Before the U.S. Court of Appeals 7th Circuit
Docket No. 13-3730 Decided November 13
Diversity jurisdiction brought this complex commercial case before the 7th Circuit, which applied Illinois law to a series of trademark and business questions. At issue was whether the developer of chenille fabric under the tradename “Kashwere” (Selzer) could prevent a series of transactions via a non-compete agreement (“NCA”) and, conversely, whether the buyer of the Kashwere trademark (Kashwere LLC) could prevent Selzer from using a conduit company and distributors (Kashwere USAJPN) to get around that same NCA.
The background in the case makes the opinion lengthy and complex: in fact, the Court goes out of its way to mention the convoluted facts and blames the litigants’ Attorneys for failing to keep it simple. But the issues are actually limited and familiar. In a nutshell, they are:
1) Can Kashwere LLC, as licensee of the Kashwere trademark, prevent Selzer from using USAJPN to market overseas via distributors; and
2) Can Kashwere USAJPN prevent Kashwere from allegedly violating the same NCA by attempting to sell directly into the Japanese market.
Put another way, the issues were:
(A) Does the NCA prevent distributors – not the signatories themselves but their distributors – from selling Kashwere?
(B) If not, do the equitable obligations of good faith and fair dealing implied in Illinois contracts prevent the same?
The Appellate Court concluded that the facts indicated Selzer was not playing fair (so licensee Kashwere LLC has a cause of action) but it is dubious whether the NCA would affect the right of distributors of USAJPN to sell the product once they bought it. In other words, the NCA could only bind the signatories, not prevent the distributors from selling the product.
The Opinion basically favors free commerce and reads the NCA – a document the parties hoped would prevent future litigation – narrowly. That narrow reading means that there is only the slightest wiggle room for Selzer, so licensee, Kashwere LLC, ought to obtain relief on remand (although not the draconian relief that it was seeking initially). As for Selzer and his would-be Japanese conduit USAJPN, they do not fair well in this opinion at all.
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