Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

KADANT, INC. v. SEELEY MACHINE

January 30, 2003

KADANT, INC., PLAINTIFF,
v.
SEELEY MACHINE, INC., AUXILIARY PROCESS EQUIPMENT, INC., INDIVIDUALLY AND D/B/A AUXILIARY PROCESS SYSTEMS, A DIVISION OF SEELEY MACHINE, INC., AND STEPHEN CORLEW, DEFENDANTS.



The opinion of the court was delivered by: Hurd, District Judge

MEMORANDUM-DECISION and ORDER

I. INTRODUCTION

On December 18, 2002, Plaintiff, Kadent, Inc. ("Kadent" or "plaintiff"), filed a complaint and an application for an order to show cause with a temporary restraining order against defendants, Seeley Machine, Inc. ("Seeley" or "defendants"), Auxiliary Process Equipment, Inc. ("APE" or "defendants"), individually and doing business as Auxiliary Process Systems ("APS" or "defendants"), a division of Seeley, and Stephen Corlew ("Corlew" or "defendants"). The complaint alleges six causes of action: 1) unfair competition in violation of the Lanham Act, 15 U.S.C. § 1125(a); 2) trademark infringement in violation of the Lanham Act, 15 U.S.C. § 1114(a); 3) unfair competition and theft of trade secrets in violation of New York common law; 4) violation of New York General Business Law § 360-1; 5) as against Corlew, breach of contract in violation of New York common law; and 6) as against Corlew, breach of fiduciary duty in violation of New York common law. On December 23, 2002, the order to show cause was granted and a temporary restraining order was put into effect upon the posting of a $100,000 bond on plaintiff's behalf. The order to show cause was returnable on January 3, 2003.

Plaintiff's motion is for a preliminary injunction to enjoin defendants "from engaging in unfair competition, infringing plaintiff's trademarks, using plaintiff's technical and customer trade secrets and as to Corlew, from breaching his contractual and legal duties not to disclose plaintiff's trade secrets." (Memorandum of Law in Support of Plaintiffs' Motion for a Preliminary Injunction, Docket No. 3, p. 1) ("Pl. Memo. at ___"). Moving and opposition papers were submitted, and, upon consent of the parties, oral argument was adjourned and then heard on January 24, 2003, in Albany, New York. Decision was reserved.

II. FACTS

Kadent is a publicly traded corporation with yearly sales eclipsing $100 million. Kadant AES ("AES") is a division of Kadent located in Queensbury, New York. For twenty-eight years, AES has manufactured and sold to customers worldwide products that clean and condition papermaking machines and filter water used in the papermaking process. "There are three main products areas of the business of AES: shower and spray devices and nozzles; foil blades to remove water from the paper during the papermaking process; and structures that hold foils and filters for straining water utilized in the papermaking process so that it can be reused." (Pl. Memo. at 2). In 1974, the acronym "AES" was registered as a trademark, and AES adopted both it and "a circular bullet logo for the purpose of distinguishing its products in commerce from those made and sold by others." (Id.). Plaintiff occupies a dominant place in the national papermaking market.

Corlew was hired by AES in July of 1995 as a machinist. Nearly three years later, in April of 1998, he was promoted to a position in the engineering department. In that capacity, Corlew would be provided with a refined customer order, made by an AES engineer and a customer, and it was his job to create a "manufacturing drawing (with instructions and a bill of materials — i.e., the `recipe') for the order." (Id. at 3). In order to create such a drawing, Corlew used a computer assisted drawing machine. The computer assisted drawing machine contained "the recipes for the AES products and generate[d] drawings and bills of materials." (Id.). Plaintiff contends that AES took steps to protect the secrecy of the information contained in the computer assisted drawing machine. In June of 1999, Corlew was promoted again and now had the responsibility to assist the engineers in designing customer orders. Corlew was terminated in the summer of 2001.

During his tenure at AES, Corlew had access to plaintiff's "recipes" ("design specifications") for its products and to plaintiff's computerized database of prospective customers, which includes "names, addresses, and e-mails for all potential customers in the papermaking industry, including the names of individuals key to these companies' purchasing orders." (Id. at 4). Plaintiff contends that one of Corlew's final assignments while at AES was to coordinate this database with the database containing information on all current AES customers and their purchasing histories. Corlew had access to AES's entire computer system, which apparently included both databases as well as the computer assisted drawing machine containing the design specifications. At the end of his employment, Corlew's access to AES's computer system was terminated, and his laptop was wiped clean of AES information, and/or access thereto. Throughout his employment with AES, Corlew was subject to a signed confidentiality agreement, in which he agreed not to disclose or use to his benefit any confidential information, including information about AES customers.

Following his termination, Corlew formed APE "to outsource the manufacture of his own line of products for sale to the pulp and papermaking industry." (Memorandum of Law in Opposition to Plaintiffs' Motion for a Preliminary Injunction, Docket No. 12, p. 7) ("Def. Memo. at ___"). According to defendants, APE was not a successful venture, forcing Corlew to begin working for Cambridge Valley Machine, Inc. ("CVM"). In April or May of 2002, Corlew resigned from CVM. Defendants contended in their moving papers that, as a condition of his resignation, Corlew was required to relinquish the rights to the name APE to CVM.

Near the end of April of 2002, Corlew began working for Seeley, "developing and marketing a new line of Seeley products for sale to the pulp and papermaking industry." (Id. at 7). According to defendants, "[t]he products comprising this new line were reverse-engineered from existing products, freely available in the public domain and unprotected by published patent applications, in-force patents or trade secrets." (Id.). According to plaintiff, the only way defendants could have developed and put out for sale this new line of products in so short of time is not by reverse engineering, which it alleges is time consuming, expensive, and requiring technical skill, but by Corlew's theft of AES's trade secrets — its design specifications and the customer databases — and infringement of its trademark.

Specifically, claims plaintiff, using as a frame of reference defendants' own expert, it would take defendants 1.7 years to reverse engineer all of plaintiff's nozzles. Defendants maintain, however, that only a small fraction, not all, of plaintiff's products were reverse engineered. The parties also dispute how much time would be associated with the manufacturing process.

Plaintiff claims Corlew changed the name of his company to APS in May of 2002, and then entered into an agreement to operate as a division of Seeley. Defendants claimed in their moving papers that this new division could not be called APE because CVM held the rights to that name. However, at oral argument, it seemed to come to light that Corlew was/is, in fact, permitted to use the acronym "APE."*fn1 Defendants decided to call the new division of Seeley "Auxiliary Process Systems." Whatever the actual sequence of events, it is not disputed that APS, in marketing and selling this allegedly new line of products, thereafter used a circular bullet logo bearing the letters "APS" inside the bullet. Plaintiff has submitted evidence showing that APS used product numbers identical to those used by AES for the same, or same type of, products.

In August of 2002, counsel for plaintiff contacted defendants by letter demanding that defendants cease and desist from using the circular bullet logo and APS name because such use "infringe[d] on AES's trademark and bullet logo." (Pl. Memo. at 5). Two weeks later, counsel for Seeley advised plaintiff that Seeley would change the circular bullet logo, but that Seeley was within its rights to use the acronym "APS." Seeley thereafter removed the circular bullet logo from its website and all Seeley printed materials.

III. DISCUSSION

Plaintiff has moved for preliminary injunctive relief pursuant to Fed.R.Civ.P. 52(a). A trial court must state explicitly its findings of fact, see supra, and conclusions of law, see infra, when granting or denying a preliminary injunction. See Fair Housing in Huntington Committee Inc. v. Town of Huntington, ___ F.3d ___, available at 2003 WL 132979, at *5 (2d Cir. Jan. 17, 2003) (citations omitted). Such findings and such conclusions, while obviously saddled by the fact that the proceedings are at a preliminary stage, must nonetheless provide some clear basis for the decision. Id.

In order for plaintiff to successfully move for a preliminary injunction, it must demonstrate: 1) a likelihood of irreparable harm if the injunction is not granted; and 2) either a likelihood of success on the merits of its claims, or the existence of serious questions going to the merits of its claims plus a balance of the hardships tipping decidedly in its favor. Bery v. City of New York, 97 F.3d 689, 693-94 (2d Cir. 1996). Because the issuance of a preliminary injunction is a drastic remedy, plaintiff is required to make a "clear showing" of these requirements. See Mazurek v. Armstrong, 520 U.S. 968, 972, 117 S.Ct. 1865, 138 L.Ed.2d 162 (1997). In this case, independent application of the preliminary injunction analysis to each of plaintiff's claims is unnecessary, and this opinion will proceed with said analysis under three main headings — trademark infringement, trade secret theft/misappropriation, and breach of contract/fiduciary duty.*fn2

A. TRADEMARK INFRINGEMENT

Some of plaintiff's claims are or involve trademark infringement.*fn3 In order to prevail on these claims, plaintiff must demonstrate that the use of defendants' trademark is "likely to cause confusion." Wella Corp. v. Wella Graphics, Inc., 37 F.3d 46, 47-48 (2d Cir. 1994) (citing W.W.W. Pharmaceutical Co v. Gillette Co., 984 F.2d 567, 570-71 (2d Cir. 1993) and 15 U.S.C. § 1114). Thus, in order to demonstrate a likelihood of success on the merits of the trademark claim, the likelihood of confusion inquiry is the relevant analysis. Hasbro, Inc. v. Lanard Toys, Ltd., 858 F.2d 70, 73 (2d Cir. 1988). Likewise, a showing of likelihood of confusion will also give rise to a presumption of irreparable harm. Fun-Damental Too, Ltd. v. Gemmy Indus. Corp., 111 F.3d 993, 999 (2d Cir. 1997). If plaintiff can demonstrate a likelihood of confusion, it is therefore entitled to a preliminary injunction on its trademark infringement claim(s). Plaintiff can do so.*fn4

1. Likelihood of confusion

At the outset, what the relevant marks are or consist of must be determined. At first glance, it may appear that the relevant comparison is simply plaintiff's bullet logo with acronym therein versus defendant's logo/acronym.*fn5 However, it must remembered that plaintiff's acronym, and not the bullet logo, is what is trademarked, and the parties ostensibly agree, both in their moving papers and at oral argument, that the relevant comparison is thus the "AES" acronym versus the "APS" acronym.

When determining the likelihood of confusion in cases like these, the Second Circuit looks to the following eight non-exhaustive, non-exclusive factors laid out in Polaroid Corp. v. Polaroid Electronics Corp., 287 F.2d 492, 495 (2d Cir. 1961): 1) the strength of plaintiff's mark; 2) the degree of similarity between plaintiff's and defendant's mark; 3) the proximity of the products of plaintiff and defendant; 4) the likelihood that plaintiff will use the trademark to "bridge the gap" in proximity by using the mark for products closer to defendant's area of commerce; 5) the sophistication of the buyers or potential buyers of the products; 6) the quality of defendant's product; 7) actual confusion; and 8) whether defendant acted in good or bad faith. TCPIP Holding Co., Inc. v. Haar Communications Inc., 244 F.3d 88, 100 (2d Cir. 2000); see also New Kayak Pool Corp. v. R & P Pools, Inc., 246 F.3d 183, 185 (2d Cir. 2001) (reversing district court denial of preliminary injunction for failure to use Polaroid factors). The "evaluation of the Polaroid factors is not a mechanical process where the party with the greatest number of factors weighing in its favor wins. Rather a court should focus on the ultimate question of whether consumers are likely to be confused." Nabisco, Inc. v. warner-Lambert Co., 220 F.3d 43, 46 (2d Cir. 2000).

a. Strength of plaintiff's mark

To determine the strength of a trade dress or mark, a court must analyze a mark's "tendency to identify the goods sold under the mark as emanating from a particular, although possibly anonymous, source." McGregor-Doniger, Inc. v. Drizzle, Inc., 599 F.2d 1126, 1131 (2d Cir. 1979). The strength of a mark is determined by considering two factors: 1) the mark's inherent distinctiveness; and 2) "the degree to which it is distinctive in the marketplace." W.W.W. Pharmaceutical, 984 F.2d at 572.

Plaintiff's mark — AES — has inherent distinctiveness. Marks are inherently distinctive if they "almost automatically tell a customer that they refer to a brand." Qualitex Co. v. Jacobson Prod. Co., 514 U.S. 159, 162-63, 115 S.Ct. 1500, 131 L.Ed.2d 248 (1995) (emphasis in original). Among the marks held to be inherently distinctive are those that are "suggestive," or "fanciful," or "arbitrary." Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4, 9 (2d Cir. 1976). A suggestive mark "employs terms which do not describe but merely suggest the features of the product, requiring the purchaser to use imagination, thought and perception to reach a conclusion as to the nature of the goods." Genesee Brewing Co., Inc. v. Stroh Brewing Co., 124 F.3d 137, 143 (2d Cir. 1997). A fanciful mark exists where words are invented solely for use as a trademark. Id. "A mark is arbitrary . . . if there is no logical relationship whatsoever between the mark and the product on which it is used." Nabisco, Inc. v. PF Brands, Inc., 191 F.3d 208, 216 (2d Cir. 1999).

At the very least, plaintiff's mark is arbitrary. The AES acronym has no logical relationship to products servicing the papermaking industry. The acronym "AES" does not suggest to any reasonable person that the product to which it is affixed is to be used in papermaking activities and, in fact, even if a person knew what AES stood for — Albany Engineering Systems — they would be none the wiser as to what such a company may do, short of a general characterization of engineering work. In addition, plaintiff's mark has been a registered trademark since 1974. As such, it is entitled to a presumption of inherent distinctiveness. Sporty's Farm L.L.C. v. Sportsman's Market, Inc., 202 F.3d 489, 497 (2d Cir. 2000); Lane ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.