System Enhancement Associates vs. PKware, Inc Document dated August 11, 1988 -- SEA is calling PKware in contempt of the cross-license agreement which was signed on July 29, 1988. The following pages have been re-keyed by me for purposes of full disclosure to the public. They have been run through spelling checker, but have not been proofread by anyone. See the file --> SEA-PK-L.arc <-- for re-keyed version of the Confidential Cross-License Agreement between SEA and PKware that this document refers to. Both documents were photocopied at the Clerk of Court's Office in the Milwaukee County Federal Courthouse by myself at 1:00 PM on August 31, 1988. The ESSENCE of the suit is that the PKware Users Manual purposely and deceptively uses words that contain ARC which represent trademark violations of SEA's ARC archiving* program. (Ooops, I just did it again! I used a word with "arc" in it. Naughty me.) By the way, as *I* am the person who wrote PKware's documentation for their file compression programs, this new law suit came as a COMPLETE shock to me! Neither Phil Katz or his attorney, Nick Kees, discussed any aspect of the case or upcoming legal proceedings with me prior to this revaluation which I received at the courthouse. Karen Little, President Office Technology Academy, Inc. 230 W Wells, Suite 310 Milwaukee, WI 53203 414 / 273-7310 + + + + PROCEEDINGS UNDER JUDGMENT FOR PLAINTIFF ON CONSENT: BRIEF IN SUPPORT OF PLAINTIFF'S MOTION FOR ORDER HOLDING DEFENDANTS IN CONTEMPT On August 2, 1988, this Court signed a JUDGMENT FOR PLAINTIFF ON CONSENT which permanently enjoined the Defendants PKWARE and Phillip Katz from infringing the Plaintiff's trademark "ARC." Effective August 1, 1988, System Enhancement Associates, Inc. ("SEA") and Defendants PKWARE and Phillip Katz (hereinafter jointly referred to as "PKWARE") entered into a Confidential CROSS-LICENSE AGREEMENT whereby the Defendants also agreed not to infringe Plaintiff's trademark "ARC," specifically by agreeing not to distribute or offer for license any program that carries a trademark, tradename or filename including the letters, or notation "ARC". Nonetheless, Defendants have willfully violated this Court's Order and the Cross- License Agreement by distributing and offering for license a new version of its former software program, which it now entitles PKPAK and PKUNPAK. This program is, for all intents and purposes, identical to the programs, PKARC and PKXARC, which were the subject 2 of this litigation. (Declaration of Thomas M. Marshall, Esq. at paragraph 15). One of the Plaintiff's principal complaints in this litigation was that Defendants infringed Plaintiff's Trademark "ARC" by using, throughout their computer programs and accompanying user manual, the term "ARC." Defendants used this as a verb, as an adjective, as a noun. These improper uses of Plaintiff's trademark have the effect of confusing the public as to the source of the computer programs and of diluting Plaintiff's protected trademark. The Defendants' newest version of a software program continues the same infringing actions. As Plaintiff's Exhibits 57-65 to the Declaration of Thomas M. Marshall, Esq. illustrate, Defendants continue to use Plaintiff's protected mark in a connection with the distribution and licensing of Defendants' computer programs. Plaintiff comes to this Court seeking further protection from Defendants' continuing activity. It is apparent that the Defendants do not respect this Court's prior Order which permanently enjoined them from undertaking such activity. Nor do the Defendants respect the Cross-License Agreement that they entered into only a few days before Court signed the Judgment. AUTHORITY A. This Court has the power to punish defendants for their actions It is clear that this Court has the authority and power to punish the Defendants' acts under its power of contempt. This power is an inherent power of the federal courts and is specifically recognized in 18 USC -Par 401. NLRB v Deena Artware, Inc., ... reversed other grounds. 361 US 398 (1960). A consent judgment is enforceable, although it was negotiated by the parties, via the Court's contempt powers. Usery v Chef Italia, ...; Delaware Valley Citizens' Council for Clean Air v Commonwealth of Pennsylvania, ..., affirmed, 678 F. 2d 470 (3d Cir. 1982), cert. denied, 459 US 969 (1983). Finally, courts have the power to punish by both civil and criminal contempt actions of a party which violate an injunction against trademark infringement. See, eg, Musidor B V V Great American Screen, 688 F 2d 60 (2d Cir. 1981), cert denied, 455 US 944 (1982); Chanel Industries, Inc. v Pierre March, Inc., 199 F Supp 748 (ED Mo 1961); Bradstreet Co. v Bradstreet's Collection Bureau, 249 F 958 (2d Cir 1918). B. Defendants' Actions Violate This Court's Order by Continuing to Infringe Plaintiff's Trademark. The Judgment for Plaintiff on Consent provides at paragraph 1: "Defendants and each of them, jointly and severally, . . . be and hereby are enjoined permanently . . . from infringing in any manner Plaintiff's trademark ARC." In this case, it is clear that the 3 continued actions of the Defendants violate this Court's order of August 2, 1988 by infringing Plaintiff's trademark. First, the Defendants have admitted that in the consent judgment (at paragraph 1), the license agreement (at paragraph 5) and the agreed press release (Plaintiff's Exhibit 63 to Marshall Declaration), that Plaintiff has a predictable mark in the designation "ARC". Second, merely by glancing through the Defendants' programs and User Manual, it is evident that PKWARE continues to use Plaintiff's protected mark ARC. For example, in the User Manual which accompanies Defendants' new programs (Exhibit 65 to Marshall Declaration) virtually every page contains numerous uses of the Plaintiff's trademark ARC. Similarly, in the programs themselves, the messages which a computer user may see on his screen at certain points while running Defendants' program contain the protected trademark ARC. (See paragraph 13 to Marashall Declaration and the Plaintiff's Exhibits 57-61.) Obviously, Defendants' actions infringe Plaintiff's mark by taking the protected mark and using it in connection with the publication, distribution and offering for licensing of their computer programs. Such misuse is clearly illustrated in the first few pages of the User Manual accompanying the newest version of the PKWare programs (Plaintiff's Exhibit 65 to the Marshall Declaration). In the manual, PKWare explains its programs: Computer file compression means that by using PKWare programs, files are quickly reduced in size and thereby take up less storage space. This process, sometimes called ARCing, crates ARCHIVE files. *** PKPAK is the program that compresses files. This shrinking process is often referred to as archiving or ARCing . . . *** PKUNPAK is the program that reconstructs or extracts archived files. A shorthand term for this process is UNarcing. User Manual, Plaintiff's Exhibit 65 at page 3. The misuse of Plaintiff's trademark ARC continues throughout the User Manual, where Defendants use ARC as a noun, an adjective and a verb. There is no legitimate reason for using Plaintiff's mark in this manner. It confuses the public as to the source of origin of this project (a computer user pursuing this manual could easily associate the PKWare programs with those distributed and licensed by SEA which legitimately use the trademark ARC). Further, this misuse dilutes the unique and distinctive value of the ARC trademark by making it appear to be a commonplace equivalent for archiving or compressing files. Such uses clearly infringe Plaintiff's trademark and are an attempt to destroy SEA's valuable property right. 4 The conduct in this case is similar to that enjoined in Scandia Down Corporation v Euroquilt, Inc., 772 F 2d 1423 (78th Cir 1985). In Scandia, the court is held a defendant in contempt when it continued to use a logo, the outline of a goose, in connection with the sale of its bedding products. The Court of Appeals affirmed findings that the plaintiff's marks identified its products with the plaintiff and that the competitor was using confusingly similar marks. Further, the Court affirmed the trial court's findings of contempt, holding that the infringement was willful and in a deliberate effort to capture the plaintiff's customers. See also Ideal Industries, Inc. v. Gardner Bender, Inc., 612 F 2d 1018 (7th Cir 1979) (holding that electrical connectors labeled "71B", etc. violated plaintiff's trademarks). The misuse is all the more damaging here where there is being circulated information indicating that the PKWARE programs are flawed. Exhibit 68 to the Marshall Declaration is a Warning Notice that was recently published on a computer bulletin board. It states that the PKARC version "will cause your system to FLAT LOCK UP. . .it is altering DOS and memory and it DOES NOT restor things to the way they were before it was run...be safe, not sorry! DON'T TAKE THE CHANCE...SEA distributes and licenses computer programs that perform the same functions as that now being distributed and licensed by Defendants. To the extent that, as a result of Defendants' continuing trademark infringement the PKWARE programs with their perceived serious flaws are associated with ARC programs licensed and distributed by SEA, SEA's business may be permanently damaged. Given the continuing use by the Defendants of the ARC trademark, it is likely the public will be confused and SEA will be hurt. Finally, the intent of the Defendants cannot be much clearer. They did not wait to issue a new version of their prior program and User Manual. One need only compare the User Manual distributed with the pre-judgment version of their software programs (Plaintiff's Exhibit 17 to Marshall Declaration) with the current User Manual (Plaintiff's Exhibit 65). Apparently, all that was changed were the names of the programs from PKARC and PKXARC to PKPAK and PKUNPAK. Only a superficial attempt was made to delete the infringing references throughout the computer programs to ARC and to the references throughout the user manual. (Marshall Declaration at paragraph 15.) Rather, it appears clear that the Defendants seem bent on a course of continuing in their use of Plaintiff's trademark in an attempt to capture Plaintiff's customers or to dilute or destroy its protected rights. 5 CONCLUSION For these reasons, the Plaintiff respectfully requests this Court enter an order holding Defendants in contempt of the Judgment for Plaintiff on Consent and grant the relief requested in Plaintiff's motion. Dated this 11 day of August, 1988. Attorneys for Plaintiff SYSTEM ENHANCEMENT ASSOCIATES, INC. Michael A. Lechter & Mary K. Braza FOLEY & LARDNER Milwaukee, WI and Thomas M. Marshall, Esq. Powder Mill Village