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BRIAN JORDAN & CREATIVE GROUP MARKETING v. CAN YOU IMAGINE

May 12, 2005.

BRIAN JORDAN & CREATIVE GROUP MARKETING, L.L.C., Plaintiff,
v.
CAN YOU IMAGINE, INC. AKA CYI, INC. & HPI HONG KONG LTD., Defendants.



The opinion of the court was delivered by: ANDREW PECK, Magistrate Judge

OPINION & ORDER

Presently before the Court in this diversity breach of contract action over the parties' rights to sell the toy, "Airzooka," is defendants' motion for a preliminary injunction to enjoin plaintiffs and third party defendants (collectively, "plaintiffs") from interfering with defendants' business relationships with their customers during the pendency of this action. (Dkt. No. 30: Notice of Motion for Preliminary Injunction.) Specifically, defendants seek to enjoin plaintiffs "from misusing Defendants' confidential information and from interfering with Defendants' business relationships with their customers during the pendency of this action, and from contacting and threatening Defendants' customers with false and misleading statements regarding Defendants' Product." (Dkt. No. 31: Defs. P.I. Br. at 4.) The parties have consented to my decision of the preliminary injunction motion pursuant to 28 U.S.C. § 636(c). (Dkt. No. 43.) For the reasons discussed below, defendants' motion is GRANTED to the extent of preliminarily enjoining plaintiffs from using defendants' royalty reports to identify and contact customers, but DENIED to the extent defendants seek to enjoin plaintiffs from sending "cease and desist" letters to defendants' customers.

FACTS

  The Parties' License Agreements

  The parties' relationship began with a November 27, 2001 License Agreement (Dkt. No. 32: Benjamin Aff. Ex. A: 11/27/2001 License Agreement), which was replaced by the August 4, 2003 License Agreement at issue in this lawsuit (Benjamin Aff. Ex. E: 8/4/03 License Agreement).

  The 2003 License Agreement was between defendants CYI, Inc. and HPI Hong Kong Ltd. (collectively, "CYI") as licensee, and plaintiff Creative Group Marketing ("Creative" or "CGM") as licensor and plaintiff Brian Jordan as "inventor." (Benjamin Aff. Ex. E: 8/4/03 License Agmt., p. 1.) Plaintiff Creative as licensor granted CYI the exclusive right to manufacture and distribute the Airzooka toy. (Id. ¶ 1.1(a).)*fn1 The License Agreement, however, allowed both CYI and also Creative to "advertise, sell and distribute" the product on the internet. (8/4/03 License Agmt. ¶ 1.5.)

  The License Agreement provided that if CYI "terminates this Agreement or breaches the Agreement and does not cure the breach so LICENSOR [Creative] terminates the agreement, [CYI] agrees to transfer the Patent covering the License Device to the INVENTOR [Jordan], as well as the trademark." (8/4/03 License Agmt. ¶ 1.7.) The License Agreement required the contracting parties to "notify each other of any suspected infringement by any third party of the rights in and to the Licensed Item(s) . . ." (8/4/03 License Agmt. ¶ 6.) The Agreement provided for suit to be brought by CYI or by Creative, with whoever brings suit required to pay the cost thereof. (Id.) The Agreement did not, per se, require either party to bring such a suit, but it does provide that: "If the LICENSOR [Creative, or], INVENTOR [Jordan] . . . fail to prosecute the third party infringer and such third party adversely affects the sales of the COMPANY [CYI], all royalties and payments shall cease upon [CYI's] 30-day notice in writing to [Creative]." (Id.)

  The License Agreement provided that Creative could terminate the Agreement "at any time for non-payment of Advances, Royalties or Minimum Royalties" or "upon any other breach of this Agreement" by CYI, with notice and cure provisions. (8/4/03 License Agmt. ¶ 8.1.) "Upon expiration or termination of this Agreement by LICENSOR [Creative]: (i) all rights granted to the COMPANY [CYI] hereunder shall immediately and automatically revert back to the INVENTOR [Jordan], and the COMPANY [CYI] shall cease the manufacture, distribution, sale, promotion, advertising and marketing of the Licensed Item." (8/4/03 License Agmt. ¶ 8.2.)

  Finally, the License Agreement provided that CYI, Creative and Jordan "shall keep the terms of this Agreement and any royalty reports or other information submitted pursuant to this Agreement confidential and shall not disclose such information to any other person, firm, corporation or entity . . ." (8/4/03 License Agmt. ¶ 21.) Termination of the License Agreement

  In February 2004, CYI discovered a potentially infringing product being sold by a third party, and notified plaintiffs. (Benjamin Aff. ¶¶ 5(a)-(b).) Neither plaintiffs nor defendants decided to pursue the infringer. (Benjamin Aff. ¶¶ 5(c)-(d).) Claiming that the third party's activity damaged CYI's sales, CYI ceased to pay royalties, which are being held in escrow by CYI's counsel. (Benjamin Aff. ¶¶ 5(e)-(f).)

  The relationship between Creative and CYI went down-hill from there; Creative terminated the License Agreement, alleging that CYI failed to sell product to Creative, failed to obtain insurance covering Creative, and failed to provide evidence of the third party's effect on sales despite Creative's investigation that showed no sales by the third party. (Dkt. No. 39: Ahlert Aff. ¶¶ 5-11 & Ex. 8.)

  Creative and Jordan entered into a new license agreement with third party defendant Gary Alhert and his company, Universal Toys ("UT"), to market the Airzooka. (Ahlert Aff. ¶ 13.)

  This Lawsuit

  Jordan and Creative sued CYI on or about June 21, 2004, for: breach of contract, failure to transfer intellectual property rights to plaintiffs, unpaid royalties and punitive damages. (Dkt. No. 1: Compl. 1st-4th Causes of Action.) CYI counterclaimed against plaintiffs, and asserted third party claims against Ahlert and UT, for patent infringement, unfair competition and trademark infringement, breach of contract, and tortious interference with business relations. (Dkt. No. 6: Answer ...


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