Mercado-Salinas v. Bart Enterprises International, Ltd. , 671 F.3d 12 ( 2011 )

United States Court of Appeals
For the First Circuit
No. 10-2359
WALTER MERCADO-SALINAS; ASTROMUNDO, INC.,
Plaintiffs, Appellants,
v.
BART ENTERPRISES INTERNATIONAL, LTD; WALTER INTERNATIONAL
PRODUCTIONS, INC.; WALTERVISION PRODUCTIONS, INC.; WALTER MERCADO
RADIO PRODUCTIONS, INC.; WALTER MERCADO ENTERPRISES CORP.;
GUILLERMO BAKULA; ARCANE CREATIVE, LLC; WATERVISION, INC.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Gustavo A. Gelpí, U.S. District Judge]
Before
Lynch, Chief Judge,
Torruella and Stahl, Circuit Judges.
María D. Bertólez and María D. Trelles-Hernández, with
whom Néstor M. Méndez-Gómez, Pietrantoni Méndez & Alvarez LLP, John
F. Nevares, Pedro Quiñones Suárez, and John F. Nevares and
Associates PSC were on brief, for appellants.
Laura Beléndez-Ferrero, with whom Cristina Arenas Solís,
and Ferraiuoli LLC were on brief, for appellees.
December 20, 2011
LYNCH, Chief Judge. In 1995, Walter Mercado-Salinas, a
popular psychic and astrologer, and Bart Enterprises entered into
a contract (the "Agreement") for the production and distribution of
materials featuring Mercado's psychic and astrological services.
Under the Agreement, Mercado granted Bart the right to use the
"Walter Mercado" trademark, as well as Mercado's name and likeness.
In 2006, however, a dispute arose when Mercado ceased
providing services and Bart ceased to pay Mercado's monthly
compensation. This led to litigation in federal court in Florida
in which a jury, inter alia, rejected Mercado's claim that he had
validly terminated the Agreement, found that he had violated the
Agreement, and found that Bart owed Mercado no compensation.
In 2009, both parties sought injunctive relief from the
U.S. District Court for the District of Puerto Rico to prevent the
other party from using the "Walter Mercado" trademark. Finding
that Mercado assigned Bart the rights to the trademark in
perpetuity and that Mercado had not validly terminated the
Agreement, the district court denied Mercado's request for
preliminary injunctive relief and granted preliminary injunctive
relief to Bart. Mercado-Salinas v. Bart Enters. Int'l, Ltd., 747
F. Supp. 2d 265 (D.P.R. 2010).
We conclude that the district court did not abuse its
discretion in doing so. We affirm.
-2-
I.
A. The Agreement
On August 4, 1995, Mercado and Bart signed the Agreement,
under which Bart would develop and distribute materials and
products related to Mercado's psychic and astrological services.
As part of the Agreement, Mercado granted Bart several rights
"during the Term and throughout the Territory" of the Agreement.
The Agreement defines "Territory" as the universe. See Agreement
§ 4, at 5. It defines "Term" to mean "in perpetuity," subject to
a termination provision which, inter alia, allows Mercado to
terminate the Agreement after fifteen days' written notice if Bart
fails to pay Mercado any agreed compensation within sixty days of
the due date.1 Id. § 5, at 5; § 12(a)(iii), at 13-14.
First, Mercado "irrevocably assign[ed] to Bart throughout
the Territory during the Term, all right, title and interest,
including all copyrights" in certain "Preexisting Materials" that
Mercado had previously created for the business entity Jamie Shoop
& Associates Inc. See id. § 1(a), at 2.
Second, Mercado "grant[ed] to Bart the exclusive right
and license during the Term and throughout the Territory to
develop, produce, distribute and copyright in its own name new
1
The termination provision also provides that "Mercado
shall have the right to terminate this Agreement immediately . . .
in the event of a material breach by Bart which remains uncured for
a period of ten (10) days following written notice thereof."
Agreement § 12(a)(ii), at 13.
-3-
materials, in any language, relating to Mercado's psychic and
astrological services" (the "New Materials"). Id. § 1(b), at 3.
Most pertinently, the parties to the Agreement
"acknowledge[d] that the mark 'Walter Mercado' has . . . attained
the status of a common law trademark and service mark" by virtue of
its "use and associat[ion] with the Preexisting Materials." Id.
§ 2(a), at 3. The Agreement then states:
Mercado hereby irrevocably assigns to Bart
throughout the Territory during the Term, all
right, title and interest in and to the Mark,
together with that part of the goodwill of
Mercado's business connected with and
symbolized by said Mark, for use in connection
with the Pre-existing Materials and the New
Materials, if any. Such assignment includes
but is not limited to the right to use the
Mark in connection with Preexisting Materials
and the New Materials in any and all media now
known or hereafter developed . . . , the right
to merchandise and the right to utilize the
Mark in all advertising, promotion and
publicity created in connection therewith.
Id. § 2(b), at 4. Additionally, the Agreement provides:
Bart shall have all rights in the Mark which
are afforded to owners of trademarks and
service marks, including but not limited to
the right to seek and obtain trademark
protection and/or registration of the Mark in
its name, and the right to enforce or defend
Bart’s rights against third parties.2
2
On October 8, 1996, Bart filed an application for the
"Walter Mercado" trademark with the U.S. Patent and Trademark
Office (PTO). Mercado executed an affidavit in connection with
that application on July 11, 1997, stating that he authorized Bart
to register "Walter Mercado," "Walter," and "Walter Mercado
Salinas" as trademarks and that he "granted to [Bart] all rights of
ownership and authority to any and all of the [aforementioned]
-4-
Id. § 2(c), at 4.
Mercado also "grant[ed] to Bart the right and license
during the Term and throughout the Territory to use Mercado's
performance, name, signature, photographs, voice, picture,
likeness, or other indicia of his identity . . . subject, however,
to Mercado's right to prior approve any such use." Id. § 3(b), at
5. The parties agreed that "such approval [is] not to be
unreasonably withheld" and that "[i]f such approval is not
communicated to Bart within forty-eight (48) hours of Mercado's
receipt of the materials, such right of approval shall be deemed
waived." Id.
Finally, Mercado agreed to provide psychic and
astrological services for the creation of the New Materials during
an "Additional Services Period," a ten-year term to be
"automatically extended for additional two (2) year periods at the
option of Bart." Id. § 6(b)(i)-(ii), at 6. "The parties agree[d]
that any and all New Materials or parts thereof created or supplied
trademark names." In October 1997, Mercado also filed with the
Mexican Patent Office an affidavit granting Bart the right to
register the trademark in Mexico. On December 4, 2004, the PTO
cancelled the trademark application "because [the] registrant did
not file an acceptable declaration." See U.S. Trademark
Application Serial No. 75-185030 (filed Oct. 8, 1996). A few
months later, on May 5, 2005, Mercado executed and filed with the
PTO a "Consent of Living Individual" on the "understand[ing] that
consent of a living individual is required in order for a personal
name to be used and registered as a trademark." Bart filed a
second application for the "Walter Mercado" trademark on May 14,
2007. See U.S. Trademark Application Serial No. 77-180667 (filed
May 14, 2007). The application is still pending. Id.
-5-
by Mercado shall be deemed works made for hire as such term is
defined pursuant to the United States Copyright Law . . . or
relevant jurisdiction copyright law . . . ." Id. § 6(b)(iii), at
7. United States copyright law, in turn, provides that the
copyright in a "work made for hire" vests in the employer rather
than the employee. 17 U.S.C. § 201(b). The parties further agreed
that "[i]n the event that any of the results of Mercado's services
are not copyrightable . . . or for any reason are deemed not to be
works made for hire, then . . . Mercado hereby assigns all right,
title and interest in and to the results of his services to Bart."
Agreement § 6(b)(iii), at 7.
In return, "Bart agree[d] to pay to Mercado, in
consideration of all services rendered by Mercado and the use of
the results thereof and all rights granted by Mercado to Bart,"
compensation consisting of a $25,000 base salary per month, $5,000
per month for costumes, $2,000 per month for up to twenty-five
three-minute segments per month, and additional fees contingent
upon gross income from sales in foreign countries. Id. § 6(c), at
7-8.
At the same time, the parties agreed that Mercado "shall
be in no way hereunder prohibited or restricted, for his personal
benefit, from conducting his present business endeavors consisting
of radio, newspaper, magazines and personal consultation related to
psychic activities." Id. § 6(c)(v), at 8.
-6-
Finally, the Agreement provides that "all grants granted
or assigned by this agreement shall be irrevocable under all or any
circumstances, and shall not be subject to rescission, termination
or injunction. In the case of breach of this agreement by Bart,
Mercado's sole remedy shall be limited to an action at law for
damages." Id. § 13, at 15-16. The parties further agreed that any
disputes under the Agreement would be governed by Puerto Rico law.
Id. § 20(d), at 19.
B. The Florida litigation
In the fall of 2006, Mercado ceased to provide services
for new materials as provided under the Agreement and failed to
appear for scheduled appearances. In November 2006, Bart halted
its compensation payments to Mercado. Mercado formally attempted
to terminate the Agreement by a letter dated November 22, 2006,
citing Bart's failure to pay compensation. Mercado's company,
Astromundo, Inc., also filed with the U.S. Patent and Trademark
Office an application for the "Walter Mercado" trademark. See U.S.
Trademark Application Serial No. 77-047157 (filed Nov. 17, 2006).
This is one of the activities which ultimately caused Bart to seek
injunctive relief against Mercado.
On January 17, 2007, Bart filed suit against Mercado in
the federal court for the Southern District of Florida, alleging
breach of contract and tortious interference with Bart's
third-party contracts. Mercado counterclaimed for breach of
-7-
contract, breach of fiduciary duty, breach of the covenant of good
faith, violation of copyright and trademark laws, unjust
enrichment, and requested injunctive relief and a declaratory
judgment that the Agreement was invalid because its term was "in
perpetuity."
In the meantime, on February 8, 2007, Mercado filed suit
against Bart in the federal court for the District of Puerto Rico.
Mercado again alleged violation of copyright and trademark laws,
and sought injunctive relief and a declaration that the Agreement
was invalid. In October 2008, the Puerto Rico case was transferred
to the Florida district court, and on November 18, 2008, the two
cases were consolidated.
On cross-motions for summary judgment, the Florida
district court held that the Agreement was valid. See Walter Int'l
Prods., Inc. v. Mercado Salinas, No. 07-cv-20136, slip op. at 6-8
(S.D. Fla. Nov. 24, 2008). Importantly, the district court
determined that the Agreement contains two different durational
terms: (1) the term for which Mercado was obligated to provide
services to Bart (the "Additional Services Term"), consisting of
ten years plus optional two-year extensions; and (2) the term
applicable to the assignment of the trademark and other rights (the
"Term"), which is in perpetuity or until termination of the
Agreement. Id. at 7. The district court then determined that
because the trademark was "irrevocably assign[ed] to Bart . . .
-8-
during the Term" and because "the Term of the Agreement ends if
Bart or Mercado exercise their rights to terminate the Agreement,"
the trademark rights would revert to Mercado upon termination. Id.
at 15-16. The district court concluded that the question of
whether the Agreement was properly terminated had to be decided by
a jury before the court could determine who owned the trademark.
Id. at 17.
The consolidated case was tried to a Florida jury in
January 2009. On January 26, 2009, the jury returned a special
verdict finding that Mercado had breached the Agreement by (1)
failing to perform after November 22, 2006; (2) hiring another
exclusive agent; and (3) improperly terminating the Agreement. The
jury further found that Bart had not failed to pay any owed
compensation to Mercado and thus had not breached the Agreement.
On February 4, 2009, the Florida district court entered judgment in
favor of Bart.3
The court did not reach the trademark infringement claim,
stating that "[o]nce the jury found that Mercado, not Bart,
3
The jury also found that Mercado had interfered with
Bart's contracts with third parties. The jury did not find,
however, that Bart had suffered any damages resulting either from
this interference or from Mercado's breach of contract. Therefore,
the district court awarded no damages to Bart. Bart moved for a
new trial on the issue of damages, but the district court denied
the motion. See Walter Int'l Prods., Inc. v. Mercado Salinas, No.
07-cv-20136 (S.D. Fla. Oct. 26, 2009). Bart appealed the district
court's decision to the Eleventh Circuit Court of Appeals, which
affirmed the decision not to award Bart damages. See Walter Int'l
Prods., Inc. v. Salinas, 650 F.3d 1402 (11th Cir. 2011).
-9-
breached the contract and that Mercado had not properly terminated
the contract, the claim for trademark infringement became moot
because, as stated in the order on the motions for summary
judgment, the trademark rights revert to Mercado upon a valid
termination of the agreement." Walter Int'l Prods., Inc. v.
Mercado Salinas, No. 07-cv-20136, slip op. at 22 (S.D. Fla. Oct.
26, 2009).
C. The Puerto Rico litigation
Despite the ruling against him by the Florida court, on
March 20, 2009, Mercado sent Bart a letter demanding payment within
fifteen days of $25,000 per month for the twenty-seven months that
had elapsed between November 2006 and January 2009, amounting to a
total of $675,000. Mercado's letter asserted that "the $25,000 per
month [is] due and payable pursuant to clause 6(c)(i)" of the
Agreement, and that "[t]he obligation to pay such amounts is
independent of any service provided by Mr. Mercado." Mercado
stated he reserved the right to declare the Agreement null and void
pursuant to the termination clause if Bart did not make payment
within fifteen days.
On March 30, 2009, Bart notified Mercado by letter that
it would not pay the requested compensation. Bart asserted that no
compensation was due because, as the Florida court had held,
Mercado had ceased to provide services and thus had breached the
Agreement. Bart also asserted its right to the "Walter Mercado"
-10-
trademark and requested that Mercado stop using the mark to
unilaterally create new psychic and astrological materials.
On May 15, 2009, Mercado sent Bart a letter declaring the
Agreement null and void pursuant to the termination clause of the
Agreement because Bart had not paid the requested compensation.
Having done so, Mercado also declared that the trademark and
publicity rights reverted back to him. Mercado ordered Bart to
cease and desist from using the trademark or Mercado's name or
likeness.
Three days later, on May 18, 2009, Mercado4 brought suit
against Bart5 in the Puerto Rico Court of First Instance. Mercado
alleged breach of contract, trademark infringement, and
infringement of publicity rights. Upon Bart's motion, the case was
removed to the Puerto Rico federal district court. The parties
filed cross-motions for preliminary injunctive relief, each seeking
to prevent the other from using the "Walter Mercado" trademark.
The district court referred the motions to a magistrate
judge for a report and recommendation. The magistrate judge
determined that because the provisions granting trademark and
4
Plaintiffs are Mercado and Astromundo, Inc., a Puerto
Rico corporation. Mercado is the president of Astromundo, Inc. We
refer to the plaintiffs collectively as "Mercado."
5
Defendants are seven business concerns and their
principal, Guillermo Bakula. All of the defendants in the case are
citizens of Florida, except Bart Enterprises International, Ltd.,
which is a citizen of the Bahamas. We refer to the defendants
collectively as "Bart."
-11-
publicity rights contain limiting language such as "in connection
with Mercado's astrological and psychic activities," Bart's
trademark and publicity rights are limited to those materials
developed by or with Mercado during the Additional Services Term.
Once the Additional Services Term ended and Mercado ceased
providing services, the magistrate judge concluded, Bart could no
longer create new products using the trademark. The magistrate
judge recommended that the court grant Mercado's motion for a
preliminary injunction against Bart's use of the trademark or
Mercado's name or likeness in connection with any product that was
created after the end of the Additional Services Term without
Mercado's contribution or approval. Bart could, however, continue
to use the trademark in connection with products or materials
created with Mercado's approval during the Additional Services
Term.
Both parties filed objections to the report and
recommendation. On review, the district court denied Mercado's
motion for a preliminary injunction because Mercado had not
established that he was entitled to trademark protection. Mercado-
Salinas, 747 F. Supp. 2d at 274. First, based on the plain text of
the contract, the district court concluded that Mercado had
perpetually assigned to Bart full rights to the trademark. Id. at
271-72. Applying the doctrine of collateral estoppel, the district
court acknowledged the Florida district court's determination that
-12-
Mercado's assignment of rights was subject to reversion upon
termination of the Agreement. Id. at 272-73. Next, the district
court determined that Mercado did not validly terminate the
Agreement. Id. at 273-74. Because Mercado had ceased to provide
services, Bart had no obligation to pay him compensation and he
therefore had no basis for terminating the Agreement. Id. The
court denied Mercado's request for injunctive relief against Bart's
use of the trademark and Mercado's request for injunctive relief
regarding his publicity rights. Id. at 274.
Finding a likelihood of success regarding Bart's claim to
the trademark, the district court granted Bart's motion for
preliminary injunctive relief. Id. at 275. The injunction
prohibited Mercado from "using the Mark, 'Walter Mercado,' in
relation to all forms of business enterprise, and from representing
to third-parties that Plaintiffs own the Mark." Id. This
injunction was further narrowed.
On motion for reconsideration, the district court amended
the preliminary injunction to bar Mercado from "(1) using the Mark,
'Walter Mercado,' in relation to all forms of business enterprise,
except for business arrangements that commenced prior to June 7,
1995, and (2) representing to third parties that Plaintiffs own the
Mark." Mercado-Salinas v. Bart Enters. Int'l, Ltd., 747 F. Supp.
2d 275, 279 (D.P.R. 2010). The district court's opinion and order
expressly states that "the court's injunctive order relates only to
-13-
commercial use of the trademark."6 Id. It is this more limited
injunction, with that understanding, which is before us on appeal.
Mercado has appealed from the grant of this preliminary
injunction and from the denial of his request for preliminary
injunctive relief.
II.
Before granting a preliminary injunction, a "court must
consider (1) the likelihood of the movant's success on the merits;
(2) the anticipated incidence of irreparable harm if the injunction
is denied; (3) the balance of relevant equities (i.e., the hardship
that will befall the nonmovant if the injunction issues contrasted
with the hardship that will befall the movant if the injunction
does not issue); and (4) the impact, if any, of the court's action
on the public interest." Borinquen Biscuit Corp. v. M.V. Trading
Corp., 443 F.3d 112, 115 (1st Cir. 2006). "In a trademark case,
the key issue is the likelihood of success on the merits because
the other decisions will flow from that ruling." Keds Corp. v.
Renee Int'l Trading Corp., 888 F.2d 215, 220 (1st Cir. 1989).7
6
Bart agrees, acknowledging that Mercado "can use his own
name to identify himself."
7
In a series of cases, this court has employed a
presumption that irreparable harm exists if a trademark holder
demonstrates a likelihood of success in establishing infringement.
See, e.g., I.P. Lund Trading ApS v. Kohler Co., 163 F.3d 27, 33
(1st Cir. 1998). We have recognized there is a question as to
whether this presumption can co-exist with a more recent Supreme
Court case, eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).
See Voice of the Arab World, Inc. v. MDTV Med. News Now, Inc., 645
-14-
A district court's conclusions on these factors and its
determinations regarding their relative weighting engender
deferential appellate review. See Ross-Simons of Warwick, Inc. v.
Baccarat, Inc., 102 F.3d 12, 16 (1st Cir. 1996). Thus, a decision
to grant a preliminary injunction will stand unless the district
court "mistook the law, clearly erred in its factual assessments,
or otherwise abused its discretion in granting the interim relief."
McGuire v. Reilly, 260 F.3d 36, 42 (1st Cir. 2001); accord
Massachusetts v. Watt, 716 F.2d 946, 947 (1st Cir. 1983) ("[A
party] challenging the issuance of a preliminary injunction must
F.3d 26, 31 (1st Cir. 2011).
In eBay, the Supreme Court held that in considering whether to
issue injunctive relief against use of a patent or copyright,
courts may not "replace traditional equitable considerations with
a rule that an injunction automatically follows a determination
that a copyright has been infringed." eBay, 547 U.S. at 392-93.
Instead, the Court explained that "the decision whether to grant or
deny injunctive relief rests within the equitable discretion of the
district courts, and . . . such discretion must be exercised
consistent with traditional principles of equity, in patent
disputes no less than in other cases governed by such standards."
Id. at 394.
Although eBay dealt with the Patent Act and with permanent
injunctive relief, we have stated that "the traditional equitable
principles discussed by the Supreme Court in eBay apply" in
trademark infringement cases where preliminary injunctive relief is
sought. Voice of the Arab World, 645 F.3d at 31 (concluding that
the principles of eBay applied to a request to preliminarily enjoin
alleged trademark infringement, but declining to decide whether
such principles precluded a presumption of irreparable harm).
We need not decide here whether eBay precludes a presumption
of irreparable harm because Bart has demonstrated enough
irreparable harm that the district court did not abuse its
discretion in granting the preliminary injunction. In any event,
Mercado has not challenged the district court's finding of
irreparable harm, so this argument is waived.
-15-
carry the heavy burden of proving that the district court abused
its discretion.").
Applying this deferential standard at this preliminary
stage of the case, we cannot say the district court abused its
discretion in granting Bart the preliminary injunction entered and
denying Mercado's motion for a preliminary injunction against
Bart's use of the trademark and publicity rights. We do not say
that the issue of the scope of the trademark transferred has been
resolved, only that there was no abuse of discretion as to
preliminary injunctive relief.
Both parties claim ownership of the trademark while
disputing the other's ownership of the same. Specifically, the
parties disagree over whether Mercado licensed or fully assigned
the trademark to Bart under the Agreement.8
We describe the different views. The district court
adopted Bart's view that Mercado fully assigned the trademark to
Bart because the Agreement plainly uses the term "assign." See
P.R. Laws Ann. tit. 31, § 3471 ("If the terms of a contract are
clear and leave no doubt as to the intentions of the contracting
parties, the literal sense of its stipulations shall be
observed."). Section 2(b) of the Agreement states that "Mercado
hereby irrevocably assigns to Bart . . . all right, title and
8
The parties agree that Mercado granted Bart a license to
use his publicity rights in connection with the Preexisting and New
Materials.
-16-
interest in and to the Mark, together with that part of the
goodwill of Mercado's business connected with and symbolized by
said Mark." This unequivocal language is contrasted with Section
3(b), in which Mercado "grants to Bart the right and license . . .
to use Mercado's . . . Name and Likeness."
This contrast in language, the district court noted,
suggests that the parties intended to grant Bart a full assignment
of the trademark. See Russello v. United States, 464 U.S. 16, 23
(1983) (applying the presumption that the use of different words in
different provisions is purposeful and evinces an intention to
convey a different meaning); Nat'l Tax Inst., Inc. v. Topnotch at
Stowe Resort & Spa, 388 F.3d 15, 18 (1st Cir. 2004) (explaining
that language discrepancies between different contract provisions
"may cast light on meaning").
Still, the district court acknowledged language
suggesting otherwise: the text of Section 2(b) includes the
subsidiary phrase "for use in connection with the Pre-existing
Materials and the New Materials." The district court reasoned,
however, that this language is merely purposive and does not
restrict the scope of the assignment. See P.R. Laws Ann. tit. 31,
§ 3475 (providing that unclear language must be construed to
effectuate the meaning of the contract read as a whole). The
magistrate judge had a different view.
-17-
The district court also noted that the Agreement
stipulates that Bart has the right to register the trademark in its
own name and the right to enforce the trademark in court. Such
rights typically inure to assignees, not licensees. See, e.g., 15
U.S.C. §§ 1051(a)(1), 1127 (allowing an assignee to register a
trademark under its own name with the U.S. Patent and Trademark
Office); Quabaug Rubber Co. v. Fabiano Shoe Co., 567 F.2d 154, 159
n.6 (1st Cir. 1977) (stating that an "assignee would have the right
to sue infringers in his own name," whereas a licensee has no
exclusive right to sell a product associated with a trademark and
cannot sue on his own behalf).
There was evidence that the parties took actions
consistent with this reading. Not only did Bart file an
application for the "Walter Mercado" trademark with the U.S. Patent
and Trademark Office (PTO) in 1996, but Mercado filed at least
three documents that ratified Bart's right to do so. In 1997,
Mercado filed an affidavit with the PTO authorizing Bart to use and
register the names "Walter Mercado," "Walter," and "Walter Mercado
Salinas" as trademarks, and "grant[ing] to [Bart] all rights of
ownership and authority to any and all of the [aforementioned]
trademark names." Mercado filed a similar affidavit with the
Mexican Patent Office in 1997 and a "Consent of Living Individual"
with the PTO in 2005. The district court read these actions as
evidence of Mercado's intention to assign the trademark perpetually
-18-
to Bart. See P.R. Laws Ann. tit. 31, § 3472 ("In order to judge as
to the intention of the contracting parties, attention must
principally be paid to their acts, contemporaneous and subsequent
to the contract.").
Mercado, however, urges adoption of the magistrate
judge's reading that the Agreement grants Bart only a limited
license to use the trademark. The magistrate judge concluded that
because the Agreement consistently limits the use of the trademark
to uses "in connection with" the Preexisting and New Materials, the
grant is a limited license. See Agreement §§ 1(a), 1(b), 2(b),
3(b). Consistent with this interpretation, Section 6(c)(v) of the
Agreement allows Mercado to retain several independent business
ventures in "radio, newspaper, magazines and personal consultation
related to psychic activities." See 3 Callmann on Unfair
Competition, Trademarks and Monopolies § 20:63 (4th ed. 2011) ("The
transfer of a trademark also will not be inferred from an
assignment of a business where the assignor continues in the same
line of business after the assignment.").
For our purposes, however, the issue is not whether
Mercado licensed or fully assigned the trademark to Bart, but
whether the district court abused its discretion in issuing
-19-
preliminary injunctive relief. It did not because under either
interpretation, Bart is entitled to an injunction.9 We explain.
The district court plainly did not abuse its discretion
in applying collateral estoppel to the Florida district court's
determination that Mercado's assignment under the Agreement is
subject to reversion upon termination. See Berríos-Romero v.
Estado Libre Asociado de P.R., 641 F.3d 24, 26 (1st Cir. 2011)
("Issue preclusion, or collateral estoppel, forecloses relitigation
in a subsequent action of a fact [or issue of law] essential for
rendering a judgment in a prior action between the same parties,
even when different causes of action are involved." (quoting Puerto
Ricans for P.R. Party v. Dalmau, 544 F.3d 58, 69 (1st Cir. 2008))
(internal quotation marks omitted)).
Collateral estoppel applies when "(1) the issue sought to
be precluded in the later action is the same as that involved in
the earlier action; (2) the issue was actually litigated; (3) the
issue was determined by a valid and binding final judgment; and (4)
the determination of the issue was essential to the judgment."
Rodríguez-García v. Miranda-Marín, 610 F.3d 756, 770 (1st Cir.
2010) (quoting Ramallo Bros. Printing, Inc. v. El Día, Inc., 490
9
Mercado's failure to validly terminate the Agreement also
renders unsuccessful his claim that he is entitled to preliminary
injunctive relief to prevent Bart from using his name and likeness.
Like the rights to the trademark, Bart's rights to license
Mercado's name and likeness were granted in perpetuity and Bart
does not lose those rights without a valid termination of the
Agreement.
-20-
F.3d 86, 90 (1st Cir. 2007)) (internal quotation marks omitted),
cert. denied, 131 S. Ct. 1016 (2011). Mercado and Bart litigated
the issue of reversion upon termination before the Florida district
court, and the Florida court's determination was final at the
summary judgment stage. The issue was essential to the court's
determination that Mercado's trademark claims were moot because
Mercado had not terminated the Agreement. In order to even assert
a claim of injunctive relief, Mercado must demonstrate that he
terminated the Agreement and that the trademark rights reverted to
him.
The district court reasonably concluded that Mercado did
not validly terminate the Agreement. Section 12(a)(iii) of the
Agreement entitles Mercado to terminate the Agreement after fifteen
days' written notice if Bart fails to pay Mercado any agreed
compensation within sixty days of the due date. Mercado argues
that he was entitled to terminate the Agreement in 2006 after Bart
ceased to pay Mercado's monthly stipend. However, under Puerto
Rico law, a party must comply with its own contractual obligations
before it can demand compliance from the other party. See P.R.
Laws Ann. tit. 31, § 3052. A party's breach effectively suspends
the nonbreaching party's duty to tender performance. See id.§ 3017.
Both the magistrate judge and the district court
reasonably concluded that Bart's obligation to pay Mercado
-21-
compensation is reciprocal with Mercado's obligation to provide
services. The compensation provisions are embedded within Section
6, which discusses Mercado's services, rather than earlier sections
of the Agreement, which discuss the granting of rights.
Structurally, Section 6 begins by cancelling Mercado's prior
services obligations with Shoop & Associates. It then provides for
the "Additional Services" that Mercado is to render and it
concludes with a compensation structure. Read as a whole, Section
6 links Mercado's compensation and Mercado's services as reciprocal
obligations.
Mercado has rendered no services to Bart since November
2006. Because Puerto Rico law demands that Mercado comply with his
contractual obligation to provide services in order to demand
compensation, the district court reasonably concluded that Bart is
relieved from its obligation to pay Mercado compensation. This, in
turn, means that Mercado had no right to terminate the Agreement
and that the trademark rights have not reverted to him. The
district court therefore did not abuse its discretion in denying
Mercado's request for preliminary injunctive relief.
Nor did the district court abuse its discretion by
granting Bart's request for preliminary injunctive relief.10 All
10
Section 13 of the Agreement does not bar Bart from
seeking injunctive relief in this case. Section 13 states that
"all grants granted or assigned by this agreement shall be
irrevocable under all or any circumstances, and shall not be
subject to rescission, termination or injunction. In the case of
-22-
four factors support the district court's decision, even if Bart
only has a license. See Borinquen Biscuit, 443 F.3d at 115.
First, as the district court explained, Bart has
demonstrated a likelihood of success on the merits by showing (1)
that the "mark merits protection" and (2) "that the allegedly
infringing use is likely to result in consumer confusion." Id. at
116. Consumer confusion is established by reference to eight
guiding principles: "(1) the similarity of the marks; (2) the
similarity of the goods; (3) the relationship between the parties'
channels of trade; (4) the relationship between the parties'
advertising; (5) the classes of prospective purchasers; (6)
evidence of actual confusion; (7) the defendant's intent in
adopting its mark; and (8) the strength of the plaintiff's mark."
Id. at 120. This list is merely illustrative; the purpose of the
inquiry is to determine whether "the allegedly infringing conduct
carries with it a likelihood of confounding an appreciable number
breach of this agreement by Bart, Mercado's sole remedy shall be
limited to an action at law for damages."
By its plain terms, this provision precludes Mercado from
seeking to enjoin Bart from using the very trademark that Mercado
granted to Bart. Bart, on the other hand, granted no such
trademark rights to Mercado. Because the provision is limited to
"grants granted" under the Agreement, it cannot operate to prevent
Bart from seeking injunctive relief here. The provision's express
limitation of Mercado's remedies to damages, with no corollary
provision for Bart, bolsters this reading.
In any event, Mercado did not raise this argument before the
district court and it is waived. See Anderson v. Hannaford Bros.
Co., 659 F.3d 151, 158 n.5 (1st Cir. 2011).
-23-
of reasonably prudent purchasers exercising ordinary care." The
Shell Co. (P.R.) Ltd. v. Los Frailes Serv. Station, Inc., 605 F.3d
10, 21-22 (1st Cir. 2010) (quoting Int'l Ass'n of Machinists &
Aerospace Workers v. Winship Green Nursing Ctr., 103 F.3d 196, 201
(1st Cir. 1996)) (internal quotation marks omitted).
The parties each agree that the mark merits protection.
"[T]o be eligible for trademark protection, a mark must qualify as
distinctive," Borinquen Biscuit, 443 F.3d at 116, either inherently
or through acquired secondary meaning, id. at 116-17. The parties
agree that the trademark "Walter Mercado" has a secondary meaning.
The Agreement itself states that "the Mark has attained the status
of a common law trademark and service mark." See Agreement § 2(a),
at 3.
Additionally, there is a likelihood of consumer
confusion. Bart has alleged that Mercado continues to use the
trademark to develop new materials and products with third-party
agents, including a book, a CD, a website, and horoscopes
distributed in several countries in media including periodicals,
television, text messages, and pre-recorded audio and video
messages. The district court reasonably concluded that if Mercado
and Bart are concurrently producing psychic and astrological
products using the Mercado name, Mercado's infringing use of the
trademark is likely to create consumer confusion. The products
rely on the same trademark; they are within the same class of
-24-
astrological and psychic products; and they target the same class
of Spanish-speaking astrological and psychic customers. See
Borinquen Biscuit, 443 F.3d at 120.
Bart has also demonstrated irreparable harm. As the
district court explained, Mercado's continued infringing use of the
trademark has impaired Bart's marketing of its own astrological
products and services. Mercado-Salinas, 747 F. Supp. 2d at 274-75.
Bart also alleges that Mercado has interfered with Bart's use of
the trademark by continuing to represent to third parties that he
owns the trademark. Mercado has, for example, attempted to bill
Bart's contractual partners directly for their use of the
trademark.
Third, the court balances "the hardship that will befall
the nonmovant if the injunction issues" against "the hardship that
will befall the movant if the injunction does not issue."
Borinquen Biscuit, 443 F.3d at 115. We cannot fault the
determination that the balance of hardships tips in Bart's favor.
We note the district court's preliminary injunction as issued still
allows Mercado to engage in the same business enterprises allowed
under the Agreement.
As to the impact of a preliminary injunction on the
public interest, concurrent use of the trademark by Bart and
Mercado may lead to substantial consumer confusion, which is not in
the public interest. See id.-25-
Mercado argues that the preliminary injunction is in
error because it potentially prevents him from using his personal
name. However, "[t]here is no doubt that a personal name used as
a trademark may be expressly assigned to another along with the
goodwill symbolized by the mark." 3 McCarthy on Trademarks and
Unfair Competition § 18:32 (4th ed. 2011). "If a person has sold
a business which is identified by his personal name, the name is an
asset which he has sold, and he cannot keep commercial control of
the name and keep the purchase price too. Of course, the seller
can use his own name to identify himself, but he has sold the right
to use the name as a commercial symbol -- a trademark." Id.
(footnote omitted).
The injunction had two narrowing features: it only
limited use of the trademark "Walter Mercado," and it contained an
exception. We have upheld that injunction as not an abuse of
discretion. While Mercado argued the original injunction was too
broad, the court adopted the exception offered and Mercado offered
no specifics beyond that. It can hardly be an abuse of discretion
for the district court not to have sua sponte imposed further
limitations.
III.
We affirm the district court's denial of Mercado's
request for preliminary injunctive relief and its grant of Bart's
-26-
request for preliminary injunctive relief. We remand the case for
trial and further development of the issues.
-27-