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Seller Agency Council, Inc v. Kennedy Center For Real Estate Education

March 30, 2011

SELLER AGENCY COUNCIL, INC.,
PLAINTIFF,
v.
KENNEDY CENTER FOR REAL ESTATE EDUCATION, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Alicemarie H. Stotler U.S. District Judge

FINDINGS OF FACT AND CONCLUSIONS OF LAW ON THE ISSUE OF ACQUIESCENCE AND RELATED COUNTERCLAIMS.

I. BACKGROUND

Plaintiff Seller Agency Council, Inc. ("plaintiff" or "SAC") brought the instant action against Kennedy Center for Real Estate Education, Inc. ("KCREE") and Joe Kennedy ("Mr. Kennedy") (collectively, "defendants/counter-claimants") for breach of contract and a declaration of trademark non-infringement. Defendants/counter-claimants brought a counterclaim for trademark infringement against SAC, RealtyU Group, Inc. ("RealtyU"), and Stephan Swanepoel ("Mr. Swanepoel") (collectively, "plaintiff/counter-defendants"). On September 29, 2008, after a court trial ending in June 2008, the Court issued findings of fact and conclusions of law in support of judgment for defendants and counter-defendants. (Doc. No. 111.) The Court found that no transfer of intellectual property rights from KCREE to SAC had been effected. (Id. at ¶ 18.) The Court also found that SAC had unclean hands, and thus could not seek specific performance of the parties' Stock Purchase Agreement. (Id. at ¶¶ 19-20.)

Before trial, the parties stipulated that the plaintiff/counter-defendants' actions would constitute trademark infringement if KCREE was found to be the rightful owner of the intellectual property, and if plaintiff/counter-defendants were not found to have some right to use the marks after July 12, 2006, the date of KCREE's cease and desist letter to Mr. Swanepoel and RealtyU. (Id. at ¶ 24.) The Court found that defendants/counter-claimants' conduct after the cease and desist letter led plaintiff/counter-defendants to believe they had permission to use the trademarks, but such consent ended upon entry of judgment and the Court's issuance of a permanent injunction. (Id. at ¶ 25.) Because plaintiff/counter-defendants' use of the trademarks was found to be with defendants/counter-claimants' "consent and acquiescence," the Court declined to award damages. (Id. at ¶ 26.)

On defendants/counter-claimants' appeal, the Court of Appeals for the Ninth Circuit noted that it had only "dealt in passing with the concept of acquiescence to infringement," and it had not "articulated a definition or established a practical test for district courts to apply." Seller Agency Council, Inc. v. Kennedy Center for Real Estate Edu., Inc., 621 F.3d 981, 988 (9th Cir. 2010). After reviewing relevant case law, the Ninth Circuit held that "[t]he elements of a prima facie case for acquiescence are as follows: (1) the senior user actively represents that it would not assert a right or a claim; (2) the delay between the active representation and assertion of the right or claim was not excusable; and (3) the delay caused the defendant undue prejudice." Id. at 989.

The Ninth Circuit vacated the judgment and remanded with instructions for the Court to consider "the scope of [defendants/counter-claimants'] active representations [and] the extent and reasonableness of [plaintiff/counter-defendants'] reliance on those representations." Id. at 990. In particular, the Ninth Circuit noted that the Court did not make findings whether defendants/counter-claimants' requests that plaintiff/counter-defendants use the marks for a specific purpose after the July 12, 2006 demand letter "amounted to a carte blanche to use the marks for any other purposes, whether and to what extent the marks actually were used for other purposes, or whether it was reasonable in light of the cease-and-desist letter and subsequent litigation for [plaintiff/counter-defendants] to use the marks either for purposes of the specific requests or for purposes outside of [sic] scope of those requests." Id.

Following a post-remand status conference on December 10, 2010, on January 10, 2011, the parties filed concurrent Phase One*fn1 opening briefs on acquiescence, followed by concurrent reply briefs on January 31, 2011. Upon the filing of the reply briefs, the Court took the matter under submission.

After consideration of the parties' post-remand briefing, as well as all trial exhibits and testimony, the Final Pretrial Conference Order, both parties' current and previous proposed Findings of Fact and Conclusions of Law, and the Court's own research, the Court makes the following Findings of Fact and Conclusions of Law, finding no acquiescence by defendants/counter-claimants. Pursuant to the Court of Appeals' remand, the Court's findings of fact only pertain to the limited issue of whether defendants/counter-claimants acquiesced to plaintiff/counter-defendants' use of KCREE's trademarks following the July 12, 2006 cease and desist letter.

II. FINDINGS OF FACT

A. The Parties

1. Defendant/counter-claimant Mr. Kennedy, an individual residing in Georgia, is the sole officer, director and shareholder of KCREE. KCREE owns an educational curriculum called the Accredited Seller Representative program (the "ASR program"), along with several trademarks (the "ASR trademarks") and copyrighted materials related thereto. The ASR trademarks include the following federal registrations: 3,071,769; 3,088,326; 3,093,851; 3,139,782; 3,325,443; and 3,240,837.

2. Plaintiff/counter-defendant SAC is a Nevada Corporation. Counter-defendant Mr. Swanepoel, an individual residing in California, was president of counter-defendant RealtyU at all relevant times.

3. In September 2005, Mr. Kennedy and Mr. Swanepoel executed a stock purchase agreement pursuant to which SAC was to own the ASR program and trademarks upon closing. Although the closing never occurred, SAC, RealtyU, and Mr. Swanepoel had permission and consent to use the ASR trademarks between September 8, 2005 and July 12, 2006.

B. July 12, 2006 Demand Letter and Mr. Kennedy's Requests

4. On July 12, 2006, through counsel, Mr. Kennedy and KCREE sent a cease and desist letter to Mr. Swanepoel. The letter asserted that "In light of the fact that your companies [SAC and RealtyU] do not have a contract with our clients, your continued use of our clients' trademarks constitutes trademark infringement. Unless we can reach an accommodation with you, please halt all use of our clients' trademarks." (Doc. 150-1, Excerpts of Record ("ER") 29.) As a solution to the alleged trademark infringement, the letter proposed an arrangement whereby Mr. Kennedy would sell all of his intellectual property rights to Mr. Swanepoel, with the exception of the territory of Georgia.

5. Following receipt of the demand letter, Mr. Swanepoel and Mr. Kennedy had a conversation wherein Mr. Kennedy expressed that he no longer wanted to work with Mr. Swanepoel and Mr. William Shue. During that conversation, Mr. Kennedy initially accepted an invitation to come to California to resolve any outstanding issues. However, Mr. Kennedy changed his mind a few days later and no further discussions took place.

6. On July 25, 2006, SAC filed a complaint for breach of contract and declaratory relief to determine whether it owned the ASR trademarks.*fn2 On February 2, 2007, Mr. Kennedy and KCREE answered and filed counterclaims for trademark infringement, unfair and deceptive trade practices, unfair competition, and copyright infringement.

7. When the litigation began, the database of ASR designees was in SAC's physical possession. During this time, defendants/counter-claimants could not access the database, nor did they have control over plaintiff/counter-defendants' use of the ASR trademarks.

8. During the litigation, Mr. Kennedy continued to teach ASR courses and generate income from the ASR program. Rather than fracturing the master ASR database, Mr. Kennedy sought to have it remain complete. In an attempt to keep the master database whole while it was in SAC's possession, Mr. Kennedy made certain administrative requests to plaintiff/counter-defendants regarding the use of his ASR intellectual property.

9. On several occasions after the July 12, 2006 demand letter, as early as July 28, 2006 and as late as November 19, 2007, Mr. Kennedy asked plaintiff/counter-defendants to make use of his ASR intellectual property as follows:

* On July 28, 2006, Mr. Kennedy sent an email to Cheryl Favreau, a potential student who was unable to sign up for the ASR course online, with a carbon copy to Tom Mitchell ("Mr. Mitchell") of RealtyU. Mr. Kennedy indicated that he was "forwarding this to our IT folks. Hopefully they can get you going." (ER 26.)

* On or about July 25, 2006, Mr. Kennedy sent a hand-written request to Mr. Mitchell regarding eleven students ...


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