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Re: Telebrands Corp. v. Grace Manufacturing

November 30, 2010

RE: TELEBRANDS CORP.
v.
GRACE MANUFACTURING, INC.



The opinion of the court was delivered by: William J. Martini Judge

LETTER OPINION

Dear Counsel:

This matter comes before the Court on the motion by Defendant Grace Manufacturing, Inc. ("Grace") for a preliminary injunction to enforce a settlement agreement entered into with Plaintiff Telebrands Corp. ("Telebrands"), or in the alternative, for summary judgment. Oral argument was not held. Fed. R. Civ. P. 78. For the reasons stated below, Defendant‟s motion is DENIED in its entirety.

I. BACKGROUND

Plaintiff Telebrands is a direct marketing company engaged in the marketing and sale of consumer products including the PED EGG foot file (the "Ped Egg"), a device used to remove or reduce calluses. (Plaintiff‟s Complaint, hereinafter "Cmplt.," ¶ 3). Defendant Grace is a manufacturer and seller of personal care products including its own orb-shaped foot file sold under the trademark MICROPLANE (the "Microplane"). (Id. at ¶ 7). The Microplane contains a blade made by a chemical etching process which is covered by U.S. patent number 5,100,506 (the ""506 patent") and owned by Grace. (Id.). Chemical etching is a commonly used method of creating blades; the "506 patent covers only a single specific etching process. (Id. at ¶ 14). While it is undisputed that the Ped Egg also contains a blade, the precise nature of that blade at varying points in time is at issue in this case. (Id. at ¶ 14).

In May 2008, Grace filed a lawsuit in the Western District of Arkansas against two Telebrands customers, alleging violation of the "506 patent. (Id. at ¶ 7; Defendant‟s Motion for Preliminary Injunction, hereinafter "Def. Br.," at 3). Several days later, Telebrands filed a complaint against Grace in the District of New Jersey, seeking a declaratory judgment that the Ped Egg, as manufactured at that time, did not infringe upon the "506 patent. (Cmplt. at ¶ 7; Def. Br. at 3). Telebrands acknowledges that the Ped Egg manufactured at that time incorporated a chemically etched blade; however it maintains that it did not use the particular etching process contained in the "506 patent. (Cmplt. at ¶ 14).

The two lawsuits were resolved in a settlement agreement (the "Agreement") dated December 4, 2008. (Def. Br., Ex. A). The plain language of the Settlement Agreement states the following in pertinent part: (1) Telebrands was required to cease manufacturing etched-blade Ped Eggs by February 1, 2009 (Paragraph 5a); (2) Telebrands was required to begin manufacturing a non-etched version of the Ped Egg by February 1, 2009 (Paragraph 5b); (3) Telebrands could continue selling and distributing "the Product" worldwide until December 31, 2011 (with "the Product" defined as the version of the Ped Egg that Telebrands was selling at the time of entry into the Agreement, i.e. the etched version)*fn1 (Paragraph 9c); (4) Telebrands would pay Grace royalties and licensing fees for its past and future use of Grace‟s intellectual property (Paragraphs 9b and 9c). (Id. at ¶¶ 5a, 5b, 9b, 9c). The meaning of Paragraph 9c is a major point of contention between the parties. Telebrands argues that the paragraph means it has the right to continue selling off its inventory of previously made and acquired etched Ped Eggs until December 31, 2011. (Cmplt. ¶ 17). Grace counters that Paragraph 9c means only that Telebrands had the right to sell some version of the Ped Egg up until December 31, 2011, and that Telebrands had to stop selling the etched version by February 1, 2009. (Def. Br. at 5). Grace‟s position appears to be tenuous at best, and indeed the language used by Grace in various places elsewhere in its briefs seems to contradict this view. (Declaration of Christopher Grace in support of Motion for Preliminary Injunction, hereinafter "Grace Decl.," ¶ 14). Regardless, the Court does not believe that resolution of this issue of contractual interpretation is necessary in order to rule on the pending motion and will not analyze it further at this time.

The terms of the settlement agreement also allowed Grace to inspect the plant in China where Telebrands manufactured its Ped Eggs, and Grace requested such an inspection. (Def. Br., Ex. A, ¶ 5b). As required by the Agreement, Telebrands agreed to allow Grace to inspect the plant during the next manufacturing run of the Ped Egg. (Cmplt. § 22). In the interim, in late February or early March 2010, representatives of Grace and Telebrands met at Telebrands‟ third party warehouse, located in California, where Telebrands stored its stock of foot files made at the Chinese plant.*fn2 (Id. at § 23). With Telebrands‟ consent, Grace obtained samples of the Ped Egg from the warehouse. (Id.).

After inspecting the samples, Christopher Grace, a Grace representative, informed Telebrands by letter that the Ped Eggs it had viewed contained chemically etched blades in violation of the Agreement. (Id. at §§ 25-26). However, Telebrands denies that the blades Grace inspected were chemically etched. (Id. at § 27). Telebrands argues that after February 1, 2009, it instructed its manufacturer to switch to a blade creation process using stamping instead of chemical etching. (Plaintiff‟s Opposition Brief, hereinafter "Pl. Opp.," at 6, 15). Stamping is a relatively common alternative process for creating blades. (Id. at 6). Telebrands insists that to its knowledge, all Ped Eggs manufactured after that date contained only stamped, and not etched, blades. (Id.). In fact, Telebrands asserts that it had to switch subcontractors because the previous company it had used had etching capabilities only and that the new subcontractor has stamping capabilities only, such that the new blades could not possibly be etched. (Declaration of Bob Wasyliw, hereinafter "Wasyliw Decl.," ¶ 6). Telebrands also provided Grace with copies of the invoices from the manufacturer in China which state that the Ped Eggs located at the California warehouse contain stamped, not etched, blades. (Cmplt. § 27). Grace disagrees, insisting that the blades it inspected were etched and arguing that the language used in the invoices is erroneous and meaningless. Telebrands has also reiterated its offer to allow Grace to inspect the manufacturing plant in China, but Grace has not responded. (Cmplt. § 27).

After exchanging letters with Grace, Telebrands filed the present action with the district court, seeking a declaratory judgment that Telebrands has not breached the Agreement and the Ped Egg in its current form does not infringe the "506 patent. (Cmplt.

¶¶ 33, 35). In response, Grace has moved for a preliminary injunction to enforce the settlement agreement, or in the alternative, for summary judgment. (Def. Br. at 2). Grace‟s motion is presently before the Court.

II. ANALYSIS

A. Preliminary Injunction Standard

The legal standard governing the grant of preliminary injunctive relief is well established. See Fed. R. Civ. P. 65(a). Injunctive relief is an extraordinary remedy which should be granted only in limited circumstances and is at the district court‟s discretion. Frank's GMC Truck Center, Inc. v. General Motors Corp., 847 F.2d 100, 101-02 (3d Cir. 1988); U.S. v. City of Philadelphia, 644 F.2d 187, 191 n.1 (3d Cir. 1980). In order to obtain this "ad interim relief, a movant must demonstrate both a likelihood of success on the merits and the probability of irreparable harm" if the injunction is not granted. Frank's GMC Truck Center, 847 F.2d at 102; see Abbott Labs. v. Andrx Pharms., Inc., 473 F.3d 1196, 1200-01 (Fed.Cir.2007). Also pertinent to the court‟s review are the balance of the hardships and the public interest. Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797, 800 (3d Cir. 1989); see Abbott Labs. at 1200-01. Finally, it is the ...


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