IP Law Daily, TRADEMARK—S.D.N.Y.: Sherman Act and other counterclaims against Honeywell mostly dismissed, (Jul 26, 2024)

By Kenneth H. Ryesky, M.B.A., J.D.

Honeywell had continued to accept licensee heat pump system manufacturer's royalty payments for use of the HONEYWELL mark despite licensee's failure to submit contractually-required letter of credit and guaranty documents.

A federal district court in New York City has partially granted Honeywell's motions to dismiss the counterclaims, including an antitrust counterclaim for group boycott, of a heating, ventilation, and air conditioning equipment manufacturer to whom Honeywell had licensed to use its HONEYWELL trademark. The court declined to dismiss the contract breach counterclaim, but did dismiss the implied covenant breach counterclaim as duplicative to the contract breach counterclaim. The court also dismissed the tortious interference counterclaim and the Sherman Act violation counterclaim, and denied the licensee's motion for declaratory relief because the claims underpinning such declaratory relief were duplicative, and pertained solely to past conduct (Honeywell International Inc. v. Ecoer Inc., No. 1:24-cv-01464-PAE (S.D.N.Y. July 23, 2024)).

Background. Honeywell International Inc. (Honeywell) is a Fortune 500 conglomerate whose products include heating, ventilation, and air conditioning (HVAC) products and systems for buildings. In 2021, Honeywell entered into a Trademark License Agreement (TLA) with InverterCool Inc., whereby InverterCool would pay Honeywell royalties for the use of its HONEYWELL trademark on the HVAC products it manufactured, such products manufactured to include components and supplies manufactured by Honeywell. InverterCool's parent company, Ecoer Inc., was InverterCool's guarantor for the TLA.

The TLA provided that Honeywell would receive, in addition to the royalty payments, (1) a written guaranty document signed by Ecoer; and (2) a letter of credit in the amount of $160,000.

The arrangement did not fulfill the parties' expectations, and Honeywell terminated the TLA in 2022. Honeywell subsequently sued Ecoer and InverterCool, alleging that the defendants, by continuing to use the Honeywell trademark after the TLA was terminated, infringed the trademark and breached the TLA contract. Ecoer and InverterCool counterclaimed for (1) breach of contract; (2) breach of implied good faith and fair dealing covenant; (3) tortious interference; and (4) Sherman Act violations. Ecoer and InverterCool also moved for declaratory relief.

Honeywell moved for dismissal of Ecoer and InverterCool's counterclaims.

Breach of contract. The court denied Honeywell's motion to dismiss Ecoer and InverterCool's counterclaim for breach of contract. Here, while the defendants failed to deliver the written guaranty or the letter of credit to Honeywell by the specified dates, they continued to pay royalties to Honeywell for more than a half-year thereafter with no objections from Honeywell. Ecoer and InverterCool's conceded non-delivery of those documents would only preclude their enforcement of the contract if the breach was material. The court was unable to definitively conclude that the contract breach was a material breach from the information in the pleadings; if the breach were not a material one, Ecoer and InverterCool could still enforce the TLA agreement through a breach of contract counterclaim.

The court further found that Ecoer and InverterCool adequately alleged that Honeywell had unequivocally repudiated the TLA agreement. The telephone call from Honeywell's licensing manager to InverterCool's COO in which the COO was informed that "Honeywell's upper management team" had directed the TLA's cancellation was a plausible pleading of Honeywell's alleged repudiation, notwithstanding a subsequent email mentioning that a final decision had yet to be made. There accordingly remained questions of fact as to the alleged repudiation, thus precluding dismissal of the contract breach counterclaim on such a ground.

There also remained questions of fact as to whether Ecoer and InverterCool, when confronted with Honeywell's anticipatory repudiation of the TLA, had elected to continue performance or elected to terminate the contract; two mutually exclusive courses of action. Further factfinding was necessary to resolve this issue.

Tortious interference. The court granted Honeywell's motion to dismiss Ecoer and InverterCool's tortious interference counterclaim. Here, Ecoer and InverterCool had alleged that Honeywell, in terminating the TLA in bad faith and spreading false rumors, had tortiously interfered with Ecoer and InverterCool's business relationships. The bad faith termination count was dismissed as duplicative of its contract breach counterclaim, and Ecoer and InverterCool's counterclaim did not specifically identify the false information allegedly spread or business entities to which such misinformation was conveyed.

Sherman Act violations. The court granted Honeywell's motion to dismiss Ecoer and InverterCool's Sherman Act-based counterclaim. Ecoer and InverterCool alleged that Honeywell's termination of the TLA was the result of an agreement with another HVAC manufacturer (Trane) to limit Ecoer and InverterCool's activity in the HVAC industry. The court found that such an agreement was not plausibly alleged in the counterclaim. The fact that Honeywell and Trane had a separate legal agreement for the testing of HVAC refrigerant supplies did not support an illegal agreement between Honeywell and Trane to exclude Ecoer and InverterCool from the HVAC market.

Although the counterclaim alleged a per se violation of the Sherman Act, the realities as reflected in the litigation documents are that Trane uses Honeywell-manufactured refrigerants in Trane's HVAC products. Trane and Honeywell accordingly stand in "a paradigmatic vertical relationship," and vertical relationships are evaluated for Sherman Act purposes under a rule-of-reason analysis, and not as a per se violation.

The Case is No. 1:24-cv-01464-PAE.

Judge: Engelmayer, P.

Attorneys: Angela Rosalee Vicari (Arnold & Porter Kaye Scholer LLP) for Honeywell International Inc. Christopher E. Vatter (Jaspan Schlesinger Narendran LLP) for Ecoer Inc.

Companies: Honeywell International Inc.; Ecoer Inc.

Cases: Trademark NewYorkNews