrote back to HKG, informing it that had provisionally refused the application for at least two reasons: first, the MP5 trademark was registered in the name of HK USA rather than HKG; second, an application by an unrelated company for an intent-to-use registration for the similar mark "MP5A5" was already pending before the PTO, and would need to be resolved before further action could be taken. See Docket No. 332-12 (Defs.' Ex. L); Cooper Decl. ¶ 8. In order to remove this first obstacle to HKG's registration of the MP5 mark in the United States, HK USA president G. Wayne Weber executed an assignment agreement ("the Assignment") transferring to HKG "all right, title
Meanwhile, HKG continued in its efforts to secure U.S. trademark registration for the MP5, and both of the Heckler & Koch entities continued to represent to the PTO in the interim that HK USA owned the MP5 trademark, notwithstanding the Assignment. On March 23, 2009, HKG, by counsel, wrote to the PTO that an assignment of the MP5 trademark registration from HK USA to HKG was "being worked," and therefore requested that its application for Madrid Protocol registration be held in abeyance until the questions of ownership and the pending third-party application could be resolved. Docket No. 332-13 at 5-7. Cooper Decl. ¶ 8. Nearly a year later, complying with PTO deadlines for trademark registrants' periodic filing of affidavits verifying their continued use and intent to renew their marks, HK USA filed a "Section 8/9" declaration with the PTO, holding itself out as the current owner of the MP5 mark. Docket No. 332-15.
In May 2010, the PTO informed HKG that the third party's competing trademark application had been abandoned, advising HKG that it was nonetheless still necessary for HKG's ownership of the MP5 mark to be established before the company's application for U.S. registration of the MP5 could be granted. Cooper Decl. ¶ 10. HKG then recorded the Assignment with the PTO on June 20, 2010; this marked Plaintiffs' first public acknowledgment of the transfer of rights.
Plaintiffs contend that Defendants have failed to abide by the Settlement Agreement. Specifically, they allege that Defendants have "repackaged" the GSG-5 — a "knock-off" weapon designed to "replicate the look and feel of the famous MP5®" — and sold it under the label of the GSG-522. Am. Compl. ¶ 2. By manufacturing, importing, and selling this GSG-5 in GSG-522's clothes, Plaintiffs argue, Defendants have both violated their covenant not to sell the GSG-5 and deceptively deviated from the GSG-522 design that they submitted for HK USA's approval in the Agreement. Id. Plaintiffs also allege that Defendants continued to manufacture and sell the GSG-5 under its own label even after the 2010 "sell-off dates." Id. at ¶ 3, 27-32. According to Plaintiffs, this conduct directly contravenes Paragraph 3 of the Settlement Agreement.
Bearing these grievances, Plaintiffs again brought suit against GSG and ATI.
Defendants have also asserted a number of counterclaims alleging that Plaintiffs wronged them in surreptitiously assigning the MP5 IP rights during the pendency of the 2009 litigation; Defendants also bring counterclaims for breach of the Settlement Agreement and seek declaratory judgments that Plaintiffs lack trade dress rights in the MP5 weapon design and that Defendants are not liable for breach of the 2009 Agreement. The tort counterclaims implicate not only HK USA, but also Weber, Ihloff and HKG. Weber signed the Assignment, and Defendants allege that Counter Defendant Ihloff, as a high-ranking officer of HKG, also knew of it. Docket No. 251 at ¶ 27. Defendants initially alleged that an additional agreement between HK USA and HKG arranged for the transfer of trade dress rights and related goodwill associated with the MP5, but after discovery they have asserted that HK USA and HKG completed the assignment in a single signed agreement. Id. at ¶ 26; Docket No. 251 at ¶ 32(f)(v). On September 20, 2012, Ihloff executed a "Ratification and Consent" in which he, on behalf of HKG, announced that the company "hereby ratifies, affirms, and agrees to be bound in all respects to the Settlement Agreement" reached between HK USA and the Defendants. Docket No. 251 at ¶ 34. According to Defendants' theory, Ihloff and HKG were aware of the false representations contained in the Settlement Agreement at the time they ratified it. Docket No. 274 at 35-39.
The Court subsequently dismissed the actual fraud and constructive fraud claims against Plaintiffs and the two Counter Defendants, and it dismissed the deception and tortious interference claims against Ihloff. Docket No. 215. In its order, the Court primarily addressed Defendants' failure to establish proximate causation between their alleged damages and the misrepresentations of HK USA and its officers. Id.
Defendants took two steps in response to the Court's partial dismissal of their counterclaims against HK USA, HKG, Weber, and Ihloff. First, on October 30, 2013, they filed a motion for leave to file an amended answer and counterclaims. Docket No. 228. Second, they filed a motion for reconsideration. Docket No. 235. On January 14, 2014, Magistrate Judge Baker granted Defendants' motion for leave to amend, and they accordingly filed an Amended Answer that restated all of the counterclaims present in their first Answer — including those that had been dismissed by the Court — and added allegations against Ihloff and HK GmbH based on their ratification of the Settlement Agreement. Compare Docket No. 56 with, Docket No. 251. We then granted Plaintiffs' renewed motion to dismiss as to
On March 17, 2014, Defendants filed a motion to strike elements of Plaintiffs' Answer and affirmative defenses to Defendants' Amended Counterclaims. Docket No. 282. The pleading that was the subject of this motion, however, has since been replaced by Plaintiffs' Amended Answer to Defendants' Amended Counterclaims [Docket No. 304], filed on May 29, 2014.
Plaintiffs' amended answer supersedes their previous answer, and it therefore renders Defendants' motion to strike moot. See Massey v. Helman, 196 F.3d 727, 735 (7th Cir.1999); Loren Specialty Mfg. Co. v. Clark Mfg. Co., 241 F.Supp. 493, 500 (N.D.Ill.1965) (noting that amended answers, like amended complaints, supersede the previous pleading); Horton Archery, LLC v. Farris Bros., Inc., 2014 WL 1239382, at *2 (S.D.Miss. Mar. 26, 2014) (noting that the filing of an amended answer moots a pending motion to strike).
We therefore DENY Defendants' motion to strike without prejudice.
Federal Rule of Civil Procedure 56 provides that summary judgment should be granted when the record evidence shows that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. Pro. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322-323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The purpose of summary judgment is to "pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Disputes concerning material facts are genuine where the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In deciding whether genuine issues of material fact exist, the court construes all facts in a light most favorable to the non-moving party and draws all reasonable inferences in favor of the non-moving party. See id. at 255, 106 S.Ct. 2505. However, neither the "mere existence of some alleged factual dispute between the parties," id., 477 U.S. at 247, 106 S.Ct. 2505, nor the existence of "some metaphysical doubt as to the material facts," Matsushita, 475 U.S. at 586, 106 S.Ct. 1348, will defeat a motion for summary judgment. Michas v. Health Cost Controls of Ill., Inc., 209 F.3d 687, 692 (7th Cir.2000).
Plaintiffs and Defendants have both filed motions for summary judgment. Plaintiffs seek summary judgment in their favor on Counts I and III through IX of Defendants' Counterclaims
Count One of the amended counterclaims alleges actual fraud against HK USA, HK GmbH, Weber, and Ihloff.
Defendants allege that HK USA and its president Weber engaged in fraud when they falsely represented in the 2009 Settlement Agreement that HK USA held the registered trademark and associated rights for the MP5 weapon when, in fact, they had assigned away those rights to HKG some six months earlier.
Indiana's "litigation privilege" is a common-law doctrine barring liability for certain statements made in the course of judicial proceedings. Van Eaton v. Fink, 697 N.E.2d 490, 494 (Ind.Ct.App.1998). The privilege is based on the idea that the "public interest in the freedom of expression by participants in judicial proceedings... is so vital and necessary to the integrity of our judicial system that it must be made paramount to the right of the individual to a legal remedy when he has been wronged." Briggs v. Clinton Cnty. Bank & Trust Co., 452 N.E.2d 989, 997 (Ind.Ct. App.1983). Because it embodies the value of "freedom of expression," the privilege originally applied only to bar actions for defamation arising out of statements in the course of litigation. See Hartman v. Keri, 883 N.E.2d 774, 777 (Ind.2008); Miller v. Reinert, 839 N.E.2d 731, 735 (Ind.Ct.App. 2005). The Seventh Circuit, however, has recently endorsed a limited expansion of Indiana's privilege "beyond defamation and other similar tort claims to encompass breach of contract claims"; in its 2010 decision in Rain v. Rolls-Royce Corp., 626 F.3d 372 (7th Cir.2010), the court ruled that the privilege barred a breach of contract suit asserting that a party's statements in the course of litigation violated its obligations under a prior "non-disparagement" covenant. 626 F.3d at 376-378.
In reaching this ruling, the Rain court noted that Indiana law was silent on the precise question at hand, and the court therefore "examine[d] the reasoning of courts in other jurisdictions addressing the same issue and applying their own law for
In doing so, however, Plaintiffs ignore a caveat crucial to the Seventh Circuit's reasoning in Rain — that expansion of the doctrine is appropriate "where immunity from liability is consistent with the purpose of the privilege." 626 F.3d at 377. Rain and the cases it cited applied the litigation privilege to claims broadly analogous to defamation; in such contexts, concern for the integrity of judicial proceedings — including the protection of statements or disclosures otherwise actionable — was thought to outweigh the interests ordinarily protected by tort or contract law. Id. (citing Ellis v. Kaye-Kibbey, 581 F.Supp.2d 861, 880-881 (W.D.Mich.2008); Wentland v. Wass, 126 Cal.App.4th 1484, 25 Cal.Rptr.3d 109, 114-115 (2005) ("[W]hether the litigation privilege applies to an action for breach of contract turns on whether its application furthers the policies underlying the privilege")). While it is true that Indiana courts have countenanced the limited expansion of the privilege beyond its original scope as a defense to the specific tort of defamation, we are aware of no case in which they have ventured far beyond this core rationale. Cf. Estate of Mayer v. Lax, Inc., 998 N.E.2d 238, 249 (Ind.Ct.App.2013); Rain, 626 F.3d at 378 ("[T]he question [is] whether applying the litigation privilege in this case would promote the due administration of justice and free expression by participants in judicial proceedings."). Defendants' counterclaim for fraud alleges that HK USA and its agents lied to GSG and ATI during the 2009 litigation about having assigned away the trademark rights upon which the suit was predicated; we determine that this is not analogous to a suit for defamation or breach of a non-disparagement covenant. See Estate of Mayer, 998 N.E.2d at 250 (noting that the privilege does not shield from causes of action "based on the malicious or abusive use of the judicial system"). Barring suits for fraudulent inducement of settlement agreements would undermine, rather than buttress, the integrity and openness of the judicial process that the litigation privilege seeks to protect. See Tru-Cal v. Conrad Kacsik Instrument Sys., Inc., 905 N.E.2d 40, 46 (Ind.Ct.App.2009) (recognizing a cause of action for fraudulent misrepresentation in procuring a settlement of litigation). Accordingly, we decline to anticipate or predict that Indiana courts would construct the privilege so expansively. Defendants' fraud counterclaim may thus stand or fall on its merits.
The first broad prerequisite for fraud liability is the existence of an intentionally deceptive written statement. In order to give rise to liability, Plaintiffs' alleged
The distinction, however, is illusory. As the Indiana courts have explained, the concept of intentionality is inseparable from the tort of fraud. "An intent to deceive, or `scienter,' is an element of actual fraud, whether classified as a knowing or reckless misrepresentation or as an additional element to a knowing or reckless misrepresentation." Wright v. Pennamped, 657 N.E.2d 1223, 1230 (Ind. Ct.App.1995). See also Francis v. AIT Labs., 2008 WL 4585423, at *5 (S.D.Ind. Oct. 14, 2008). A tortfeasor's state of mind, of course, can seldom be proved directly; evidence that a defendant knew, or should have known, that a representation would induce reliance is one of several factors that may be probative of scienter. "Proof of intent to deceive is determined by a review of all of the relevant factors of the particular case .... Where a person knowingly or recklessly makes false representations which the person knows or should know will induce another to act, the finder of fact may logically infer an intent to deceive." In re McGinnis, 2010 WL 4956376, at *3 (Bankr.S.D.Ind. Nov. 30, 2010) (citing Mayer v. Spanel Int'l, Ltd., 51 F.3d 670, 673 (7th Cir.1995)).
Plaintiffs urge that HK USA's representations regarding its ownership of the MP5 intellectual property in the 2009 Agreement were not actually false — or, alternatively, that the representations were made in forgivable ignorance of their falsity. According to Plaintiffs, this is because the assignment was not complete until HKG accepted it in June 2010 — and HK USA's recitations that they still owned the MP5 intellectual property in the 2009 Agreement were thus both true and made in good faith. We are thus presented with two questions: first, whether the Assignment was complete upon execution; and second, if so, whether HK USA and its agents intentionally deceived Defendants in 2009 by failing to disclose the Assignment.
Plaintiffs' contention that HKG did not manifest this assent until it "accepted" the Assignment in June 2010, however, is contradicted both by the text itself and by Plaintiffs' previous statements to the Court. The Assignment speaks of the two entities' meeting of the minds in the past tense, reciting that they had exchanged "good and valuable consideration, receipt of which is hereby acknowledged." Docket No. 251-2 at 5. In their court filings, Plaintiffs have conceded, implicitly or explicitly, that the Assignment was effective at the date of its execution, just as it appears to be on its face. In a reply brief in support of their motion to amend their complaint, Plaintiffs stated in March 2012 that the MP5 "rights were assigned on March 19, 2009," and that "[a]ssignment of the registered MP5 marks from HK USA to HK GmbH, a matter of public record, was effectuated March 19, 2009 and recorded on June 20, 2010." Docket No. 39 at 7, 8-9. More recently, in answering Defendants' amended counterclaims, Plaintiffs stated that the "publicly-filed Short Form Assignment speaks for itself." Docket No. 265 at ¶ 26. Still more recently, in a November 2014 motion for interlocutory appeal of an earlier ruling, Plaintiffs unequivocally state, as "undisputed" facts, that: "HK USA assigned the MP5 trademark to HKG on March 19, 2009" and "HK did not disclose the assignment of the trademark to GSG/ATI before the execution of the Settlement Agreement." Docket No. 399 at 6, ¶¶ 2, 6. The only evidence that Plaintiffs present to support their theory of a belated 2010 "acceptance" by HKG is the declaration of HKG's attorney, Isolde Kurz-Cooper. Cooper Decl. ¶ 10. Plaintiffs do not claim that there was any written memorialization of this acceptance, nor does Cooper provide any further details than this bare assertion. Even assuming that Cooper had the requisite first-hand knowledge to convert her statement into admissible evidence, we decline to accept Plaintiffs' newly-proffered and clearly self-serving theory when it cuts so clearly against the consistent body of their own statements on the question.
A genuine issue of material fact remains, however, with respect to Plaintiffs' intent to defraud. HK USA's president G. Wayne Weber, who signed both the Assignment and the Agreement on the company's behalf, did state that he "expected them [GSG, ATI, and Orion] to rely on the representations made by HK" in the discussions leading to the 2009 settlement. Docket No. 332-1 (Weber Aug. 2014 Dep.) at 91-92.
The intertwined issues of reliance and proximate cause have been the focus of the parties' arguments through several stages of the litigation. We conclude, at last, that Defendants have failed to meet their evidentiary burden, and that summary judgment on the fraud counterclaim must therefore be granted in Plaintiffs' favor.
For a claimant to recover under a fraud theory, "it must show that it had a right to rely on the ... misrepresentations and that it did in fact rely on the misrepresentations to its detriment." Young v. Thompson, 794 N.E.2d 446, 448 (Ind.Ct. App.2003) (quoting Scott v. Bodor, Inc. 571 N.E.2d 313,
The parties first join issue on the right of reliance — whether a litigant in the position of GSG and ATI in the 2009 litigation could ever reasonably rely on the representations of their party opponents in the preliminary clauses of a settlement agreement. In a previous ruling on Plaintiffs' motion to dismiss the fraud counterclaim, we concluded that Defendants had adequately stated a claim with respect to reliance; in doing so, we refused to foreclose, as a matter of law, the possibility that GSG and ATI could have reasonably relied on Plaintiffs' misrepresentations in signing the 2009 Agreement. See Docket No. 215 at 16-17. Plaintiffs now urge that no right of reliance ever existed, for two reasons: first, because the alleged misrepresentations were only "preliminary recitals" to a contract and thus not the proper subjects of reliance; and second, because adversaries in a lawsuit cannot reasonably rely on the representations of their opponents in arm's length settlement negotiations.
Plaintiffs assert that, because the preliminary recitals of a settlement agreement are "typically restatements of the very issues over which the parties disagreed in the litigation," they should not be considered "misrepresentations" giving rise to an opponent's reasonable reliance. Docket No. 330 at 17-18. "[I]n nearly 200 years of jurisprudence," they add, "Counterclaim Defendants are not aware of a single Indiana state court opinion holding that the preliminary recitals of a settlement agreement may form the basis of a fraud claim." Id. While Plaintiffs are correct that Indiana law has not endorsed recovery for a fraud claim based on such "preliminary recitals," neither has it specifically foreclosed such a possibility. Rather, Indiana courts have recognized that preliminary recitals, although less probative than the language of the "body" of a contract, may be useful in interpreting the contract as a whole. In Stech v. Panel Mart, Inc., 434 N.E.2d 97 (Ind.Ct.App. 1982), the Indiana Court of Appeals read a preliminary recital as "clearly establish[ing] the intention of the parties" and as "eras[ing] the ambiguity" which clouded the body of the contract as to its meaning. 434 N.E.2d at 101. Cf. Kerfoot v. Kessener, 227 Ind. 58, 84 N.E.2d 190, 199 (1949) (observing that "the preliminary recitals of the contract may be of some value, but they are not contractual, and can not [sic] be permitted to control the express provisions of the contract which are contractual in nature"). The Seventh Circuit, in a decision applying Indiana law, ruled that a party was estopped from reciting in a contract's preliminary clauses that it was "engaged in the business of selling scientific and rare earth metals" and then later claiming to be inexperienced in the subject. Taurus Holding Co. of Am., Inc. v. Thompson, 129 F.3d 1268, at *36 (7th Cir. 1997).
Second, Plaintiffs assert that GSG, ATI and Orion cannot have reasonably relied on HK USA's representations in the Agreement because it was a settlement negotiated at arm's length, and as such, Defendants' "duty ... to be diligent in safeguarding [their] interests" foreclosed any right of reliance. See Young, 794 N.E.2d at 449 (citing Plymale, 419 N.E.2d at 762). In doing so, they rely primarily on Prall v. Indiana National Bank, 627 N.E.2d 1374 (Ind.Ct.App.1994), in which the Indiana Court of Appeals rejected the argument of a party to a liability release agreement that it had been fraudulently induced to sign the agreement by false oral representations. 627 N.E.2d at 1378-1379. There, the court found that the plaintiff had "presented no evidence or argument to show that [defendant's] alleged misrepresentations about the disbursements induced him to sign the release.... Also, in executing the release [plaintiff] was an adverse party dealing at arms length with [defendant]." Id. at 1379.
We agree with Defendants that the present case is distinguishable, and the general rule Plaintiffs seek to derive from Prall is overbroad. Prall dealt with an agreement's integration clause, and the policy interest in reconciling the possibility of claims for fraudulent inducement with the dictates of the parol evidence rule. As the Indiana court in a similar case put it: "The exception for a party who has `been induced by a fraudulent misrepresentation to enter the contract,' must not be stretched or inflated in a way that would `severely undermine the policy of the parol evidence rule.'" Circle Ctr. Dev. Co. v. Y/G Ind., L.P., 762 N.E.2d 176, 180 (Ind. Ct.App.2002) (quoting Urschel Farms, Inc. v. Dekalb Swine Breeders, Inc., 858 F.Supp. 831, 840 (N.D.Ind.1994)). Here, Defendants do not seek to void a release on the grounds that it was fraudulently induced by oral statements; rather, the misrepresentations to which they point are present on the face of the Agreement itself. See Tru-Cal, Inc. v. Conrad Kacsik Instrument Sys., Inc., 905 N.E.2d 40, 46 (Ind.Ct.App.2009) (distinguishing Prall, which "dealt with alleged oral misrepresentations made prior to the execution of the contract," from facts in which "the alleged fraud ... involves a forged employment agreement that was filed in a court of law").
Plaintiffs also overreach in citing Prall as establishing a general rule that "[a] prerequisite to the right of reliance is that the relying party be in a subordinate position."
It is upon the fact of reliance that Defendants' fraud counterclaim founders. In denying Plaintiffs' motion to dismiss, we concluded that Defendants had successfully pleaded their reliance, judging that "it is at least plausible that [Defendants'] willingness to pay $300,000 to settle the [2009] litigation reflected their judgment that HK's claims of trademark infringement had merit — a judgment informed by HK's representations that it owned the MP5 trademark." Docket No. 215 at 16-17. In a second ruling on Plaintiffs' motion to dismiss the amended counterclaim, we held that Defendants had also sufficiently pleaded proximate causation. See Docket No. 298 at 17-23.
The strongest evidence weighing against Defendants is the Settlement Agreement itself. One of the Agreement's preliminary recitals reads as follows:
Docket No. 45-1 at 1. In the body of the Agreement itself, Defendants make the following statement:
Id. at ¶ 9 (emphasis added). Defendants counter that these statements in the Agreement are "nothing other than a rephrasing of Defendants' counterclaim in the 2009 Litigation," and were not intended to reflect Defendants' actual belief at the time the Agreement was signed. Docket No. 349 at 25. This argument is a double-edged sword for Defendants: if these contractual statements are not construed as "representations" on their part, then the preliminary recitals on which the entire fraud counterclaim is based — whose language is markedly similar — can hardly be construed as "representations" themselves.
Even if we look beyond the Agreement's text, Defendants have proven unable to show any affirmative evidence that they relied upon Plaintiffs' false statement of
Defendants point to three pieces of testimony on the question, but none suffices to carry their burden. The first is the deposition of ATI president Anthony DiChario, who answered a question on cross-examination as follows:
Docket No. 332-7 (DiChario Dep.) at 307. DiChario's testimony speaks to the strategic considerations governing the decision to settle a hypothetical 2009 suit initiated by HKG rather than HK USA; he did not testify as to whether GSG and ATI actually believed HK USA's representations or acted according to that belief.
Second, Defendants point to the testimony of GSG president Michael Swoboda, who testified in 2012 to his understanding of the nature of his company's fraud counterclaim against HK USA:
Docket No. 332-2 (Swoboda Dep.) at 318-319. Mr. Swoboda's testimony establishes that, as of 2012, he believed that his company had been defrauded by HK USA — at least according to the standards of German law. It says nothing at all, however, about whether Defendants relied on the misrepresentations at issue in 2009.
Finally, Defendants refer us to the testimony of their expert Dr. Kenneth Germain, who opined:
Docket No. 251-3 (Germain Report) at 6. Accepting Germain's opinions as correct for the purposes of this motion would support the conclusion that the Settlement Agreement was worth less than the price Defendants paid for it. But as an outside expert, Germain did not, and could not, testify to the separate question of whether HK USA's "unwarranted leverage" actually influenced Defendants' calculations in signing the Agreement.
It seems clear to us that HK USA, at the very least, conducted itself in an underhanded manner by initiating a suit for trade dress infringement, assigning away the rights that formed the basis of the suit, and then settling the suit without disclosing the Assignment. Such behavior may have been subject to sanction by the court with jurisdiction over the 2009 Litigation. Liability for fraud is a different matter, however. As regrettable as it may be to allow such a failure of forthrightness to go unpunished, the law intentionally gives fraud claimants a steep mountain to climb, for "fraud is easy to allege and difficult to prove." See Bower v. Jones, 978 F.2d 1004, 1012 (7th Cir.1992). Defendants' claim here is fatally undermined by the plain text of the Agreement disavowing any reliance. While we recognize, of course, the abstract possibility that such language was disingenuous boilerplate, a reasonable fact-finder would need affirmative evidence to find it so. Defendants have come forth with some evidence that the Agreement was harmful to their interests, but not that it was Plaintiffs' misrepresentations, rather than other considerations, that prompted them to enter into it.
We accordingly GRANT Plaintiffs' motion for summary judgment on Counterclaim Count I and DENY Defendants' motion for summary judgment on that count.
Defendants' Counterclaim Count III seeks treble damages under the Crime Victim Relief Act for Plaintiffs' crime of "deception." Docket No. 251 at ¶¶ 69-72. Both parties seek summary judgment on this count.
Indiana's Crime Victim Relief Act (CVRA), Ind.Code § 34-24-3-1, provides that a person who "suffers a pecuniary loss" as a result of another person's violation of certain criminal statutes may recover treble damages and other costs and fees. Ind.Code § 34-24-3-1. Among the crimes for which victims may obtain recovery under the CVRA is "deception," a Class A misdemeanor defined for purposes of this action as "knowingly or intentionally mak[ing] a false or misleading written statement with intent to obtain property, employment, or an educational opportunity." Ind.Code § 35-43-5-3(2). The factual
Plaintiffs seek summary judgment on three grounds: that the counterclaim is barred by the CVRA's statute of limitations, that Defendants have failed to establish the prerequisite elements for tort recovery, and that the counterclaim is barred by Indiana's litigation privilege. Plaintiffs' argument for the application of the litigation privilege merely reprises the theory they presented in relation to the fraud counterclaim, see Docket No. 330 at 33; we therefore reject that argument for the same reasons we outlined above. We address Plaintiffs' two remaining arguments in turn.
Because claims under the CVRA are "penal" in nature, Indiana courts have determined that a two-year statute of limitations applies. Clark v. Univ. of Evansville, 784 N.E.2d 942, 945-946 (Ind.Ct.App. 2003) (citing Browning v. Walters, 616 N.E.2d 1040, 1046 (Ind.Ct.App.1993)). As Defendants point out, however, the state's "fraudulent concealment" statute may influence the two-year period's starting point: "If a person liable to an action conceals the fact from the knowledge of the person entitled to bring the action, the action may be brought at any time within the period of limitation after the discovery of the cause of action." Ind.Code § 34-11-5-1 (emphasis added). This provision "effectively moves the date on which the statute of limitation[s] begins to run forward from the date of the alleged tort to the discovery date." Alldredge v. Good Samaritan Home, Inc., 9 N.E.3d 1257, 1262 (Ind.2014) (citing Malachowski v. Bank One, Indianapolis, 590 N.E.2d 559, 563 (Ind.1992)).
Defendants first asserted this deception counterclaim on July 13, 2012, when they filed their first Answer and Counterclaims. See Docket No. 56. The claim is therefore barred by the two-year statute of limitations if Defendants knew of, or should have known of, the alleged deception before July 13, 2010. See Laun v. Laun, 2008 WL 90778, at *12-15 (N.D.Ind. Jan. 9, 2008). Plaintiffs insist that, even if the "date of discovery" rule applies, the two years should have begun to run on June 20, 2010, when Plaintiffs filed the Assignment with the PTO — thus, according to their account, giving Defendants "constructive notice" of the alleged deception they had suffered. Docket No. 330 at 31-32 (citing 15 U.S.C. § 1060(4)).
The key issue raised by Plaintiffs' statute of limitations defense is therefore whether, and for how long, Plaintiffs concealed the Assignment from Defendants after the date the alleged harm occurred in 2009. "The law narrowly defines concealment, and generally the concealment must be active and intentional." Olcott Int'l & Co. v. Micro Data Base Sys., Inc., 793 N.E.2d 1063, 1072 (Ind.Ct.App. 2003). "The affirmative acts of concealment must be calculated to mislead and hinder a plaintiff from obtaining information by the use of ordinary diligence, or to prevent inquiry or elude investigation. There must be some trick or contrivance intended by the defrauder to exclude suspicion and prevent inquiry." Johnson v. Blackwell, 885 N.E.2d 25, 32 (Ind.Ct.App. 2008). As to the alleged victim, "to invoke the protection provided by this statute ... the plaintiff is charged with the responsibility of exercising due diligence to discover the claims." Malachowski, 590 N.E.2d at 563-564 (citing Hinds v. McNair, 235 Ind. 34, 129 N.E.2d 553, 560 (1955)).
The CVRA is "punitive in nature and must be strictly construed." Flaherty & Collins, Inc. v. BBR-Vision I, L.P., 990 N.E.2d 958, 968 (Ind.Ct.App. 2013); NationsCredit Commercial Corp. v. Grauel Enters., Inc., 703 N.E.2d 1072, 1078 (Ind.Ct.App.1998). In order to obtain a civil recovery under the statute, Defendants must accordingly "show a violation of at least one of the code sections listed in the statute and must demonstrate that the violation caused the loss suffered by the plaintiff." Flaherty, 990 N.E.2d at 968 (citing McLemore v. McLemore, 827 N.E.2d 1135, 1144 (Ind.Ct.App.2005)).
In addition to proof of a prohibited act and proximate causation, Plaintiffs contend that Defendants are required to establish reliance, just as they were in order to recover for fraud. Docket No. 330 at 32. Plaintiffs rely for this assertion primarily on Puller Mortgage Associates, Inc. v. Keegan, 829 F.Supp. 1507 (S.D.Ind. 1993), a decision in which the Southern District of Indiana court found that deception and other statutory offenses are "based on and are essentially permutations of" common law fraud — and thus implicitly endorsed the notion that proof of reliance is a prerequisite of recovery for deception under the CVRA. 829 F.Supp. at 1521. This is not quite correct. As the United States Supreme Court has noted, "[r]eliance is not a general limitation on civil recovery in tort; it `is a specialized condition that happens to have grown up with common law fraud.'" Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 655-656, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008) (quoting Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 477, 126 S.Ct. 1991, 164 L.Ed.2d 720 (2006) (Thomas, J., concurring in part and dissenting in part)). In Indiana, of course, "no common-law crimes exist, and the legislature fixes the elements necessary for any statutory crime. We may not read into a statute that which is not the expressed intent of the legislature." Am. Heritage Banco, Inc. v.
Plaintiffs' argument for summary judgment prevails in spite of their definitional overreach, however. Here, as is so often the case, proof of reliance is intertwined with proof of proximate cause. In order for one party's act to be the proximate cause of another's harm, it "must have set in motion a chain of circumstances that in natural and continuous sequence lead to the resulting injury. Proximate cause requires, at a minimum, that the harm would not have occurred but for the defendant's conduct." Carey v. Ind. Physical Therapy, Inc., 926 N.E.2d 1126, 1129 (Ind.Ct.App.2010) (citing Hamilton v. Ashton, 846 N.E.2d 309, 316 (Ind. Ct.App.2006)). The only pathway in this case through which Plaintiffs' written misrepresentations could have harmed Defendants is the Settlement Agreement — and those misrepresentations could not have been the "but for" cause of Defendants' decision to sign that Agreement unless Defendants relied upon them. Defendants attempt to establish proximate cause by pointing to evidence that the Agreement damaged them, chiefly because Plaintiffs' loss of standing after the Assignment undermined the strength of their infringement claims.
For the same reason that we granted Plaintiffs' motion for summary judgment against the fraud counterclaim, we therefore GRANT Plaintiffs' motion for summary
Both parties seek summary judgment on Count VII of Defendants' counterclaims, which alleges that Plaintiffs tortuously interfered with GSG and ATI's business relationships in the course of the 2009 litigation. In order to prevail on a tortious interference claim, a claimant must establish the following: (1) the existence of a valid relationship; (2) the defendant's knowledge of the existence of the relationship; (3) the defendant's intentional interference with that relationship through some independent unlawful acts; (4) the absence of justification; and (5) damages resulting from defendant's wrongful interference with the relationship. Meridian Fin. Advisors, Ltd. v. Pence, 763 F.Supp.2d 1046, 1063 (S.D.Ind. 2011). See also Levee v. Beeching, 729 N.E.2d 215, 222 (Ind.Ct.App.2000) (citing Bradley v. Hall, 720 N.E.2d 747, 750 (Ind. Ct.App.1999)).
Defendants assert that HK USA committed tortious interference by filing the 2009 lawsuit, maintaining it after it had surreptitiously assigned to HKG the MP5 intellectual property rights, and serving subpoenas on Defendants' business partners during the 2009 litigation. More specifically, they state that Orion Arms Corporation, an ATI customer, ceased making weapons purchases from ATI after Plaintiffs named it as a co-defendant with GSG and ATI in the 2009 lawsuit. Docket No. 330-9 (ATI's Third Supplemental Answers to Interrogatories) at 5. Defendants list a further 13 ATI customers who they assert reduced their business relationships with Defendants — or ceased them entirely — after Plaintiffs served them with subpoenas on August 24, 2009, in connection with the 2009 litigation.
As a preliminary matter, we note that damage to the relationship between GSG and ATI themselves is not a valid basis for a tortious interference with business relationship claim. Plaintiffs have designated evidence, uncontroverted by Defendants, that the relationship between GSG and ATI at the time of the settlement of the 2009 litigation was governed by a written "Exclusive Distribution Agreement" between them. Docket No. 347-11 (Exclusive Distribution Agreement)
As to Defendants' cognizable claims for tortious interference, Plaintiffs advance four arguments for summary judgment: (1) that the counterclaim is barred by Indiana's litigation privilege, (2) that HK USA's actions in the 2009 Litigation were justified, (3) that HK USA committed no "independent unlawful acts," (4) that Defendants have failed to show damages. Docket No. 330 at 33-34. We reach only the first of these arguments.
We have already addressed, and rejected, Plaintiffs' general arguments for construing Indiana's litigation privilege to bar Defendants' counterclaims for fraud and deception. This counterclaim, however, is based on a different series of predicate acts: HK USA's filing and maintenance of the 2009 Litigation against GSG, ATI, and Orion and the serving of subpoenas on Defendants' other business partners in connection with that action. As such, the question of the litigation privilege warrants consideration anew.
Plaintiffs contend that "Indiana has explicitly expanded the litigation privilege to preclude tortious-interference claims arising from statements in litigation." Docket No. 330 at 35 (citing Estate of Mayer v. Lax, Inc., 998 N.E.2d 238, 249 (Ind.Ct. App.2013)). In fact, they urge, Indiana courts have countenanced the expansion of the privilege in this context to apply to "statements in litigation even where the statements are not alleged to be defamatory. In other words, a statement is privileged against a tortious-interference claim simply if it is made in litigation." Id. at 36 (citing Watson Rural Water Co. v. Ind. Cities Water Corp., 540 N.E.2d 131, 139 (Ind.Ct.App.1989)). Defendants rest on their previous arguments, apparently confident that the reasoning that excluded Plaintiffs' alleged fraud and deception from the litigation privilege will suffice here. Defendants err in giving the issue such short shrift, for we conclude that the privilege does apply to the tortious interference claim, warranting summary judgment in favor of Plaintiffs.
The two recent Indiana cases cited by Plaintiffs lend weight to their argument. In Estate of Mayer v. Lax, Inc., 998 N.E.2d 238 (Ind.Ct.App.2013), a party brought claims for defamation, negligent supervision and retention, tortious interference with a business relationship, and tortious interference with a contract against its opponent in a prior action, on the grounds that the opponent had brought counterclaims in that action accusing it of conspiracy, bribery, racketeering, and other species of chicanery. 998 N.E.2d at 243-244, 249. Rejecting the
Id. (citing Briggs v. Clinton Cnty. Bank & Trust Co., 452 N.E.2d 989, 997 (Ind.Ct. App.1983)) (emphasis added).
Here, Defendants allege that Plaintiffs maintained a baseless
There is also no doubt that HK USA's communications arose in the context of litigation and were pertinent to that litigation. See Briggs, 452 N.E.2d at 997 (noting that the "relevancy or pertinency" of a communication to litigation is a matter of law, and is to be construed liberally). "Lawsuits are not peace conferences. Feelings are often wounded and reputations are sometimes maligned." Estate of Mayer, 998 N.E.2d at 247. Forms of redress do exist for a party that has been injured by another's misuse of the litigation process; "not everything a lawyer files in court on behalf of a client is absolutely privileged from being the subject of a lawsuit by a third party." Id. at 250.
There is significant conceptual overlap between the litigation privilege and the "lack of justification" element necessary to establish a tortious interference claim. Because we have interpreted Indiana case law in a manner that would bar tortious interference suits based on the filing of a lawsuit, we pause briefly to address a previous, unpublished decision of this Court that employed a different analytical approach. In support of their argument that the acts upon which their tortious interference counterclaim is based were unjustified, Defendants rely on Square D Co. v. Breakers Unlimited, Inc., 2009 WL 1407017, *2 (S.D.Ind. May 19, 2009). There, as here, the court addressed a defendant's counterclaim that the filing of a lawsuit constituted tortious interference. Though admitting that Indiana precedent was not conclusive of the question, the Square D court held that the filing of a lawsuit — at least where not in bad faith — could never give rise to such a claim.
2009 WL 1407017, at *2. Relying on the negative implication of this language, Defendants insist that their tortious interference claim remains viable so long as a fact-finder could determine that HK USA's 2009 suit was in bad faith. Docket No. 349 at 46-47.
The court in Square D did not explicitly consider the applicability of the litigation privilege. In a footnote, however, it did ruminate on the possibility that a more categorical bar would apply to this type of suit:
Like the court in Square D, we see no need to venture a prediction as to whether the Indiana Supreme Court would opt to follow Illinois's rule, whatever policy strengths such a rule may have to recommend it. Based on our reading of the Indiana case law, however — particularly Estate of Mayer, which post-dated this court's opinion in Square D — we do conclude that the litigation bars tortious interference claims like those brought here and
We therefore GRANT Plaintiffs' motion for summary judgment on Defendants' Counterclaim Count VII for tortious interference with business relationships, and DENY Defendants' motion for summary judgment on the same count.
Defendants assert in their counterclaims that Plaintiffs have breached the 2009 Agreement in a number of respects. They allege that Plaintiffs breached the Agreement's confidentiality clause (Counterclaim Count IV), its forum-selection clause (Counterclaim Count VI), and its covenant not to sue in connection with the GSG-522 firearms and alternative dispute resolution (ADR) provisions (Counterclaim Count V). Both parties seek summary judgment as to all of these counts.
The 2009 Agreement contained a confidentiality clause providing that "[e]ach party agrees that the terms of this Agreement shall be maintained confidential and shall not be disclosed except for purposes of enforcement of the Agreement." Docket No. 45-1, ¶ 24. Defendants allege that Plaintiffs have violated that clause in two respects: (1) by attaching a copy of the Agreement to their Complaint in this suit, see Docket No. 251 at ¶ 76; and (2) and by emailing a copy of the final version of the Agreement to an executive with the company Umarex GmbH on two occasions shortly after the Agreement was concluded. See Docket No. 349 at 15, ¶¶ 11-12 (citing Docket No. 332, Exs. 4-5).
Defendants' claim that attaching the Agreement to Plaintiffs' complaint constituted breach of contract is foreclosed by the plain text of the confidentiality clause. Under Indiana law, settlement agreements "are governed by the same general principles of contract law as any other agreement." Zukerman v. Montgomery, 945 N.E.2d 813, 819 (Ind.Ct.App. 2011). As with other contracts, then, the interpretation of the 2009 Settlement Agreement is a question of law for the Court. See Motorists Mut. Ins. Co. v. Wroblewski, 898 N.E.2d 1272, 1275 (Ind. Ct.App.2009) (citing Briles v. Wausau Ins. Cos., 858 N.E.2d 208, 213 (Ind.Ct.App. 2006)). "When construing a contract, unambiguous contractual language is conclusive upon the parties and the courts." Niezer v. Todd Realty, Inc., 913 N.E.2d 211, 215 (Ind.Ct.App.2009) (citing Trustcorp Mortgage Co. v. Metro Mortgage Co., Inc., 867 N.E.2d 203, 212 (Ind.Ct.App. 2007)). "If an instrument's language is unambiguous, the parties' intent is determined from the four corners of the instrument." Id. The confidentiality clause here prohibits disclosure of the Agreement except "for purposes of enforcement." Docket No. 45-1 at ¶ 24. We can think of no clearer fit to this exception than attaching the Agreement to a complaint alleging its breach.
Summary judgment against Defendants is also warranted on their allegation that Plaintiffs violated the confidentiality clause by attaching a copy of the Agreement to emails sent to a Umarex GmbH executive. While Plaintiffs appear to concede that this constituted a violation of the clause, Docket No. 332-6 (Ihloff Dep.) at 296-297,
The only evidence of damages upon which Defendants rely falls short of this standard. In his deposition testimony, ATI president DiChario contended that disclosure of the Agreement was harmful to his company. He stated:
Docket No. 332-7 (DiChario Dep.) at 205. This statement is not "evidence" of damages from the email disclosures, for two chief reasons. First, DiChario's comments were in response to a question about the filing of the Agreement as an attachment
DiChario Dep. at 205.
In support of their motion for summary judgment, Plaintiffs also refer us to the testimony of GSG president Swoboda, a German-speaker who was deposed in the company of an interpreter.
The principal offense of which Defendants complained was no breach at all, and Defendants have failed to show that any breach that did occur produced damages.
The Agreement's forum-selection clause states: "The parties agree that the United States District Court for the Southern District of Indiana shall retain jurisdiction to enforce this Agreement." Docket No. 45-1 at ¶ 8. Arguing that this clause is mandatory — requiring that any dispute arising from the Agreement be adjudicated in the Southern District — Defendants contend
A mandatory forum-selection clause is "one that contains clear language showing that jurisdiction is appropriate only in the designated forum." Duggan O'Rourke, Inc. v. Intelligent Office Sys., LLC, 2012 WL 4057215, at *2 (S.D.Ind. Sept. 14, 2012). Clauses that do not contain mandatory language are only permissive and not enforceable. "The law is clear: where venue is specified with mandatory or obligatory language, the clause will be enforced; where only jurisdiction is specified, the clause will generally not be enforced unless there is some further language indicating the parties' intent to make venue exclusive." Paper Exp., Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753, 757 (7th Cir.1992) (citing Docksider, Ltd. v. Sea Technology, Ltd., 875 F.2d 762, 763-764 (9th Cir.1989)).
Defendants insist that since the clause uses "`the mandatory language of shall' and not the `permissive language may,'" its language should be read as mandatory. Docket No. 349 at 51 (citing Indep. Stationers, Inc. v. Vaughn, 2000 WL 1449854, *8 n. 7 (S.D.Ind. Jan. 3, 2000); Paper Exp., 972 F.2d at 756) (emphasis added). But the use of the word "shall" in forum-selection clauses is no shibboleth. In the cases Defendants cite, the mandatory intent of the contractual language was evident not on the basis of a single word, but the totality of the parties' statement. In Independent Stationers, Inc. v. Vaughn, 2000 WL 1449854 (S.D.Ind. Jan. 3, 2000), for instance, the court read a forum-selection clause specifying that "any action to enforce this Agreement ... may be brought in the courts of Indiana" as merely permissive; it noted, however, that a clause using the same language, but with the phrase "shall be brought" instead, would have been mandatory. 2000 WL 1449854, at *8 n. 7. In Paper Express Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753 (7th Cir.1992), the Seventh Circuit interpreted a clause providing that "[i]n all disputes arising out of the contractual relationship, the action shall be filed in the court which has jurisdiction for the principal place of business of the supplier." 972 F.2d at 755. The court determined that the language "all disputes ... shall be filed" left no doubt about the mandatory nature of the provision. Id. at 756.
At the same time, however, a clause merely specifying that a certain court possesses jurisdiction, even if it uses the word "shall," is permissive unless it clearly expresses the exclusive nature of the grant. See, e.g., Pioneer Life Ins. Co. of Ill. v. Anderson, 1988 WL 143726, at *1 (N.D.Ill. Dec. 21, 1988) (interpreting a clause stating "Winnebago County, Illinois shall be the place of jurisdiction" as permissive); Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 F.2d 75, 77-78 (9th Cir.1987) (ruling that a clause providing that a certain California court "shall have jurisdiction" over contract disputes was permissive, not mandatory). Here, the most natural reading of the Agreement's forum-selection clause — stating that the Southern District shall retain jurisdiction — is that it grants jurisdiction to this Court, but in a non-exclusive fashion. We read the clause as similar to one addressed by the Northern District of Indiana in Parker v. Hostetler, 2008 WL 346007 (N.D.Ind. Feb. 6, 2008). There, the contract provided that "[t]he parties ... agree to submit to the personal jurisdiction and venue of a court of subject matter jurisdiction located in the County in which the property sits." 2008 WL 346007, at *3. Finding that the clause was not "ambiguous,
We therefore GRANT Plaintiffs' motion for summary judgment on Counterclaim Count VI for breach of the 2009 Agreement's forum-selection clause, and DENY Defendants' motion for summary judgment on the same count.
Defendants' Counterclaim Count V alleges that Plaintiffs violated two related provisions of the 2009 Agreement by filing the current suit. Both parties seek summary judgment as to both aspects of this counterclaim. Because Plaintiffs never raise the issue of damages, however, we construe Defendants' motion on this Count as a partial motion for summary judgment on the question of breach only.
The Agreement provides an alternate dispute resolution (ADR) process that applies to future trade dress infringement disputes between Plaintiffs and ATI. The provision states as follows:
Docket No. 45-1 ¶ 14. It is undisputed that Plaintiffs did not engage in this prescribed ADR procedure before filing the current suit. See Docket No. 349 at 20, ¶ 50 (citing Docket No. 33211 at ¶ 8a).
Plaintiffs argue that initiating this litigation without following the notice and ADR procedures did not constitute a breach of the Agreement, because the clause applies narrowly to claims against ATI for trade dress infringement. Docket No. 330 at 41-42. The provision was not implicated, they contend, because their initial complaint against both ATI and GSG stated only a contract claim (not trade dress infringement) and their Amended Complaint
Accordingly, we GRANT Plaintiffs' motion for summary judgment on Defendants' Counterclaim Count V with respect to paragraph 14 of the Agreement, and we DENY Defendants' motion for summary as to that portion of that count.
Defendants also allege that Plaintiffs have breached paragraph 5 of the Agreement, which reads as follows:
Docket No. 45-1 at ¶ 5. Defendants contend that Plaintiffs ignored this restriction, filing a "baseless" breach of contract suit against GSG and ATI in their original complaint. Docket No. 349 at 51. Plaintiffs retort that the Agreement's covenant not to sue applies only if GSG sells weapons conforming to the design approved by the parties in 2009; according to Plaintiffs, their current suit is based in part on Defendants' retailing of weapons that are labeled "GSG-522" but which do not conform to the approved design.
The question whether the GSG-522 as it is currently sold differs materially from the GSG-522 as described by the parties in Exhibit A to the Agreement is one of fact. Plaintiffs contend that the GSG-522 has been altered from the approved design to include an "MP5-style" stock, foregrip,
We therefore DENY both Plaintiffs' and Defendants' motions for summary judgment on Defendants' Counterclaim Count V for breach of contract with respect to paragraph 5 of the Agreement.
Defendants seek cancellation of the MP5 trademark, U.S. Trademark Reg. No. 1,594,109, on the grounds that HK USA's "Combined Declaration of Use/Application for Renewal of Registration" under Sections 8 and 9 of the Lanham Act ("the Section 8/9 Application") contained fraudulent statements to the PTO. They also seek damages on the theory that they have incurred the expenses of this lawsuit as a consequence of the registration's procurement by fraudulent means. See Docket No. 215 at ¶¶ 97-106. We conclude that any misrepresentations made by HK USA were not material to the Section 8/9 Application and thus do meet the high standards necessary for trademark cancellation on the basis of fraud.
The Lanham Act provides: "In any action involving a registered mark the court may determine the right to registration, order the cancelation of registrations, in whole or in part, restore canceled registrations, and otherwise rectify the register with respect to the registrations of any party to the action." 15 U.S.C. § 1119. Fraud in procuring a trademark registration or, as Defendants allege here, in renewing the registration under Sections 8 and 9, is a potential basis for cancelation by the Court. See In re Bose Corp., 580 F.3d 1240, 1243 (Fed.Cir.2009). A party seeking cancelation, however, faces a formidable burden of proof with respect to both the persuasiveness of the evidence and the showing of fraudulent intent on the part of the registrant. See Money Store v. Harriscorp Fin., Inc., 689 F.2d 666, 670-671 (7th Cir.1982); W.D. Byron & Sons, Inc. v. Stein Bros. Mfg. Co., 54 C.C.P.A. 1442, 377 F.2d 1001, 1004 (1967); Donovan v. Bishop, 2011 WL 1560991, at *3 (S.D.Ind. Apr. 21, 2011). In order to prevail on their counterclaim, then, Defendants must show by "clear and convincing evidence" that HK USA's misstatements to the PTO were "(1) made with the knowledge of their falsity, and (2) material to the determination to grant the application." Oreck Corp. v. Thomson Consumer Elecs., Inc., 796 F.Supp. 1152, 1159 (S.D.Ind.1992) (quoting Marshak v. Sheppard, 666 F.Supp. 590, 598 (S.D.N.Y.1987)) (emphasis original). "There is no room for speculation, inference or surmise and, obviously, any doubt must be resolved against the charging party." In re Bose, 580 F.3d at 1243.
HK USA's allegedly fraudulent conduct here consisted of filing the Section 8/9 Application with the PTO on March 17, 2010 — representing in its communication to the PTO that it remained the "owner" of the registered MP5 trademark. Docket No. 332-15 (Defs.' Ex. N). As we have already discussed, see supra § I(B), there is at least a genuine issue of fact as to whether HK USA's claim to own the mark as of March 2010 was false. Defendants' theory that the misrepresentation was made with the requisite scienter hangs from a thin evidentiary thread, but we can
In order to cancel a trademark registration on grounds of fraud, the charging party must show that a misrepresentation to the PTO was "material to the determination to grant the application" — in other words, one that "would have affected the PTO's action on the applications." Halo Mgmt., LLC v. Interland, Inc., 308 F.Supp.2d 1019, 1031 (N.D.Cal.2003) (quoting Orient Express Trading Co. v. Federated Dep't Stores, Inc., 842 F.2d 650, 653 (2d Cir.1988)); Oreck, 796 F.Supp. at 1159. In neither section of the Lanham Act under which HK USA filed its joint Application is the identity of the current owner of the mark dispositive to the PTO's grant or denial of the application. Section 9 of the Lanham Act, 15 U.S.C. § 1059, prescribes the procedure for renewal of registrations after 10-year intervals: "[E]ach registration may be renewed for periods of 10 years at the end of each successive 10-year period following the date of registration upon payment of the prescribed fee and the filing of a written application, in such form as may be prescribed by the Director." 15 U.S.C. § 1059(a). The relevant section of the PTO's Trademark Manual of Registration Procedure (TMEP), a document elaborating on the agency's evaluating criteria, specifies that "[t]he Trademark Act and the Trademark Rules of Practice do not require that a renewal application be filed by the owner of the registration. Therefore, if the renewal applicant is not the owner of record, the USPTO does not require that the renewal applicant show continuity of title from the original registrant." Trademark Manual of Registration Procedure § 1606.06 (Oct. 2014).
The Section 8 affidavit, with which a Section 9 affidavit is typically combined, avers that the trademark in question has been in continuous use on the registered goods or services since the date of registration. 15 U.S.C. § 1058. Unlike Section 9, Section 8 does require the affidavit to be filed by "the owner." Id. However, the Act provides specifically that "[i]f any submission filed within the time period set forth in subsection (a) is deficient, including that the affidavit was not filed in the name of the owner of the registration, the deficiency may be corrected after the statutory time period, within the time prescribed after notification of the deficiency." Id. at § 1058(c).
As Plaintiffs point out, the PTO has issued neither HK entity a notice of deficiency with respect to their Section 8 declaration, and if it had, the Act provides that HKG would have an opportunity to rectify the error before the MP5 trademark would be endangered. As the statutory language indicates, the primary purpose of declarations under Sections 8 and 9 is "to remove from the register automatically marks which are no longer in use." In re Bose, 580 F.3d at 1246 (quoting Torres v. Cantine Torresella S.r.l., 808 F.2d 46, 48 (Fed.Cir.1986)). In light of
Our determination that HK USA's alleged misrepresentation was not material, and thus did not constitute a fraudulent application for renewal, forecloses not only Defendants' counterclaim for cancelation under 15 U.S.C. § 1119, but also Defendants' counterclaim for resulting damages under 15 U.S.C. § 1120. In order to recover under the Act's "civil liability" provision, of course, a claimant must prove the underlying fraud on the PTO as well as its own entitlement to damages. See Gilbert/Robinson, Inc. v. Carrie Beverage-Missouri, Inc., 989 F.2d 985, 992-993 (8th Cir.1993), abrogated on different grounds by Lexmark Int'l, Inc. v. Static Control Components, Inc., ___ U.S. ___, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014); King-Size, Inc. v. Frank's King Size Clothes, Inc., 547 F.Supp. 1138, 1167 (S.D.Tex.1982). Plaintiffs are therefore entitled to summary judgment on both the cancelation claim and the damages claim.
Accordingly, we GRANT Plaintiffs' motion for summary judgment on Counterclaim Counts VIII and IX, and DENY Defendants' motion for summary judgment on the same counts.
Section 43(a) of the Lanham Act provides a cause of action against the unauthorized use by any person of "any word, term, name, symbol, or device, or any combination thereof ... which ... is likely to cause confusion ... as to the origin, sponsorship, or approval of his or her goods." 15 U.S.C. § 1125(a). Both the courts and Congress have long since recognized that Section 43(a) may apply to protect the design of a product when the resulting appearance is used to identify the product — the "trade dress" — as well as proprietary names or symbols. See 15 U.S.C. § 1125(a)(3) (describing cause of action for "trade dress infringement"); Wal-Mart Stores, Inc. v. Samara Bros., Inc., 529 U.S. 205, 210, 120 S.Ct. 1339, 146 L.Ed.2d 182 (2000); Publ'ns Int'l, Ltd. v. Landoll, 164 F.3d 337, 338 (7th Cir.1998). In order to be protectable under Section 43(a), a claimed trade dress must be both distinctive and nonfunctional.
Defendants seek a declaratory judgment that Plaintiffs' claimed trade dress in the design of the MP5 family of firearms is not protectable, and their argument rests on four grounds: (1) the claimed trade is insufficiently identifiable, in that Plaintiffs' descriptions of it are "generic, unspecific, and inconsistent"; (2) the design in question is functional and thus not entitled to protection; (3) the claimed trade dress has not acquired the necessary "secondary meaning"; and (4) Plaintiffs have abandoned the claimed trade dress, forfeiting any rights they may have to it. Docket No. 32 at 52-70.
We address these arguments in turn, but we first pause to address Defendants' objections to the admissibility of the expert report of Peter J. Kokalis, which Plaintiffs have designated in support of the protectability of their trade dress. Docket No. 346-8.
Dugdale, Inc. v. Alcatel-Lucent USA, Inc., 2011 WL 2261318, at *3 (S.D.Ind. June 7, 2011). See also Paul Harris Stores, Inc. v. PricewaterhouseCoopers, LLP, 2006 WL 2644935, at *3-4 (S.D.Ind. Sept. 14, 2006). But see Pond v. Bd. of Trustees, Ball State Univ., 2004 WL 2538645, at *2 (S.D.Ind. Sept. 9, 2004). We agree here with the court's reasoning in Dugdale. Plaintiffs have not sought summary judgment on their Lanham Act claims, and they have offered Kokalis's testimony only in response to Defendants' motion on those claims. Since they complied with the amended Case Management Plan's relevant deadline for disclosure of expert testimony, we will not strike the testimony on untimeliness grounds. See Docket No. 281 at 2.
Defendants also argue that the Kokalis report should be set aside because it fails to comply with Federal Rule of Evidence 702 and the Daubert standard. Courts employ a three-part analysis in determining whether expert witness testimony is relevant and reliable: "[1] the witness must be qualified as an expert by knowledge, skill, experience, training, or education; [2] the expert's reasoning or methodology underlying the testimony must be scientifically reliable; and [3] the testimony must assist the trier of fact to understand the evidence or to determine a fact in issue." Ervin v. Johnson & Johnson, Inc., 492 F.3d 901, 904 (7th Cir.2007) (quoting Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 592-593, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993)) (additional citations omitted). Thus, "[i]t is not the trial court's role to decide whether an expert's opinion is correct. The trial court is limited to determining whether expert testimony is pertinent to an issue in the case and whether the methodology underlying that testimony is sound." Smith v. Ford Motor Co., 215 F.3d 713, 719 (7th Cir.2000).
Plaintiffs rely on Kokalis's report primarily on the issues of functionality and secondary meaning. Applying the first prong of the Daubert analysis, Defendants assert that Kokalis is unqualified to testify to such questions. "While Kokalis may be knowledgeable about the proper use of firearms, he lacks the qualifications for which his report is presented, namely the creation and design of MP5 firearms and the marketplace perception of MP5 firearms." Docket No. 364 at 13. We find this objection to be misguided. Kokalis's report includes an extensive description of his credentials as an expert on firearms, a consultant to a number of national armed forces, and a published commentator in the field. Docket No. 346-10 at ¶¶ 2-10. Kokalis concedes that he is not a firearm design engineer, but his curriculum vitae renders him fit to offer opinion on the design of weapons from a user's perspective and on the place of the MP5 design in the marketplace. Id. at ¶ 11. In support of the notion that Kokalis is unqualified to offer expert testimony on consumer perceptions of the MP5, Defendants cite Sassafras Enterprises, Inc. v. Roshco, 915 F.Supp. 1 (N.D.Ill.1996), a decision in which the court stated that an expert could not speak to the "mental reactions that other persons would have," the "basis for his expression of other people's views," or whether consumers "desire the product with the particular feature because it signifies that producer." 915 F.Supp. at 8. But the context of Sassafras renders it readily distinguishable, and actually helps illustrate that relative strength of Kokalis's qualifications here. In that case, a plaintiff had failed to offer any evidence as to secondary meaning other than the affidavit of its sales representative, who offered the bare assertion that customers associated a product's look with the plaintiff. Id. Regardless of whether the affiant was qualified as an expert, the court concluded that
As to the second Daubert factor, Defendants assert Kokalis has failed to identify any scientific "reasoning or methodology" underlying his testimony. Docket No. 364 at 14. Undoubtedly, Kokalis does not derive his opinions on the non-functionality or distinctiveness of the MP5 from any scientific methodology — nor does he claim to. Rather, he claims to derive his opinion from his "knowledge, training, experience, skill, and education" as applied to his review of the facts of this case and an extensive review of the features of the MP5 in comparison to other guns of similar type available on the market.
Lastly, Defendants argue that Kokalis's testimony is not helpful to a fact-finder, either because Kokalis fails to grasp the issue adequately or because he defines the MP5 trade dress differently than do Plaintiffs. Such an interpretation results from reading his report out of context. On two occasions, Kokalis stated that he had "difficulty comprehending the point of Defendants' arguments" or that he had "a problem ... understanding" Defendants' summary judgment motion. Kokalis Report ¶¶ 19, 30. These were not confessions
We therefore reject Defendants' argument that we must disregard the Kokalis expert report, and we proceed to consider the merits of Defendants' trade dress invalidity counterclaim.
Defendants assert that "Plaintiffs' claimed MP5 trade dress fails inasmuch as its constituent elements are unspecified, constitute generic gun parts, and are inconsistently claimed." Docket No. 332 at 54. See also Maharishi Hardy Blechman Ltd. v. Abercrombie & Fitch Co., 292 F.Supp.2d 535, 542 (S.D.N.Y.2003) ("A trade dress which is either generic, non-specific, or inconsistent among its products cannot be distinctive."). Defendants are correct to note that before courts can recognize any putative trade dress as "distinctive," they must be able to discern identifiable characteristics in the design a plaintiff seeks to protect. While there is no concrete, authoritative test guiding the courts' evaluation of this issue, two points have particular relevance in guiding our consideration here.
First, the requirement that a trade dress be discrete and identifiable does not preclude a plaintiff from claiming the overall look or design of the product as protected. "We have defined `trade dress' as the `total image of a product, including such features as size, shape, color or color combinations, texture, graphics, or even particular sales techniques.'" Kohler Co. v. Moen, Inc., 12 F.3d 632, 641 n. 11 (7th Cir.1993) (quoting Roulo v. Russ Berrie & Co., Inc., 886 F.2d 931, 935 (7th Cir.1989)). "Doubtless the overall appearance is what matters.... Dissecting a product or package into components can cause a court to miss an overall similarity." See also August Storck K.G. v. Nabisco, Inc., 59 F.3d 616, 620 (7th Cir.1995) (citing Kohler, 12 F.3d at 641 n. 11). However, the claimed protection must be pitched at the proper level of generality. A plaintiff cannot claim protection for the "genus of which the particular product is a species." New Colt Holding Corp. v. RJG Holdings of Fla., Inc., 312 F.Supp.2d 195, 203 (D.Conn. 2004) (quoting Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101, 115 (2d Cir.2001)). Further, the claimed dress must restrict itself to tangible, rather than ethereal or
Abercrombie, 280 F.3d at 630-631.
Second, and relatedly, a plaintiff must offer some enumeration of the design elements that comprise the "overall look" of a product if such a holistic trade dress claim is to be cognizable. "Simply pointing to a product's overall appearance is [not] enough to state a claim for trade dress infringement. Rather, the overall appearance of the trade dress comes into play only after the trade dress is first properly identified with the discrete elements which make up that combination ... separated out and identified in a list." Weber-Stephen, 2013 WL 5782433, at *3 (additional citations omitted). As the Second Circuit noted, failing to require some specificity in description would make it "too easy for the question of design and configuration (`overall look') to degenerate into a question of quality, beauty, or cachet.... The identification of design elements that compose the asserted trade dress will thus assist in winnowing out claims that are overbroad as a matter of law." Yurman, 262 F.3d at 116-117.
Defendants here object to Plaintiffs' descriptions of the MP5 trade dress on the grounds that they are impermissibly vague and generic, and that Plaintiffs' enumerations of the elements of the protected design have been inconsistent over the lifetime of its lawsuits with Defendants. The first description of the MP5 trade dress to which Defendants point was proffered by HK USA in response to an interrogatory in the course of the 2009 litigation. When asked to "identify and describe with particularity each discrete element and each combination of discrete elements comprising the putative trade dress," HK USA stated that the following photograph was a "fair depiction" of the trade dress:
Docket No. 332-18 (Defs.' Ex. Q) at 3. In a supplemental response to the same interrogatory, HK USA provided photographs of the four variations on the core MP5 model — the MP5 A3, the MP5 SD, the Mp5K, and the MP5 A2 — reproduced below, clockwise from the top left:
Docket No. 332-19 (Defs.' Ex. R) at 3-6. Plaintiffs also offered a more comprehensive description to accompany the photographs:
Id. at 6-7 (emphasis added). When served with a similar interrogatory in the course of the current litigation, HK USA initially referred back to this previous response. Docket No. 332-20 (Defs.' Ex. S) at 7-8. After HKG became party to the suit, Defendants served it with a similar interrogatory. In response, HKG submitted an illustration of the MP5A2 model and a verbal description that differed somewhat from that offered by HK USA in 2009:
Docket No. 332-8 (Defs.' Ex. H) at 2-4. As Defendants note, HKG's 2012 description departs from HK USA's 2009 description in that it discusses the weapon's "barrel stock" and "body casing," but does not mention the "cocking handle." Docket No. 332 at 26. Defendants also point to the deposition of HKG managing director Ihloff, in which he agreed that HK USA's original 2009 illustration of the weapon fairly depicts the "overall look and feel" of the MP5; when asked if HK USA's original verbal description of the trade dress was accurate, he elaborated: "I think it would include or can be described and defined in such a way that there may well be other feature[s], depending on the variants or the registration of the gun.... It typically includes exactly some of these elements as spelled out [in the 2009 interrogatory] or specified here." Docket No. 332-21 (Defs.' Ex. T) at 103, 113. Ihloff added that, "from a personal perspective," there were "details with regards to the sheet metal as well as the type of finishing that is just beyond functional," and thus also part of the trade dress. Id. at 122.
Defendants contend that this body of descriptions contains unduly "generic" language — such as references to the gun's "barrel stock" without any elaboration — and they assail the lack of specificity Ihloff displayed in his deposition (such as his statement that there "may well be other features" in the trade dress) as underscoring the fatal vagueness of the companies' efforts to describe the MP5 trade dress. Docket No. 332 at 56-57. Citing the differences in Plaintiffs' own explanations as well as the (undisputed) existence of numerous variants of the MP5 weapon, Defendants argue that "there is no consistent or constant overall image associated with the product." Id. at 57.
While we acknowledge that Plaintiffs have made statements since 2009 that have been unhelpfully vague and that they have not been fully consistent in defining its contours, we conclude that a core, identifiable description of the putative MP5 trade dress has emerged despite these shortcomings. In comparing Plaintiffs' photograph of the original model MP5 with those of MP5 variants, a recurring design profile is recognizable; the structural center of the weapons remains consistent from variant to variant, even as the peripheral elements
Examining the facts of two of the decisions upon which Defendants rely most heavily in stressing the stringency of the identifiability requirement helps illustrate the sufficiency of Plaintiffs' descriptions here. In Weber-Stephen Products, LLC v. Sears Holding Corp., 2013 WL 5782433 (N.D.Ill. Oct. 25, 2013), the court found that the plaintiff had not sufficiently identified its putative trade dress in a line of outdoor grills, noting that, "[i]nstead of precisely identifying the character and scope of its trade dress, [plaintiff] simply includes photographs of two entire grills — not even close-ups of particular grill features — and describes its trade dress as `including, without limitation, their distinctive shape, proportions and feature placements.'" 2013 WL 5782433, at *3. "Without more factual detail as to what exactly the grill shapes, proportions, and features are," the court observed, "these extremely broad categories are insufficient to put the Court and Sears on notice of what Weber believes is its protectable trade dress." Id. Similarly, in Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101 (2d Cir.2001), the Second Circuit found that the manufacturer of a line of rings and bracelets lacked a viable trade dress claim as a matter of law because its minimalist descriptions of the "overall look and feel" of the various products offered no reasonable insight into what, exactly, supposedly tied the products together. The court's explanation is instructive:
262 F.3d at 117-118.
Here, by contrast, Plaintiffs seek to protect the overall design of the MP5 line, but, unlike the claimants in Weber-Stephen or Yurman, they have described a discernible body of design elements that allows the court to evaluate the claimed trade dress within the realm of tangible reality rather than that of guesswork or abstract aesthetic speculation. They have identified the elements that constitute the overall design of their product much as a gun manufacturer seeking trade dress protection in a Colt revolver did in New Colt Holding Corp. v. RJG Holdings of Florida, Inc., 312 F.Supp.2d 195 (D.Conn.2004). There, the plaintiff claimed "the overall appearance of the gun" as its protectable trade dress, but it supplemented that description with a brief enumeration of the gun's salient components. 312 F.Supp.2d at 205. Setting aside the defendant's objections that these descriptions lacked the requisite specificity and that there had been variations in the shape or appearance of various components of the gun over time, the court nonetheless determined that the plaintiff had identified its trade dress sufficiently, concluding that "any lack of clarity in Plaintiffs' descriptions stems from their attempts to claim the entire appearance of the revolver and the difficulty inherent in adequately describing all the requisite details." Id. at 206. Although Plaintiffs' efforts to delineate the scope of their trade dress have not been a model of explanatory precision or of consistency, their descriptions have been detailed enough, and enough in sync with the visual evidence of the appearance of the MP5 weapons, to be readily identifiable.
The Lanham Act provides that, in an "action for trade dress infringement under this chapter ... the person who asserts trade dress protection has the burden of proving that the matter sought to be protected is not functional." 15 U.S.C. § 1125(a)(3). The Supreme Court has expanded and refined its operative definition for "functionality" over the years, and it has lately endorsed two complementary formulations. "`In general terms, a product feature is functional,' and cannot serve as a trademark, `if it is essential to the use or purpose of the article or if it affects the cost or quality of the article.'" TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 29, 121 S.Ct. 1255, 149 L.Ed.2d 164 (2001) (quoting Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 850 n. 10, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982)). A feature may also be classified as functional if it "is one the "exclusive use of [which] would put competitors at a significant non-reputation-related disadvantage."" Qualitex Co. v. Jacobson Prods. Co., Inc., 514 U.S. 159, 165, 115 S.Ct. 1300, 131 L.Ed.2d 248 (1995). As the Seventh Circuit has recognized, the core question to be answered is whether a particular design has value for its aesthetic quality — and as a means of source-identification in the marketplace — or, rather, whether the design exists so that the product can perform its intended function better. Specialized Seating, Inc. v. Greenwich Indus., LP, 616 F.3d 722, 727 (7th Cir.2010). "So if a design enables a product to operate, or improves on a substitute design in some way (such as by making the product cheaper, faster, lighter, or stronger), then the design cannot be trademarked ...." Jay Franco & Sons, Inc. v. Franek, 615 F.3d 855, 857 (7th Cir.2010).
The Seventh Circuit has endorsed a list of five factors useful for evaluating claimed feature or product designs within this conceptual framework. These are:
Georgia-Pacific Consumer Prods. LP v. Kimberly-Clark Corp., 647 F.3d 723, 727-728 (7th Cir.2011). In considering the functionality or non-functionality of Plaintiffs' claimed MP5 trade dress, it is important to emphasize that functionality is fundamentally a question of fact. Specialized Seating, 616 F.3d at 726 ("`Functionality' certainly isn't an issue of law; it represents a fact-specific conclusion...."); Modern Fence Technologies, Inc. v. Qualipac Home Imp. Corp., 726 F.Supp.2d 975, 987-988 (E.D.Wis.2010) (citing Service Ideas, Inc. v. Traex Corp., 846 F.2d 1118, 1123 (7th Cir.1988)). It is therefore appropriate for disposition on summary judgment only where a plaintiff is unable to meet its burden of raising a genuine issue of material fact that its trade dress is non-functional. Invisible Fence, Inc. v. Perimeter Techs., Inc., 2007 WL 273129, at *9 (N.D.Ind. Jan. 26, 2007). See also Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1262 (9th Cir.2001).
The existence of a utility patent for a given product design (or design feature) is "strong evidence of functionality." Georgia-Pacific, 647 F.3d at 728. "If trade dress protection is sought for those features[,] the strong evidence of functionality based on the previous [utility] patent adds great weight to the statutory presumption that features are deemed functional until proved otherwise by the party seeking trade dress protection." TrafFix, 532 U.S. at 29-30, 121 S.Ct. 1255. Any overlap with a patent is a "cheat sheet" for functionality because "any design claimed in a patent is supposed to be useful." Jay Franco & Sons, Inc. v. Franek, 615 F.3d 855, 857 (7th Cir.2010). So persuasive are utility patents as evidence of functionality, in fact, that all of the decisions cited by the Georgia-Pacific court in support of its statement that summary judgment may be granted in "appropriate cases" relied strongly on the "presumption of functionality" created by the existence of a relevant patent in the feature. See TrafFix, 532 U.S. at 29-30, 121 S.Ct. 1255; Specialized Seating, 616 F.3d at 727; Eco Mfg. LLC v. Honeywell Int'l, Inc., 357 F.3d 649, 653 (7th Cir.2003) ("determining summary judgment appropriate where plaintiff had failed to overcome the "heavy burden" created by the existence of a utility patent"); Franek, 615 F.3d at 857-859 (noting that the "TrafFix presumption" of functionality applied and supported summary judgment). See also Georgia-Pacific, 647 F.3d at 728.
Here, Defendants bring to our attention no utility patents for designs overlapping with Plaintiffs' claimed design features. While the absence of such patents does not preclude the functionality of the design, of course, the lack of a "cheat
Defendants present extensive evidence that individual features of the MP5, including those design components that we have recognized as part of Plaintiffs' identifiable claimed trade dress, have utilitarian properties. This evidence includes HK USA president Weber's testimony that elements such as the fire-select switch, the trigger guard, and the grip have features that enhance the user-friendliness
Plaintiffs largely do not dispute the utilitarian qualities of various individual components of the MP5 design. Rather, they stress that a product's overall configuration may still be nonfunctional even if a large portion of its component features are functional. "[A] product whose overall appearance is distinctive can be protected under the trademark laws, even though most of the products constituent elements serve some function." Specialized Seating, 616 F.3d at 727. When concededly utilitarian components comprise a putatively non-functional whole, "the critical question is the degree of utility present in the overall design of the mark." In re Becton, Dickinson & Co., 675 F.3d 1368, 1373 (Fed.Cir.2012). (emphasis added). On one hand, trade dress protection can extend to designs that are "ornamental, fanciful, [and] decorative," for such aesthetically-based configurations "are not in short supply, so appropriating one of them to serve as an identifying mark does not take away from any competitor something that he needs in order to make a competing brand." W.T. Rogers Co., Inc. v. Keene, 778 F.2d 334, 339 (7th Cir.1985). In the broadest sense, this is what separates the shape of a football, unusual and iconic though it might be, from the design of a car's hood ornament; a football's shape cannot be a trade dress because its oblong shape is what makes it a football, while a car will serve its purpose no matter which of the infinite styles of front bumper or hood ornaments are placed upon it. Id. at 339-340. On the other hand, however, the Seventh Circuit has cautioned, a design may be functional even though it is not the only possible utilitarian configuration. In Specialized Seating, Inc. v. Greenwich Industries, LP, 616 F.3d 722 (7th Cir.2010), for instance, the court ruled that a particular design for an x-frame folding chair was functional "not because it is the only way to do things, but because it represents one of many solutions to a problem," based on the overall
Here, Plaintiffs contend that the arrangement of weapon features that constitutes its trade dress is essentially arbitrary, and provides value as a stylistic profile or signature. In fact, they contend, the MP5 is a "heritage firearm," without any overall utilitarian advantages over modern competitors with more advanced designs. Weber Decl. ¶ 8. In support of this argument, Plaintiffs rely primarily on the expert report of Peter Kokalis, who opines that "[t]he MP5 trade dress constitutes a combination of design elements in an arbitrary and protectable product configuration," and that "[t]here are infinite potential combinations of material, design elements, and mechanical geometries available to firearm manufacturers." Docket No. 346-8 (Kokalis Report) at ¶¶ 12, 72.
While the nature of a firearm mandates that any marketable gun contain certain functional features, "the fact that an item serves or performs a function does not mean that it may not at the same time be capable of indicating sponsorship or origin, particularly where the decorative aspects of the item are nonfunctional." Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200, 204 (2d Cir. 1979). See also Docket No. 346-26 (Pls.' Ex. 26) (PTO trade dress registration for the particular configuration of the Thompson machine gun). Plaintiffs have at least raised an issue of fact as to whether the particular configuration of parts embodied in the MP5 line of weapons is non-functional, despite the inescapably functional nature of some of the components themselves. Cf. Service Ideas, Inc. v. Traex Corp., 846 F.2d 1118, 1123 (7th Cir.1988). We therefore conclude that the utilitarian features of the weapon to which Defendants point are not necessarily fatal to Plaintiff's case for non-functionality.
Where a company's advertising "unequivocally link[s]" its product design to functional benefits, a court is justified in weighing its own word against its claim of non-functionality. See Georgia-Pacific, 647 F.3d at 730; Mortar Net USA, Ltd. v. Hohmann & Barnard, Inc., 2013 WL 5407183, at *3 (N.D.Ind. Sept. 26, 2013). Here, Defendants point to a limited number of instances in which, they assert, Plaintiffs advertised the MP5 using the language of utility.
First, in what appear to be magazine advertisements, HK USA quoted Alan Ladd in the 1953 film Shane, who stated that "[a] gun is a tool"; they then added the tagline that HK produces "power tools for a new century." Docket No. 333-7 (Defs.' Ex. HH). In another brochure, HK
Defendants secondly point to a 2001 book, the Heckler & Koch "official history," which contains the following statement: "A weapon, and particularly a submachine gun is undeniably a technical item. But why should one restrict oneself to sheer functionality if there are vacant MP5 surfaces inviting decoration?" Docket No. 333-5 at 264-265. Leaving aside the question of whether the statements contained in such a book are "advertising" materials for the MP5, we do not believe that this statement, when placed in context, touts the MP5 as a functional item. The book's authors refer to the MP5's "vacant spaces" in tongue-in-cheek fashion, by way of introducing a series of photographs — labeled "beauties" — displaying highly elaborate special-edition weapons, including a gold-plated MP5 and a gun decorated with ivory animal motifs apparently given as a gift from the company to the late Shah of Iran. Id. at 264. While the design of the MP5 may be pedestrian in comparison with these one-off curiosities, it is difficult to read this bit of text as a serious assertion that the MP5's design is itself functional rather than aesthetic in value. Lastly, a company-issued calendar, which contains several blurbs discussing the MP5, notes that "current MP5 models still boast of features seldom found on any other weapons." It goes on to describe the quality of the steel use to produce the gun's barrel and the weapon's modularity, while its trigger mechanisms are "a rarity these days." Docket No. 332-22 at 4. But the features of which the calendar boasts in functional terms — namely the quality of the gun's steel and its modular capabilities — are not claimed by Plaintiffs as part of its trade dress; while the trigger unit is part of the trade dress, the reason the calendar describes it as a "rarity" is that most other modern designs have supplanted the original MP5 system with a more fully automatic trigger mechanism. Id.
In Georgia-Pacific, the Seventh Circuit determined that advertisements for a brand of toilet paper singing the praises of its quilted design — "quilted to create thousands of places for moisture to go" and "gently quilted together to give you and your family exceptional softness and comfort" — weighed in favor of functionality. "[T]he language in the ads is clear — the Quilted Diamond Design is unequivocally linked to functional benefits such as absorbency, softness, and comfort." 647 F.3d at 730. The advertising materials that Defendants have identified here stand in contrast; none urges the consumer to purchase the MP5 on the strength of any particular utilitarian quality. On the flip side of the coin, as Defendants points out, Weber testified that the company's advertising "definitely [doesn't] characterize [the MP5] as a distinctive trade dress." Docket No. 332-2 (Defs.' Ex. C) at 223. For this reason, we find that the Heckler & Koch advertisements have little to say on the question.
As we have noted, a product design is likely to be considered functional if it represents a "solution to a problem" — if, in other words, its protection as trade dress would deprive competitors of a uniquely efficient or useful design, even if other possible designs exist. To use the example of the folding chair design at issue in Specialized Seating, this factor is therefore implicated where, though other chair designs are possible, creating an alternative design that achieves a particular, desirable "strength to weight ratio" would be difficult or impossible. 616 F.3d at 727. In the case at hand, then, we must ask a teleological question: whether the particular design of the MP5 makes it tangibly better at achieving the ends of submachine guns such that locking up the design under the aegis of one brand will harm the consumers' interests.
Plaintiffs again lean on the Kokalis expert report, which states that other designs fulfilling the same purpose are not only possible, but plentiful. Docket No. 246-10 at ¶¶ 17, 22. In fact, Kokalis asserts, a rival manufacturer endeavoring to copy the design of the MP5 for a .22 caliber weapon — such as GSG's allegedly infringing version of its GSG-522 — would place itself at a functional disadvantage, because a modern gun of smaller caliber can be built lighter and more flexible. Id. at ¶ 81. Despite their success in showing the functional value of individual components, Defendants have presented no evidence supporting a theory that the MP5 represents even "one of many solutions to a problem." Cf. Georgia-Pacific, 647 F.3d at 731 (citing Specialized Seating, 616 F.3d at 727).
As to this final factor, Plaintiffs assert that, although the manufacturing quality of the MP5's components may differentiate them from comparable alternatives, nothing about the design arrangement itself drives the gun's quality or cost. Docket No. 346 at 4, 8 (citing Kokalis Report at ¶¶ 4, 77; Weber Decl. ¶ 10). According to Weber, the MP5 "clones" products sold by GSG, despite having the same design, sell for roughly 80% less because of this difference in manufacturing quality. Weber Decl. ¶ 10. Defendants do not directly assail Plaintiff's evidence on this score; instead, they argue that "[e]xpense does not establish non-functionality; nuclear reactors are expensive to make, while paperclips are not." Docket No. 364 at 30. While it is, of course, true that Plaintiffs' evidence here does not establish non-functionality, it is at least relevant to the question of whether the design — as opposed to other factors — differentiates the product in terms of quality or cost.
In sum, we determine that Plaintiffs have at least raised a genuine issue of material fact with respect to the non-functionality of the MP5 design in which they claim trade dress. Defendants' evidence of the functionality of the weapon's components will be highly relevant to a fact-finder, but the question remains whether the design of the whole has an aesthetic or source-identifying value that transcends the utilitarian qualities of its constituent elements. The lack of a utility patent, coupled with the lack of strong evidence in Defendants' favor with respect to any of the remaining evaluative factors identified by the Seventh Circuit, leads us to conclude that summary judgment against Plaintiffs on the question of functionality is not appropriate.
In order to qualify as "distinctive" and thus eligible for protection under the Lanham Act, an unregistered trade dress must possess a secondary meaning. Wal-Mart Stores, 529 U.S. at 210-215, 120 S.Ct. 1339; Bodum USA, Inc. v. La Cafetiere, Inc., 621 F.3d 624, 627 (7th Cir.2010). "[A] mark has acquired distinctiveness, even if it is not inherently distinctive, if it has developed secondary meaning, which occurs when, `in the minds of the public, the primary significance of a [mark] is to identify the source of the product rather than the product itself.'" Id. at 211, 120 S.Ct. 1339 (quoting Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 851 n. 11, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982)). Proof of secondary meaning can be established through direct consumer testimony, consumer surveys, length and manner of use, amount and manner of advertising, volume of sales, place in the market, and evidence of intentional copying. Packman v. Chicago Tribune, 267 F.3d 628, 641 (7th Cir.2001).
Defendants assert that the MP5 design lacks secondary meaning because the market is flooded with MP5 look-a-likes or unlicensed or altered versions of the weapon. As evidence, they cite manuals distributed to owners by Plaintiffs themselves, warning that "[t]here are a lot of look-alike products being sold today that are not produced by HK. There are also used MP-5's available that were not reconditioned by HK, GmbH or HK, Inc." Docket No. 332-23 (Defs.' Ex. V) at 12. Defendants also provide evidence of a number of firms in the United States and elsewhere that sell knock-off or imitation MP5s, or that produce kits that can be assembled into weapons resembling the MP5. See Docket No. 332 at 27-28, ¶¶ 74-82. Additionally, Defendants assert that Plaintiffs have been lax in allowing the proliferation of these imitators. They note that Plaintiffs have never made a valuation of the alleged MP5 trade dress, Docket No. 332 at 29, ¶ 84, and that HK USA official Steven Galloway conceded that the company had hired an investigative firm to track down copycats after discerning that it had been "negligent" or "inattentive" in "protecting our intellectual property." Defs.' Ex. C at 142, 171-172. Citing McCarthy on Trademarks, they contend that the MP5 lacks distinctiveness if it is "hemmed in on all sides by similar marks on similar goods." 2 McCarthy on Trademarks and Unfair Competition § 11:85 (4th ed.). "When numerous sellers in a product or service line use similar marks, there may be little if any individual distinctiveness and consumers may have difficulty telling one seller from another." Id.
We do not read McCarthy on Trademarks to suggest that the existence of a "crowded field" forecloses the existence of secondary meaning if the competitors are imitators who have entered the market to capitalize on the familiarity or cachet of a pre-existing design.
Here, in addition to the evidence that Defendants have designated regarding the existence of MP5 imitators and repackagers, see Docket No. 332 at 27-28, ¶¶ 74-82, Plaintiffs point to evidence that GSG and ATI themselves have engaged in intentional copying. One GSG advertisement exclaims that "The GSG-5 is an identical replication of the MP-5 except one great thing: it's a 22 cal." Docket No. 346-19 (Pls.' Ex. 12) at 2. Another GSG advertisement touts: "The world's most recognizable tactical carbine is now available for the everyday shooter! The GSG-5 is an identical clone of the renowned MP5 with one major change — it fires.22LR!" Docket No. 346-10 (Pls.' Ex. 13). Two ATI executives stated in deposition testimony that the GSG-5 intentionally resembled the MP5, making it "more attractive" than other cheap guns on the market. Docket No. 347-5 (Defs.' Ex. 14) at 35; Docket No. 347-8 (Defs.' Ex. 19). Though courts in the Seventh Circuit have stopped short of according a presumption of secondary meaning to a trade dress on the strength of evidence of intentional copying, they have recognized such evidence as highly persuasive. See Schwinn Bicycle, 870 F.2d at 1182 n. 13; Turtle Wax, Inc. v. First Brands Corp., 781 F.Supp. 1314, 1324 (N.D.Ill.1991).
Plaintiffs also present some evidence of the MP5's "place in the market." HK USA president Weber testifies to the MP5's extensive presence at trade shows, Weber Decl. ¶¶ 3-5, 6, 10, and Plaintiffs' expert, Kokalis, avers that the gun has been featured in "well over 100 feature films and countless television episodes, books, and articles." Kokalis Report at ¶ 80. Even more striking evidence of the MP5 design's place in the market is GSG's advertising of its expressly imitative weapons — advertising clearly plays on the fame of the physical profile of the MP5, describing it as "renowned" and the "world's most recognizable tactical carbine." Pls.' Ex. 13 (emphasis added). Plaintiffs have also made at least a minimal showing of the MP5's volume of sales and its history of use. Although Plaintiffs' sales data is not comprehensive, it does show that the MP5 sold in considerable volume in the years 2005-2014. Docket No. 335-2 (Defs.' Ex. III).
In a small but perhaps telling linguistic slip, Defendants argue that they have successfully "put at issue" Plaintiffs' claim of secondary meaning for the MP5. Docket No. 364 at 32. Indeed, as the evidence we
The abandonment of an alleged trade dress is an affirmative defense to a claim for trade dress infringement.
Defendants argue that HK USA engaged in naked licensing in signing the 2009 Agreement with them. They present their case in a conceptually muddled fashion
The abandonment claim fails because the Agreement did not license the MP5 to Defendants. "[A] license to use a mark... is a transfer of limited rights, less than the whole interest which might have been transferred." Exxon Corp. v. Oxxford Clothes, Inc., 109 F.3d 1070, 1076 (5th Cir.1997). The essential inquiry is whether, "under cover of the agreement claimed to be a license, `the licensee is engaging in acts which would infringe the licensor's mark but for the permission granted in the license.'" Id. (quoting 2 McCarthy on Trademarks § 18:79). The portion of the 2009 Agreement to which Defendants refer surrendered no rights in the MP5 at all; rather, it stipulated that a certain GSG design for the "GSG-522" weapon did not infringe the MP5 trade dress. Docket No. 45-1 at ¶ 5.
Plaintiffs cannot be guilty of naked licensing where they have not granted a license at all. Defendants wisely discard their naked licensing claim in their reply brief, and they have presented no other arguments in support of an abandonment affirmative defense.
Therefore, having concluded that Plaintiffs have sufficiently identified their alleged trade dress and that they have propounded
Defendants seek summary judgment on three federal trade dress claims contained in Plaintiffs' Amended Complaint: Count V for trade mark dilution under Section 43(c) of the Lanham Act, 15 U.S.C. § 1125(c); Count VI for infringement of an unregistered trade dress under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); and Count VII for common-law trade dress infringement. Docket No. 332 at 70.
As we have noted, a plaintiff under Section 43 of the Lanham Act must establish that its trade dress is protectable in order to press a claim for infringement or dilution. Defendants reprise here their arguments that Plaintiffs' putative trade dress is insufficiently identified, functional, and lacking secondary meaning. We have already considered and rejected those arguments, determining that summary judgment is unwarranted on the protectability of Plaintiffs' claimed trade dress. See supra § VI.
The only new argument Defendants present here concerns Plaintiffs' trade dilution claim. Section 43(c) of the Lanham Act provides:
15 U.S.C. § 1125(c)(1) (emphasis added). The Act further clarifies that a mark is defined as "famous" if it is "widely recognized by the general consuming public of the United States as a designation of source of the goods or services of the mark's owner." 15 U.S.C. § 1125(c)(2)(A). Defendants allege that, because Plaintiffs have failed to identify or sufficiently define their trade dress, they "cannot show as a matter of law that the alleged MP5 trade dress ... is recognized by the general consuming public of the United States...." Docket No. 332 at 71.
Defendants fail to offer any support for their contention that the MP5 trade dress is not famous. They correctly note that Plaintiffs must "show that the alleged MP5 trade dress is famous [apart] from the `MP5' mark required to be engraved on each such firearm," but they err in supposing that this statutory requirement is anything other than a restatement of the unremarkable principle that the trade dress rather than the verbal MP5 trademark must qualify for protection. Although they cite two district court cases
Defendants' motion for summary judgment on Counts V, VI, and VII of Plaintiffs' Amended Complaint is therefore DENIED. Defendants have also moved for summary judgment on Counterclaim Count XII, which seeks a declaratory judgment of Defendants' non-infringement. The parties did not specifically address Counterclaim Count XII, but we DENY Defendants' motion for declaratory judgment of non-infringement for the same reason that we deny Defendants' motion as to Plaintiffs' claims for infringement.
Count IX of Plaintiffs' Amended Complaint states a claim for state trademark infringement under Indiana Code § 24-2-1-13. Docket No. 45 at 12. The Indiana Trademark Act, Ind.Code § 24-2-1 et seq., imposes liability when a defendant uses a "reproduction, counterfeit, copy, or colorable imitation" of a registered mark either: (1) "in connection with the sale, offering for sale, distribution, or advertising of goods or services," or (2) "on or in connection with which the use is likely to cause confusion or mistake, or result in deception regarding the source of origin of the goods or services." Ind.Code § 24-2-1-13(1); Felsher v. Univ. of Evansville, 755 N.E.2d 589, 599 (Ind.2001). Because Indiana's body of trademark law is "relatively undeveloped," the Indiana Trademark Act "is intended to provide a system of state trademark registration and protection that is consistent with the federal system of trademark registration." Serenity Springs v. LaPorte Cnty. Convention & Visitors Bureau, 986 N.E.2d 314, 323 (Ind. Ct.App.2013) (citing Ind.Code § 24-2-1-0.5). The state's law therefore tracks the terminology of the Lanham Act almost identically, and the essential elements of a state claim are the same as those of a federal one, with one notable difference. Id. Unlike the federal statute, the Indiana Trademark Act makes state registration of a trademark an explicit prerequisite to recovering for its infringement. Ind.Code § 24-2-1-14(a).
Defendants advance two grounds for summary judgment on this claim: that a cause of action for trade dress infringement is not cognizable under the Indiana statute, and that in any case Plaintiffs have failed to meet the incorporated Lanham Act requirements of "nongenericness, specificity, consistency, and nonfunctionality" as a matter of law. Docket No. 332 at 72.
As we have stated, the body of Indiana trademark infringement law is not richly developed. Given that the state's courts have reaffirmed quite recently that the state law aims at creating a "system of state trademark registration and protection that is consistent with the federal system of trademark registration," however, we can perceive no reason why the state law would not follow in the footsteps of federal law in recognizing trade dress protection. See Serenity Springs v. LaPorte Cnty. Convention & Visitors Bureau, 986 N.E.2d 314, 323 (Ind.Ct.App. 2013). Defendants have certainly presented no substantive argument in favor of the theory that trade dress is unprotected under state law. We have already implicitly recognized Count IX as a cognizable cause of action, see Docket No. 215 at 24-25 (denying Defendants' motion to dismiss), and we do not disturb that conclusion now.
Recognizing the parallel nature of the federal and state claims, Defendants' only
Defendants' motion for summary judgment as to Count IX of Plaintiffs' Amended Complaint is therefore DENIED.
Defendants seek a declaratory judgment in their favor that they are not liable to Plaintiffs' for their alleged breach of the 2009 Agreement, on the grounds that Plaintiffs are guilty of a first material breach. Docket No. 251 at 55. Because they "breached the confidentiality clause before the ink was dry" and attaching a copy of the Agreement in an email to an executive with nonparty Umarex shortly after the settlement was signed, Defendants insist, Plaintiffs cannot recover for any subsequent breaches by Defendants as a matter of law. Docket No. 332 at 73.
"[A] party first guilty of a material breach of contract may not maintain an action against the other party or seek to enforce the contract against the other party should that party subsequently breach the contract." Boston Scientific Corp. v. Mirowski Family Ventures, LLC, 2012 WL 5996482, at *9 (S.D.Ind. Nov. 30, 2012) (quoting Licocci v. Cardinal Assocs., Inc., 492 N.E.2d 48, 52 (Ind.Ct.App.1986)). "A material breach is one that goes to the heart of the contract." New Berean Missionary Baptist Church, Inc. v. State Farm Fire & Cas. Ins. Co., 2010 WL 2010464, at *5 (S.D.Ind. May 18, 2010).
The parties do not appear to dispute that Plaintiffs' attaching a copy of the Agreement in an email was at least a technical breach of its confidentiality clause. We have already granted Plaintiffs' motion for summary judgment on the counterclaim for breach of the confidentiality clause on grounds that Defendants failed to demonstrate the existence of damages. See supra, § IV(A). It does not necessarily follow, however, that the email was not a material breach. In support of their argument for materiality, Defendants cite only one case, a Florida state court decision. There, in Gulliver Schools, Inc. v. Snay, 137 So.3d 1045 (Fla.Dist.Ct.App. 2014), a teacher who settled his employment discrimination claims against his employer signed an agreement that included a confidentiality clause; shortly thereafter, however, he discussed the agreement with his college-age daughter (presumably not a law student), who proceeded to broadcast that information to some 1200 of her Facebook friends. 137 So.3d at 1046-1047. When the teacher later brought a suit against the school for breach of the agreement, the court ruled that his antecedent breach of the confidentiality clause foreclosed any recovery. Id. at 1048. Although the court did not expressly discuss the question of materiality, it did state that the confidentiality clause was "central" to the settlement agreement, and that "[t]he significance of this provision is evidenced by the fact that [plaintiff's] entitlement to
Plaintiffs, by contrast, argue that such a breach of the Agreement's confidentiality clause was not material because it did not go "to the heart of the contract." Cf. Goff v. Graham, 159 Ind.App. 324, 306 N.E.2d 758, 765 (1974). The "heart" of the 2009 Settlement, they insist, was GSG and ATI's agreement to cease production and sale of the allegedly infringing GSG-5 in exchange for a sum of money and the "approval" of the GSG-522. Docket No. 346 at 69. In support of this notion, they point out that the language of the confidentiality clause itself suggests that the maintenance of secrecy about the existence of a deal was not of paramount importance. See Docket No. 45-1, ¶ 24. They also refer us to a Delaware decision that they view as analogous to our facts and as a useful counterpoint to the Snay decision leaned upon by Defendants. In Texas Instruments, Inc. v. Qualcomm, Inc., 2004 WL 1631356 (Del.Ch. July 14, 2004), the Delaware court of chancery found that a party's breach of the confidentiality provision of a settlement agreement between two patent litigants was not material, because "peace" in the patent dispute, not confidentiality, was the agreement's central objective. "The [agreement] is not a confidentiality agreement. Nor was confidentiality identified by the parties as a critical term or goal of the [agreement]. The `root of the agreement' or the `essence of the contract' was patent peace between Qualcomm and [Texas Instruments]." 2004 WL 1631356, at *1.
We are not a court of chancery, and we do not enjoy a chancery court's freedom to decide summarily factual questions that are in genuine dispute. We believe that significantly more conclusive evidence of the centrality of the confidentiality clause would be necessary in order to take the question of materiality away from the jury. See Canada Dry, 723 F.2d at 517 ("We think that there was enough dispute as to these matters that the issues both of the occurrence of a breach and of its significance were properly left to the jury."). Defendants fail to meet their burden. While they present a slightly more extended discussion of the issue in their reply brief, they offer only unsupported argument regarding the Restatement factors applied by the Indiana courts, particularly whether confidentiality was central to the "benefit of the bargain." See Frazier v. Mellowitz, 804 N.E.2d 796, 802-803 (Ind. Ct.App.2004) (citing Restatement (Second) of Contracts § 241). For instance, they make the naked, conclusory assertion that "Defendants agreed to the settlement only because HKI agreed to keep it confidential." Docket No. 364 at 37 (emphasis added). This — and Defendants' other such assertions — may be true, and if they are, Plaintiffs' breach may have been material. But we are not in a position to say so. We therefore decline to declare as a matter of law that Plaintiffs' alleged prior material breach of the 2009 Agreement vitiates Plaintiffs' own contract claims.
Defendants' motion for summary judgment on Counterclaim Count X is accordingly DENIED. Because first material breach is the only argument Defendants present in support of their motion for summary judgment against Plaintiffs' own contract claims (Amended Complaint Counts I and II), Defendants' motion for summary judgment on Plaintiffs' Counts I and II is also DENIED.
We have resolved the pending motions as follows. Defendants' motion to strike Plaintiffs' affirmative defenses to counterclaims [Docket No. 282] is DENIED as moot, as detailed above.
Defendants' motion for summary judgment [Docket No. 331] is DENIED with respect to Counterclaim Counts I, III, IV, V, VI, VII, VIII, IX, X, XI and XII and with respect to Counts I, II, V, VI, VII, and IX of Plaintiffs' Amended Complaint.
IT IS SO ORDERED.
