The opinion of the court was delivered by: ROBERT W. SWEET
The Defendants, Jan Jewelry Designs, Inc. ("Jan") and Jan Brzozowski ("Brzozowski") (collectively, the "Defendants"), have moved for an order for the following relief: partial summary judgment in their favor and against the plaintiffs, Accent Designs, Inc. ("Accent") and Jesse Bands, Inc. ("Jesse") (collectively, the "Plaintiffs") pursuant to Rule 56, Fed. R. Civ. P.; sanctions against the Plaintiffs and their counsel pursuant to Rule 11, Fed. R. Civ. P.; the preclusion of certain evidence pursuant to Rule 1006, Fed. R. Evid.
The Plaintiffs have cross-moved for an order imposing sanctions against the Defendants and awarding the Plaintiffs costs, expenses, and attorney's fees pursuant to Rule 11, Fed. R. Civ. P., and 28 U.S.C. § 1927.
For the reasons set forth below, the Defendants' motion is granted in part and denied in part, and the Plaintiffs' cross-motion is denied.
Accent is a corporation duly organized under the laws of the State of New York, having its principal place of business in New York, New York.
Jesse is a corporation duly organized under the laws of the State of New York, having its principal place of business in New York, New York.
Jan is a corporation duly organized under the laws of the State of New York, having its principal place of business in New York, New York.
Brzozowski is a natural person who is a citizen of the State of New York, residing and domiciled in New York, New York.
The Plaintiffs brought this action against the Defendants on January 22, 1992, and on May 27, 1992, they were granted leave to file an amended complaint ("Amended Complaint"). The Amended Complaint was filed on May 28, 1992.
On January 22, 1992, by way of an Order to Show Cause, the Plaintiffs moved for expedited discovery pursuant to Rules 30, 33, and 34, Fed. R. Civ. P. The motion for expedited discovery was granted to both sides on January 23, 1992.
On March 11, 1992, again by way of an Order to Show Cause, the Plaintiffs moved for a preliminary injunction pursuant to Rule 65, Fed. R. Civ. P., enjoining the Defendants from harassing, charging, or threatening the Plaintiffs or any of their customers with infringement of the Defendant's patent, U.S. Patent No. 4,566,294 (the "'294 patent"), in connection with certain channel-set jewelry manufactured, contracted, offered for sale or sold by the Plaintiffs. A hearing on the Order to Show Cause was held on April 2, 1992 (the "Preliminary Injunction Hearing"), at which time this Court declined to issue the requested equitable relief on the ground that the Plaintiffs made no showing of irreparable injury.
The present motion was filed by the Defendants on December 17, 1992. Oral argument was heard on February 10, 1993, and the motion was considered submitted as of that date.
This is a diversity action brought by the Plaintiffs for declaratory relief and damages as set forth in the six-count Amended Complaint. At the center of this action is the '294 Patent, which was filed with the U.S. Patent and Trademark Office (the "PTO") on February 2, 1984 and issued to Brzozowski on January 28, 1986 for a "Method of the Mounting of Gems and Resulting Product." The '294 Patent set forth a method of mounting gems in jewelry by employing a channel setting which is a V-shaped groove.
Accent, Jesse, and Jan are engaged in the business of designing, manufacturing, having manufactured, distributing, and selling jewelry. Brzozowski is the president of Jan and is the owner of the '294 Patent.
By the end of 1989, the partnership between Kielpinski and Slowinsky ended, and Kielpinski formed Jesse with three other individuals. On the basis of the advise of Laser's counsel, Jesse began producing channel-set jewelry with trapezoidal- and U-shaped grooves. Jesse also sought a second independent "validity and infringement" opinion regarding Brzozowski's '294 Patent. As a result of this second opinion and in an effort to avoid litigation, Jesse stopped production of jewelry using the trapezoidal-shaped groove.
Prior to the creation of Jesse, Accent, a Swiss-cutting jewelry manufacturer, was formed and operational. Using the business relationships and customers of Accent, Jesse began to sell its services. Jesse developed a clientele which included Feature Rings, Inc. ("Feature") and David Klein Mfg. Co. Inc. ("Klein").
In or prior to March 1991, Brzozowski saw a catalog in which Klein used photographs of the rings having the Defendants' patented V-shaped groove sometime after Klein had stopped purchasing rings from Jan. The Defendants requested that their counsel prepare a cease-and-desist letter, which the Defendants sent to Klein on or about March 15, 1991, advising it of the Defendants' rights in the '294 Patent and the apparent infringement of that patent by certain products Klein was offering for sale.
Upon receiving the cease-and-desist letter from Jan, Klein contacted Jesse and expressed concern about the possibility of a being made a party to legal action by Jan. The Plaintiffs contend that, as a result of this concern, Klein curtailed the sales of a substantial portion of its product which was being manufactured by Jesse.
In or about February 1991, Brzozowski saw rings with V-shaped grooves being sold by Wright & Lato ("Wright") at a trade show. Wright had not bought these rings from the Defendants. On or about March 22, 1991, as the Defendants had previously done with Klein, they sent a letter to Wright advising it of the Defendants' rights in the '294 patent. According to the Plaintiffs, the results of this letter were also similar; Jesse lost a substantial portion of Wright's business.
On or about September 12, 1991, the Defendants sent a similar letter to Leo Ingwer, Co. ("Ingwer"), which, the Plaintiffs assert, had a similar detrimental impact on the business relationship between Ingwer and Jesse.
Beginning prior to 1991, Brzozowski designed and Jan sold to Feature Rings, Inc. ("Feature") different styles of rings consisting of gemstones mounted in and forming parts of different artistic settings. At one point, Feature stopped buying a number of these styles from Jan and became a major customer of Jesse. Feature was informed orally by Jan that Jesse was infringing the '294 Patent, and in the Plaintiffs' view, these representations caused Feature to stop doing business with Jan.
The Plaintiffs allege that Jesse lost additional business as a result of Jan's representations to actual and potential customers that it was suing Jesse. In response to these representations, Jesse contends that business from Hayes Merchandise Mart and Faculty Enterprises was diminished or lost.
In anticipation of the National Manufacturers, Jewelers, and Silversmiths of America Trade Show (the "1992 Trade Show"), scheduled for March 15, 1992, the Plaintiffs sought expedited discovery to facilitate their preparations for a motion for a preliminary injunction. As was noted above, expedited discovery was granted to both parties to eliminate the possibility of prejudicing the Defendants. Several depositions had been conducted by the end of February, and by the second week of March, the Plaintiffs had prepared the preliminary injunction motion. However, due to the short period of time prior to the 1992 Trade Show, the aforementioned Order to Show Cause was sought, and out of concerns of fairness to both parties, the hearing was scheduled for and held on April 2, 1992.
During the Preliminary Injunction Hearing, Philip Perlmutter, an officer and stockholder of both Accent and Jesse, testified regarding the structure of the products made by the Plaintiffs. The preliminary relief sought was confined to jewelry having the in-shaped groove, which was the shape of the channel purported used in 98% of the Plaintiffs' products. The remainder of the channel-set jewelry had grooves of various shapes, including a trapezoidal-shaped groove which was constructed into approximately 1,000 to 2,000 out of some 15,000 rings.
After a day of testimony at the Preliminary Injunction Hearing, the preliminary injunction motion was denied on the ground that the Plaintiffs failed to demonstrate that they would suffer irreparable harm if the preliminary relief were not granted. This Court concluded:
There has been no quantification of any damages. Indeed, there hasn't been any evidence presented . . . in a probative fashion that these letters have produced a reason in the marketplace to harm the plaintiff, and indeed, even if such a reaction could be established, the degree of irreparability certainly hasn't been established.
Prelim. Inj. Hr'g Tr. at 192.
I. The Defendants' Motion For Partial Summary Judgment Is Granted
A. Rule 56 Standards for Summary Judgment
The Rule 56 motion for summary judgment is "an integral part" of the Federal Rules of Civil Procedure and facilitates the overall purpose of the Rules as stated in Rule 1, namely, "to secure the just, speedy and inexpensive determination of every action." Celotex Corp. v. Catrett, 477 U.S. 317, 327, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). A motion for summary judgment may be granted only when there is no genuine issue of material fact remaining for trial and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Silver v. City Univ. of New York, 947 F.2d 1021, 1022 (2d Cir. 1991).
The Second Circuit has unambiguously defined the role of the district court in deciding Rule 56 motions:
The district court's role . . . requires the court not to resolve disputed issues of fact itself, but rather to see if there are issues of fact to be resolved by the factfinder at trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). That is to say, when examining the record before it to see if there are any genuine issues of material fact, the court's focus is on issue-finding, not on issue-resolution. In making its assessment, the trial court must view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in its favor. See United States v. Diebold, 369 U.S. 654, 655, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962) (per curiam).
Consarc Corp. v. Marine Midland Bank, N.A., 996 F.2d 568 (2d Cir. 1993).
The Second Circuit has repeatedly noted that "as a general rule, all ambiguities and inferences to be drawn from the underlying facts should be resolved in favor of the party opposing the motion, and all doubts as to the existence of a genuine issue for trial should be resolved against the moving party." Brady v. Town of Colchester, 863 F.2d 205, 210 (2d Cir. 1988) (citing Celotex v. Catrett, 477 U.S. 317, 330 n.2, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986) (Brennan, J., dissenting) and Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59, 26 L. Ed. 2d 142, 90 S. Ct. 1598 (1970)); see United States v. Diebold, Inc., 369 U.S. 654, 655, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962); Cartier v. Lussier, 955 F.2d 841, 845 (2d Cir. 1992); Burtnieks v. City of New York, 716 F.2d 982, 983-84 (2d Cir. 1983). If, when "viewing the evidence produced in the light most favorable to the nonmovant . . . a rational trier could not find for the nonmovant, then there is no genuine issue of material fact and entry of summary judgment is appropriate." Binder v. Long Island Lighting Co., 933 F.2d 187, 191 (2d Cir. 1991).
When a motion for summary judgment is made and the nonmoving party will bear the burden of proof at trial, "Rule 56 permits the moving party to point to an absence of evidence to support an essential element of the nonmoving party's claim." Bay v. Times Mirror Magazines, Inc., 936 F.2d 112, 116 (2d Cir. 1991). However, if the moving party is still entitled to judgment as a matter of law after all the facts alleged by the nonmoving party are resolved in his favor as true, then any remaining factual disputes are neither "genuine" nor "material" and will not prevent the court from granting the motion. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986) ("a material fact is 'genuine' . . . if the evidence is such that a reasonably jury could return a verdict for the nonmoving party"). Thus, the nonmovant "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986).
Finally, the court must look to the substantive law to determine which facts are "material," to wit, disputed facts that might affect the outcome of the suit under governing law. See Anderson, 477 U.S. at 248. It follows, then, that "entry of summary judgment indicates that no reasonable jury could return a verdict for the losing party." Coach Leatherware Co. v. AnnTaylor, Inc., 933 F.2d 162, 167 (2d Cir. 1991).
B. The Plaintiffs' Complaint
1. Count II: Unfair Competition
The gravamen of the Plaintiffs' claim for unfair competition as set forth in Count II of the Amended Complaint is that the Defendants made threats against and unfair representations to the Plaintiffs' actual or potential customers which were based on erroneous allegations that the Plaintiffs were infringing the '294 Patent. In establishing this claim, the Plaintiffs have the burden of showing that the Defendants made the allegations of infringement without having a reasonable belief that there was in fact an infringement. See, e.g., Kaplan v. Helenhart Novelty Corp., 182 F.2d 311, 314 (2d Cir. 1950); Brown v. Myerberg, 314 F. Supp. 939, 943 (S.D.N.Y. 1970) (finding "sufficient likelihood of infringement" to justify sending notices). However, on the present record, even when all doubts are resolved in the Plaintiffs' favor, the evidence does not support the conclusion that the Defendants made the allegations of infringement without reasonable cause.
The Plaintiffs base this claim on the Defendants' dealings with four customers, Klein, Ingwer, Wright, and Feature. However, the Defendants acted reasonably with regard to each of these customers. A review of the letters the Defendants sent to Klein, Ingwer, and Wright and of the context in which they were sent indicates that there was a sufficient likelihood of infringement to justify the Defendants' actions. The record shows that the Defendants sent these letters to Klein and Ingwer only after seeing rings in their respective catalogs that appeared to be designed with an infringing V-shaped groove, and that the letter to Wright was sent only after the Defendants inspected one of its ring, which had an apparently infringing V-shaped groove, at a trade show.
The record also shows that the Defendants did not advise Feature that the Plaintiffs were infringing its patent. Rather, Feature advised Brzozowski that the Plaintiffs had sold certain rings with V-shaped grooves to Feature, and Brzozowski indicated to Feature that he believed these rings infringed the '294 Patent.
The Plaintiffs' claim for unfair competition is also grounded on the allegation that invoices bearing a patent legend (the "Legend") which the Defendants sent to the Defendants' own customers, between March 12, 1991 and March 25, ...