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American Eagle Outfitters, Inc. v. Lyle & Scott Limited

November 26, 2008

AMERICAN EAGLE OUTFITTERS, INC. AND RETAIL ROYALTY COMPANY, PLAINTIFFS,
v.
LYLE & SCOTT LIMITED AND HARRIS WATSON INVESTMENT LIMITED, DEFENDANTS.



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

OPINION

According to the Plaintiffs, the Motion for Summary Judgment (Doc. 202) pending in this fiercely fought and protracted trademark litigation requires the Court to decide "a simple contract issue" where the "applicable facts are not in dispute" and "[t]he law is straightforward." (Doc. 203 at 1-2). Given the tortuous - and torturous - nature of the proceedings to date, the Court, when first presented with this outline of its task, was skeptical. A thorough review of the parties' memoranda, hundreds of pages of argument-filled "concise" statements of uncontested fact, supporting appendices, and the law, has, however, convinced the Court that the Plaintiffs were correct; the critical facts are undisputed*fn1 and resolution of this matter turns on basic contract principles. Relying on these facts and the law, the Court will grant the Plaintiffs' Motion for Summary Judgment.

I. BACKGROUND

In Counts I and II*fn2 of the Second Amended Complaint, (Doc. 99), the Plaintiffs, U.S. companies, American Eagle Outfitters, Inc. ("AE"), a clothing retailer with operations in all fifty states, the District of Columbia, and Puerto Rico, and internet sales in at least twenty-four foreign countries, and its wholly - owned subsidiary, Retail Royalty Co. ("RRC"), the owner and licensor of AE's intellectual property rights, seek a "Declaratory Judgment of Enforceable Agreement" and specific performance of that agreement against Defendants, Lyle & Scott, Ltd. ("L&S"), a U.K. sportswear manufacturer, and Harris Watson Investments Limited ("HW") - now known as Waterlinks Investment Limited - a holding and parent company of L&S, whose principals are Sue Watson ("Watson") and John Harris ("Harris"). (Id.; Doc. 29). The Plaintiffs' Motion for Summary Judgment is confined to these counts. Recognizing that its disposition of the pending Motion is fact-dependent, the Court recounts the facts in detail, viewing as it must, all evidence and drawing all inferences in the light most favorable to the Defendants.

This dispute originated on September 30, 2005, when Benjamin Sharpe ("Sharpe"), then Managing Director of L&S, wrote to AE's CEO, James O'Donnell ("O'Donnell"), stating that L&S had recently learned that AE was marketing clothing bearing an eagle logo. (Doc. 223 at 36-37). Sharpe informed O'Donnell that L&S had registered various versions of the "birdie" trademark, writing, "the appearance of your logo is so close to our own registered marks that there is a substantial risk of confusion as to the origin of your goods when offered for sale in Europe . . . [W]e would undoubtedly succeed in infringement proceedings against you." (Id. at 37). Sharpe asked AE to respond with proposals as to "a possible way forward." (Id.)

Near the end of 2005, Sharpe, who testified at his deposition that he was responsible for all of the L&S operation at the time, (id. at 182), asked Dennis Hall ("Hall"), HW's Corporate Development Director, to manage the day-to-day handling of the AE matter "in the best interest of the company." (Id. at 188, 159). Sharpe testified that he did not direct Hall to report to him, or know if Hall was required to report to anyone else. (Doc. 227 Ex. A at 54-56, 151-52). Although the AE matter was an important one, Sharpe delegated it to Hall because Sharpe had more important things to do, and Hall was an able person. (Doc. 223 at 191). Hall did not need Sharpe's prior approval for any aspect of the AE assignment. (Id. at 188). Sharpe had delegated to Hall other trademark matters to that were successfully settled, with Hall signing documents binding L&S. (Id. at 210-214). These other matters were less complicated, with less money at stake. Following Hall's assumption of responsibility for the AE matter, he was the sole L&S participant in telephone conferences and the exchange of correspondence with AE. (Id. at 45-55).

On December 21, 2005, Kimberly Strohm ("Strohm"), Pennsylvania-based in house counsel for AE, emailed Hall noting the parties' common "desire to find an acceptable business solution," and suggesting a "business person to business person meeting with the trademark advisors available for consultation if necessary." (Id. at 56). Strohm proposed that the meeting take place in London and that she attend as part of the AE "management team." (Id.). The meeting was scheduled for January 9, 2006.

Strohm advised Hall that she would be accompanied by Christopher Fiore ("Fiore"), AE's "Senior Vice President of International," and that counsel for AE would be available for consultation, but would not attend the meeting. (Id.) She made explicit her understanding that L&S would "attend with [its] attorneys on a similar basis." (Id.) This email bore a notation, as had all of the preceding correspondence between Hall and Strohm, establishing that the communications were "without prejudice," and set the same condition for the proposed meeting.

Strohm, Fiore and Hall met in London on January 9, 2006, as planned. The meeting lasted several hours, with the time divided into morning and afternoon sessions. In the morning session, the parties exchanged background information regarding the nature and scope of their respective businesses, and AE's use of the eagle logo. (Id. at 249-250). Hall attempted to persuade AE to "move away" from use of their logo, but AE declined. (Id. at 251). Instead, AE proposed a coexistence agreement that would involve "two brands using a similar logo in the same territory" with safeguards in place to avoid consumer confusion. ( Id.).

Hall made handwritten notes in preparation for the meeting, and of what transpired in the morning session. (Doc. 227 Ex. B at 25-35). At the lunch break, he made additional notes in preparation for a telephone call to Harris. At his deposition, Hall, with a copy of his notes in front of him, testified that when he communicated with Harris during the break, he told him that L&S "had two options, one was to settle, or one was to fight, but that if [they] fought, that what [they] could potentially win with regard to the U.K. was only about [^15,000], and was uncertain as to an amount in the United States . . . ." ( Doc 227 Ex. B. at 240). Hall believed at the time that whether L&S could successfully challenge American Eagle for infringing its "trademark positions in the U.S. was not categoric and was not definite in terms of the result [they] would get out of it." (Id. at 241).

Harris responded that he wanted to think about the matter, and consult with Watson. (Id. at 243). Before discussions with AE resumed, Harris and Hall spoke again, with Hall making notes that read: "If can settle at greater than or equal to ^250,000 - settle and take it." (Doc. 223 at 536). The notes also contain the phrases "SMW [Susan M. Watson] - prevent golf capsule" and "(Just to be clear . . . accept co-existence if pay ^1/4 m . . . yes)." (Id.). Hall testified that he recorded this last bit in his notes because he "thought it was a matter of some significance, and . . . wanted to be clear on where [Harris's] thinking was on it." (Doc. 227 Ex. B at 243). After speaking with Harris, Hall made notes captioned "Negotiating Pts." (Doc. 223 at 536). Under this heading, he wrote, among other things, "^1/2 m - $1m call it!" (Id.)

Discussions between AE and L&S reconvened in the afternoon with both Strohm and Hall taking notes. At the end of the meeting, Strohm and Hall drew up an informal document ("the London Memorandum" or "the Memorandum"), which the Plaintiffs allege was handwritten by Strom in Hall's presence with his input. (Doc. 223 at 256). Hall acknowledged that he was the one to suggest that the points upon which the parties had agreed be committed to writing. (Id. at 538). The Memorandum read:

AE to pay $1,000,000 (US) to Lyle & Scott. Parties agree as follows:

! AE to use its current eagle on American Eagle

branded merchandise, products must also bear

American Eagle or American Eagle Outfitters on the label;

! AE to sell products in AE stores, stores within stores or AE website;

! LS to use its eagle designs on Lyle & Scott branded merchandise, products must also bear

Lyle & Scott on the label;

! perpetual and worldwide pertaining to goods of

LS registrations;

! AE shall have the right of first refusal to purchase

LS eagle(s) or business

! Each party shall consent to the registration of the

other's eagles and AE shall withdraw its opposition

against LS application in the US.

! Each side to bear their own government taxes

! AE to pay the reasonable customary atty fees of LS

! AE will not launch or offer a specific range targeted at the golf market ! AE will discuss with LS [sourcing of] garments (Doc. 223 at 64-65) (punctuation in original). Hall asked if he should sign the Memorandum, but Strohm advised that this was not necessary. (Id. at 200). Both Strohm and Hall took copies of the Memorandum with them, and Strohm agreed that she would prepare a formal document, and send it to L&S within two weeks. (Id. at 200, 201).

At the end of the meeting, Hall was satisfied that the Memorandum "fairly captured the day's discussions." (Id. at 256). In his deposition, he stated that he viewed the document as "a list of points which [was] a summary of a discussion between [sic] [Hall] , Strohm and Fiore . . . ." (Doc. 227 Ex. C at 263). Although he never brought this point to the attention of AE, Hall testified that he had understood that "Harris and Watson would have a right of veto and would be required to sign any ultimate document." Id.

At his deposition, Fiore testified that before the conclusion of the meeting, he checked with O'Donnell about what had been discussed, and that Hall told him that he, too, had to check with his superiors. At the end of the meeting, Fiore understood that an agreement had been reached. (Doc. 227 Ex. K at 135, 139). He said something to Hall on the order of "we have a deal," and, in Fiore's mind, this agreement was binding. (Id. at 133,138). Strohm's testimony was similar. (Doc. 223. at 200). In its Answers to Interrogatories, AE stated that at the end of the meeting, Fiore and Hall "shook hands to indicate an agreement." (Id. at 144). It is undisputed that those attending the meeting did not specifically address whether the Memorandum was "without prejudice" and did not place a "without prejudice" notation on the document.

On January 23, 2006, Strohm sent a "draft of the co-existence agreement" comprising nine pages to Hall for review. (Doc. 223 at 66). Three days later, Hall sent a response to Strohm, attaching a redlined version of the agreement, observing that he "believe[d]" that his comments were "simple tidying." (Id. at 78). His only substantive*fn3 comment related to clause 3(a)( iv), which read, "AEO can register its AEO Eagle Design marks for all goods and services throughout the world." (Id. at 71). Hall explained:

[W]e do not want to allow you to register outside your core market. Naturally we will not object to your internet selling activities and we will defend our mark (and by similarity your mark) in these other territories. This allows you to trade unfettered whilst not diminishing our prior rights in these other territories.

(Id.).

The Plaintiffs characterize this as a "minor change," as it did not eliminate or impede AE's right to register its mark in the United States, to sell over the internet, or to trade outside the United States. (Doc. 221 at 9). Hall's email did not suggest that the formal document failed to incorporate or accurately reflect any of the bulleted points set out in the London Memorandum.

The Plaintiffs allege that before AE could respond to this non-material change regarding its right to register its marks outside the United States, L&S "breached the January 9 agreement as memorialized in the January 23 Formal Document." (Id.). AE contends that this breach occurred after Hall met with Harris and Watson and they began to second guess the deal. Hall's notes confirm that on January 26, 2006, he met with Harris and Watson and was asked, "What have we agreed/ what do they think we agreed." (Doc. 223 at 537). In notes taken during that meeting, Hall also wrote, "Do not want them to register outside far east," and "Do not want them to trade E.U. /Far east via net." Id.

On January 31, 2006, Strohm and Hall exchanged email, discussing Strohm's concerns, which focused primarily on AE's registration rights. It was agreed that Fiore, Strohm and Hall would participate in a conference call the next morning. (Id. at 91). Late in the day before the call, Hall emailed Strohm, stating:

I need to clarify one issue ahead of our conversation tomorrow which is now even broader than 3(a) (iv). As a result you may well think I am moving our position!

After discussions on our licencee relationships, we now have significant issues in allowing you to trade into territories outside America. This is particularly important in Europe and the Far East where we have clearly established marks and prior rights. The issue is that years/decades of building the brand by us and our licencees [sic] will then enable you to trade off of the eagle logo. The potential for confusion is not the concern, simply the economic advantage you may gain from using the logo we and our licencees [sic] have spent much time/effort/money establishing. (Id. at 90) (emphasis added). Hall offered two proposals. One was that AEO not use the colors gold or silver for its logo, and not use sewn-on as opposed to embroidered eagles. The second was that AE pay a royalty fee of five per cent on all sales made in territories outside the United States where L&S held established marks. (Id.) Hall also wrote:

In the absence of this, we will struggle to justify to our licencees [sic] any action other than seeking to preserve our registrations and rights where they exist. I understand that such action will inevitably result in withdrawal of your proposed US CoExistence.

I appreciate this contradicts the worldwide basis you sought to achieve at our meeting, though at this time I did explain our licencee income risks and this issue has subsequently become more apparent. (Id.) Further telephone discussions directed at settlement were unavailing.

On February 10, 2006, Hall emailed Strom in order to clarify the L&S position. According to Hall, L&S was prepared to co-exist with AE in the United States and to agree to mutual logo registration there; both parties would be able to trade on the internet, though AE would not be permitted to use its logo outside the United States in areas where L&S had established prior rights. Hall summarized the L&S position as follows:

None of [this] contradicts our meeting in London (though you have interpreted mutual consent to register/withdrawal of your opposition in the US as a world-wide right to register - this was not agreed nor was it the intention as detailed in my e-mail . . . of 27th January commenting on your draft document).

In short, we are prepared to move forward on the basis of our London meeting, this being as per your draft Co-existence Agreement corrected to acknowledge that your registration will be limited to the US and territories where L&S do [sic] not have prior rights. (Doc. 227 Ex. FF at 242). In ...


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