Axiom Worldwide, Inc. v. HTRD Grp. Hong Kong Ltd.

AXIOM WORLDWIDE, INC., Plaintiff, v. HTRD GROUP HONG KONG LIMITED, et al., Defendants.

Case No. 8:11-cv-1468-T-33TBM

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA TAMPA DIVISION

October 30, 2015

REPORT AND RECOMMENDATION

THIS MATTER is before the Court on referral for a Report and Recommendation on Defendants Excite Medical Corp. and Saleem Musallam's Motion for Modification of Injunction (Doc. 681),¹ Plaintiff's response (Doc. 698), Defendants' reply (Doc. 703), and Plaintiff's sur-reply (Doc. 704). An evidentiary hearing was held on July 22, 2015.²

Plaintiff Axiom Worldwide, Inc. ("Axiom" or "Plaintiff") initiated this action for trademark ownership and infringement of intellectual property on July 1, 2011. (Doc. 1). On August 26, 2011, Axiom filed its Verified Amended Complaint against multiple defendants, seeking declaratory and injunctive relief as well as damages. It claimed to be the owner of certain intellectual property, including trademarks, trade secrets, trade names, copyrights of the designs and drawings of products marketed under the trademarks, and 510(k) pre-market authorizations from the U.S. Food and Drug Administration ("FDA"). (Doc. 20). Axiom asserted claims for trademark infringement, unfair competition, copyright infringement, fraud on the USPTO, misappropriation of trade secrets, interference with business relationships, and breach of confidentiality agreements. Id.

The lengthy course of proceedings in this case has been previously recounted and such is not herein repeated. (See Docs. 633, 696). Suffice it to say that in June 2013, the district judge granted summary judgment to Axiom as against numerous defendants, including the movants, on the issues of ownership and trademark and copyright infringement and unfair competition. (Doc. 317). On July 31, 2013, after a non-jury trial, the district judge made findings of facts and conclusions of law largely in favor of Axiom and awarded damages and injunctive relief. (Doc. 365). Judgment in favor of Axiom, awarding damages and incorporating the permanent injunction, was entered thereafter. (Doc. 366). Although Excite Medical Corp. and Mr. Musallam appealed the Judgment (see Docs. 383, 384), they did not specifically appeal the scope of the injunction. On November 17, 2014, the Eleventh Circuit affirmed the Judgment against both. (Doc. 612).

Following the unsuccessful appeal and some fifteen months after entry of Judgment, Defendants filed a motion for clarification of the injunction, which was denied on procedural grounds. (Docs. 620, 696). And, approximately five months thereafter, Defendants filed the instant motion for modification of the injunction.

I.

By their motion (Doc. 681), Defendants seek modification of the permanent injunction pursuant to Federal Rule of Civil Procedure 60(b)(5). Pertinent to this motion, the injunction broadly enjoins Defendants from using Axiom's trademarks, including "DRX 9000" and "Axiom Worldwide" for any commercial purpose.³ Alleging that Axiom no longer owns these marks; that the federal registration of the marks for "Axiom Worldwide" (USPTO Serial No. 76595705) and "DRX 9000" (USPTO Serial No. 76533070) have been deemed abandoned and cancelled by the USPTO; that Axiom has had no substantive operations in the United States since 2010; and that at least since 2011, no new devices in the "DRX" line could be offered for sale in the U.S. because the FDA 510(k) pre-market clearances for those devices were de-listed; Defendants urge that the legal bases underlying the injunction, as itpertains to these marks, no longer exist.⁴ Accordingly, they argue the injunction should be modified to set aside these restraints against the use of the marks.⁵ (Doc. 681).

In a somewhat rambling response to the motion, Plaintiff argues that Defendants have flagrantly violated the permanent injunction and should not be rewarded for their bad behavior with a modification of the injunction; that Axiom has not abandoned usage of the trademarks it created; that Defendants have schemed to defraud the court and the USPTO by falsely claiming ownership and usage of the mark "DRX 9000" in a trademark application filed with the USPTO; and have taken inconsistent positions in court filings; and continue to engage in commercial activity using newly manufactured and counterfeit parts in DRX machines sold to doctors. (Doc. 698).⁶

In reply, Defendants again assert that the DRX 9000 and Axiom Worldwide marks have been abandoned and the registrations cancelled and thus such trademarks have reverted to the public domain for anyone to use. Defendants argue that Plaintiff cannot demonstrateuse of the marks in commerce as required by the Lanham Act and Axiom's nonuse of the marks is not excusable, as contemplated by the USPTO examining procedures or under applicable case law. Recent efforts by Axiom are insufficient to demonstrate its use of the marks in commerce and the changes in circumstances and nonuse warrant a modification of the injunction. (Doc. 703).⁷

In its sur-reply, Axiom urges the marks have been and continue to be used in commerce. It notes that the trademarks were previously transferred to T.V.G., which continues to use the marks in commerce. Axiom claims it has a grant back license from T.V.G. to defend the trademarks and that Integrity Life Sciences ("ILS") also has a licence to use the marks.⁸ Thus, Axiom is obliged to defend the trademarks and, although it is not manufacturing the DRX machines at present, the marks are being used by T.V.G. and ILS on the internet at www.axiomworldwide.com (now owned by T.V.G.), in fax blasts to doctors, and at trade shows both domestically and internationally.⁹ Axiom asserts that, regardless of any alleged abandonment, Defendants have violated the injunction and show unclean handsby coming to the court seeking modification which, in conjunction with the trademark application with the USPTO, would permit them to use the marks. (Doc. 704).

On July 22, 2015, the undersigned held an evidentiary hearing on the motion. The Court received exhibits and heard testimony from James Gibson, president of Axiom, and admitted several exhibits. (See Docs. 714-1, 715, 716). Such are discussed herein as necessary.

II.

Inherent in the power of the court is the power "to modify an injunction in adaptation to changed conditions...." United States v. Swift & Co., 286 U.S. 106, 114 (1932). This judicial formulation was codified by Congress in the Federal Rules of Civil Procedure. Rule 60(b)(5) provides that "on a motion and just terms, the court may relieve a party ... from a[n] order [when] applying it prospectively is no longer equitable." Fed. R. Civ. P. 60(b)(5).

However, as the Supreme Court has explained:

Rule 60(b)(5) may not be used to challenge the legal conclusions on which a prior judgment or order rests, but the Rule provides a means by which a party can ask a court to modify or vacate a judgment or order if "a significant change either in factual conditions or in law" renders continued enforcement detrimental to the public interest. The party seeking relief bears the burden of establishing that changed circumstances warrant relief but once a party carries this burden, a court abuses its discretion when it refuses to modify an injunction or consent decree in light of such changes.

Horne v. Flores, 557 U.S. 433, 447 (2009) (internal citations and quotations omitted).

In exercising their powers to modify, the courts are guided by the principles of equity and the ability to adapt a decree to meet the circumstances of a new day. As Justice Cardozo explained in the seminal Swift case, "a court does not abdicate its power to revoke or modify its mandate, if satisfied that what it has been doing has been turned through changingcircumstances into an instrument of wrong." 286 U.S. at 114-15.

In Swift, the Court articulated a rigorous standard:

The injunction, whether right or wrong, is not subject to impeachment in its application to the conditions that existed at its making. We are not at liberty to reverse under the guise of readjusting. Life is never static, and the passing of a decade has brought changes to the grocery business as it has to every other. The inquiry for us is whether the changes are so important that dangers, once substantial, have become attenuated to a shadow. No doubt the defendants will be better off if the injunction is relaxed, but they are not suffering hardship so extreme and unexpected as to justify us in saying that they are the victims of oppression. Nothing less than a clear showing of grievous wrong evoked by new and unforeseen conditions should lead us to change what was decreed after years of litigation with the consent of all concerned.

Id. at 119.

Since Swift, however, the Supreme Court is viewed as having relaxed this stringent standard somewhat, focusing less on the harm being suffered by the enjoined party as on the continuing need for the injunction. Wright & Miller, 11A Fed. Prac. & Proc. Civ. § 2961 (3d ed.). In U.S. v. United Shoe Machinery Corp., 391 U.S. 244, 248 (1968), an antitrust case brought against the manufacturer of shoe-making machinery, the government sought modification of a decree enjoining the defendant from monopolizing trade or commerce. In short, the government urged modification of the injunction on grounds that it had failed in its intended purpose. In the district court, the modification was denied on the authority of Swift. The Supreme Court reversed and remanded because the "stringent requirements of Swift" were not applicable to the circumstances presented. In seeking to give context to the "grievous wrong" standard announced in Swift, the Court stated, "Swift teaches that a decree may be changed upon an appropriate showing, and it holds that it may not be changed in the interests of the defendants if the purposes of the litigation as incorporated in the decree ...have not been fully achieved." Id. at 248. But nothing in Swift precluded the...