Transfer of “Know-How” Includes Copyrights
The US Court of Appeals for the Sixth Circuit vacated the district court’s dismissal of trademark and false advertising claims and grant of summary judgment on a copyright claim. Evoqua Water Technologies, LLC v. M.W. Watermark, LLC; Michael Gethin, Case Nos. 18-2397, -2398 (6th Cir. Oct. 7, 2019) (White, J) (Bush, J, concurring).
Evoqua and Watermark manufacture and sell sludge dryers and filter presses that remove water from industrial waste. Evoqua had acquired the assets of a corporation called JWI through a series of mergers and acquisitions. Michael Gethin formerly worked at JWI and left his position in 2003 to form Watermark (formerly known as J-Parts LLC). Evoqua’s predecessor had acquired JWI’s business “know-how,” contracts, trademarks and interest in litigation.
Shortly after Gethin formed Watermark, JWI sued Gethin and Watermark for false designation of origin, trademark dilution, trademark infringement, unfair competition, unjust enrichment, misappropriation of trade secrets, breach of fiduciary duties, breach of contract and conversion. The parties settled, and the court entered a final judgment, including a permanent injunction that prevented Watermark and Gethin from using JWI’s trademarks or proprietary information.
In 2014, Evoqua announced that it would discontinue its sludge dryer product line. In response, Watermark decided to enter the sludge dryer market and announced that it was releasing a new sludge dryer product. In 2015, Evoqua began plans to reintroduce its sludge dryer to the market.
Evoqua sued Watermark in 2016, alleging that Watermark and its employees violated the 2003 judgment by using Evoqua’s proprietary information and infringing on its trademarks. Evoqua alleged that Watermark infringed on its copyrights by adopting Evoqua’s copyrighted brochures and presentations for its own use. Evoqua asserted that Watermark impermissibly used its J-MATE® trademark on its website and adopted a confusingly similar name of “DryMate” for its own product. Evoqua also alleged that Watermark falsely advertised itself as an original equipment manufacturer for Evoqua’s products. The district court agreed with Evoqua, but before the award was issued, the case was reassigned to a different judge. The new judge determined that the judgment in the 2003 case did not provide for enforcement by an assignee, and therefore Evoqua did not have standing. The court further found that the agreement between Evoqua and its predecessor did not transfer copyright ownership to Evoqua. Thus the court granted Watermark’s motion for summary judgment. Evoqua appealed.
The Sixth Circuit first noted that although the consent decree was silent on the question of assignability, under Michigan law mere silence on this question does not evince an intent to prohibit assignment. The Court found that because the 2003 judgment did not contain an anti-assignment clause or some other clear prohibition on assignment, the judgment could be assigned.
With respect to the copyright claims, the Sixth Circuit had to determine whether the copyrights had been properly assigned to Evoqua in the carve-out agreement between Evoqua and its predecessors. The Court analyzed the issue under Delaware law, pursuant to the choice-of-law provision in the agreement. Although copyrights were not expressly discussed in the agreement, Evoqua argued that the “know-how” clause transferred the copyrights to it. The Court determined that the agreement was susceptible to two different interpretations, however, and therefore was ambiguous. The Court pointed out that “all information and data,” as used in the agreement, could encompass a wide variety of assets, including copyrights. Because the language of the agreement was ambiguous, the Court looked outside the contract to determine the parties’ intent. Evoqua presented affidavits from its predecessors asserting that it was the parties’ intent to sell the copyrights. The Sixth Circuit found this evidence sufficient to defeat summary judgment, explaining that because the intent of the parties was a disputed issue of material fact, the district court improperly granted summary judgment on that basis.