
TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN




NO. 03-99-00071-CV


John Paul Mitchell Systems and Ultimate Salon Services, Inc., Appellants

v.


Randalls Food Markets, Inc. and Jade Drug Company, Inc., Appellees





FROM THE DISTRICT COURT OF TRAVIS COUNTY, 126TH JUDICIAL DISTRICT

NO. 97-12855, HONORABLE DERWOOD JOHNSON, JUDGE PRESIDING 





	This suit is one of many that John Paul Mitchell Systems (Paul Mitchell) has
brought attempting to stop diversion of Paul Mitchell hair products to unauthorized retail outlets. 
Joined by one of its exclusive distributors, Ultimate Salon Services, Inc., Paul Mitchell sued
Randalls Food Markets, Inc. for selling Paul Mitchell products, which are intended to be sold only
through its exclusive distribution system.  Jade Drug Company, Inc. intervened to defend and
indemnify Randalls.
 Paul Mitchell sought injunctive relief and damages, alleging breach of contract,
tortious interference with contract, conspiracy, unfair competition, trademark infringement, and
conversion.  All theories of recovery except conversion were submitted to the jury, which
awarded  the plaintiffs $6,250,000 in actual damages and $9,000,000 in punitive damages. 
However, the trial court granted the defendants' motion for judgment notwithstanding the verdict
and rendered a take-nothing judgment that denied all relief.  Paul Mitchell and Ultimate Salon
appeal the trial court's judgment non obstante veredicto, claiming there is ample evidence to
support the jury's findings.  They further appeal the trial court's ruling that Jade's list of suppliers
is protected from discovery as a trade secret and the court's failure to submit certain additional
theories of recovery to the jury.  The appellees bring cross-points urging that even if there is more
than a scintilla of evidence to support the jury's findings, the evidence is factually insufficient. 
We will affirm the trial court's judgment.

THE DISPUTE 

Diversion of Products
	Paul Mitchell markets its hair care products exclusively to authorized distributors
and salons; Ultimate Salon is one of these authorized distributors.  Jade is not.  Jade sells many
brands of professional hair products to retail outlets.  Randalls is a retail grocery store chain in
Texas that has sold Paul Mitchell products for several years.  Jade is the sole supplier of Paul
Mitchell products to Randalls.
	Paul Mitchell is one of many manufacturers that wants its hair care products sold
only by salons.  Paul Mitchell's thirty-three authorized distributors agree to sell its products only
to those in the professional beauty industry and not to retail outlets.  The 53,000 authorized salons
agree to use the Paul Mitchell products in the salon or sell them directly to customers.  Paul
Mitchell emphasizes that this closed distribution chain enables it to monitor the quality of its
products and provide professional advice as to their proper use.  More importantly, this exclusive
marketing enhances the reputation and desirability of Paul Mitchell products and promotes sales
with a higher profit margin.
	To monitor quality, Paul Mitchell imprints a batch code on each bottle that permits
defective products to be tracked.  A second ultraviolet code that identifies distributors assists Paul
Mitchell in tracing leaks in its closed distribution system.  The diversion of products to mass retail
outlets diminishes the upscale reputation of Paul Mitchell to salons and their clientele.
	Paul Mitchell has attempted to stop the diversion of products from its closed
distribution chain both by suing those who supply products to retail outlets and by suing the retail
outlets themselves.  In this instance, Paul Mitchell first sued Jade, seeking to prevent its
unauthorized acquisition and sale of Paul Mitchell products.  After reaching a settlement with Jade
that Paul Mitchell thought prevented its future sale of any Paul Mitchell products, Paul Mitchell
dismissed that lawsuit and sued Randalls.  Jade intervened in the second lawsuit because it had
agreed to defend and indemnify Randalls in the event of such a dispute.

Jade Lawsuit
	To protect its exclusive distribution system in Texas, Paul Mitchell first filed suit
against Jade in January 1996, complaining that Jade had acquired Paul Mitchell products, removed
the batch codes, and sold products to various retail outlets.  That dispute was resolved by a
settlement agreement dated November 3, 1997, made effective when the lawsuit was dismissed
on December 5, 1997.  Paul Mitchell's breach of contract claim in this lawsuit alleges that Jade
breached the terms of that settlement agreement.
Randalls Lawsuit
	As soon as it settled its first lawsuit against Jade, Paul Mitchell filed this cause of
action against Randalls in November 1997.  Although the original petition asserted claims only
against Randalls, after Jade intervened to honor its indemnity agreement, Paul Mitchell amended
its lawsuit to include Jade as a co-defendant.  Paul Mitchell and Ultimate Salon alleged that the
co-defendants were selling hair products from which batch codes and other identification had been
removed or defaced and that this conduct violated a penal statute and constituted unfair
competition and trademark infringement.  They further complained that Randalls and Jade
conspired to tortiously interfere with Paul Mitchell's exclusive distribution contracts and that
injunctive relief was necessary to prevent dilution of Paul Mitchell's trademarks and reputation. 
Finally, Paul Mitchell added a breach of contract claim against Jade, complaining that it had
violated the terms of the recently signed settlement agreement.  The suit against Randalls and Jade
was tried to a jury in August 1998.  By a ten to two vote, the jury answered all questions
favorably to Paul Mitchell and Ultimate Salon, finding that:  (1) Jade had breached its settlement
agreement with Paul Mitchell; (2) Jade had tortiously interfered with exclusive distribution
contracts between Paul Mitchell or Ultimate Salon and their distributors or salons; (3) Jade and
Randalls were guilty of conspiring to interfere with Paul Mitchell's exclusive contracts with
distributors or salons, and both acted with malice in their conduct toward Paul Mitchell and
Ultimate Salon; (4) Jade and Randalls competed unfairly with Paul Mitchell, infringed on its
trademark, and diminished its reputation or diluted the value of its trademark; and (5) the
defendants' conduct was likely to cause irreparable harm to Paul Mitchell or Ultimate Salon.  The
jury found that the plaintiffs were entitled to damages exceeding $15 million and the injunctive
relief requested.  The trial court was presented with the plaintiffs' motion to render judgment on
the verdict, the defendants' motion to require an election of remedies to prevent a double
recovery, and the defendants' motion to disregard the jury findings and render judgment
notwithstanding the verdict.  After extensive post-judgment briefing and a lengthy hearing, the
trial court granted the defendants' motions to disregard the jury findings and rendered a take-nothing judgment that denied all relief.

Issues on Appeal
	Paul Mitchell and Ultimate Salon insist on appeal that there is sufficient evidence
to support the jury's findings and rendition of judgment in their favor.  In the alternative, if we
do not render judgment on the verdict, appellants seek a remand of the cause for a new trial on
two grounds.  First, they urge that the trial court erred in protecting the list of Jade's suppliers
as a trade secret and this entitles them to a new trial.  Second, they urge that the trial court erred
in not submitting some of their theories of recovery to the jury.
	Randalls and Jade assert in cross-points that if we hold that there is more than a
scintilla of evidence to support the jury's findings, the evidence is factually insufficient to support
the verdict and requires a remand to the trial court for a new trial.  Randalls also complains of
excessive damages and unfounded damages against it on several grounds and suggests a remittitur. 
We will first review the evidence in support of the jury's verdict and address the other issues only
as needed.
JUDGMENT NOTWITHSTANDING THE VERDICT

	In their first issue on appeal, appellants contend that the trial court erred in granting
a judgment notwithstanding the verdict because there is sufficient evidence to support the jury's
findings.  They ask this Court to reverse and render judgment granting the actual damages,
exemplary damages, and injunctive relief awarded by the jury.  We will uphold a trial court's
judgment notwithstanding the verdict only if we determine that there is no evidence to support the
jury's findings.  See Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 227 (Tex. 1990).  We review
the record in the light most favorable to the jury's findings, considering only the evidence that
supports the findings.  See id.  If there is more than a scintilla of evidence supporting the findings,
we must reverse the judgment non obstante veredicto.  See id. at 228.  We will first review the
findings related to damages according to the theories of recovery urged.  Then we will review the
findings that would invoke the court's equitable powers to grant injunctive relief. 

I.	DAMAGES
	A.	Breach of Contract
 This cause of action was asserted only against Jade, and it concerns the terms of
the settlement agreement that led to the dismissal of Paul Mitchell's earlier lawsuit against Jade. 
The terms that Jade allegedly breached are the following:

1.	Jade agrees that it will not knowingly (defined as intentionally, deliberately or
willfully) purchase, acquire, sell, resell, distribute, consign or ship in any
manner any Paul Mitchell products whose batch codes have been removed,
defaced, covered, altered, destroyed, obliterated, replaced or tampered with
in any manner or whose packaging or other codes have been otherwise
tampered with in any manner that is prohibited by law.

2.	Jade agrees that it will not, at any time in the future:  a) remove, deface,
cover, alter or destroy batch codes on any Paul Mitchell products; b) remove,
deface, cover, alter or tamper with the packaging of Paul Mitchell products
in anyway or manner prohibited by law; and c) request or direct that any other
third party or entity to commit the acts described in either a) or b) above.


	Although the alleged breach concerned only this settlement agreement, there are
innuendos in the evidence that Jade's actions in buying or selling Paul Mitchell products breached
the exclusive distribution obligations imposed by Paul Mitchell's closed distribution system.  We
wish to make clear at the start that Jade, who is not an exclusive distributor, could not be found
liable for breaching the obligations Paul Mitchell imposed on its distributors and salons.  Someone
in that closed distribution system violated its contractual obligations to Paul Mitchell by selling
to Jade, but Jade cannot be liable to Paul Mitchell for that contractual breach.  
	We have carefully reviewed all the evidence that appellants rely on as supporting 
the jury's finding that Jade breached its obligations under the settlement agreement.  Primarily,
appellants point to the testimony of Jade's president, Harold Wallace, and its CEO, Victor Jansen. 
On direct and on cross-examination, Wallace and Jansen were asked if Jade removed batch codes. 
They both answered no.  They testified that they do not remove batch codes and that they do not
take any codes off.  Jansen further testified that Jade has not knowingly, intentionally, or
deliberately dealt in any products with a defaced batch code.  Counsel for Paul Mitchell then
stated that they must have broken their agreement because they continued to sell Paul Mitchell
products after signing the agreement.  Jansen replied that it was his understanding that Jade could
still sell Paul Mitchell products after the agreement, so long as they did not deface or alter codes
or knowingly buy or sell products that had defaced codes.  We agree that the plain language of
the settlement agreement did not prohibit Jade from selling Paul Mitchell products.
	This confusion about which obligation was breached continues during the
questioning of Harold Wallace.  "If you were selling Paul Mitchell products," he is asked, "then
the products  must have been stolen, counterfeit or someone in the closed distribution system must
have breached that agreement."  The fact that Jade was selling Paul Mitchell products was some
evidence that some distributor was breaching its exclusive agreement with Paul Mitchell, but it
was no evidence that Jade had defaced codes or sold products whose codes had been altered.  
	More particularly, there is a timing problem.  If Jade altered codes or acquired and
sold products with altered codes before the effective date of the settlement, that would not
establish a breach of the settlement agreement.  The conduct would have to occur after December
5, 1997 to constitute a breach.  Paul Mitchell recovered some bottles of product with altered codes
from Randalls, and Jade is the only company who supplied the product to Randalls.  But there is
no testimony that establishes when Jade sold Randalls the Paul Mitchell products with altered
codes.  There is no evidence that Jade did anything after the agreement besides sell Paul Mitchell
products to Randalls.  In and of itself, that is evidence that someone in the closed distribution
system breached its contract with Paul Mitchell by selling its product to Jade, but it is no evidence
that Jade breached either of the two specified terms in the settlement agreement.  We reject Paul
Mitchell's suggestion that the jury was free to infer that if there was any product with an altered
code on the shelves of Randalls, it must have been sold by Jade after the settlement agreement
became effective.  There was testimony that the shelf-life of Paul Mitchell products is five to six
years.  It is thus not reasonable to infer that any altered product found on Randalls's shelf after
December 1997 had been placed there in violation of the settlement agreement.
	At trial, there was an attempt to persuade the jury that by buying and selling Paul
Mitchell products after December 1997, Jade somehow breached its contract with Paul Mitchell. 
This "suggestion" was successful; the jury held that Jade had breached its contract.  But Jade did
not have a distribution contract with Paul Mitchell.  The only contract at issue in this lawsuit was
the settlement agreement in which Jade agreed not to alter codes or acquire and sell products with
altered codes after December 5, 1997.  Because there is no evidence that it breached its agreement
after that date (1) and no evidence that it knowingly breached its agreement, the trial court correctly
granted Jade's motion to disregard the jury's findings and enter judgment that appellants take
nothing on their breach of contract claim.

	B.	Conspiracy and Tortious Interference with Contract
	The jury found that Jade tortiously interfered with contracts between Paul Mitchell
or Ultimate Salon and their distributors and salons.  It found that Randalls conspired with Jade
in interfering with these distribution contracts.  It further found both Jade and Randalls acted with
malice in causing harm to appellants.
	To recover for tortious interference with a contract Paul Mitchell and Ultimate
Salon had to prove:  (1) the existence of a contract subject to interference; (2) a willful and
intentional act of interference; (3) the act was a proximate cause of their damages; and (4) actual
damages or loss.  See ACS Investors, Inc. v. McLaughlin, 943 S.W.2d 426, 430 (Tex. 1997); 
Texas Beef Cattle Co. v. Green, 921 S.W.2d 203, 210 (Tex. 1996).  Paul Mitchell alleges that
the contracts at issue are all the exclusive distribution contracts it has with its distributors and
salons.  Paul Mitchell's theory is that Jade, as an unauthorized distributor, undermined Paul
Mitchell's exclusive distribution system, in effect interfering with the many contracts that make
up that closed system.  Jade complains that Paul Mitchell has not identified any specific contracts
with which Jade interfered.  Paul Mitchell responds that it was unable to identify the salon or
distributor that broke its contract because Jade would not disclose its suppliers and the trial court
erroneously protected Jade's list as a trade secret. (2)  We hold that Paul Mitchell has satisfactorily
identified the exclusive distribution system that it alleges was breached.
	Our discussion focuses on whether there is some evidence of a willful and
intentional act of interference by Jade.  Paul Mitchell argues that there is evidence that Jade
purchased Paul Mitchell products with knowledge of the closed distribution system and "with a
belief that interference was substantially certain to result."  Southwestern Bell Tel. Co. v. John
Carlo Tex., Inc., 843 S.W.2d 470, 472 (Tex. 1992).  Paul Mitchell does not point to any place
in the record where the evidence establishes Jade's belief that by purchasing Paul Mitchell
products from its brokers, it intended to interfere with Paul Mitchell's distribution contracts.  The
best evidence we have located is the testimony of Harold Wallace, Jade's president.  He
acknowledged that he was generally aware of Paul Mitchell's restricted distribution system and
that Jade was not an authorized dealer.  Wallace was asked if the only way Jade could get Paul
Mitchell  products was if somebody broke their contract.  He responded, "I would assume if that
contract is as you say it is, somebody broke their agreement."
	At issue is whether this constitutes some evidence of Jade's "willful and intentional
act of interference."  Texas courts have held that to satisfy this element of the cause of action for
tortious interference, a party must be more than a willing participant; it must knowingly induce
one of the contracting parties to breach its obligations.  See Browning-Ferris, Inc. v. Reyna, 865
S.W.2d 925, 927 (Tex. 1993).  In Browning-Ferris, Inc. v. Reyna, the supreme court held that
a willful act involves more than participation with a breaching party:

[T]his testimony implies that BFI may have been a willing participant; it does not
establish that BFI . . . was engaged in any improper conduct.  Standing alone, it
does not show that this contact involved "knowing inducement" or other intentional
interference by BFI as required to establish a cause of action in Texas for tortious
interference.


865 S.W.2d at 927 (finding no evidence of an essential element of tortious interference with
contract).
	In Davis v. HydPro, Inc., 839 S.W.2d 137 (Tex. App.--Eastland 1992, writ denied),
the court of appeals reversed a jury verdict awarding damages for tortious interference with
contractual relations on similar grounds:	

A necessary element of the plaintiff's cause of action is a showing that the
defendant took an active part in persuading a party to a contract to breach it. 
Merely entering into a contract with a party with the knowledge of that party's
contractual obligations to someone else is not the same as inducing a breach.  It is
necessary that there be some act of interference or of persuading a party to breach,
for example by offering better terms or other incentives, for tort liability to arise.


839 S.W.2d at 139 (internal quotations omitted) (quoting Texaco, Inc. v. Pennzoil Co., 729
S.W.2d 768, 803 (Tex. App.--Houston [1st Dist.] 1987, writ ref'd n.r.e.), cert. dism'd, 485 U.S.
994 (1988)); see also Arabesque Studios, Inc. v. Academy of Fine Arts Int'l Inc., 529 S.W.2d 564,
568 (Tex. Civ. App.--Dallas 1975, no writ) (plaintiff must show that defendant caused the
interference; it is not enough that defendant reaped advantage of a contract broken by the
breaching party's own volition).
	Other states have expressed the same need for some evidence of "knowing
inducement."  In a case involving this same product, a federal court in New York dismissed Paul
Mitchell's claim for tortious interference with its distribution contracts:

As the defendants point out, the plaintiffs' contention, when stripped of its
conjectural allegations . . . is that the defendants should be held liable for tortious
inducement because they purchased Paul Mitchell Products while knowing that
such products would not have been obtainable unless, presumably, someone along
the [Paul Mitchell] distribution network had breached his, her or its contract with
[Paul Mitchell] . . . .  [T]he plaintiff's claim fails to show "inducement" of the
alleged breach.


John Paul Mitchell Sys. v. Pete-N-Larry's, Inc., 862 F.Supp. 1020, 1029 (W.D. N.Y. 1994)
(citing Restatement (Second) of Torts § 766 cmt. n (1979) for the proposition that mere making
of agreement by third party with knowledge of inevitable breach of contract by other party does
not constitute actionable inducement); see also Texaco, 729 S.W.2d at 803 (considering tortious
interference with contract under New York law).
	Here, although there is evidence that Jade purchased products when it knew of Paul
Mitchell's closed distribution system, there is no evidence that Jade "induced" anyone to breach
its exclusive distribution agreement with Paul Mitchell.  It is not even known whether Jade's
suppliers were authorized or unauthorized dealers or salons.  If its brokers were not authorized
dealers, there could be no tortious interference.  If one of Paul Mitchell's dealers or salons
breached its obligations of its own volition, and Jade merely participated in the transaction, this
does not constitute the "knowing inducement" required under Texas law to impose liability for
tortious interference with Paul Mitchell's distribution network.  See  Davis, 839 S.W.2d at 140;
Browning-Ferris, 865 S.W.2d at 927.  Because there is no evidence that Jade persuaded anyone
to breach its contractual relationship with Paul Mitchell, the trial court properly disregarded the
jury's findings and granted judgment notwithstanding the verdict on the tortious interference
claim.
	Likewise, there is no evidence that either Jade or Randalls conspired to knowingly
induce anyone to breach her contractual relationship within Paul Mitchell's distribution network. 
The trial court correctly disregarded the jury's findings and rendered a take-nothing judgment on
the conspiracy claims.

	C.	Measure of Damages
	As a matter of law, appellants were not entitled to exemplary damages in the
absence of an award of actual damages.  See Nabours v. Longview Sav. & Loan Ass'n, 700
S.W.2d 901, 903 (Tex. 1985).  Having found no evidence to support Randalls's and Jade's
liability for actual damages under any of the theories advanced by the appellants, we need not
detail the lack of evidentiary support for the amount of actual and exemplary damages awarded
by the jury. 
	We thus hold that the trial court did not err when it disregarded all the jury's
findings related to damages and rendered judgment that appellants take nothing, notwithstanding
the verdict.

II.  INJUNCTIVE RELIEF

	The appellants likewise complain in their first issue that the trial court erred in
failing to grant injunctive relief based on the jury's affirmative answers to Questions 1, 5, 15, 16,
and 17.  Paul Mitchell wanted the trial court to permanently enjoin Randalls and Jade from buying
or selling Paul Mitchell products. To be entitled to injunctive relief, a party must demonstrate the
existence of a wrongful act, imminent harm, irreparable injury, and the absence of an adequate
remedy at law.  See Frey v. DeCordova Bend Estates Owners Ass'n, 632 S.W.2d 877, 881 (Tex.
App.--Fort Worth 1982), aff'd, 647 S.W.2d 246 (Tex. 1983).  Without proof of all four elements,
injunctive relief is improper.

	A.	Wrongful Act
	The jury found that Jade and Randalls both committed the following wrongful acts
that Paul Mitchell must prove to obtain permanent injunctive relief:


Had in their possession, sold, or offered for sale Paul Mitchell products that
they knew or should have known had had serial numbers or other permanent
identification markings removed, altered, or obliterated (Answer to Question
1); 
 Knowingly disseminated statements that materially misrepresented the cost or
character of Paul Mitchell products for the purpose of inducing customers to
purchase those products (Answer to Question 5);
 Unfairly competed with Paul Mitchell by purchasing or distributing Paul
Mitchell products (Answer to Question 15);
 Infringed on Paul Mitchell's trademark by purchasing or distributing Paul
Mitchell products (answer to Question 16);
Their purchase or distribution of Paul Mitchell products was likely to injure
Paul Mitchell's business reputation or dilute the distinctive quality of its
trademark (Answer to Question 17).


We will examine the record to determine if more than a scintilla of evidence supports the jury's
finding of any of these wrongful acts.

		(1)	Criminal offenses
	Section 31.11 of the Texas Penal Code prohibits the removal, alteration, or
obliteration of a serial number or permanent identification marking on tangible personal property,
or the possession or sale of property whose permanent identification marking has been so altered. 
See Tex. Penal Code Ann. § 31.11 (West Supp. 2000).  By its answer to Question One, appellants
claim that the jury found Jade and Randalls violated this statute.  Paul Mitchell contends that there
is sufficient evidence that the defendants both "possessed stolen property" and destroyed batch
codes and ultraviolet codes to support this finding.  Additionally, Paul Mitchell urges that this
offense constitutes the wrongful act that is a prerequisite for its obtaining injunctive relief, relying
on Featherstone v. Independent Serv. Station Ass'n, 10 S.W.2d 124, 128-29 (Tex. Civ.
App.--Dallas 1928, no writ).
	Jade and Randalls respond that the trial court did not err in disregarding this finding
because there is no evidence that they violated this statute, either by possessing stolen property
or by obliterating batch or ultraviolet codes.  They further urge that the Featherstone decision
does not stand for the proposition that the commission of a crime per se suffices to invoke the
equitable powers of the trial court.
	We agree that Featherstone does not stand for the proposition that an injunction will
issue because the complained-of conduct is a crime, but rather holds that equity will not be
deterred when the conduct is also subject to criminal sanctions:  "[W]hen necessary to protect
civil or property rights, equity will interfere, and the fact that the commission of a statutory
offense must be enjoined, as an incident to the giving of proper relief, will not deprive the court
of its jurisdiction in this respect."  Featherstone, 10 S.W.2d at 127.  The more important
distinction is Featherstone's holding that the undisputed facts in that case supported the trial
court's finding that the defendants had engaged in the criminal conduct.  By contrast, we have
searched this record and found no evidence that these defendants were guilty of possessing stolen
property or of altering any codes in violation of the statute.  We further find that the defendants'
ownership of the products at issue supplies an affirmative defense to the conduct prohibited by
section 31.11.  See Tex. Penal Code Ann. § 31.11(b).
	Paul Mitchell has relied upon a criminal statute that does not fit the alleged wrong-doing it seeks to enjoin.  Section 31.11 prohibits the removal of a serial number or other
permanent identification; a serial number or other permanent identification is a unique number that
allows a particular piece of property to be identified, for example the vehicle identification number
of an automobile or a unique number etched into a bicycle or stereo equipment to allow stolen
property to be traced.  See Tex. Transp. Code Ann. § 501.002(18) (West Supp. 2000) (defining
serial numbers for automobiles).  We infer that the legislature criminalized the removal of
permanent identification markers because this conduct facilitates theft.
	Paul Mitchell has misapplied this criminal statute to the marketing practices at issue
here; altering batch or ultraviolet codes is not done in preparation to steal these goods, nor are
these codes unique serial numbers designed to allow stolen property to be traced.  Indeed the same
batch code will be applied to thousands of gallons of a product; there is nothing unique about a
batch code that identifies a particular bottle of the product.  Likewise, the ultraviolet codes are
unique to a distributor but not to a product.  We hold that this criminal statute does not sanction
the economic conduct complained of in this lawsuit.
	Even if the permanent identification markers referred to in the statute could be
interpreted to apply to batch codes or ultraviolet codes, section 31.11(b)(1) provides that it is an
affirmative defense if the accused is the owner of the property.  The record establishes that Jade
bought the Paul Mitchell products from unidentified brokers and Randalls bought the products
from Jade.  Buying the products would make Jade and Randalls "owners," and would provide
them the affirmative defense set forth in section 31.11(b)(1).  This buying of Paul Mitchell
products from authorized or unauthorized distributors is indeed the activity that appellants sought
to enjoin.  There is insinuation, but no evidence, that either Jade or Randalls possessed stolen
products. Several times during cross-examination, counsel for Paul Mitchell "suggested" that
products on Randalls's shelves had to be either "counterfeit, stolen, or obtained from someone
who is breaching their contract."  This suggestion attempted to equate "stealing" with buying
from someone who breached a contract.  A suggestion from counsel is not evidence, and we find
no  evidence of theft in the record.  Nor is there any evidence from which the jury could
reasonably have inferred that either defendant possessed stolen products.  "When circumstances
are consistent with either of two facts and nothing shows that one is more probable than the other,
neither fact can be inferred."  Litton Indus. Prods., Inc. v. Gammage, 668 S.W.2d 319, 324 (Tex.
1984).  It is as likely or more likely that the products in Jade's and Randalls's possession had been
diverted by a Paul Mitchell distributor or salon, not stolen.  Indeed this lawsuit was initiated to
halt the diversion of products from Paul Mitchell's closed distribution system.
	Nor do we find any evidence that either Jade or Randalls "removed, altered, or
obliterated" codes from Paul Mitchell products.  Jade's chief executive officer stated Jade had
never tampered with the codes of Paul Mitchell products.  The record contains no evidence that
Jade tampered with the codes of products it then sold to Randalls.  There was no evidence or even
suggestion that Randalls altered codes.  Although some products with altered codes were
recovered from Randalls's shelves, and Randalls bought the products only from Jade, this alone
is not evidence of tampering by Jade.  It was just as likely or more likely that the broker who sold
the products to Jade tampered with the codes to prevent his breach from being detected.  And
again, even if Jade had tampered with some codes, its ownership of products it had purchased
would serve as a defense to penal sanctions under this statute. 
	It is a criminal offense to disseminate a statement that "materially misrepresents
the cost or character" of tangible personal property for the purpose of selling that property.  See
Tex. Bus. & Com. Code Ann. § 17.12 (West 1987).  The jury found in answer to Question Five
that Randalls and Jade knowingly disseminated statements that materially misrepresented the cost
or character of Paul Mitchell products to induce their customers to purchase them.  Randalls
argues that this statute was enacted to protect consumers and that Paul Mitchell is not a consumer
and may not obtain any relief, injunctive or otherwise, premised on a violation of this statute. 
Assuming without deciding that violation of this statute would constitute some evidence of a
wrongful act, we nevertheless find no evidence that Randalls or Jade violated the statute.
	Paul Mitchell points to evidence that the defendants worked together to divert Paul
Mitchell products, "representing them to be genuine, when they actually knew that they were
stolen, counterfeit or acquired by breach of contract."  As we have detailed above, there is no
evidence other than innuendo that the products sold by Randalls or Jade were stolen.  Nor is there
legally sufficient evidence that the Paul Mitchell products sold by Randalls were not genuine, that
is, not manufactured by Paul Mitchell or of a different quality due to tampering or mishandling. 
Paul Mitchell's corporate counsel suggested that because some of the products did not bear the
original batch code, they may not have been genuine Paul Mitchell products.  Altered batch codes
alone provide no evidence that the products were not manufactured by Paul Mitchell.  There is
no evidence, for example, that the removal of codes resulted in gouging the bottles so that the
products were contaminated.  See Graham Webb Int'l Ltd. v. Emporium Drug Mart, Inc., 916
F.Supp. 909, 916 (E.D. Ark. 1995) (mere removal of batch codes does not show that products
are counterfeit or have been tampered with).  But see Pete-N-Larry's Inc., 862 F. Supp. at 1026
(codes crudely chiseled off the bottles caused punctures that might lead to contamination). 
Finally, appellants point to no evidence that Randalls misrepresented to its customers the cost or
character of the Paul Mitchell products it sold, and we have found none.  This criminal statute is
also misapplied to this economic activity, and there is no evidence of such an offense that would
support the finding of a wrongful act.
	For all of the reasons stated, we hold that Paul Mitchell's reliance on criminal
conduct under these two statutes does not serve its effort to obtain injunctive relief.  The trial
court did not err in disregarding the jury's answers to Questions One and Five or in failing to
grant injunctive relief on these grounds.

		(2)	Trademark Infringement and Unfair Competition
	Paul Mitchell also relies on Jade's and Randalls's common law intellectual property
violations as wrongful acts that support its request for equitable relief.  In answer to Question
Fifteen, the jury found that Jade and Randalls competed unfairly because the products they sold
had material differences from the products manufactured by Paul Mitchell and these differences
tended to injure Paul Mitchell's reputation and goodwill.  In Answer to Question Sixteen, the jury
found that Jade and Randalls had infringed on Paul Mitchell's trademark because of material
differences between the products as manufactured and the products they sold, which created a
likelihood of confusion among consumers.  In Answer to Question Seventeen the jury found that
the acts of Jade and Randalls tarnished the goodwill and reputation associated with Paul Mitchell's
trademark or diminished its uniqueness and individuality.  We will consider whether there is any
evidence to support these findings.
	The common basis of the torts of unfair competition and trademark infringement
is a likelihood of consumer confusion as to the source of the goods.  See Matrix Essentials, Inc.
v. Emporium Drug Mart, Inc., 988 F.2d 587, 590-92 (5th Cir. 1993); Pebble Beach Co. v. Tour
18 I, 942 F. Supp. 1513, 1554 (S.D. Tex. 1996), aff'd as modified, 155 F.3d 526 (5th Cir. 1998). 
"[T]he general rule is that 'trademark law does not apply to the sale of genuine goods bearing a
true mark, even if the sale is without the mark owner's consent.'"  Id. at 590 (quoting Shell Oil
Co. v. Commercial Petroleum, Inc., 928 F.2d 104, 107 (4th Cir. 1991)) (dismissing a similar
effort to prevent diversion of hair products from closed distribution system to retail outlet alleging
trademark infringement and unfair competition under federal law). Confusion may result when
one party passes off its goods as those of another. (3)  That has not happened here.  "[T]he mere fact
that the sale is unauthorized--that is, without consent--does not give rise to an infringement claim
when the marked goods are genuine."  Pete-N-Larry's, 862 F. Supp. at 1023.  Appellees insist
that there is no confusion because they are selling genuine Paul Mitchell products identical to
those sold by authorized distributors and salons.  To prevail, Paul Mitchell must establish that
there are material differences between the products Paul Mitchell manufactures and the products
that appellees sell.  See id.  The jury found a material difference sufficient to create consumer
confusion, but we find no evidence in the record to support this finding, that is, no evidence that
the products sold by Randalls or Jade are anything other than genuine.
	We have earlier rejected the suggestion that defaced batch codes alone are legally
sufficient evidence that the product inside the bottles is not genuine (without, for example, proof
of puncturing that might lead to contamination).  See supra pp. 18-19.  Here there was no
evidence that removal of the batch codes defaced the bottles or compromised the quality of the
products.  Nor does the removal of batch codes alone establish a material difference due to lack
of quality control.  The quality of the product was injected by Paul Mitchell in the manufacturing
process; absent evidence of tainting or mishandling, an unauthorized sale does not create a
material difference on the basis of quality.  See Matrix, 988 F.2d at 592 ("Matrix's use of
professional hair care salons as its exclusive distribution channel seems more marketing-related
than quality-related.").
	And each Paul Mitchell product disclaimed any guarantee of a product sold in a
supermarket; no consumers were confused in that regard.  We reject Paul Mitchell's claim that
sale of its product without professional consultation gives rise to consumer confusion.  There is
no evidence in the record that customers who purchased these hair products from Randalls were
confused or deceived by thinking that they would receive professional consultation with their
purchase.  See id.; Graham Webb Int'l, 916 F. Supp. at 916.  The lack of evidence of a material
difference or defect leading to confusion of customers is fatal to Paul Mitchell's claim of unfair
competition, as well as its trademark protection claims.  See Matrix, 988 F.2d at 592 (touchstone
of unfair competition is likelihood of consumer confusion).
	Furthermore, the "first sale" doctrine precludes appellant from recovery under
trademark infringement or unfair competition.  Once Paul Mitchell sold its product to an
authorized distributor, placing it into the stream of commerce, it had no right thereafter to control
the distribution of its trademarked products.  See Sebastian Int'l, Inc. v. Longs Drug Stores Corp.,
53 F.3d 1073, 1074 (9th Cir. 1995), cert. denied, 516 U.S. 914 (1995) (applying first sale
doctrine to diverted salon products being sold by retail chain); Matrix, 988 F.2d at 593 (citing
NEC Elecs. v. CAL Circuit Abco, 810 F.2d 1506 (9th Cir.), cert. denied, 484 U.S. 851 (1987)). 
There is sufficient evidence that Paul Mitchell routinely sells its products to authorized
distributors; the particular distributor need not be identified to satisfy the first sale doctrine.  See
Quality King Distribs. v. L'Anza Research Int'l, Inc., 118 S. Ct. 1125, 1128 (1998).  The Fifth
Circuit concluded that this doctrine precludes liability for trademark infringement and unfair
competition under federal law for merely reselling a product without authorization.  See Matrix,
988 F.2d at 593.  We hold that the same is true under common law actions in Texas.
	Finally, we address Paul Mitchell's claim that Randalls diluted its trademark in
violation of section 16.29 of the Texas Business and Commerce Code.  See Tex. Bus. & Com.
Code Ann. § 16.29 (West Supp. 2000). (4)  Both forms of dilution--tarnishment and blurring--require
that the defendant use the plaintiff's trademark on the defendant's own goods.  See Pebble Beach,
942 F. Supp. at 1564-67.  As a matter of law there can be no blurring or tarnishment under
section 16.29 where a retailer has resold the mark owner's genuine products.  See Pebble Beach,
942 F. Supp. at 1564-67.
	Because there is no evidence of a material difference that would lead to consumer
confusion, Paul Mitchell cannot prevail on its claims of trademark infringement or unfair
competition.  As a matter of law, Randalls and Jade did not dilute appellant's trademark. 
Therefore, the trial court did not err in disregarding the jury's answers to Questions One, Five,
Fifteen, Sixteen, and Seventeen and denying injunctive relief to appellants.  
	Having considered all of appellants' theories supporting their recovery of damages
and their entitlement to injunctive relief and finding them unsupported by the evidence or the law,
we overrule the first issue complaining of the judgment notwithstanding the verdict.

TRADE SECRET
	In their second issue on appeal, Paul Mitchell and Ultimate Salon complain that the
trial court erred in ruling that Jade's list of suppliers was protected from discovery as a trade
secret.  We review a trial court's discovery rulings under an abuse of discretion standard.  See
General Tire, Inc. v. Kepple, 970 S.W.2d 520, 526 (Tex. 1998).
	The trade secret privilege is set forth in Texas Rule of Evidence 507, which
provides in full:

A person has a privilege, which may be claimed by the person or the person's
agent or employee, to refuse to disclose and to prevent other persons from
disclosing a trade secret owned by the person, if the allowance of the privilege will
not tend to conceal fraud or otherwise work injustice.  When disclosure is directed,
the judge shall take such protective measure as the interests of the holder of the
privilege and of the parties and the furtherance of justice may require.


Tex. R. Evid. 507.  The supreme court has recently addressed the scope of this privilege.  See
In re Continental Gen. Tire, Inc., 979 S.W.2d 609, 611-13 (Tex. 1998).  In determining the
correct approach to Rule 507, the supreme court relied heavily on two opinions applying almost
identical trade secret privileges in California and Florida.  See Continental Gen. Tire, 979 S.W.2d
at 611-12 (citing Bridgestone/Firestone v. Superior Court, 9 Cal. Rptr. 2d 709 (Cal. Ct. App.
1992);  Rare Coin-It, Inc. v. I.J.E., Inc. 625 So.2d 1277 (Fla. Ct. App. 1993)).  It began by
noting that Rule 507 seeks to protect two competing interests:  (1) trade secrets are an important
property interest worthy of protection, and (2) all facts necessary for the fair adjudication of a
lawsuit must be disclosed.  See Continental Gen. Tire, 979 S.W.2d at 612.  The trial court is to
apply a balancing test that employs shifting burdens.  The party resisting discovery must first
establish that the information is a trade secret.  The burden then shifts to the requesting party to
show that the information is "necessary for a fair adjudication of its claims."  Id. at 613.  The
court cites with approval the standard applied in federal courts:  "[T]he burden is on the party
seeking discovery to establish that the information is sufficiently relevant and necessary to his case
to outweigh the harm disclosure would cause to the person from whom he is seeking the
information."  Id. at 612 (alteration in original) (internal quotations omitted) (quoting 8 Charles
A. Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice & Procedure, § 2043 (2d
ed. 1994)).  The requesting party must show something more than that the information is relevant: 
"Rule 507 clearly contemplates a heightened burden for obtaining trade secret information." 
Continental Gen. Tire, 979 S.W.2d at 613-14.  The two competing interests served by Rule 507
are best accommodated by requiring disclosure "only if necessary for a fair adjudication of the
requesting party's claims or defenses."  Id. at 612. 
	We now turn to the particular facts of this case to determine if the trial court abused
its discretion in refusing to compel discovery of Jade's list of suppliers.  A trade secret is "any
formula, pattern, device or compilation of information which is used in one's business and
presents an opportunity to obtain an advantage over competitors who do not know or use it." 
Computer Assocs. Int'l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1994).  To meet its burden
of establishing trade secret protection, Jade had to satisfy the Restatement's six-factor test:

(1) the extent to which the information is known outside of his business; (2) the
extent to which it is known by employees and others involved in his business; (3)
the extent of the measures taken by him to guard the secrecy of the information;
(4) the value of the information to him and his competitors; (5) the amount of
effort or money expended by him in developing the information; (6) the ease or
difficulty with which the information could be properly acquired or duplicated by
others.


Chapa v. Garcia, 848 S.W.2d 667, 670 (Tex. 1992) (Doggett, J., concurring) (internal quotations
omitted) (quoting Restatement of Torts § 757 cmt. b (1939)).  Appellants argue that they are not
direct competitors and therefore Jade can claim no trade secret protection for its list of suppliers. 
The supreme court has rejected the claim that trade secrets should be produced except in actions
between business competitors, saying that this approach "would render the Rule 507 privilege
meaningless in noncompetitor cases."  Continental Gen. Tire, 979 S.W.2d at 613.  Moreover, we
are not persuaded that Paul Mitchell does not compete with Jade when this lawsuit is grounded
in the claim that the unauthorized sale of its hair products by Jade and Randalls constitutes unfair
competition.  We reject appellants' argument that trade secret protection is not available in this
case.
	Alternatively, appellants argue that Jade failed to establish that its list of suppliers
had commercial value or would be valuable to its competitors.  We disagree.  In his affidavit,
Jade's president Harold Wallace named the restricted number of individuals with access to the list
of suppliers, explained that the list took time and money to develop, and described the list's value
to Jade.  He also specified that the information could not be readily obtained or duplicated. 
Information may be privileged if valuable only to the owner.  See Chapa, 848 S.W.2d at 670. 
Wallace's affidavit established that the supplier list enabled the company to obtain Paul Mitchell
products to sell to retail outlets like Randalls, Kroger's, and Drug Emporium.  He also established
that many of Jade's competitors would be eager to compete in these retail markets if they could
identify Jade's source of products.  Customer lists, pricing information, customer preferences,
buyer contacts and market strategies have been shown to be trade secrets.  See T-N-T Motorsports,
Inc. v. Hennessey Motorsports, Inc., 965 S.W.2d 18, 22 (Tex. App.--Houston [1st Dist.] 1998,
no writ).  Jade's carefully compiled and closely guarded source of Paul Mitchell hair care
products serves a similar purpose.  Because there is evidence that satisfies the six factors, we hold
that Jade met its burden of establishing trade secret protection for its list of suppliers.
	The burden then shifted to Paul Mitchell to show that the list of suppliers was
necessary for a fair adjudication of its claims.  See Continental Gen. Tire, Inc., 979 S.W.2d at
613.  The trial court's role was to weigh the degree of the requesting party's need for the
information against the potential harm of disclosure to the resisting party.  See id.  Trade secrets
should only be disclosed  when the information is both "material and necessary to the litigation
and unavailable from any other source."  Automatic Drilling Machs., Inc. v. Miller, 515 S.W.2d
256, 259 (Tex. 1974).  The requesting party must describe with particularity how the protected
information is required to reach conclusions in the case.  See Continental Gen. Tire, 979 S.W.2d
at 611 (citing Bridgestone/Firestone, 9 Cal. Rptr. 2d at 716).  The requested information must be
necessary, not merely useful.  See id.
	Paul Mitchell argues that identifying how and where Jade obtained its products was
the "central issue" in this case.  It is unclear how the identity of Jade's suppliers advanced Paul
Mitchell's breach of contract, trademark infringement, or tortious interference claims against Jade
and Randalls.  But assuming this information would have been useful to Paul Mitchell, there is
evidence in the record that the suppliers, or some of them, could have been identified by
ultraviolet codes placed on the bottles to identify distributors.  Michaeline Re', chief legal officer
for Paul Mitchell, testified that she personally examined all the Paul Mitchell products found at
Randalls to determine if batch codes (identifying the laboratory where the product was
manufactured) or ultraviolet codes (identifying the distributor) had been tampered with.  Although
some of the UV codes had been removed or obliterated, Plaintiff's Exhibit 112 revealed that item
Nos. 12 and 22 had intact UV codes on the bottles.  Ms. Re' continued to testify that the UV
codes were used to identify the distributor to which products were shipped. The parties stipulated
that Randalls purchased Paul Mitchell products only from Jade.  The trial court could have
determined that Paul Mitchell had other methods of tracing these products back to certain
distributors in its system.  The trial court could have concluded that Jade's list of suppliers was
therefore not necessary to a fair adjudication of Paul Mitchell's claims in this lawsuit.  Applying
the balancing test mandated by Continental General Tire, Inc., we cannot say that the trial court
abused its discretion in refusing to compel disclosure of Jade's list of suppliers.  We overrule the
second issue.

JURY SUBMISSIONS
	In their final issue on appeal, Paul Mitchell and Ultimate Salon complain of the trial
court's failure to submit their theory of conversion to the jury and its failure to submit damage
issues for conversion, trademark infringement, and unfair competition.  Because this record
contains no evidence that Jade or Randalls possessed any products that had been stolen from Paul
Mitchell or Ultimate Salon, the trial court did not err in refusing to submit to the jury conversion
as a theory of recovery or its accompanying issue on damages.  Likewise, because we have held
that the appellants are not entitled to recover for trademark infringement or unfair competition as
a matter of law, the trial court did not err in refusing to submit damage issues on these theories. 
We overrule the third issue on appeal.

CONCLUSION
	Having overruled all of appellants' issues on appeal, we affirm the trial court's
judgment notwithstanding the verdict.


  
					Bea Ann Smith, Justice
Before Chief Justice Aboussie, Justices B. A. Smith and Yeakel
Affirmed
Filed:   March 30, 2000
Publish
1.        Nor is there any evidence of damages limited to a period after December 5, 1997.
2.        We will address this alleged error later in this opinion.
3.        Unfair competition "consists in the simulation by one person, for the purpose of deceiving
the public, of the names, symbols, labels, or devices employed by a business rival, in order to
induce the purchasing public to buy his products in the belief that they are those of his rival." 
Avnet v. Texas Centennial Cent. Exposition, 96 S.W.2d 685, 687 (Tex. Civ. App.--Dallas 1936,
writ dism'd w.o.j.) (internal quotations omitted) (quoting Queen Mfg. Co. v. Isaac Ginsberg &
Bros., 25 F.2d 284 (8th Cir. 1928)).  Absent consumer confusion, Paul Mitchell cannot prevail
on its claim of trademark infringement.  
4.        Section 16.29 provides in full:

	A person may bring an action to enjoin an act likely to injure a business
reputation or to dilute the distinctive quality of a mark registered under this chapter
or Title 15, U.S.C., or a mark or trade name valid at common law, regardless of
whether there is competition between the parties or confusion as to the source of
goods or services.  An injunction sought under this section shall be obtained pursuant
to Rule 680 et seq. of the Texas Rules of Civil Procedure.

Tex. Bus. & Com. Code Ann. § 16.29.

See id.
	Paul Mitchell argues that identifying how and where Jade obtained its products was
the "central issue" in this case.  It is unclear how the identity of Jade's suppliers advanced Paul
Mitchell's breach of contract, trademark infringement, or tortious interference claims against Jade
and Randalls.  But assuming this information would have been useful to Paul Mitchell, there is
evidence in the record that the suppliers, or some of them, could have been identified by
ultraviolet codes placed on the bottles to identify distributors. 