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Coyne's & Co., Inc. v. Enesco, LLC: US District Court : CIVIL PROCEEDURE | TRADEMARK |FRANCHISE - Temporary Restraining Order denied; no franchise fee; license non-exclusive.; adequate remedy at law

1
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Coynes & Company, Inc., a Minnesota
corporation,
Plaintiff,
v. MEMORANDUM OPINION
AND ORDER
Civil No. 07-4095
Enesco, LLC, an Illinois limited
liability company.
Defendants.
_______________________________________________________________
Paul L. Ratelle and Thomas A. Forker, Fabyanske, Westra, Hart & Thomson,
P.A. for and on behalf of Plaintiff.
Michael J. Steinlage, Larson King, LLP and James V. Garvey, Veder, Price,
Kaufman & Kammholz, P.C. for and on behalf of Defendant.
________________________________________________________________
This matter is before the Court upon Plaintiffs motion for a temporary
restraining order.
Background
Plaintiff Coynes & Company, Inc. (Coynes) is a giftware company that has
been in business for over 50 years. Complaint 2. It offers numerous product
lines, including A Breed Apart and Sherratt & Simpson. Coynes entered into
a Distributor Agreement (Agreement) in 2005 with Country Artist, Ltd. (CA), a
company formed under the laws of England. Coyne Decl. 2, Ex. A. Pursuant to
the Agreement, Coynes was given the exclusive right to sell, distribute, market
2
and advertise all lines of CA products (the Products), as well as all the trade
names, trade marks and copyrights associated with the Products in the United
States and Mexico through December 2007. In exchange for the exclusive rights
described above, Coynes paid CA a 50% markup on the Products. Id.
Coynes asserts it expended substantial time, money and effort to develop
an extensive marketing plan for the U.S. market. Coynes also developed and
produced high quality catalogs advertising the Products for sale in 2006 and 2007.
These catalogs display a copyright notice in favor of Coynes. Id. 5.
Furthermore, each Product has a label affixed to it that displays a product
description, Coynes catalog number, a bar code and the following statement
Country Artists is exclusively distributed by Coynes & Company in the USA. Id.
6, Exs. M and N.
Beginning in July 2006, Coynes began receiving notifications from CA that
many of Coynes purchase orders would be delayed due to problems in the
Chinese factories that produced the Products. These delays continued through
July 2007. On July 27, 2007, CA proposed to modify Coynes payment obligations
for certain outstanding orders as well as allow shipping discounts to Coynes. Id.
7.
Coynes asserts that on August 13, 2007, it learned through a press release
that Defendant Enesco, LLC (Enesco) had acquired the business assets,
3
including the intellectual property, of CA. Id. 9, Ex. P. Three days earlier, CA
had been placed into receivership under the United Kingdoms Insolvency Act of
1986. Id. 10. On the day it learned of Enescos purchase, Enescos President and
CEO Basil Elliott telephoned Coynes President and CEO Michael Coyne to discuss
the purchase. During this conversation, Elliott informed Coyne that Enesco had
no plans at that time for the U.S. market, but he acknowledged Coynes exclusivity
rights under the Agreement. Id. 11. Thereafter the parties had many
discussions concerning the Agreement and outstanding orders that Coynes had
already paid for, but had received no delivery.
On August 21, 2007, Coynes received a letter from the CA receivers
purporting to notify them of the termination of the Agreement pursuant to
Section 5.4 of the Agreement. Id. 16, Ex. R. By letter dated August 23, 2007,
Coynes responded to the notice, asserting it had no legal effect. Id., Ex. S.
In the meantime, the parties met to discuss the possibility of working out an
agreement with respect to the Product Coynes had previously ordered and the
possibility of a future business relationship. Id., Ex. U. To that end, Enesco
required Coynes to disclose certain confidential and proprietary information
relating to the purchase orders. Coynes agreed to disclose this information if
Enesco signed a mutual nondisclosure agreement. The parties executed a mutual
nondisclosure agreement on August 22, 2007.
4
Coynes asserts that it still has not received all the Product it previously
ordered and paid for, and that Enesco has interfered with Coynes attempts to
obtain said Product. Guggenberger Aff., 7.
On September 21, 2007, Enesco issued a Press Release announcing that
Enesco would be distributing the Country Artists brands in the U.S. Coyne Aff.,
Ex. W.
Coynes has filed suit against Enesco asserting the following causes of
action: 1) interference with contractual relations; 2) interference with prospective
business relations; 3) federal trademark infringement; 4) federal unfair
competition; 5)copyright infringement; 6) violation of Minn. Stat. 325D.44; 7)
violation of Minn. Stat. 325C.01; and 8) misappropriation of goodwill.
Before the Court is Coynes motion for injunctive relief. Coynes seeks an
Order preventing and enjoining Enesco, and any person acting on its behalf or in
concert with, from 1) violating Coynes exclusive right to advertise, promote, sell
and distribute the CA product line in the U.S. and Mexico; 2) infringing upon
Coynes right to use CA trade names, trade marks and copyrights in connection
with its exclusive rights under the Agreement; 3) using confidential information
Enesco acquired during purported business opportunity discussions with Coynes
and subject to a Mutual Nondisclosure Agreement between the parties; and 4)
interfering with Coynes orders, shipments and delivery of the Product to Coynes.
5
Standard
The Eighth Circuit has established the following analysis to be used in
considering a request for preliminary injunctive relief:
[W]hether a preliminary injunction should issue involves
consideration of (1) the threat of irreparable harm to the movant; (2)
the state of balance between this harm and the injury that granting
the injunction will inflict on other parties litigant; (3) the probability
that movant will succeed on the merits; and (4) the public interest.
Dataphase Sys., Inc. v. C. L. Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981); accord
Medtronic, Inc. v. Gibbons, 527 F. Supp. 1085, 1090 (D. Minn. 1981), aff'd, 684
F.2d 565 (8th Cir. 1982).
1. Likelihood of Success on the Merits.
A. Rights under the Agreement
Coynes argues the Agreement is governed by the Minnesota Franchise Act.
Minn. Stat. 80C.01. Coynes argues that a franchise is defined by three
elements: 1) a right granted to the franchisee to engage in business using the
franchisers trade name or other commercial symbol; 2) a community of interest
in the marketing of goods or services between the franchisee and franchiser; and
3) a franchise fee paid by the franchisee. OT Industries, Inc. v. OT-tehdas Oy
Santasalo-Sohlberg Ab, 346 N.W.2d 162, 165-66 (Minn. Ct. App. 1984). The
applicability of the Minnesota Franchise Act is highly relevant with respect to
Coynes request for preliminary injunctive relief, because if the franchise act
6
applies, irreparable injury is presumed. Upper Midwest Sales v. Ecolab, Inc., 577
N.W.2d 236, 241 (Minn. Ct. App. 1998).
The parties dispute whether Coynes paid CA a franchise fee. The statutory
definition of franchise fee is
any fee or charge that a franchisee or subfranchisor is required to pay or
agrees to pay for the right to enter into a business or to continue a business
under a franchise agreement, including, but not limited to, the payment
either in lump sum or by installments of an initial capital investment fee,
any fee or charges based upon a percentage of gross or net sales whether or
not referred to as royalty fees, any payment for goods or services, or any
training fees or training school fees or charges . . .
Minn. Stat. 80C.01, subd. 9. Certain payments are specifically excluded from
this definition. See Minn. Stat. 80C.01., subd. 9(a) - (f). For example, payments
for the purchase of goods or an agreement to purchase goods at a bona fide
wholesale price are not considered a franchise fee. Minn. Stat. 80C.01, subd. 9
(a).
Not all payments made by a purported franchisee over the course of a
business relationship constitute franchise fees. Sound of Music v. Minnesota
Mining and Manufacturing, 477 F.3d 910922 (7th Cir. 2007) (citing Minn. Stat.
80C.01, subd. 9). For example, ordinary business expenses do not constitute
franchise fees. Id. (citing OT Indus., 346 N.W.2d at 167.) A minimum sales
requirement also does not constitute a franchise fee. Upper Midwest Sales, 577
N.W.2d at 241-43. In Hogin v. Barnmaster, Inc., C3-02-1880, 2003 WL 21500044
7
*4-5 (Minn. Ct. App. 2003) the court held that an 80% markup on a training fee,
over the defendants cost, did not constitute a franchise fee because the right to
enter into a business relationship with the defendant was not predicated on the
payment of the training fee.
Coynes asserts it pays a franchise fee in the form of the 50% markup for the
Product, and that such markup does not fall within any of the exceptions to the
statutory definition of franchise fee. Enesco responds that as CA was in the
business of selling goods, the 50% markup represents only CAs profits, and is not
a fee in exchange for a franchise. The Court agrees. The 50% markup for the
Products constitutes an ordinary business expense for a distributor, rather than a
franchise fee to CA. Coynes was not required to pay any fees for the right to
enter into a business relationship with CA. Accordingly, the Agreement is not
governed by the Minnesota Franchise Act.
Coynes also argues Enesco is violating its exclusive rights to CAs copyrights
in relation to the Products, trade marks and trade names. Coynes asserts that as
it was the exclusive distributor of the Products in the U.S. and Mexico, it follows
that Coynes right to use CAs copyrights and trademarks in the U. S. and Mexico
were also exclusive. Because it had exclusive rights to use such intellectual
property, Coynes asserts it has standing to assert infringement claims. Wildlife
Intl, Inc. v. Clements, 591 F. Supp. 1542, 1545 (D.C. Ohio 1984).
8
Contrary to Coynes assertions, the Court finds that Coynes was not granted
exclusive rights to CAs intellectual property by the terms of the Agreement.
Rather, it appears that Coynes obtained a non-exclusive license to use CAs trade
marks. The word exclusive does not appear in any provision concerning the use
of trademarks or copyrights. For example, Section 7.2 of the Agreement provides:
COUNTRY ARTISTS hereby authorises COYNES to use the Trade Marks in
the Territory in relation to the Products and for purposes only of exercising
its rights and performing its obligations under this Agreement. Such rights
shall cease immediately upon termination of this Agreement, other than as
is necessary to make sales pursuant to Section 5 or Section 6.2 hereof.
The Agreement further provides that Coynes right to use CAs intellectual
property
is limited. Section 7.7 provides:
Except as provided in this Agreement COYNES shall have no rights in
respect of any intellectual property rights however used by COUNTRY
ARTISTS in relation to Products and COYNES hereby acknowledges that it
shall not acquire any rights in respect thereof and that such intellectual
property rights are and shall remain vested in and controlled by COUNTRY
ARTISTS.
Having failed to establish an exclusive license to use CAs trade marks,
Coynes does not have standing to bring an infringement claim against Enesco.
Hot Stuff Foods, LLC v. Mean Genes Enterprises, Inc., 468 F. Supp. 2d 1078, 1094
(D.S.D. 2006) (under common law, only the owner of a trademark has standing to
seek relief for infringement). Even if Coynes did have an exclusive license to use
CAs trade marks, an exclusive licensee cannot sue the owner of such trade mark.
9
Westowne Shoes, Inc. v. Brown Group, Inc., 104 F.3d 994, 997 (7th Cir. 1997)
cert. denied 522 U.S. 861 (1997) (finding that owner can do anything with trade
mark if he wants, including attaching it to goods of poor quality or different types
of goods).
The same is true with respect to CAs copyrights. The Copyright Act
authorizes only two types of claimants to sue for copyright infringement: (1)
owners of copyrights, and (2) persons who have been granted exclusive licenses
by owners of copyrights. Eden Toys, Inc. v. Florelee Undergarment Co., 697 F.2d
27, 32 (2nd Cir. 1982)) (citing 17 U.S.C. 501(b) (Supp. IV 1980)) See also, 3-12
Nimmer on Copyright 12.02 (2007) (only parties with ownership rights have
standing to bring copyright infringement claims). Coynes has not established an
exclusive license to use CAs copyrights, nor the right to sue the owner of such
copyrights for infringement.
2. Irreparable Harm
Coynes must show it will suffer irreparable harm to be entitled to injunctive
relief. Watkins Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003) (citation omitted)
(failure to show irreparable harm is an independent basis upon which to deny a
preliminary injunction.) Relying on the presumption of irreparable harm
established for a violation of the Minnesota Franchise Act or for trade mark or
copyright infringement, Coynes asserts it will suffer irreparable harm if the
1In so finding, the Court expresses no opinion as to merits of such claims.
10
requested injunction is not granted. See West Publg Co. v. Mead Data Cent., Inc.,
799 F.2d 1219, 1229 (8th Cir. 1986).
Coynes has failed, however, to establish a likelihood of success on the
merits of its claims that the Minnesota Franchise Act governs in this case, or that
Coynes has standing to sue Enesco from trademark and copyright infringement.
Accordingly, irreparable harm will not be presumed here.
Based on the remaining claims asserted, specifically the interference claims,
the Court finds that Coynes has an adequate remedy at law.1 Any damages
Coynes may suffer are measurable in money damages. When there is an
adequate remedy at law, a preliminary injunction is not appropriate. Watkins,
346 F.3d at 844. See also, Modern Computer Systems, Inc. v. Modern Banking
Systems, Inc., 871 F.2d 734, 738 (8th Cir. 1989) (termination of distributor
agreement did not establish irreparable harm); MacDonald v. Hopps, Civ. No. 03-
6445, 2004 WL 114940 (D. Minn. Jan. 13, 2004) (adequate remedy at law for
alleged violation of distributor agreement); Best Vendors Co. v. Win Stuff, LLC,
Civ. No. 00-523, 2000 WL 34240391 at *2-3 (D. Minn. Mar. 13, 2000) (same).
11
IT IS HEREBY ORDERED that Plaintiffs Motion for a Temporary Restraining
Order and Permanent Injunction [Doc. No. 3] is DENIED.
Date: October 12, 2007
s / Michael J. Davis
Michael J. Davis
United States District Court
Civil No. 07-4095
 

 
 
 

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