                               No. 95-2127



Hardwick Airmasters, Inc.           *
d/b/a Airmasters, Inc., and         *
John R. Young, d/b/a                *   Appeal from the United States
John Young & Associates,            *   District Court for the
                                    *   Eastern District of Arkansas
            Appellees,              *
                                    *
     v.                             *
                                    *
Lennox Industries, Inc.,            *
                                    *
            Appellants.             *



                     Submitted: January 11, 1996

                          Filed: March 19, 1996


Before BOWMAN, Circuit Judge, JOHN R. GIBSON, Senior Circuit Judge,
and KYLE,* District Judge



KYLE, District Judge.


     Appellees    Hardwick     Airmasters,   Inc.,      d/b/a   Airmasters
(“Airmasters”) and John R. Young, d/b/a John Young and Associates
(“Young”)     commenced      this   copyright     and      trade   secret
misappropriation action against Appellant Lennox Industries, Inc.
(“Lennox”).   Lennox appeals from a jury verdict on the infringement
claim and a court judgment denying Lennox’s motion for attorney’s
fees and costs.   We reverse in part and affirm in part.




     *
      The HONORABLE RICHARD H. KYLE, United States District Judge
     for the District of Minnesota, sitting by designation.
2
                                 I. BACKGROUND
        A.   Parties


        Lennox    is   engaged   in   the   business    of   manufacturing   and
distributing heating and air conditioning equipment through various
dealers.     Airmasters is engaged in the business of selling and
installing       heating,   ventilating     and   air   conditioning   (“HVAC”)
equipment to retail customers; Airmasters is a Lennox dealer in the
Little Rock, Arkansas, area.           Young is an individual engaged in
marketing in the HVAC industry.


        B.   Factual Background


        The claimed copyrighted product in this case is a promotional
“direct mail” advertising letter (“WRS Letter”) Young designed for
Airmasters to stimulate its winter HVAC sales.               Young included the
WRS Letter in a marketing manual entitled “Winter Replacement
System” he created in 1987.            The WRS Letter describes an offer
whereby customers who purchase an air conditioner during winter
months receive a free heater.         Airmasters and Young met with Lennox
in January 1988 to discuss the WRS Letter and to obtain a discount
on the HVAC products to be used in Airmasters’ proposed sales
promotion.       (Tr. at A441-41.1, A491-94.)           Young and Airmasters
claim that Lennox agreed to the discount and not to use the WRS
Letter for its own promotions.          (Tr. at A441.0-41.2.)


        The following month, Airmasters mailed approximately 10,000 of
these letters to potential customers in the Little Rock area.                The
WRS Letter did not have a copyright notice affixed to it at this
time.    The mailing was successful, and Young began offering the WRS
Letter, the marketing manual, and one hour of his consulting time
to other HVAC dealers for $895.00.            Airmasters mailed “thousands”


                                        3
of copies of the WRS Letter to potential customers in 1989, 1990
and 1991; these copies also did not contain a copyright notice.




                                4
     After Airmasters’ first season of sales with the WRS Letter,
Lennox required Airmasters to submit a copy of the WRS Letter to it
as a condition for reimbursement of its advertising expenses.                  (Tr.
at A501.)     Young instructed Airmasters at that time (April 1988)
“to put a notice of copyright on the front of the letter” before
sending it to Lennox.       (Id.)    Beginning in late 1989, Lennox began
using its own direct mail advertising letter (“Lennox Letter”),
which    provided   similar       incentives     to   winter   HVAC      customers.
Airmasters received a copy of the Lennox Letter in February, 1990;
Airmasters contacted Young and told him “it looked like Lennox had
taken [Young’s] replacement system and copied it.”                 (Tr. at A536.)


     Lennox      mailed   copies    of   the    Lennox    Letter    to    potential
customers again in winter 1991.          On April 2, 1991, Young registered
the WRS manual, which included the WRS Letter, with the Copyright
Office.    Young did not separately register the WRS Letter.                 Based
on Lennox’s 1990 and 1991 mailings, Young and Airmasters sued
Lennox     for    trade     secret       misappropriation       and      copyright
infringement.


     After commencing this action, Airmasters included a copyright
notice on its 1992 promotional letters.                  Other dealers who had
purchased the WRS system and the WRS Letter, however, did not place
a copyright notice on letters mailed in 1992.                   In 1993, after
consulting with a copyright attorney, Young required all dealers
who had purchased the WRS system and Letter to include notice of
copyright on their WRS Letter mailings.


     C.     District Court Proceedings


     The    district      court    granted     Lennox’s    motion    for   summary
judgment with respect to Young and Airmasters’ trade secret claims


                                         5
in April, 1992.   Lennox moved for an award of attorney’s fees and
costs incurred in connection with defending the trade secret claim.
The district court denied this motion, and the copyright




                                 6
infringement claim proceeded to trial.           The jury concluded Lennox
infringed upon the WRS Letter and awarded Young $73,380.00 in
actual damages and the profits Lennox made as a result of using its
infringing letter in the amount of $142,939.00.            The jury awarded
Airmasters’ actual damages in the amount of $71,135.00.                  The
district court denied Lennox’s post-trial motions for judgment as
a matter of law.    This appeal followed.


                               II. Discussion


      Lennox    appeals   from    the       jury’s   verdict   of   copyright
infringement.     Lennox also claims the district court erred by
failing to correct the jury’s damage calculation, admitting into
evidence testimony regarding Lennox’s alleged oral agreement not to
use the WRS Letter, and denying Lennox’s motion for attorney’s fees
and   costs    incurred   in     connection      with   the    trade   secret
misappropriation claim.


      This Court reviews de novo a trial court’s denial of a motion
for judgment as a matter of law.        Norton v. Caremark, Inc., 20 F.3d
330, 334 (8th Cir. 1994) (citation omitted.)                   This standard
requires the appellate court to
      consider the evidence in the light most favorable to the
      prevailing party [Young and Airmasters], assume that the jury
      resolved all conflicts of evidence in favor of that party,
      assume as true all facts which the prevailing party’s evidence
      tended to prove, give the prevailing party the benefit of all
      favorable inferences which may reasonably be drawn from the
      facts, and [uphold the] den[ial of] the motion, if in the
      light of the foregoing, reasonable jurors could differ as to
      the conclusion that could be drawn from the evidence.

Id. (quoting Minneapolis Community Dev. Agency v. Lake Calhoun
Assoc., 928 F.2d 299, 301 (8th Cir. 1991) (internal quotations
omitted)).



                                        7
8
     A.   Copyright Infringement


     Lennox moved for judgment as a matter of law on Young and
Airmasters’   copyright   infringement   claim   on   the   grounds   that
Young’s failure to include a copyright notice on the WRS Letter
invalidated the copyright under 17 U.S.C. § 405(a).          Pursuant to
this statute, no copyright protection is provided for works first
published prior to March 1, 1989, without a copyright notice
unless: (1) “reasonable” effort is made to add notice to all copies
that are distributed after the omission of the notice has been
“discovered”; and (2) the copyright holder registers “the work”
with the Copyright Office within five years after publication.1         On
appeal, Lennox argues that no jury could reasonably conclude Young
met either of § 405(a)(2)’s two requirements; Lennox further argues



     1
      17 U.S.C. § 405(a) provides in full:

          (a) Effect of Omission on Copyright. -- With respect to
     copies and phonorecords publicly distributed by authority of
     the copyright owner before [March 1, 1989], the omission of
     the copyright notice . . . from copies or phonorecords
     publicly distributed by authority of the copyright owner does
     not invalidate the copyright in a work if --

               (1) the notice has been omitted from no more than a
          relatively small number of copies or phono records
          distributed to the public; or

               (2) registration for the work has been made before
          or is made within five years after the publication
          without notice, and a reasonable effort is made to add
          notice to all copies or phono records that are
          distributed to the public in the United States after the
          omission has been discovered; or

               (3) the notice has been omitted in violation of an
          express requirement in writing that, as a condition of
          the copyright owner’s authorization of the public
          distribution of copies or phono records, that bear the
          prescribed notice.

                                   9
that even if the copyright is valid, no jury could reasonably find
the Lennox Letter infringed upon any protectable elements contained




                                10
in the WRS Letter.2


             1.   Failure to add copyright notice to the WRS Letter


        Young first published the WRS Letter without notice in 1988.
Young continued to permit copies of the WRS Letter to be released
to the public without a copyright notice affixed through March
1992.    Lennox claims that as a matter of law, Young knew or should
have known the WRS Letter did not comply with notice requirements
prior to March, 1992, and that Young did not make reasonable
efforts to add notice to copies distributed after receiving this
notice.     This Court agrees.


        The trial court set forth the law applicable to determining
when a purported copyright holder “discovers” the omission of
notice for the purposes of the first requirement of § 405 in the
following instruction:
        You are instructed that a copyright claimant who
        knowingly omits the copyright notice is considered under
        the law to have discovered the omission no later than the
        time when he believes that his rights may have been
        infringed.     An act is done ‘knowingly’ if done
        voluntarily and intentionally, and not because of mistake
        or accident or other innocent reason.          After the
        copyright claimant learns that his rights may have been
        infringed, he must immediately take reasonable steps to
        add the correct notice to all copies distributed to the
        public.

(Tr. at A733 (emphasis added).)         Neither party challenged this


    2
      By way of special Interrogatories, the jury found: (1) Young
properly “registered” the WRS Letter for copyright within five
years after its first publication; (2) Young took “reasonable
steps” to place a copyright notice on all publicly distributed
copies of the Letter after the “discovery of the omission to place
a proper copyright” on previously distributed copies; and (3) the
Lennox Letter was “substantial[ly] similar[]” to the WRS Letter.
(Tr. at A750-51.)

                                   11
instruction.




               12
                 a.    The parties’ claims


       Applying the standard of law correctly set forth by the
district court, Lennox claims Young received notice: (1) in April,
1988, when he instructed Airmasters “to put a notice of copyright
on the front of the letter” before sending it to Lennox (Tr. at
A501); (2) in February, 1990 when Lennox mailed its Letter and
Airmasters informed Young that “it looked like Lennox had taken
[Young’s] replacement system and copied it” (Tr. at A536); (3) in
April, 1991, when he registered the WRS manual after learning of
Lennox’s 1991 mailings; and/or (4) on August 23, 1991, when Young
commenced this action against Lennox claiming Lennox had infringed
on his copyrighted WRS Letter.     Lennox further argues that Young
did not “immediately take reasonable steps” to add the copyright
notice because he sent out and permitted various dealers to send
out thousands of copies of the WRS Letter without the copyright
notice through 1992.    In fact, the uncontested evidence shows Young
did not require dealers to include a copyright notice on the WRS
Letter until 1993.


       In response to Lennox’s appeal, Young argues that he did not
realize the law required him to affix notice on the WRS Letter
until after he consulted a copyright lawyer in the summer of 1992.
Young argues that he reasonably “believed that as long as he
registered within 5 years, he was protected.”     (Appellees’ Br. at
19.)    In other words, Young argues that he reasonably believed he
could wait up to five years to register the copyright and that he
could continue during this five-year period to knowingly publish
material without a copyright notice.    Young claims he reached this
conclusion, albeit erroneous, because he relied on his construction
of a summary of § 405(a) contained in a layman’s copyright manual.
(Id.)    Young claims that his erroneous construction of § 405 is a


                                  13
“mistake of law,” and that as such, “discovery” for the purposes of
§ 405 did not occur until after he correctly understood § 405’s
requirements.   As support for this position, Young cites Charles




                                14
Garnier, Paris v. Adin Int’l, Inc., 36 F.3d 1214 (1st Cir. 1994),
which stated in dicta that copyright holders may “discover” an
omission of a copyright notice “when they are appraised of the
legal significance of their failure to provide notice.”                      Id. at
1221.


                     b.     Analysis


      Notwithstanding the dicta in Garnier, Young’s construction of
§   405(a)(2)    is       not    permissible.         Section    405   contains   two
independent requirements: (1) the claimant must make a reasonable
effort to affix a copyright notice after discovering the notice was
omitted, and (2) the claimant must register the product within five
years. Young claims he satisfied the first requirement, despite
actual notice that the WRS Letter was being published without
notice, because he reasonably thought § 405 only contained the
second requirement.         Young’s position would completely nullify the
first explicit requirement of § 405.


      Moreover, this construction is not consistent with the law
correctly set out by the district court.                        The district court
instructed the jury that a claimant “discovers” the omission of the
copyright notice and must immediately take reasonable steps to add
notice to publicly distributed copies when the claimant learns his
rights may have been infringed.              Young’s construction of § 405 does
not   relate    to    the       date   he   learned    Lennox    infringed   on   his
copyright.     Rather, his construction relates to the date he learned
notice was required in order to preserve his cause of action.                     This
is a separate issue.             Whether Young reasonably thought he could
wait up to five years after first publication to register and thus
enforce his copyright rights is irrelevant.                      The only relevant
issue with respect to § 405(a)(2)’s requirements is whether Young


                                            15
timely placed notice on copies published after he thought these
rights had been infringed.   He did not.




                                16
       The events cited by Lennox are sufficient, as a matter of law,
to have put Young on notice that his rights may have been infringed
and, based on these events, no reasonable jury could find that
waiting until 1993 to require dealers to affix a copyright notice
constituted      reasonable        steps   to    ensure   subsequently    published
copies had notice.          The uncontested facts are compelling: Young
sued Lennox for copyright infringement in August, 1991.                    Based on
this fact alone, no reasonable jury could find that Young did not
know his rights may have been infringed as of this date.                       The
uncontested evidence shows Young did not immediately cure this
omission.       Young allowed thousands of copies of the WRS Letter to
be distributed in 1992 without notice, and he did not require
notice on all copies until 1993 -- well over a year after the
latest date omission could have been “discovered.”


       Young’s alleged copyright is invalid as a matter of law
pursuant to § 405; the Court need not consider Lennox’s remaining
challenges to the validity of the copyright, infringement, trial
errors, or the jury’s damage calculation.


       B.      Attorney’s Fees and Costs


       In their Complaint, Young and Airmasters claimed that they
disclosed trade secrets to Lennox in their confidential January
1988       meeting,   and   that    Lennox      misappropriated   these   secrets.
Lennox moved for partial summary judgment on this claim on the
grounds Young and Airmasters released the alleged trade secrets to
the public when Airmasters mailed thousands of copies of the WRS
Letter to potential consumers.                  The district court agreed and
granted summary judgment in favor of Lennox on this claim.3


       3
     The district court, adopting the report and recommendation of
the magistrate judge, recognized that a property right in a trade

                                           17
Lennox subsequently moved for attorney’s fees and costs incurred in
connection with defending this claim.       This motion was denied.
(Tr. at A201-203.)     Lennox appeals from that judgment.


             1.   Standard of Review


     Lennox contends Young and Airmasters’ trade secret claim was
objectively unreasonable and made in bad faith.     Lennox moved for
fees and costs pursuant to (1) Arkansas Code Annotated § 16-22-
309,4 (2) Arkansas Code Annotated § 4-75-607,5 and (3) Rule 11 of


secret is extinguished under Arkansas law when the owner discloses
the secret to others who are under no obligation to protect its
confidentiality. (Tr. at A116.) The district court concluded that
mailing 15,000 to 30,000 copies of the WRS Letter to the public
prior to the date these secrets were disclosed to Lennox
extinguished the rights to any secrets the WRS Letter may have
contained. (Tr. at A118.)
     4
         Ark. Code Ann. § 16-22-309 provides in pertinent part:

     (a)(1) In any civil action in which the court having
     jurisdiction finds that there was a complete absence of a
     justiciable issue of either law or fact raised by the losing
     party or his attorney, the court shall award an attorney’s fee
     in an amount not to exceed five thousand dollars ($5,000) or
     ten percent (10%) of the amount in controversy, whichever is
     less, to the prevailing party . . . .
     . . .

     (b) In order to find an action . . . to be lacking a
     justiciable issue of law or fact, the court must find that the
     action . . . was commenced, used or continued in bad faith
     solely for purposes of harassing or maliciously injuring
     another party or delaying adjudication without just cause or
     that the party or the party’s attorney knew, or should have
     known, that the action . . . was without any reasonable basis
     in law or equity and could not be supported by a good faith
     argument for extension, modification, or reversal of existing
     law.
     5
      Ark. Code Ann. § 4-75-607 provides:


                                  18
the Federal Rules of Civil Procedure.6            Each of these statutes
requires a different standard of appellate review.           With respect to
fees and costs under section 16-22-309, Arkansas law provides that
“the question as to whether there was a complete absence of a
justiciable issue [under section 16-22-309] is determined de novo
on the record of the trial court alone.”          Ark. Code Ann. § 16-22-
309(d); Lawson v. Sipple, 893 S.W.2d 757, 763 (Ark. 1995).            Section
4-75-607 does not contain similar language mandating de novo
review; the Court will accordingly review the denial of fees and
costs under this provision under the clearly erroneous standard.
See   Camberos   v.   Branstad,   73    F.3d   174,   176   (8th   Cir.   1995)
(observing that appellate court reviews district court’s findings
of fact under clearly erroneous standard).             Finally, this Court
applies “an abuse-of-discretion standard in reviewing all aspects
of a district court’s Rule 11 determination.”               Isakson v. First
Nat’l Bank, 985 F.2d 984, 986 (8th Cir. 1993) (per curiam).


           2.    Section 16-22-309


      In order to impose sanctions under section 16-22-309, the
Court must find that “there was a complete absence of a justiciable


      The Court may award reasonable attorneys’ fees to the
      prevailing party if:
      (1) A claim of misappropriation [of trade secrets] is made in
      bad faith;
      (2) A motion to terminate an injunction is made or resisted
      in bad faith; or
      (3) Willful and malicious misappropriation exists.
       6
       Rule 11 requires an attorney to attest, “after reasonable
inquiry” that a pleading is

      well grounded in fact and is warranted by existing law or a
      good faith argument for the extension, modification, or
      reversal of existing law, and that it is not interposed for
      any improper purpose, such as to harass or cause unnecessary
      delay or needless increase in the cost of litigation.

                                       19
issue of either law or fact.”        Ark. Code Ann. § 16-22-309(a)(1).
Lennox claims it is entitled to fees and costs pursuant to section
16-22-309 because Young and Airmasters knew or should have known
that they could not maintain a trade secret claim after mailing the
WRS   Letter   to   thousands   of   potential   customers.   Young   and
Airmasters raised two separate arguments before the district court




                                     20
in opposition to Lennox’s motion.          First, they argued that the WRS
Letter did not disclose certain trade secrets revealed in the
January 1988 meeting and that, as a result, these trade secrets
were not extinguished when they mailed the WRS Letter.          (Tr. A179-
89.)   Second, counsel for Young and Airmasters claims he reasonably
relied on legal authority which he believed indicated he could
pursue an action for trade secret misappropriation even though the
secrets were available to the public.


       Young and Airmasters’ first argument is not responsive to
Lennox’s motion and is not a defense to the imposition of fees and
costs under section 16-22-309.         Young and Airmasters did not sue
Lennox for misappropriating trade secrets other than those revealed
in the WRS Letter.     Their Complaint unequivocally identifies the
subject trade secrets in this action and states “[t]he secret,
confidential information and trade secrets were the contents of the
promotional sales letter made known to them by the plaintiffs on
January 20, 1988.”      (Compl. § XI, ¶ A (emphasis added).)              As a
result,   the   fact   that   Young    and    Airmasters   believe    Lennox
misappropriated trade secrets not contained in the WRS Letter and
not referred to in the Complaint is irrelevant.


       Young and Airmasters’ second argument is more persuasive.
Counsel for Young and Airmasters submitted an affidavit detailing
the factual and legal investigation undertaken prior to filing the
Complaint.    Counsel claims he relied, inter alia, on language from
Franke v. Wiltschek, 209 F.2d 493 (2nd Cir. 1953).           According to
counsel, this case indicates a trade secret misappropriation claim
may    lie,   notwithstanding    the       public   availability     of    the
information, if the accused party in fact acquired the information
through a confidential relationship and used it without




                                      21
permission.7    Although this is a strained interpretation of the
law, especially when viewed against the authority cited in the
district court order granting Lennox’s motion for summary judgment
(see Tr. A116-18), the Court does not find on this record that
Appellees asserted their trade secret claim for an improper purpose
or that there was a “complete absence of a justiciable issue.”   The
Court will accordingly affirm the denial of fees and costs under
section 16-22-309.


           3.   Section 4-75-607 and Rule 11


      The Court need not provide a detailed analysis of the district
court’s denial of fees and costs under section 4-75-607 and Rule
11.   The district court concluded Young and Airmasters did not act
in bad faith and that Rule 11 sanctions should not be imposed.
Based on the foregoing discussion in part 2, supra, and a thorough
review of the record, the Court finds the district court’s ruling
was neither clearly erroneous nor an abuse of discretion.        The


      7
      Specifically, counsel relied on language from Franke which
provided in pertinent part:

      Where defendants obtain secret information by means of a
      confidential relationship, they shall be held accountable for
      its use to their own advantage at the expense of the rightful
      possessor.
           . . . Plaintiffs do not assert . . . a property right .
      . . such as would give them exclusive development such as
      would entitle them to exclusive enjoyment as against the
      world. Theirs is . . . a trade secret. The essence of their
      action is . . . breach of faith.         In matters not that
      defendants could have gained their knowledge from . . .
      plaintiffs’ publicly marketed product. The fact is they did
      not.    Instead they gained it from plaintiffs via their
      confidential relationship, and in so doing incurred a duty not
      to use it to plaintiff’s detriment.      This duty they have
      breached.

Franke, 209 F.2d at 494 (citations omitted).

                                 22
district court’s denial of fees and costs under section 4-75-607
and Rule 11 will be affirmed.




                                23
                         III. Conclusion


     For the foregoing reasons, we reverse the judgment of the
district court on Young and Airmasters’ copyright infringement
claim, affirm the denial of Lennox’s Motion for attorney’s fees and
costs, and remand with instructions to enter judgment in favor of
Lennox.


     A true copy.


          Attest:


               CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.




                                24
