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TEMPCO ELECTRIC HEATER CORP. v. TEMPERATURE ENGINEERING

May 27, 2004.

TEMPCO ELECTRIC HEATER CORPORATION, Plaintiff
v.
TEMPERATURE ENGINEERING COMPANY, d/b/a PRIME INDUSTRIES, Defendant



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

MEMORANDUM OPINION AND ORDER

Plaintiff Tempco Electric Heater Corporation ("Tempco") brought suit against one of its former distributors, Temperature Engineering Company, d/b/a Prime Industries ("Prime"), alleging trademark infringement, various breaches of contract, and misappropriation of trade secrets. Prime has now moved for Partial Summary Judgment.

I. FACTUAL BACKGROUND

  Tempco manufactures electric heaters and temperature sensors used largely as component parts on manufacturing equipment in the plastics industry. Prime distributes such products throughout the — southeastern United States. In 1996, Tempco and Prime signed a "Distributor Agreement," that allowed Prime to become an authorized distributor of Tempco-products.

  For purposes of this litigation, three clauses of this agreement are relevant: Sections I, IX(D), and XII(B). Section I is entitled "Geographical." Section 1(A) is the only subsection of § 1, and reads in its entirety "State [sic] of Georgia, Alabama, Tennessee, and Mississippi." Section IX(D). is a restrictive covenant that states "Distributor shall be allowed to carry other lines in related fields, none to be competitive with Tempco products, as illustrated in Tempco's Product Line Catalog." Lastly, Section XII(B) is an integration clause reading "This agreement embodies the entire agreement and understanding between Prime Industries and Tempco Electric Heater Corporation and supersedes all prior agreements and understandings related to the subject matter."

  Hand-in-hand with the Distributor Agreement came a License Software Agreement that permitted Prime, as an authorized Tempco distributor, to use Tempco's trade secret electric pricing program known as SA/2. This agreement mandated that Prime use SA/2 "exclusively for purposes consistent with your relationship with TEMPCO." The agreement also provided Prime with Tempco-supplied "hardware access keys" that allowed SA/2 to work. The License Software Agreement further stipulated that Prime must pay Tempco $15,000 plus interest in "liquidated damages" per key that it fails to return to Tempco at the conclusion of their relationship.

  Tempco claims that shortly after signing the Distributor Agreement, Prime began violating it by selling competitors' products. To this end, Tempco alleges that Prime misused SA/2 by using it to allow Tempco's competitors to underprice Tempco. In Tempco's version of the facts, Prime's misuse of SA/2 began during the distributorship and continued after the distributorship ended. According to Tempco, Prime accomplished this latter unauthorized use of SA/2 by improperly retaining three hardware access keys in violation of the License Software Agreement.

  Tempco further claims that Prime removed Tempco's name and identifying information from Tempco products sold to Prime' s customers. As alleged by Tempco, this "reverse passing-off," as the process is known in legalese, allowed Prime to claim falsely that it manufactured the products it sold — depriving Tempco of the name-recognition necessary to obtain repeat business.

  II. DISCUSSION

  A. Counts I & II: Violations of § 43(a) of the

  Lanham Act, 15 U.S.C. § 1125(a); Breach

  of Trademark License Agreement

  Tempco's Count I states a claim for "reverse passing off" under a false designation of origin theory under the Lanham Act. On the same set of allegations, Tempco also presents Count II, under a theory of breach of the trademark license agreement. Prime seeks summary judgment on Counts I and II arguing that Tempco has submitted no evidence to support its claims. In particular, Prime claims that Tempco has no evidence that it ever engaged in "reverse passing off" of Tempco-manufactured products. Rather Prime says that the only "reverse passing off" that did occur happened when Tempco itself agreed to label privately some of its products for Prime. Prime also argues that even if the Court finds such false designation of origin, Tempco has submitted no evidence that Prime's conduct generated the "likelihood of confusion" necessary to invoke the Lanham Act's jurisdiction. Prime argues that this is not surprising, as it claims that it has always presented itself as strictly a distributor, and not a manufacturer.

  Reverse passing off, as its name implies, occurs when "a producer misrepresents someone else's goods or services as his." Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 28 (2003). It is a cognizable legal theory allowing one to recover under the Lanham Act. See Id. at 30. However, even if a plaintiff establishes that "reverse passing off" occurred in fact, the plaintiff must still show that defendant's actions caused a "likelihood of confusion." However, if a defendant "willfully appropriates the mark of another, a court is more inclined to find likelihood of confusion." Rust Env't & Infrastructure v. Teunissen, 131 F.3d 1210, 1219 (7th Cir. 1997). Nevertheless, a judicial finding of likelihood of confusion depends on the outcome of a seven-factor balancing test analyzing: "(1) similarity between the marks in appearance and suggestion; (2) similarity of the products; (3) area and manner of concurrent use; (4) degree of care likely to be exercised by consumers; (5) strength of complainant's mark; (6) actual confusion; and, (7) intent of defendant." Id. at 1217.

  Here, Tempco attempts to overcome Prime's motion with a substantial war-chest of testimonial and other evidence. Central to Tempco's case is the testimony of former or current Prime employees Richard Hudson ("Hudson"), Romesa Sears ("Sears"), and Tara Perrin ("Perrin"), along with the testimony of Tempco's new distributor in the southeastern United States, David Farmery ("Farmery"). Hudson, in deposition testimony, states that former Prime employees repeatedly told him about how Kendrick ordered them to grind off Tempco's name and/or part number from Tempco products. Hudson, along with Farmery, also testified that, during visits to Prime's customers, they recalled seeing what appeared to be Tempco-manufactured heaters with Prime's name and part number on them, and "grinder marks" in the places where Tempco's normally located its identifying marks. Similarly, Sears testified that, during her Prime employment, she threw away Tempco's labels ...


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