Luv N' Care, Limited v. Groupo Rimar , 844 F.3d 442 ( 2016 )

Case: 16-30039 Document: 00513801022 Page: 1 Date Filed: 12/16/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 16-30039
Fifth Circuit
FILED
December 16, 2016
LUV N’ CARE, LIMITED, Lyle W. Cayce
Clerk
Plaintiff - Appellant
v.
GROUPO RIMAR, also known as Suavinex, S.A.,
Defendant - Appellee
Appeal from the United States District Court
for the Western District of Louisiana
Before BENAVIDES, HAYNES, and GRAVES, Circuit Judges.
JAMES E. GRAVES, JR., Circuit Judge:
Baby products manufacturer Luv N’ Care, Ltd. (“LNC”) brought this
breach of contract action against its former distributor, Groupo Rimar, a.k.a.
Suavinex, S.A. (“Suavinex”), for selling two products that allegedly copy LNC’s
product designs in violation of the parties’ 2012 Termination Agreement and
Mutual Release (“Termination Agreement”). LNC sought damages as well as
an injunction prohibiting Suavinex from selling the offending products.
Suavinex asserted counterclaims seeking a declaratory judgment that it did
not breach the contract and that LNC was not entitled to an injunction. It
subsequently moved for partial summary judgment on those claims. The
district court granted Suavinex’s motion, finding that Suavinex did not breach
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the Termination Agreement because it did not apply to product designs that
were already in the public domain, such as the two products at issue. We
conclude that the plain language of the Termination Agreement contains no
such limitation. Accordingly, we REVERSE.
BACKGROUND
Factual Background
LNC is a Louisiana corporation; Suavinex is a Spanish corporation. Both
companies design and sell baby products. In 2009, the parties entered into a
distribution agreement (the “2009 Distribution Agreement”) granting
Suavinex the right to distribute LNC products in Spain. The contract had a
three-year term. It was the last of a series of distribution agreements that
governed the parties’ business relationship, which dated back to the 1990s.
At some point before the end of the term, a dispute arose between the
parties. In settlement of the dispute, the parties entered into the Termination
Agreement on April 12, 2012. The Termination Agreement served to terminate
the 2009 Distribution Agreement, but provided that the obligations in
Paragraphs 15, 16, and 19 of the 2009 Distribution Agreement, incorporated
by reference, would survive termination. 1 These provisions restrict Suavinex’s
right to copy, use, or disclose various kinds of information pertaining to LNC
products. Surviving Paragraphs 15, specifically 15B, and 19 are at issue in
this appeal. Paragraph 15 is labeled “Intellectual Property Rights and LNC’s
Product Design and Packaging.” Subsection B of Paragraph 15 provides:
1 Paragraph 3.3 of the Termination Agreement, entitled “Survival of Certain
Provisions,” states:
Notwithstanding termination of the Distribution Agreement as provided in
Section 1 above or the mutual releases set forth in Section 4 below, the
obligations of Groupo Rimar under Paragraph 15 “Intellectual Property Rights
and LNC’s Product Design and Packaging,” Paragraph 16 “Termination of
Trademark Rights” and Paragraph 19 “Use of Confidential Information” of the
Distribution Agreement shall survive termination of the Distribution
Agreement.
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B. Distributor hereby acknowledges and agrees not to copy or
utilize any of LNC’s formulae, trade secrets, product design,
patents, drawings, business plans, prototypes, packaging,
procedures and methods [and] any other proprietary designs or
information without LNC’s written permission.
Paragraph 19, “Use of Confidential Information,” provides:
During the term of this Agreement and continuing after the
expiration or termination hereof, either party shall not disclose or
make accessible to anyone, or make use of the knowledge or
information which either party obtains or obtained during the
term of this Agreement with respect to formulae, trade secrets,
product design, patents, drawings, business plans, prototypes,
procedures, and methods [and] any other proprietary designs or
information of the other party without the written consent of the
other party. Either party acknowledges receipt of confidential and
non-confidential proprietary information from the other party.
During the term of this Agreement and continuing after the
expiration or termination hereof, Distributor agrees not to use in
any fashion said information or designs, or any colorable
imitations thereof. Any use by Distributor of said information or
property without LNC’s written consent will convey royalty and
commission rights upon LNC at a rate not less than those set
herein, without waiving and specifically reserving to LNC any
other remedies available to LNC. . . .
LNC asserts that in 2013, it learned that Suavinex had been selling
under its own name an orthodontic pacifier and silicone soft top spout cup (a
“sippy cup”) that copied the design of LNC’s Comfort soft shield pacifier and
soft silicone spout cup, in violation of Paragraphs 15B and 19. It is undisputed
that LNC’s pacifier and cup were being sold to the general public for years prior
to the execution of the 2009 Distribution Agreement; however Suavinex did not
begin selling these products until the parties had an operative distribution
agreement.
Procedural Background
On June 6, 2013, LNC filed a petition for breach of contract in the Fourth
Judicial District Court, Parish of Ouachita, Louisiana. Subsequently, LNC
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voluntarily dismissed the suit and filed this action on August 14, 2014 in the
United States District Court for the Western District of Louisiana. 2 LNC
asserted claims for breach of contract and sought damages as well as an
injunction prohibiting Suavinex from selling the offending products. 3 On
December 22, 2014, Suavinex filed an answer and counterclaims, seeking a
declaratory judgment that it was not in breach of contract and that LNC was
not entitled to a permanent injunction prohibiting Suavinex from selling the
products at issue outside the United States. Suavinex claimed further that
LNC breached the forum selection clause in the Termination Agreement by
originally filing suit in state court. Thereafter, Suavinex moved for partial
summary judgment on all three claims.
In an opinion dated September 30, 2015, the district court granted
Suavinex’s partial summary judgment motion in its entirety. The district court
determined that the disputed paragraphs were unambiguous and protected
only LNC’s “proprietary” information, not publicly-available information.
First, the district court found that Paragraph 15B restricts the copying or
utilization of an enumerated list of items “commonly understood to be
proprietary,” as well as the catch-all, “any other proprietary designs or
information.” It noted that Paragraph 19 contains virtually the same
enumerated list and catch-all, but applies to the disclosure of confidential and
non-confidential information. The court then turned to Black’s Law Dictionary
to define proprietary information as “information in which the owner has a
2 The 2009 Distribution Agreement contained a forum selection clause designating
state court as the forum for disputes arising under the contract, whereas the 2012
Termination Agreement required that any such suit be brought in the United States District
Court for the Western District of Louisiana.
3 LNC also asserted a claim for unfair trade practices under the Louisiana Unfair and
Deceptive Trade Practices Act (“LUDTPA”), La. Rev. Stat. § 51:1407, but voluntarily moved
to dismiss the claim after discovery confirmed Suavinex did not sell any products in
Louisiana. On June 24, 2015, the district court dismissed the LUDTPA claim with prejudice.
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protectable interest,” and reasoned from intellectual property law that “[a]ny
protectable information is usually lost when that information is offered to the
public.” Because the products at issue were publicly available before the
parties entered into the 2009 Distribution Agreement, the court determined
that they fell outside the scope of Paragraph 15B, and therefore Suavinex did
not breach the 2012 Termination Agreement. Moreover, the district court
found that LNC’s proposed interpretation would violate principles of Louisiana
contract law, which hold that only information that is confidential to at least
one of the parties may be protected through contract.
Having concluded that there was no breach, the district court further
held that LNC was not entitled to a permanent injunction. 4 In a subsequent
order, the district court awarded Suavinex $267,401.25 in attorney’s fees as
the prevailing party, pursuant to the terms of the Termination Agreement. 5
DISCUSSION
Standard of Review
We review a district court’s grant of summary judgment de novo,
applying the same legal standards as the district court.” Tradewinds Envtl.
Restoration, Inc. v. St. Tammany Park, LLC, 578 F.3d 255, 258 (5th Cir. 2009).
Summary judgment is proper only when the record demonstrates that no
genuine issue of material fact exists and the movant is entitled to judgment as
a matter of law. Condrey v. SunTrust Bank of Georgia, 429 F.3d 556, 562 (5th
Cir. 2005). Further, we review a district court’s interpretation of state law de
4 The district court also ruled that LNC breached the Termination Agreement’s forum
selection clause by originally filing this action in state court, and later awarded Suavinex
nominal damages for the breach. LNC does not appeal these rulings and therefore they are
not before this Court.
5 Paragraph 5.9 of the Termination Agreement provides that the “prevailing party in
a claim . . . arising under this Agreement against another Party shall be entitled to collect
reasonable attorney’s fees incurred in connection with the claim or suit or the underlying
matter.”
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novo and give no deference to its determinations of state law issues.
Tradewinds Envtl. Restoration, Inc., 578 F.3d at 258 (citing Salve Regina Coll.
v. Russell, 499 U.S. 225, 239-40 (1991)).
LNC’s Breach of Contract Claim
LNC contends that the district court erred by ignoring the plain meaning
of the contract and imposing an extra-contractual requirement that LNC’s
product-related information already be protected by some other legal right in
order to receive protection under the contract. We agree.
Louisiana law recognizes broad freedom to contract. “Parties are free to
contract for any object that is lawful, possible and determined or
determinable,” La. Civ. Code art. 1971, and “the contract constitutes the law
between the parties,” Barrera v. Ciolino, 636 So. 2d 218, 222 (La. 1994) (citing
La. Civ. Code art. 1983). Contractual intent is determined by the words of the
contract. Id. “When the words of the contract are clear and explicit and lead
to no absurd consequences, no further interpretation may be made in search of
the parties’ intent.” La. Civ. Code art. 2046. Furthermore, “[e]ach provision
in a contract must be interpreted in light of the other provisions so that each
is given the meaning suggested by the contract as a whole.” La. Civ. Code art.
2050. Finally, “[a] contract should be interpreted so as to avoid neutralizing
or ignoring a provision or treating it as surplusage.” Hawthorne Land Co. v.
Equilon Pipeline Co., LLC, 309 F.3d 888, 893 (5th Cir. 2002) (citation omitted).
The plain language of Paragraph 15B states that “Distributor hereby
acknowledges and agrees not to copy or utilize any of LNC’s . . . product design
. . . without LNC’s written permission.” On its face, the clause applies to any
of LNC’s product designs, which would include those in the public domain.
Rather than applying Paragraph 15B’s plain meaning, the district court
imposed the requirement that the design be either confidential or protectable
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as intellectual property in order to fall within the definition of “product design.”
This construction is flawed for several reasons.
First, by requiring that the design already be protected in order to
qualify for protection under the contract, the district court effectively rendered
Paragraph 15B meaningless. If, for example, Suavinex copied one of LNC’s
patented product designs, LNC would not need a contract to enforce its rights;
it could sue Suavinex for infringement under the patent laws. Furthermore,
Paragraph 19 already restricts Suavinex from using any confidential
information it receives from LNC. Interpreting Paragraph 15B to apply only
to information that is either confidential or already protected as intellectual
property renders the provision mere surplusage, violating one of the basic
tenets of contract interpretation recognized in Louisiana and elsewhere. See,
e.g., Hawthorne Land Co., 309 F.3d at 893.
Suavinex urges us nonetheless to observe the general rule that “[o]nce
an inventor has decided to lift the veil of secrecy from his work, he must choose
the protection of a federal patent or the dedication of his work to the public at
large.” Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 149
(1989); see also Netheler-Hinz GMBH v. Ritter GMBH, 289 F.3d 351, 355 (5th
Cir. 2002) (“Unless protected by patent or copyright, functional product
features may be copied freely by competitors in the marketplace.”); Zippo Mfg.
v. Manners Jewelers, Inc., 180 F. Supp. 845 (E.D. La. 1960) (same). Therefore,
according to Suavinex, the district court correctly held that Paragraph 15B
cannot protect ideas in the public domain, such as the design of LNC’s two
products here.
The intellectual property cases, which the district court relied upon in
reaching beyond the plain language of the contract, are inapposite. They
concern the rights held by an inventor against the public at large, not, as here,
the rights and obligations of parties in contractual privity with one another,
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who have bargained for benefits beyond what the law itself can provide.
Intellectual property law is no barrier to enforcement of a contract under state
law, “merely because the contract relates to intellectual property which may or
may not be patentable.” Aronson v. Quick Point Pencil Co., 440 U.S. 257, 262
(1979) (holding that a company’s contractual obligation to pay royalties for the
use of inventor’s product design was enforceable despite the fact that the
design was not patentable and other competitors were free to copy the design
without paying royalties).
LNC asserts that in return for the benefits of becoming the exclusive
distributor of LNC’s innovative products in Spain, including obtaining
confidential business plans and information about promoting sales and
marketing the products, Suavinex voluntarily and contractually limited its
ability to use or copy LNC’s product design information.” “The fact that this
agreement prevented [Suavinex] from using information that it previously
[could have] gleaned by reverse engineering is irrelevant. Parties to a contract
may limit their right to take action they previously had been free to take.”
Universal Gym Equip., Inc. v. ERWA Exercise Equip. Ltd., 827 F.2d 1542, 1550
(Fed. Cir. 1987); see also Byrne v. Sealy & Co., 742 So. 2d 668, 671 (La. App.
5th Cir. 1999) (“There is nothing that prohibits or prevents a party from
contractually agreeing to greater liability than would have been provided by
law.”).
Moreover, as LNC contends, it makes little sense to incorporate U.S.
intellectual property law principles into the parties’ contract, which concerns
the sale of products outside of the United States. U.S. intellectual property
law applies only to products manufactured in, sold in, offered for sale in, or
imported to the United States. 35 U.S.C. § 154(a)(1); Microsoft Corp. v. AT&T
Corp., 550 U.S. 437, 454-55 (2007). Although jurisdictions outside of the
United States recognize other forms of intellectual property rights, there is no
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indication that LNC ever intended to obtain intellectual property protection
for products distributed worldwide through its network of distributors like
Suavinex. Instead LNC asserts that it sought extraterritorial protection of its
product designs through distribution agreements, such as the one at issue
here, and insisted on the survival of these obligations in the Termination
Agreement, which was executed by both parties after arm’s-length negotiation.
Examining Paragraph 15 as whole further demonstrates that Subsection
B relates to information that is not intellectual property-protected. The
heading of Paragraph 15, “Intellectual Property Rights and LNC’s
Product Design and Packaging,” indicates that Paragraph 15 concerns
both LNC’s “intellectual property rights” and LNC’s “product design and
packaging.” Unlike Subsection B, Subsection A exclusively concerns LNC’s
intellectual property rights, specifically LNC’s Trademarks. 6 The provision
imposes certain obligations and restrictions on the Distributor in relation to
6 Paragraph 15A states:
Distributor hereby acknowledges that the Trademarks that are or become
subject to this Agreement, and any combinations thereof are good and valid
between the parties and that Distributor will not challenge their validity or
ownership during the term of this Agreement or thereafter. Distributor
further acknowledges and hereby agrees that LNC has the exclusive rights in
the Territory to the use of the Trademarks, trade names and brand names
(including but not limited to, LNC’s rights in connection with advertising
materials, copyrighted packaging and/or other related materials associated
with the Products), and that Distributor has no right or interest therein or in
any other trademark, trade name, or brand name of LNC and/or Nûby or its
Licensors. Furthermore, Distributor acknowledges that LNC and Nûby under
a Trademark License Agreement (a license agreement with Admar
International Inc. and/or N.E. Hakim for certain Nûby Trademarks) has
licensed those certain Trademarks in Exhibit I for use within the Territory.
Distributor will not in any way infringe or contribute to the infringement by
others of the rights of LNC and or Nûby in said Trademarks, trade name and
brand name, but will immediately notify LNC upon suspecting or learning of
such infringement by others in the Territory. Distributor will only use the
Trademarks in a manner approved by LNC. LNC shall be responsible for
protection and maintenance of the Trademarks. Distributor may use its own
trademarks at its discretion on all non-LNC or Nûby Products.
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those marks. For example, the Distributor may not “challenge their validity
or ownership,” “has no right or interest” in them, “will not in any way infringe
or contribute to the infringement by others of the . . . Trademarks,” and “will
immediately notify LNC upon suspecting or learning of such infringement by
others in the Territory.” Subsection A does not contain the words “product
design” at all. It refers once to packaging, but specifically “copyrighted
packaging.”
Subsection B, at issue in this litigation, contains the aforementioned list
of product-related information, including LNC’s product design and packaging,
without a similar qualification that they be copyrighted. And the Distributor
“agrees not to copy or utilize any of [this information] . . . without LNC’s written
permission.”
Subsection C provides LNC’s remedies if the Distributor violates
subsection A or B. The provision states in full:
C. If in the event, the Distributor is found to have copied any
Intellectual Property Rights, Product Designs and/or
Packaging as defined in Paragraph 15 A & B above, then
the Distributor will be liable to pay to LNC, at a minimum, a
royalty of twelve (12) percent on all sales of the infringing
product(s) as well as any other remedies allowed by law for
LNC to recover its losses and lost sales.
Subsection C finally draws the link between “Intellectual Property Rights” and
“Products Designs and/or Packaging.” The logical inference is that the former
is defined in subsection A, whereas the latter is defined in subsection B.
Construing the term “product design” in subsection B merely as a subset of
LNC’s intellectual property rights, as the district court did, ignores the
relationship between each subsection of Paragraph 15 and subverts the
meaning of the provision as a whole, in contravention of La. Civ. Code Ann.
art. 2050.
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We observe that sometimes contractual provisions are used merely to
acknowledge rights already established so as to limit the set of rights and
remedies to which the contract applies. Paragraph 15A provides an example.
That provision discusses LNC’s trademarks, which the Distributor
acknowledges, inter alia, that it “has no right or interest therein.” This
acknowledgement serves merely to confirm rights LNC already has and
Suavinex does not. Paragraph 15B, however, is not limited on its face to the
parties’ established rights. While Paragraph 15A provides that LNC has
“exclusive rights” to the use of LNC’s “copyrighted packaging,” Paragraph 15B
requires the Distributor to agree “not to copy or utilize any of LNC’s . . .
packaging,” thereby extending contractual protection to LNC’s packaging that
is not copyrighted. And Paragraph 15B extends that same protection to “any
of LNC’s . . . product design.”
Suavinex raises various counter arguments, none of which are
persuasive. 7 First, Sauvinex argues that the Paragraphs 15B and 19 only
apply to “proprietary” information, which the District Court concluded is
limited to “information in which the owner has a protectable interest.” Even
assuming the district court correctly inferred that the word “proprietary”—
which appears only in the catch-all phrase at the end of the list of items in each
provision—implicitly modifies every other item on the list, LNC asserts that
the term “proprietary” refers simply to information that it originally conceived,
such as the innovative designs of the baby products at issue in this case, which
7We note that Suavinex concedes that the district court’s statement that Louisiana
law would prevent enforcement of a contract protecting non-confidential information is not
supported by the decisions the district court cited. Suavinex acknowledges that these cases
are merely examples of where a non-disclosure agreement prohibiting the use of confidential
information was breached through the use of confidential information. We likewise do not
discern in these cases any general principle of Louisiana contract law that precludes
enforcement of express agreements not to disclose or make use of non-confidential
information as well as confidential information.
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were in LNC’s sole possession prior to the dissemination of the products to the
public. This common-sense meaning of “proprietary” is both reasonable and
more consistent with the meaning of the contract as a whole.
Second, Suavinex contends that LNC’s interpretation attempts to
rewrite the contract into the language of the contract in Universal Gym
Equipment, Inc. v. ERWA Exercise Equipment Ltd., 827 F.2d 1542 (1987),
which the Federal Circuit interpreted in substantively the same manner as we
construe the contract at issue here. That case concerned a licensing agreement
authorizing Global Gym and Equipment Fitness Limited (“Global”), a
subsidiary of ERWA Exercise Equipment Limited, to manufacture and sell the
“Universal machine” that Universal Gym Equipment, Inc. (“Universal”)
invented, in exchange for royalty payments. Id. at 1550. The contract also
provided that after termination of the agreement, Global “shall not thereafter
manufacture, use, sell, or distribute any products which include any of the
features, designs, [or] technical information” of Universal. Id. at 1545. Like
Suavinex, Global argued that “because the agreement did not define ‘features
and designs,’ those items must be limited to ‘confidential proprietary
information’ that Universal supplied to Global.” Id. at 1550. The Federal
Circuit held that “the broad language . . . prohibiting Global from using ‘any of
the’ features and designs of Universal meant what it said and was not limited
to the use of whatever confidential or proprietary information Universal may
have supplied to Global.” Id. at 1551. We similarly interpret the explicit
prohibition against copying “any of LNC’s . . . product design” to mean what it
says and, as discussed above, reject the notion that the term “proprietary”
limits the scope of Paragraph 15B to designs that are intellectual property-
protected.
Suavinex also contends that Universal Gym Equipment is
distinguishable because it expressly prohibited the use of product “features” as
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well as product “designs,” unlike the instant contract, which only prohibits
copying LNC’s “product design.” Suavinex contends that, at most, LNC alleges
that Suavinex copied certain design features of LNC’s products. The district
court did not address this argument and we make no observation as to whether
there is a meaningful difference between copying features of a “product design”
and copying a “product design” for purposes of determining breach of the
Termination Agreement. On remand, Suavinex may address this argument
directly to the district court. 8
Further, we draw no conclusion as to whether Suavinex did, in fact, copy
LNC’s product designs, in violation of the Termination Agreement. These are
questions of fact requiring an examination of the summary judgment record
that the district court did not undertake. We remand to the district court to
determine, in the first instance, whether these factual issues can be resolved
on summary judgment.
Injunctive Relief
The district court’s judgment that LNC was not entitled to an injunction
was premised entirely on its conclusion that the Termination Agreement did
not reach the products at issue, and therefore that Suavinex did not breach the
agreement. Accordingly, reversing the district court’s judgment on LNC’s
breach of contract claim requires that we reverse the district court’s denial of
injunctive relief as well. We take no position on the merits of whether LNC is
entitled under Louisiana state law to the injunctive relief it seeks.
8 We likewise decline to address any other issues raised by the parties that the district
court did not pass upon. See Singleton v. Wulff, 428 U.S. 106, 120 (1976) (“It is the general
rule, of course, that a federal appellate court does not consider an issue not passed upon
below.”).
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Attorney’s Fees
Reversal on the breach of contract claim likewise requires vacation of the
attorney’s fees award to Sauvinex. It is premature at this juncture to conclude
which party will be the “prevailing party,” entitled to reasonable attorney’s fees
under Paragraph 5.9 of the Termination Agreement.
CONCLUSION
In sum, we REVERSE the district court’s judgment on LNC’s breach of
contract claim and its request for injunctive relief. We VACATE the award of
attorney’s fees to Suavinex. And we REMAND the case to the district court for
further proceedings consistent with this opinion.
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