Evoqua Water Techs. v. M.W. Watermark

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 19a0257p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

EVOQUA WATER TECHNOLOGIES, LLC, ┐

Plaintiff-Appellant/Cross-Appellee, │

│

> Nos. 18-2397/2398

v. │

│

│

M.W. WATERMARK, LLC; MICHAEL GETHIN, │

Individually, │

Defendants-Appellees/Cross-Appellants. │

┘

Appeal from the United States District Court

for the Western District of Michigan at Grand Rapids.

No. 1:16-cv-00014—Robert J. Jonker, District Judge.

Argued: June 27, 2019

Decided and Filed: October 7, 2019

Before: WHITE, BUSH, and LARSEN, Circuit Judges.

_________________

COUNSEL

ARGUED: Craig R. Smith, LANDO & ANASTASI, LLP, Cambridge, Massachusetts, for

Appellant/Cross-Appellee. G. Thomas Williams, MCGARRY BAIR PC, Grand Rapids,

Michigan, for Appellees/Cross-Appellants. ON BRIEF: Craig R. Smith, Eric P. Carnevale,

LANDO & ANASTASI, LLP, Cambridge, Massachusetts, for Appellant/Cross-Appellee. G.

Thomas Williams, MCGARRY BAIR PC, Grand Rapids, Michigan, for Appellees/Cross-

Appellants.

WHITE, J., delivered the opinion of the court in which BUSH and LARSEN, JJ., joined.

BUSH, J. (pp. 19–35), delivered a separate concurring opinion.

Nos. 18-2397/2398 Evoqua Water Techs. v. M.W. Watermark, et al. Page 2

_________________

OPINION

_________________

HELENE N. WHITE, Circuit Judge. In 2016, Plaintiff Evoqua Water Technologies,

LLC (“Evoqua”) filed this action against Defendants M.W. Watermark, LLC (“Watermark”) and

Michael Gethin, asserting copyright, trademark, and false-advertising claims and seeking to

enforce a 2003 consent judgment obtained by Evoqua’s alleged predecessor against Watermark

and Gethin. The district court dismissed Evoqua’s claim that Watermark and Gethin were in

contempt for violating the consent judgment, holding that the consent judgment was not

assignable and therefore Evoqua lacked standing to enforce it. The district court also granted

Watermark and Gethin summary judgment on Evoqua’s copyright claim after concluding that the

agreement selling assets to Evoqua unambiguously did not transfer copyrights. A jury later

returned a verdict for Watermark and Gethin on Evoqua’s false-advertising claim and for Evoqua

on its trademark-infringement claim against Watermark but found that Gethin was not personally

liable. Following trial, the district court denied Watermark’s and Gethin’s requests for attorney’s

fees on Evoqua’s copyright and false-advertising claims. We conclude that the consent judgment

is assignable, that the agreement transferring assets to Evoqua is ambiguous regarding

copyrights, and that the district court did not abuse its discretion in declining to award

Watermark and Gethin attorney’s fees on the false-advertising claim. Accordingly, we

VACATE the district court’s dismissal of Evoqua’s claim seeking to hold defendants in

contempt of the consent judgment; VACATE the district court’s grant of summary judgment on

the copyright claim; AFFIRM the district court’s denial of defendants’ request for attorney’s fees

on the false-advertising claim; and REMAND for further proceedings.

I. BACKGROUND

A. The Parties

Evoqua and Watermark manufacture and sell equipment, such as sludge dryers and filter

presses, that removes water from industrial waste. Both companies also sell replacement parts

for used de-watering equipment originally manufactured by them or by other companies.

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Evoqua’s business can be traced back to a corporation called JWI, Inc. JWI was

incorporated in the late 1970s and was acquired by U.S. Filter Corporation in 1997 to form a

business called U.S. Filter/JWI Inc. (“U.S. Filter/JWI”). In 2006, U.S. Filter/JWI merged into

Siemens Water Technologies Corp. and dissolved. In 2011, Siemens Water Technologies Corp.

merged into Siemens Water Technologies Holding Corp., which then merged into Siemens

Industry, Inc. (“Siemens”). On March 28, 2013, Siemens sold its water technologies business to

Siemens Water Technologies LLC (“SWT”). SWT changed its name to Evoqua Water

Technologies LLC in 2014.

M.W. Watermark LLC was formerly named J-Parts LLC. J-Parts was founded by Gethin

in 2003 after he left his position at U.S. Filter/JWI. J-Parts initially sold only replacement parts

for filter presses manufactured by other companies.

B. 2003 Action and Consent Judgment

Shortly after Gethin formed J-Parts LLC, U.S. Filter/JWI filed an action against Gethin

and J-Parts, LLC in Gethin I (Case No. 03-00127) in the Western District of Michigan for false

designation of origin, trademark dilution, trademark infringement, unfair competition, unjust

enrichment, misappropriation of trade secrets, breach of fiduciary duties, breach of contract, and

conversion. U.S. Filter/JWI alleged, among other things, that Gethin had downloaded a large

quantity of U.S. Filter/JWI’s proprietary and trade-secret information before leaving his position

and that the defendants were infringing on its J-PRESS® (the brand for its filter presses) and J-

MATE® (the brand for its sludge dryers) trademarks by using the “J-Parts” name.

The parties settled the case and reached a final settlement agreement. As part of the

settlement agreement, the parties agreed to stipulate to the entry of a final judgment, and the

district court entered the “Final Judgment Including Permanent Injunction.”1 (R. 1-7.) The

injunction permanently enjoined “M.W. Watermark LLC, and Michael Gethin and its, his or

their principals, agents, servants, employees, attorneys, successors and assigns” from using U.S.

1The “Final Judgment Including Permanent Injunction” will hereinafter be referred to as the “Consent

Judgment” or “Permanent Injunction.”

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Filter/JWI’s trademarks and from “using, disclosing, or disseminating any” of U.S. Filter/JWI’s

proprietary information. (Id. at PID 358.)

C. Sale to SWT

The business unit comprising U.S. Filter/JWI’s business was sold to SWT pursuant to a

Carve-Out Agreement between Siemens and SWT. Under the Carve-Out Agreement, SWT

acquired “all Seller’s books and records, files and other documents and data (including written

and electronic training materials utilized to train the employees of the [water-technologies unit],

including those related to regulatory and compliance matters), including all purchase and sold

ledgers, purchase and sales day books and purchase and sales invoices.” (R. 48-1, PID 780.)

SWT also acquired the business unit’s “Know-how,” defined as:

all information and data (irrespective as to whether such information and data is

available by way of documentation, orally or in electronic format and irrespective

as to whether they are protected by copyrights or not), including business and

trade secrets, technical and business information and data, inventions, experience

and expertise, all to the extent that such information and data are not Software . . .

and/or not a Patent . . . .

(Id. at PID 783.)

SWT further acquired the business unit’s rights and obligations under its contracts, its

trademarks, and its interest in litigation.

D. Siemens/SWT’s Market Exit and Watermark’s Entrance

Before selling the water-technologies unit to SWT in 2013, Siemens had prepared a

multi-year plan to discontinue certain product lines, including J-MATE® sludge dryers.

Following the sale, in early 2014, Evoqua notified its sales representatives that it was

discontinuing the J-MATE® product line. In response to Evoqua’s planned exit, Watermark

decided to enter the sludge-dryer market. On March 23, 2014, Watermark announced that it was

releasing a sludge dryer product called “DryMate.”

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E. Evoqua’s Re-entrance into the Sludge-Dryer Market

On July 9, 2015, Evoqua began plans to reintroduce the J-MATE® sludge dryer to the

market. Around that same time, Evoqua’s in-house counsel wrote to Watermark regarding,

among other things, Evoqua’s concerns that Watermark was violating the Consent Judgment,

improperly using Evoqua’s trademarks, and falsely advertising that it provided “OEM Parts” for

a variety of manufacturers, including JWI.

II. PROCEDURAL HISTORY

A. Evoqua’s Claims

On January 8, 2016, Evoqua filed this action against M.W. Watermark, LLC,

Watermark’s President Gethin, and current and former employees of Watermark. Evoqua

alleged that Watermark and its employees violated the Consent Judgment by using Evoqua’s

proprietary information and infringing on its trademarks. Evoqua further alleged that Watermark

infringed on its copyrights by adopting Evoqua’s copyrighted brochures and presentations for its

own use. Evoqua also asserted that Watermark impermissibly used its J-MATE® trademark on

its website and adopted a confusingly similar name of “DryMate” for its own product. Evoqua

finally alleged that Watermark falsely advertised itself as an original equipment manufacturer for

Evoqua’s products.

B. The District Court’s Contempt Order

Evoqua filed a motion for sanctions and/or an order holding Watermark and Gethin in

contempt of court for allegedly violating the Permanent Injunction. On September 12, 2016, the

district court granted that motion and held Gethin and Watermark in contempt for violating the

Permanent Injunction. The court found that Watermark violated the injunction by (1) using

Evoqua’s proprietary information and (2) using Evoqua’s trademarks on its website. The district

court ordered Watermark and Gethin to pay sanctions and requested briefing on the amount.

However, before the award was issued, the case was reassigned to another judge.

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C. The District Court’s Order Vacating the Contempt Order and Ruling that

Evoqua Lacks Standing

On April 7, 2017, Watermark and Gethin moved for an order dissolving or modifying the

Permanent Injunction, arguing that the Permanent Injunction’s requirements had either been

satisfied or had become unworkable. Noting that the parties disputed whether Evoqua was a

successor-in-interest, the district court entered an order declining to rule on the motion until

resolving that issue and asked for briefing.

At the hearing on Watermark’s and Gethin’s motion for relief from the permanent

injunction and on the successor-in-interest issue, the district court raised the question whether the

Permanent Injunction could be enforced by successors to U.S. Filter/JWI and asked for briefing.

After the parties briefed the question, the district court issued an opinion and order vacating the

contempt order and dismissing Evoqua’s claim for contempt. The district court held that Evoqua

did not have standing to seek enforcement of the Permanent Injunction because “[t]he consent

judgment in this case does not provide for enforcement by an assignee of U.S. Filter.” (R. 154,

PID 6976.)

D. The District Court’s Grant of Summary Judgment to Defendants on

Evoqua’s Copyright Claim

On October 23, 2017, Watermark and Gethin moved for summary judgment on Evoqua’s

three remaining claims: trademark infringement, false advertising, and copyright infringement.

The district court granted Watermark’s and Gethin’s motion for summary judgment on the

copyright-infringement claim on the basis that the Carve-Out Agreement between Siemens and

SWT/Evoqua unambiguously did not transfer copyrights to SWT/Evoqua. The district court

rejected Evoqua’s argument that the agreement’s transfer of “Know-how” transferred copyrights.

E. Jury Verdict in Favor of Watermark and Gethin on the False-Advertising

Claim and for Evoqua on the Trademark Claim

Evoqua’s remaining claims for trademark infringement and false advertising were tried

before a jury. The jury returned a verdict for Watermark and Gethin on the false-advertising

claim and for Evoqua on its trademark-infringement claim, but awarded $0 in damages, found no

willful infringement, and found that Gethin was not personally liable.

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After trial, Watermark and Gethin filed a motion for attorney’s fees, requesting attorney’s

fees as the prevailing party on the copyright-infringement claim and attorney’s fees on the false-

advertising claim because Evoqua’s conduct with respect to that claim was exceptional. The

district court denied both requests. The district court declined to award attorney’s fees for false

advertising under the Lanham Act, finding that the parties presented conflicting evidence about

the meaning of “OEM [original equipment manufacturer] parts” and that Evoqua pursued the

claim in good faith. (R. 274, PID 10306 (quoting 15 U.S.C. § 1117(a)).)

Evoqua appeals (1) the district court’s order vacating the contempt order and dismissing

Evoqua’s contempt claim, and (2) the district court’s grant of summary judgment to Watermark

and Gethin on the copyright claim. Watermark and Gethin appeal the district court’s denial of

their requests for attorney’s fees on the copyright and false-advertising claims.

III. THE ASSIGNABILITY OF THE CONSENT JUDGMENT

A. Standard of Review and Legal Standard

“A district court’s interpretation of a consent decree or judgment is a matter of law

subject to de novo review, and the underlying findings of fact are reviewed for clear error.”

Sault Ste. Marie Tribe of Chippewa Indians v. Engler, 146 F.3d 367, 371 (6th Cir. 1998). This

court reviews a district court’s decision on standing de novo. See United States v. Real Prop.,

All Furnishings Known as Bridwell’s Grocery, 195 F.3d 819, 821 (6th Cir. 1999).

“A consent decree has attributes of both a contract and of a judicial act.” Williams v.

Vukovich, 720 F.2d 909, 920 (6th Cir. 1983). “Consent decrees are entered into by parties to a

case after careful negotiation has produced agreement on their precise terms.” United States v.

Armour & Co., 402 U.S. 673, 681 (1971). “[T]he scope of a consent decree must be discerned

within its four corners, and not by reference to what might satisfy the purposes of one of the

parties to it.” Id. at 682. The consent decree is a judicial act because it “places the power and

prestige of the court behind the compromise struck by the parties.” Williams, 720 F.2d at 920. A

court must “protect the integrity of the decree with its contempt powers.” Id.

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A consent decree “is not enforceable directly or in collateral proceedings by those who

are not parties to it.” Blue Chips Stamps v. Manor Drug Stores, 421 U.S. 723, 750 (1975).

“[E]ven intended third-party beneficiaries of a consent decree lack standing to enforce its terms.”

Aiken v. City of Memphis, 37 F.3d 1155, 1168 (6th Cir. 1994).

In the absence of controlling federal law, contractual interpretation of the Consent

Judgment is governed by Michigan law. See Sault St. Marie, 146 F.3d at 372. Under Michigan

law, “[t]he primary goal in the construction or interpretation of any contract is to honor the intent

of the parties.” Rasheed v. Chrysler Corp., 517 N.W.2d 19, 29 n.28 (Mich. 1994). A court

“must look for the intent of the parties in the words used in the instrument.” Mich. Chandelier

Co. v. Morse, 297 N.W. 64, 67 (Mich. 1941).

Of particular relevance here, the Supreme Court addressed the scope of a consent decree

in Armour. There, Greyhound Corporation sought to acquire the majority of stock in Armour &

Co. The government had previously entered into a consent decree with Armour, barring it from

“dealing directly or indirectly in certain specified commodities.” Armour, 402 U.S. at 673-74.

The government sought to enforce the consent decree against Greyhound, arguing Greyhound

engaged in business that would violate the decree. Id. at 677. The Court reasoned that the

consent-decree prohibitions ran “only against the named stockholders [of Armour] and not

against their successors and assigns.” Id. at 680. Noting that a “‘successors and assigns’ clause”

would have made the Government’s argument more persuasive and that the consent judgment

explicitly bound Armour’s successors and assigns in other respects, the Supreme Court held that

the consent decree did not bar Armour’s successors from dealing in the specified commodities.

Id. at 683.

B. The Consent Judgment is Assignable.

Under Michigan contract law, “rights can be assigned unless the assignment is clearly

restricted.” Jawad A. Shah, M.D., PC v. State Farm Mut. Auto. Ins. Co., 920 N.W.2d 148, 158

(Mich. Ct. App. 2018) (internal quotation marks omitted). The Consent Decree is silent on the

question of assignability—neither allowing it nor barring it. Due to the absence of a “clear

restrict[ion],” the Consent Decree was assignable to Evoqua.

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Relying on Thatcher v. Kohl’s Department Stores, Inc., 397 F.3d 1370, 1372 (Fed. Cir.

2005), the district court came to the opposite conclusion. In Thatcher, a consent decree enjoined

Kohl’s Department Stores, and its successors-in-interest, from infringing on Mark Thatcher’s

patent rights. 397 F.3d at 1372. The consent decree did not expressly extend the right of

enforcement to anyone other than Mark Thatcher. Id. Thatcher sold his patent rights to a third

party, Deckers Outdoor Corporation, and Deckers later tried to enforce the consent judgment

against Kohls. Id. at 1372-73. Relying on the “underlying policy” of Armour and its

interpretation of “the contract as a whole,” the court rejected Decker’s argument that the absence

of an anti-assignment clause meant that the consent judgment was freely assignable. Id. at 1374.

Analyzing Armour, Thatcher (1) noted that Armour “promotes the underlying policy that consent

judgments must be construed in a manner that preserves the position for which the parties

bargained” and (2) stated that “Armour makes clear that . . . [consent judgments] are

fundamentally different from contracts in not only reflecting an agreement on terms but also a

resolution and compromise of contested legal positions in matters that are the subject of

litigation.” Id. In light of its interpretation of Armour, the court found the consent decree’s

silence on extending the right of enforcement to third parties was “the functional equivalent of

the parties’ express intent to exclude language of assignment.” Id. at 1375. The district court

found this case similar to Thatcher, and interpreted the absence of any reference to U.S.

Filter/JWI’s successors and assigns, coupled with the language binding Watermark’s successors

and assigns, as preventing assignment of the Consent Judgment.

We reject this reasoning. The Consent Decree’s mere silence on the question of

assignability does not evince an intent to prohibit assignment. Michigan law allows for the

assignment of a contract unless clearly restricted. Shah, M.D., PC, 920 N.W.2d at 158. Further,

that the Consent Judgment explicitly binds Watermark’s successors and assigns but does not

address U.S. Filter/JWI’s successors and assigns makes sense in light of the fact that the Consent

Judgment addresses only Watermark’s future actions and obligations—that it may not infringe

on certain trademarks or use U.S. Filter/JWI’s proprietary information—and does not address

U.S. Filter/JWI’s. Thatcher had a much stronger basis for concluding that the consent judgment

could not be assigned. The consent judgment there explicitly provided Thatcher the right to

enforce the consent judgment without providing his assigns that right. See Thatcher, 397 F.3d at

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1373 (“No one other than Thatcher was expressly given the right to proceed with a contempt

action to enforce the judgment under the terms of the consent judgment.”). Here, the Consent

Judgment is silent on enforcement.

Moreover, we do not read Armour to require explicit language allowing for assignment.

Armour’s statement that the interpretation of a consent decree must preserve the parties’

bargained-for terms does not suggest that an assignment clause is needed. Armour’s statement

simply mirrors the general contract-interpretation command to “honor the intent of the parties,”

Rasheed, 517 N.W.2d at 29 n.28, by looking to “the words used in the instrument,” Mich.

Chandelier Co., 297 N.W. at 67. Nor does Armour suggest that the judicial nature of the

Consent Judgment requires an explicit assignment clause in this circumstance. Armour simply

noted that a “successors and assigns” clause would have made the government’s argument for

successor liability more persuasive. The Armour Court also relied on the fact that the consent

judgment elsewhere had bound Armour’s successors and assigns, which is not the case here.

Because the Consent Judgment does not contain an anti-assignment clause or some other

clear prohibition on assignment, the Consent Judgment could be assigned. The district court

erred by concluding to the contrary.

Watermark and Gethin raised other issues before the district court, including whether the

Consent Judgment was actually assigned to Evoqua. Because the district court addressed only

the assignability of the Consent Judgment, we vacate the dismissal of Count I and remand to

allow the district court to address the arguments in the first instance.

IV. EVOQUA’S OWNERSHIP OF THE COPYRIGHTS

A. Standard of Review and Legal Standard

We review the district court’s decision granting summary judgment de novo. See

Johnson v. Memphis Light Gas & Water Div., 777 F.3d 838, 842 (6th Cir. 2015). Summary

judgment is appropriate if “the movant shows that there is no genuine dispute as to any material

fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

“In reviewing the district court’s decision to grant summary judgment, we must view all

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evidence in the light most favorable to the nonmoving party.” Cincinnati Ins. Co. v. Zen Design

Grp., Ltd., 329 F.3d 546, 552 (6th Cir. 2003) (citation omitted).

“To succeed in a copyright infringement action, a plaintiff must establish that he or she

owns the copyrighted creation, and that the defendant copied it.” Kohus v. Mariol, 328 F.3d 848,

853 (6th Cir. 2003) (citation omitted). The Copyright Act provides that “the ownership of a

copyright may be transferred in whole or in part by any means of conveyance or by operation of

law.” 17 U.S.C. § 201(d)(1). However, the assignment of a copyright must be made in writing.

17 U.S.C. § 204(a). “[S]o long as the parties’ intent is clear, a transfer of copyright need not

include any particular language.” Roger Miller Music, Inc. v. Sony/ATV Publ’g, LLC, 477 F.3d

383, 391 (6th Cir. 2007) (internal quotation marks omitted).

Under the choice-of-law provision in the Carve-Out Agreement, Delaware law governs

interpretation of the agreement. “[W]hether a contract is unambiguous is a question of law.”

Sunline Commercial Carriers, Inc. v. CITGO Petroleum Corp., 206 A.3d 836, 847 n.68 (Del.

2019).

“Unless there is ambiguity, Delaware courts interpret contract terms according to their

plain, ordinary meaning.” Alta Berkeley VI C.V. v. Omneon, Inc., 41 A.3d 381, 385 (Del. 2012).

“[A]n ambiguity exists when the provisions in controversy are fairly susceptible of different

interpretations or may have two or more different meanings.” GMG Capital Invs., LLC v.

Athenian Venture Partners I, L.P., 36 A.3d 776, 780 (Del. 2012) (alterations and internal

quotation marks omitted). “Where a contract is ambiguous, the interpreting court must look

beyond the language of the contract to ascertain the parties’ intentions.” Id. (internal quotation

marks omitted).

B. The Carve-Out Agreement is Ambiguous.

The district court concluded that the Carve-Out Agreement unambiguously did not

transfer any copyrights to SWT/Evoqua, and held that Evoqua did not establish actual ownership

of the copyrights. We disagree.

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Section 1.1 of the agreement provides that Siemens “sells and transfers . . . all of

[Siemens’s] right, title and/or interest . . . in, and to, all assets . . . exclusively pertaining to the

[water-technology business].” (R. 48-1, PID 779.) Section 1.1 expressly excludes from this

transfer “[intellectual property (IP)] . . . , trademarks and their applications, domains and any

other intellectual property rights.” (Id.)

Section 2 of the agreement sells and assigns IP. Evoqua contends that Section 2.2

addressing the sale of “Know-how” transferred copyrights to it. Section 2.2 provides:

Sale and Assignment of Know-how: . . . . Seller hereby sells and assigns to

Purchaser all information and data (irrespective as to whether such information

and data is available by way of documentation, orally or in electronic format and

irrespective as to whether they are protected by copyrights or not), including

business and trade secrets, technical and business information and data,

inventions, experience and expertise, all to the extent that such information and

data are not Software (as defined in Section 2.3 below) and/or not a Patent

(collectively herein “Know-how”) which (i) is exclusively used by the Business

in the Business Field on the Effective Date, and (ii) which Seller has the exclusive

authority to dispose of on the Effective Date (herein “Transferred

Know-how”). . . . The Parties agree that the documentation in which the

Transferred Know-how is embodied is already available in the Business and a

separate handover of such documentation is therefore not necessary. Should

Purchaser within twenty-four (24) months after the Effective Date and on a case-

by-case basis nevertheless need a copy of a part of the Transferred Know-how for

the operation of the Business, Seller shall, upon written request of Purchaser,

provide Purchaser with such copy to the extent available at Seller.

(Id. at PID 783-84.)

Section 2.2 of the Carve-Out Agreement is fairly susceptible of two different

interpretations and therefore ambiguous. The plain meaning of “all information and data” is

fairly broad and could encompass a wide variety of assets, including copyrights. Further,

“information and data” lacks a qualifier or limiter, thus is susceptible to the interpretation that

any copyrights on the information and data are also included. The word “assign” could be

construed broadly. The Carve-Out Agreement was signed in 2013. The Ninth Edition of

Black’s Law Dictionary (2009) defines assign as “[t]o convey; to transfer rights or property.”

Assign, Black’s Law Dictionary 135 (9th ed. 2009). The Tenth Edition is more specific,

defining assign as “[t]o convey in full; to transfer (rights or property).” Assign, Black’s Law

Nos. 18-2397/2398 Evoqua Water Techs. v. M.W. Watermark, et al. Page 13

Dictionary 142 (10th ed. 2014) (emphasis added). These definitions suggest that all rights

encompassed in or underlying the information and data were also transferred. Cf. SCO Grp., Inc.

v. Novell, Inc., 578 F.3d 1201, 1213 (10th Cir. 2009) (“[W]hen a party acquires ‘[a]ll rights and

ownership’ in a set of items, as was the case here, courts have generally found such language

sufficient to satisfy Section 204(a) in the absence of language excepting copyrights or other

special circumstances.” (collecting cases)).

Further, a reasonable interpretation of the provision that “information and data” are

transferred “irrespective as to whether they are protected by copyrights or not” is that copyrights

are included in the “information and data” transferred. In other words, both non-copyrighted

information as well as information with attendant copyrights were assigned to SWT. Finally, the

illustrative list of “information and data”—“business and trade secrets, technical and business

information and data, inventions, experience and expertise”—comprises broad and diverse types

of assets. In light of the plain language, one could reasonably interpret the language to include

the assignment of copyrights.

The district court’s reasons for concluding that the agreement unambiguously did not

assign copyrights do not bar this other reasonable interpretation.2

The district court first reasoned that the words “information and data” are an “odd

container” for copyrights because copyrights only protect the manner in which the information or

data is expressly used. (R. 217, PID 8171.) The district court’s second reason is related: it

2Watermark and Gethin argue that copyrights can be transferred only if the language of the agreement

unambiguously so provides. The sole authority Watermark and Gethin rely on for this proposition is Shugrue v.

Continental Airlines, Inc., 977 F. Supp. 280, 285 (S.D.N.Y. 1997). In Shugrue, the court held that 17 U.S.C. § 202

requires that an agreement unambiguously transfer copyrights. Section 202 provides in relevant part that

“[o]wnership of a copyright . . . is distinct from ownership of any material object in which the work is embodied,” so

“[t]ransfer of ownership of any material object . . . does not of itself convey any rights to the copyrighted work

embodied in the object.” The Shugrue court interpreted this to mean that “if the language of the transfer is

ambiguous, the contract will be read to transfer only the material object, not ownership of the copyright itself.” 977

F. Supp. at 285. However, the statutory language does not suggest that requirement. Moreover, this court has

previously found that a contract that was ambiguous on its face nonetheless transferred copyrights. See Gilleland v.

Schanhals, 55 F. App’x 257, 260 (6th Cir. 2003); see also Kendall Holdings, Ltd. v. Eden Cryogenics, LLC, 521 F.

App’x 453, 460 (6th Cir. 2013) (holding that a material issue of fact existed as to whether party was owner of

copyrights where party’s consulting agreement gave the other party “ownership of his ‘ideas, inventions,

improvements, and developments,’ as well as signing shop drawings bearing the ‘sole property of [the other party]’

legend”); Johnson v. Storix, Inc., 716 F. App’x 628, 631 (9th Cir. 2017) (holding that whether the transfer of “all

assets” included copyrights was an issue properly for the jury to decide).

Nos. 18-2397/2398 Evoqua Water Techs. v. M.W. Watermark, et al. Page 14

fairly pointed out that “there is a difference between assigning information and data and

assigning ownership in the work embodying that information and data.” (Id.) Thus, according to

the district court, the transfer could include only free-floating data and information, unaffixed to

a document. However, “information and data” could be interpreted to include the information

and data as it is found in documents. That interpretation is supported by Section 2.2’s provision

that if within 24 months after the sale, SWT/Evoqua needed “a copy of a part of the Transferred

Know-how for the operation of the Business,” Siemens would provide “such copy.” (Id. at PID

784 (emphasis added).) That provision suggests that the transfer includes information and data

in physical mediums. Further, although transferring ownership in a copy of work is not

tantamount to transferring ownership in the copyright to that work, here the agreement could be

reasonably interpreted as transferring the copyright as well. The language that Siemens

“assign[s]” the “information and data” is susceptible of the interpretation that information and

data are transferred in full, including all rights associated with that information and data.

The district court next interpreted the words “irrespective as to whether they are protected

by copyrights or not” in Section 2.2 to suggest that the copyrights were not the object of the

assignment. To be sure, that language could be read to suggest that the “information and data”

are separate from any copyrights covering them. But it is also susceptible of another reading:

the Carve-Out Agreement transfers both information that is copyrighted (and those copyrights)

and information that is not copyrighted.

The district court next focused on the illustrative list of “Know-how”—“business and

trade secrets, technical and business information and data, inventions, experience and expertise.”

(R. 48-1, PID 783.) The district court concluded that those items “may each be a form of

intangible property, but they are not copyrights.” (R. 217, PID 8173.) However, one could

reasonably view those terms as illustrating the broad scope of “Know-how.” Each term is fairly

broad and general, and the list does not necessarily suggest that copyrights to information as it is

presented in mediums such as product manuals are not included in know-how.

Contrasting the different transfer language used in Section 2.2 (“assigns”) with the

language used in Section 1.1 (“transfers . . . all of Seller’s right, title, and interest” in non-IP

assets), the district court perceived that the “transfer of all right, title and interest” in Section 1.1

Nos. 18-2397/2398 Evoqua Water Techs. v. M.W. Watermark, et al. Page 15

is broader than the “assign[ment]” of know-how in Section 2.2. But because both sections use

the word “sells,” and “assign” could mean to convey in full, the mere difference in language

between Section 1.1 and Section 2.2 does not necessarily mean that fewer ownership rights were

conveyed in the latter section. The district court also pointed out that Section 1.1.4, transferring

“Seller’s books and records, files and other documents and data (including written and electronic

training materials utilized to train the employees of the Business),” explicitly excludes “any other

intellectual property rights.” (R. 48-1, PID 780.) The district court considered Section 1.1.4 a

“natural place to transfer the copyrights in the manuals and presentations by earlier entities.”

(R. 217, PID 8173.) However, the agreement clearly contemplates separate sections for

transferring non-intellectual-property assets (Section 1) and intellectual-property (Section 2), so

it makes sense that copyrights would not be transferred in the section selling assets other than

intellectual property.

Finally, the district court noted that Section 2.3 assigned software, a copyrightable asset,

and reasoned that it undercut Evoqua’s contention that Section 2.2 assigned all copyrights.

However, the separate section for Software does not render Evoqua’s construction unreasonable.

Section 2.2 explicitly excludes “Software” from the definition of “Know-how,” and one could

reasonably construe Section 2.2 as transferring all copyrights in the “Know-how,” and Section

2.3 transferring copyrights to “Software.”

In sum, even taking all the reasons together, the Carve-Out Agreement does not

unambiguously exclude the transfer of copyrights. Rather, the language of the Carve-Out

Agreement is ambiguous. Accordingly, we may look outside the four corners of the contract to

determine the parties’ intent. GMG Capital Invs., 36 A.3d at 780. Evoqua presented affidavits

from representatives of SWT/Evoqua and Siemens in which both assert that it was the parties’

intent to sell the copyrights. Because the intent of the parties is a disputed issue of a material

fact, the district court improperly granted summary judgment on that basis.3

3Because we conclude that summary judgment to Watermark and Gethin was improper on the copyright

claim, we do not reach whether the district court properly denied Watermark’s and Gethin’s request for attorney’s

fees on this claim.

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In their motion for summary judgment, Watermark and Gethin raised other arguments

concerning the alleged deficiencies in the copyright registrations and the chain of title in the

copyrights before the sale to SWT. Because the district court decided only that the Carve-Out

Agreement did not transfer copyrights, we vacate the grant of summary judgment and remand to

allow the district court to consider the parties’ remaining arguments.

V. ATTORNEY’S FEES ON THE FALSE-ADVERTISING CLAIM

We review a district court’s decision whether to award attorney’s fees under the Lanham

Act for an abuse of discretion. See Johnson v. Jones, 149 F.3d 494, 503 (6th Cir. 1998). The

Lanham Act permits a court to award attorney’s fees to the prevailing party in “exceptional

cases.” 15 U.S.C. § 1117(a). “[A]n ‘exceptional’ case is simply one that stands out from others

with respect to the substantive strength of a party’s litigating position (considering both the

governing law and the facts of the case) or the unreasonable manner in which the case was

litigated.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 545, 554 (2014).4

District courts “determine whether a case is exceptional in the case-by-case exercise of their

discretion, considering the totality of the circumstances.” Id. (citation omitted)

The district court did not abuse its discretion in denying Watermark and Gethin attorney’s

fees on the false-advertising claim.

Evoqua’s copyright claim is not so weak as to be exceptional. A claim for false

advertising under the Lanham Act has the following elements:

1) the defendant has made false or misleading statements of fact concerning his

own product or another’s; 2) the statement actually or tends to deceive a

substantial portion of the intended audience; 3) the statement is material in that it

will likely influence the deceived consumer’s purchasing decisions; 4) the

advertisements were introduced into interstate commerce; and 5) there is some

causal link between the challenged statements and harm to the plaintiff.

Am. Council of Certified Podiatric Physicians & Surgeons v. Am. Bd. of Podiatric Surgery, Inc.,

185 F.3d 606, 613 (6th Cir. 1999) (citations omitted). Here, as the district court noted, both

4The Court in Octane Fitness was interpreting the Patent Act’s fee-shifting provision, but noted that the

Lanham Act’s fee-shifting provision was “identical.” 572 U.S. at 554.

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parties presented evidence on whether Watermark’s advertisement that it offered “OEM parts”

for Evoqua’s filter presses was deceptive, and the success of the claim at trial came down to a

credibility contest between the parties’ respective witnesses.

Watermark’s and Gethin’s arguments otherwise are unavailing. Watermark and Gethin

argue that Evoqua pursued the false-advertising claim even after the allegedly false advertising

had been removed. However, as the district court noted, Evoqua could still reasonably pursue

the claim if the false advertising had caused it damage or if it believed Watermark would falsely

advertise in this way again. Watermark and Gethin also argue that Evoqua pursued the claim to

trial knowing that it could not present evidence of damages and offered no evidence of damages

at trial. Yet, Evoqua presented evidence that Watermark’s use of “OEM” could tend to deceive

consumers and that the misrepresentation harmed Evoqua’s goodwill and reputation. See

Herman Miller, Inc. v. Palazzetti Imps. & Exps., Inc., 270 F.3d 298, 323 (6th Cir. 2001)

(“A plaintiff seeking injunctive relief for false advertising faces a lower standard of showing

only that the defendant’s representations about its product have a tendency to deceive

consumers.” (emphasis omitted) (internal quotation marks omitted)). Moreover, Evoqua could

pursue an injunction even if damages were hard to quantify. See Lexmark Int’l, Inc. v. Static

Control Components, Inc., 572 U.S. 118, 135 (2014); see also Am. Council, 185 F.3d at 618

(recognizing that a plaintiff could pursue injunctive relief on false-advertising claim).

The district court was also within its discretion to conclude that Evoqua’s litigation tactics

did not warrant a shift of fees. Watermark and Gethin argue that Evoqua’s discovery requests

were overbroad, but the district court reasonably found that those requests did not increase

Watermark’s and Gethin’s fees because they simply refused to comply with those requests. The

district court further did not err in concluding that although there was evidence that Evoqua

thought it could gain a competitive advantage by litigating against Watermark, Evoqua still

pursued its claims in good faith. Watermark and Gethin interpret some of Evoqua’s materials in

the most negative light, yet those materials could also indicate that Evoqua noticed that

Watermark was falsely advertising a relationship with Evoqua, and reasonably sought to enjoin

those acts and obtain damages.

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In sum, the district court did not abuse its discretion in denying Watermark’s and Gethin’s

request for attorney’s fees on Evoqua’s false-advertising claim.

VI. CONCLUSION

For the above reasons, we VACATE the district court’s dismissal of Count I of the

complaint; VACATE the district court’s grant of summary judgment on Evoqua’s copyright

claim; AFFIRM the district court’s denial of Watermark’s and Gethin’s request for attorney fees

on Evoqua’s false-advertising claim; and REMAND for further proceedings.

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_________________

CONCURRENCE

_________________

JOHN K. BUSH, Circuit Judge, concurring. I join the Majority Opinion in full as it

faithfully applies the case law of our circuit. However, I write separately to address one discrete

issue where I believe our precedents are wrong: specifically, the jurisdictional source of the law

governing interpretation of a consent decree entered by a federal court. As the Majority

explains, “[i]n the absence of controlling federal law, contractual interpretation of the Consent

Judgment is governed by Michigan Law”—i.e., state law. Majority Op. at 8 (citing Sault Ste.

Marie Tribe of Chippewa Indians v. Engler, 146 F.3d 367, 371 (6th Cir. 1998)). Because a

consent decree is viewed as a “contract,” our circuit interprets it using the state law from where it

was entered. See John B. v. Emkes, 710 F.3d 394, 407 (6th Cir. 2013) (“[W]e interpret the

consent decree as a contract. And under Tennessee law, which guides our interpretation of the

decree here, our primary goal is to give effect to the parties’ intent as expressed in the decree

itself.” (citations omitted)).

But, we should not forget that the consent decree here was entered by a federal court, and

that fact makes all the difference, for reasons I will explain. True, the Supreme Court has

described a consent decree as a “contract,” but it has never expressly held that state law controls

interpretation when the consent decree is from a federal court. See, e.g., United States v. ITT

Cont’l Baking Co., 420 U.S. 223, 236–37 (1975). I believe a federal rule of decision is

appropriate in these circumstances because a judicial decree is an integral component of the

Article III power to decide cases and controversies. Most significantly, applying federal law to

this case would warrant a change in its disposition: because the parties expressly contemplated

who was subject to the consent decree, federal law (unlike Michigan law) would allow only

those expressly identified entities to enforce this particular decree and would not imply that right

of enforcement to others, such as Evoqua Water Technologies, LLC (“Evoqua”), not identified

by name or description in the decree. In light of the above, this court would be wise to revisit its

precedents on whether to apply state or federal law to federal consent decree interpretation

issues.

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I.

To understand why federal law should govern interpretation of a consent decree entered

in a federal court, it is first important to understand what federal consent decrees are. They are

final judgments entered by federal courts. Though typically drafted by the parties, consent

decrees are judicially enforceable orders that draw upon the district court’s authority to provide

the parties with both equitable and legal remedies. See Rufo v. Inmates of Suffolk Cnty. Jail,

502 U.S. 367, 378 (1992); United States v. Swift & Co., 286 U.S. 106, 120 (1932); see also

Carson v. Am. Brands, Inc., 450 U.S. 79, 86–87 (1981). Indeed, to enter a proposed consent

decree, the “decree must spring from and serve to resolve a dispute within the court’s subject

matter jurisdiction . . . . [It] must come within the general scope of the case made by the

pleadings, and must further the objectives of the law upon which the complaint was based.”

Local No. 93 Int’l Ass’n of Firefighters, AFL-CIO C.L.C. v. City of Cleveland, 478 U.S. 501, 525

(1986) (citations omitted) (internal quotation marks omitted).

In this respect, a consent decree is dissimilar to an agreement to settle litigation, in which

only the litigants have a say and need not meet all the criteria for entry of a court judgment. Cf.

Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 381–82 (1994) (observing that

“automatic jurisdiction over [settlement agreement] contracts is in no way essential to the

conduct of federal-court business”). Unlike a settlement agreement, a consent decree entered in

federal district court draws upon the Article III power, and the decree invokes the court’s

continuing jurisdiction to ensure compliance with its order until the parties have fulfilled their

obligations. See Williams v. Vukovich, 720 F.2d 909, 920 (6th Cir. 1983); see also Bergman v.

Mich. State Transp. Comm’n, 665 F.3d 681, 683–84 (6th Cir. 2011). A settlement agreement

lacks these features because it is only a contract between parties made in consideration of the

dismissal of the federal lawsuit. See Kokkonen, 511 U.S. at 381. Moreover, unless the parties

agree to embody the settlement agreement in the district court’s order, “enforcement of the

settlement agreement is for state courts” as a matter of state contract law. Id. at 382.

Federal consent decrees, by their nature, are therefore more than just contractual

arrangements between litigants: they are also acts of Article III power. Swift & Co., 286 U.S. at

115 (“We reject the argument for the intervenors that a decree entered upon consent is to be

Nos. 18-2397/2398 Evoqua Water Techs. v. M.W. Watermark, et al. Page 21

treated as a contract and not as a judicial act.”). It is true that the parties’ bargained-for

agreement “serves as the source of the court’s authority” to enter the decree,1 but a consent

decree is more than just an entry of an order acknowledging the parties’ settlement. See Local

No. 93 Int’l Ass’n of Firefighters, 478 U.S. at 522 (citing United States v. Ward Baking Co., 376

U.S. 327 (1964)); United States v. Armour & Co., 402 U.S. 673, 681 (1971). It is a judicial act

that results in a final judgment in the case, which in turn, requires the district court to participate

as an additional actor, along with the parties, to resolve the case. See Buckhannon Bd. & Care

Home, Inc. v. W. Va. Dep’t of Health & Human Res., 532 U.S. 598, 604 n.7 (2001) (“Private

settlements do not entail the judicial approval and oversight involved in consent decrees.”).

By entering the consent decree as a final order, the “[j]udicial approval of a settlement

agreement places the power and prestige of the court behind the compromise struck by the

parties.” Williams, 720 F.2d at 920. In light of this, the district court has an “independent,

jurdicial interest[]” in entering consent decrees “beyond the remedial ‘contractual’ terms agreed

upon by the parties.” EEOC v. Local 580, Int’l Ass’n of Bridge, Structural & Ornamental

Ironworkers, Joint Apprentice-Journeyman Educ. Fund, 925 F.2d 588, 593 (2d Cir. 1991).

As this court has explained, a consent decree may not be entered if the agreement “is

illegal, a product of collusion, or contrary to the public interest.” Williams, 720 F.2d at 920

(citations omitted). In other words, the district court “is more than ‘a recorder of contracts’ from

whom parties can purchase injunctions; it is an organ of government constituted to make judicial

decisions.” Local No. 93, Int’l Ass’n of Firefighters, 478 U.S. at 525 (internal quotation

omitted); see also In re Pearson, 990 F.2d 653, 658 (1st Cir. 1993) (“Put bluntly, ‘parties cannot,

by giving each other consideration, purchase from a court of equity a continuing injunction.’”

(quoting Sys. Fed’n No. 91, Ry. Emps.’ Dep’t v. Wright, 364 U.S. 642, 651 (1961))). Thus, the

judicial character of the district court’s consent decree must not be overlooked, even if the

underlying issue involves a matter of the consent decree’s interpretation.

1This court has described the nature of the bargain underlying a consent decree as follows: “The defendant

has given up the possibility of prevailing on the merits in exchange for granting certain limited affirmative relief to

plaintiffs” and the “[p]laintiffs have exchanged their right to obtain adjudicatory relief.” Williams v. Vukovich, 720

F.2d 909, 920 (6th Cir. 1983).

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II.

Following the district court’s entry of the consent decree, parties may sometimes dispute

the nature of their obligations under the consent decree. Should the dispute require interpreting a

consent decree’s language, the Supreme Court has provided lower courts with interpretive rules

to guide their analysis of that language. See Blue Chip Stamps v. Manor Drugs Stores, 421 U.S.

723, 750 (1975); ITT Cont’l Baking Co., 420 U.S. at 236; Armour, 402 U.S. at 682.

As explained below, the reasoning of this Supreme Court precedent strongly points towards

application of federal law to interpret questions concerning federal consent decrees.

A.

Per the Supreme Court’s instruction, we are to interpret the text of the document and

nothing further: “[T]he scope of a consent decree must be discerned within its four corners, and

not by reference to what might satisfy the purposes of one of the parties to it. Because the

defendant has, by the decree, waived his right to litigate the issues raised, a right guaranteed to

him by the Due Process Clause, the conditions upon which he has given that waiver must be

respected, and the instrument must be construed as it is written, and not as it might have been

written had the plaintiff established his factual claims and legal theories in litigation.” Armour,

402 U.S. at 682; accord ITT Cont’l Baking Co., 420 U.S. at 236 n.10.

In fashioning this interpretative rule, the Court holds that lower courts must be interpreted

with the following understanding of consent decrees in mind:

Consent decrees are entered into by parties to the case after careful

negotiation has produced agreement on their precise terms. The parties waive

their right to litigate the issues involved in the case and thus save themselves the

time, expense, and inevitable risk of litigation. Naturally, the agreement reached

normally embodies a compromise; in exchange for the saving of cost and

elimination of risk, the parties each give up something they might have won had

they proceeded with the ligation. Thus the decree itself cannot be said to have a

purpose; rather the parties have purposes, generally opposed to each other, and the

resultant decree embodies as much of those opposing purposes as the respective

parties have the bargaining power and skill to achieve.

Armour, 402 U.S. at 681–82.

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Therefore, it is the actual text of the consent decree, not what one party argues is its

purpose after the fact, that governs. Id. And that text, the Supreme Court has stated, is to be

interpreted employing certain “aids to construction” used in contract law. ITT Cont’l Baking

Co., 420 U.S. at 238. “Such aids include the circumstances surrounding the formation of the

consent order, any technical meaning words used may have had to the parties, and any other

documents expressly incorporated in the decree.” Id. Also, any construction of the consent

decree, including any proposed modification of the consent, must be supported by the text of the

instrument. See United States v. Atl. Ref. Co., 360 U.S. 19, 23 (1959); Hughes v. United States,

342 U.S. 353, 357 (1952).

Lastly—and this is a point particularly important to this case—there is “well-settled line

of authority from [the] Court establish[ing] that a consent decree is not enforceable directly or in

collateral proceedings by those who are not parties to it even though they were intended to be

benefited by it.” Blue Chip Stamps, 421 U.S. at 750 (citing Armour, 402 U.S. at 673; Buckeye

Coal & Ry. Co. v. Hocking Valley Ry. Co., 269 U.S. 42 (1925)). The corollary to this rule of

federal law is that a federal consent decree may only be enforced by the parties who are

explicitly identified or described in the decree. Cf. id.; see also Armour, 402 U.S. at 673.

B.

The above-stated rules of federal consent-decree interpretation have been stated by the

Supreme Court as principles of federal common law.2 The Supreme Court’s directive in this

regard is wholly consistent with, if not compelled by, our nation’s constitutional structure. This

is because interpreting federal judgments is a matter beyond the State legislatures’ competence

and is a matter incidental to the judiciary’s core constitutional function as set forth in Article III

of the Constitution: to issue judgments in all cases and controversies in matters within its limited

subject-matter jurisdiction.

2By “federal common law,” I refer to “federal rules of decision whose content cannot be traced directly by

traditional methods of interpretation to federal statutory or constitutional commands,” Hart & Wechsler’s: The

Federal Courts and the Federal System 635 (Richard H. Fallon, Jr., et al., 7th ed. 2015), which has the force and

effect of positive federal law. Boyle v. United Techs. Corp., 487 U.S. 500, 504 (1988); see also Atherton v. FDIC,

519 U.S. 213, 218 (1997).

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As the Supreme Court made clear in Erie Railroad Co. v. Tompkins, “[t]here is no federal

general common law.” 304 U.S. 64, 78 (1938). Nonetheless, the Court has recognized

“enclaves of federal judge-made law which bind the States.” Banco Nacional de Cuba v.

Sabbatino, 376 U.S. 398, 426 (1964). As the Court explained, “federal common law exists only

in such narrow areas as those concerned with the rights and obligations of the United States,

interstate and international disputes implicating the conflicting rights of States or our relations

with foreign nations, and admiralty cases.” Tex. Indus. v. Radcliff Materials, Inc., 451 U.S. 630,

641 (1981) (footnotes omitted).

Admittedly, the boundaries of federal common law enclaves are sometimes less than

clear. The Court has instructed that federal common law applies to a dispute involving “uniquely

federal interests,” between two private parties because “the interests of the United States will be

directly affected.” Boyle v. United Techs. Corp., 487 U.S. 500, 504, 507 (1988). When an area

of law presents a uniquely federal interest, the creation of federal common law is “limited to

situations where there is a ‘significant conflict between some federal policy or interest and the

use of state law.’” O’Melveny & Myers v. FDIC, 512 U.S. 79, 88 (1994) (quoting Wallis v. Pan

Am. Petroleum Corp., 384 U.S. 63, 68 (1966)); see also Kamen v. Kemper Fin. Servs. Inc.,

500 U.S. 90, 98 (1991) (holding that there is a presumption to apply state law “in areas in which

private parties have entered legal relationships with the expectation that their rights and

obligations would be governed by state-law standards”).

The Court’s heeding to limit the application of “judge-made” federal rules derives from

the constitutional concerns raised in Erie. See Bradford R. Clark, Federal Common Law:

A Structural Reinterpretation, 144 U. Pa. L. Rev. 1245, 1265 (1996). Erie’s holding rests on two

fundamental constitutional principles: federalism and separation of powers. See Lindenberg v.

Jackson Nat’l Life Ins. Co., 919 F.3d 992, 996 n.4 (6th Cir. 2019) (Bush, J., dissenting from the

denial of rehearing en banc). As a matter of federalism, federal courts “unconstitutionally invade

‘the autonomy and independence of the States’ whenever they unilaterally apply a rule of their

own choosing in lieu of substantive state law—that is, in the absence of a controlling federal

constitutional, statutory, or treaty provision requiring application of that rule.” Clark, supra, at

1259 (quoting Erie, 304 U.S. at 78). And as for the second constitutional principle presented in

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Erie, the “[o]pen-ended federal common lawmaking by courts enables the judiciary to evade the

safeguards inherent in” the Constitution’s procedural scheme for fashioning positive federal law.

Id. at 1269; Nw. Airlines, Inc. v. Transp. Workers Union of Am. AFL-CIO, 451 U.S. 77, 95

(1981) (“[F]ederal courts, unlike their state counterparts, are courts of limited jurisdiction that

have not been vested with open-ended lawmaking powers.”).

Assuming an area of law warrants a uniform federal law, these above-mentioned

constitutional concerns are addressed if “the rule in question . . . concern[s] matters that fall

beyond the legislative competence of the states” and must “be necessary to further some aspect

of the constitutional scheme.” Clark, supra, at 1271; see generally id. at 1271–75. The first step

is rather intuitive: any rule fashioned by a federal authority involving a matter beyond the

legislative competence of the States does not offend the federalism concerns expressed in Erie.

Id. at 1274. And the second inquiry asks, “whether judicial application of the rule in question

constitutes either the application of rules implied directly from the constitutional structure, or

adherence to customary rules of decision necessary to implement a basic feature of the

constitutional scheme.” Id.

The power of Article III courts to issue judgments and issue their interpretation of other

federal courts’ judgments is without question a matter involving unique federal interests. See

Atherton v. FDIC, 519 U.S. 213, 218–19 (1997); cf. Semtek Int’l Inc. v. Lockheed Martin Corp.,

531 U.S. 497, 508 (2001). Moreover, the interpretation of a federal court’s consent decree is a

matter beyond the State legislatures’ competence. Cf. Fortin v. Comm’r of Mass. Dep’t of Pub.

Welfare, 692 F.2d 790, 798 (1st Cir. 1982) (explaining that “[t]here is no state court to which the

question of interpreting the decree could be certified or to whose authority and expertise the

federal court could defer by abstaining”).

A fundamental aspect of our system of government is the federal judicial department

established under Article III with its power to decide cases and controversies. Importantly, at the

irreducible core of Article III authority, is the power to enter final judgments. See Gordon v.

United States, 117 U.S. 697, 702 (decided 1864, Opinion printed in Appendix 1885); see also

Young v. United States ex rel. Vuitton et Fils S.A., 481 U.S. 787, 816 (1987) (Scalia, J.,

concurring in the judgment) (observing that the role of a federal judge is “to decide, in

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accordance with law, who should prevail in a case or controversy”). This constitutional power

and core function leave no room for state law to interpret the judgments entered by federal

courts.

“Article III of the Constitution establishes an independent Judiciary, a Third Branch of

Government with the ‘province and duty . . . to say what the law is’ in particular cases and

controversies.” Bank Markazi v. Peterson, 136 S. Ct. 1310, 1322 (2016) (quoting Marbury v.

Madison, 5 U.S. (1 Cranch) 137, 177 (1803)). Incident to that power, Congress “may not usurp a

court’s power to interpret and apply the law to the circumstances before it.” Id. (cleaned up);

accord City of Arlington v. FCC, 569 U.S. 290, 297 (2013). States lack the power to usurp a

federal court’s Article III power as well. Cf. Hanna v. Plumer, 380 U.S. 460, 472–73 (1965);

Sibbach v. Wilson & Co., 312 U.S. 1, 13–14 (1941). “[T]he Framers crafted this charter of the

judicial department with an expressed understanding that it gives the Federal Judiciary the

power, not merely to rule on cases, but to decide them, subject to review only by superior courts

in the Article III hierarchy.” Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 218–19 (1995).

Given that the federal judiciary department’s inherent function is to issue final judgments, it

follows that federal judges have the power to interpret their judgments using the law of the

jurisdiction from which they derive their power. This federal judicial power includes the

authority to determine who or what is bound to the court’s judgments.3 Cf. Restatement (second)

of Judgments § 87 cmt. a (“The source of the federal courts’ authority is in Articles I and III of

the Constitution. It is therefore appropriate to hold that, at least in the absence of some other

provision by Congress, the effects of a federal judgment are a legal implication of those

provisions.”).

Applying state law to the interpretation of federal consent decrees sharply conflicts with

this Article III power of a federal court over its judgments. Cf. Cincom Sys., Inc. v. Novelis

Corp., 581 F.3d 431, 436 (6th Cir. 2009). The unflinching and mechanical use of state law

to interpret consent decrees results in the quintessential act of a federal government

3This inherent function is analogous to the federal judiciary’s “inherent power, governed not by rule or

statute but by the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and

expeditious disposition of cases.” Link v. Wabash R.R. Co., 370 U.S. 626, 630–31 (1962) (internal quotation marks

omitted); see also In re Univ. of Mich., 936 F.3d 460 (6th Cir. 2019).

Nos. 18-2397/2398 Evoqua Water Techs. v. M.W. Watermark, et al. Page 27

department—a federal court’s final judgment—being governed by the vagaries of the law of a

different jurisdiction altogether, namely, that of a state government.4 In contrast, application of

federal law ensures that this chief function of a federal court is governed by the law of the

jurisdiction from which that court derives its authority.

Moreover, applying federal common law to this area is consistent with the Supreme

Court’s conclusion in Semtek, which was that the effect of a federal court’s judgment in

subsequent cases is a matter for the courts “to determine the appropriate federal rule.” 531 U.S.

at 508. Indeed, as a matter of equity, it would only be appropriate for a consent judgment that

draws upon the court’s equitable powers, to be governed by the federal common law. See Burrill

v. Locomobile Co., 258 U.S. 34, 38 (1922) (recognizing that “the laws of the States are the rules

of decision” in common law actions, but the court’s equity “follows its own rules”); see also

Guar. Tr. Co. of N.Y. v. York, 326 U.S. 99, 105 (1945); Restatement (second) of Judgments § 87

cmt. a (“The few cases in which the federal adjudication was a decree in equity, as distinct from

a judgment at law, elicited no special notice of the problem of governing law.”).

Although consent decree interpretation should be a matter of federal common law, that

does not mean that state law cannot inform the appropriate rule. Given that the States

predominate in matters relating to contract law, it would be natural to resort to their principles of

contract law should a need arise for a new interpretive rule. Cf. John Wiley & Sons, Inc. v.

Livingston, 376 U.S. 543, 548 (1964) (“State law may be utilized so far as it is of aid in the

development of correct principles of their application in a particular case, but the law which

ultimately results is federal.” (citations omitted)); Semtek, 531 U.S. at 508 (“This is . . . a classic

case for adopting, as the federal prescribed rule of decision, the law that would be applied by

state courts in the State in which the federal diversity court sits.”). But, reliance on state

4For an illustrative, historic example of the negative implications that could stem from the “mechanical

application” of state law in an area where federal common law would be more appropriate, see Hanna v. Plumer,

380 U.S. 460, 472–73 (1965) (“One of the shaping purposes of the Federal Rules is to bring about uniformity in the

federal courts by getting away from local rules. This is especially true of matters which relate to the administration

of legal proceedings, an area in which federal courts have traditionally exerted strong inherent power, completely

aside from the powers Congress expressly conferred in the Rules. The purpose of the Erie doctrine . . . was never to

bottle up federal courts with ‘outcome-determinative’ and ‘integral-relations’ stoppers—when there are ‘affirmative

countervailing (federal) considerations’ and where there is a Congressional mandate . . . supported by constitutional

authority.’” (citation omitted)).

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common law for guidance in fashioning the federal common law of consent decrees should not

be mistaken for an abdication of federal law as the governing law for the interpretation of a

federal court’s consent decree.

III.

A.

In recognizing consent decree interpretation rules, the Supreme Court has never

instructed the lower federal courts to apply state law. Rather, as explained above, the Supreme

Court impliedly reserved federal common law for the interpretation of district court consent

decrees. See supra, Part II.A. The Sixth Circuit’s precedent reflected this understanding by

resorting to general principles of federal law to interpret consent decrees until this court’s

decision in Sault Ste. Marie Tribe of Chippewa Indians v. Engler, 146 F.3d 367 (6th Cir. 1998).

At no point prior to the Sault Ste. Marie decision did our circuit rely on the underlying state law

to supply the rule of decision to interpret a federal consent decree. Instead, we cited to United

States Supreme Court decisions applying federal law. See, e.g., Huguley v. Gen. Motors Corp.,

67 F.3d 129, 134–35 (6th Cir. 1995); United States v. Louisville & Jefferson Cty. Metro. Sewer

Dist., 983 F.2d 1070, 1993 WL 7516, at *3 (6th Cir. 1993) (unpublished table opinion); Lorain

NAACP v. Lorain Bd. of Educ., 979 F.2d 1141, 1148 (6th Cir. 1992); Thompson v.

Commonwealth of Ky. Dep’t of Corr., 780 F.2d 1023, 1985 WL 13958, at *1 (6th Cir. 1985)

(unpublished table opinion).

Sault Ste. Marie changed all that. After Sault Ste. Marie, the generalized principles of

federal contract law no longer provide the rule of decision in matters relating to a federal consent

decree’s interpretation in our circuit. 146 F.3d at 372. At issue in Sault Ste. Marie was whether

the Native American tribes subject to a consent decree were required to make payments to the

State of Michigan under the terms of a consent decree, that required the tribes to make payments

if they held the “exclusive right to operate” electronic games of chances in Michigan. Id. at 369.

At the invitation of the parties’ briefing, the Sault Ste. Marie court held that “[b]ecause this

contract was formed in the State of Michigan, it is interpreted under Michigan law.” Id. at 372.

The Sault St. Marie court did not follow the Court’s interpretative guidelines set forth in Armour

Nos. 18-2397/2398 Evoqua Water Techs. v. M.W. Watermark, et al. Page 29

and ITT Continental Baking Co. and offered no explanation for ignoring the applicable Supreme

Court precedent.

Given the Sault Ste. Marie court’s observation that “[c]onsent decrees and judgments are

binding contracts,” the court concluded that state law should govern the interpretation of a

federal consent judgment because state law is used to interpret contracts. 146 F.3d at 372

(citation omitted). The court therefore resorted to principles of Michigan contract law to

determine whether the district court erred in concluding that the consent decree was

unambiguous and did not need to consider extrinsic evidence to interpret the ambiguous wording

in the consent decree. See id. at 373–74.

Based on this precedent, this court must now resort to state contract law to interpret

federal consent decrees. See e.g., John B., 710 F.3d at 407; G.G. Marck & Assocs., Inc. v. Peng,

309 F. App’x 928, 934 (6th Cir. 2009) (“A consent judgment is treated as a contract formed and

interpreted under the law of the state in which it was formed.” (citation omitted)); Waste Mgmt.

of Ohio, Inc. v. City of Dayton, 169 F. App’x 976, 988–89 (6th Cir. 2006).5 However, neither

Sault Ste. Marie, nor subsequent cases applying that decision, have ever addressed the tension

between application of state law to federal consent decree interpretation and the Supreme Court’s

reasoning in Armour and ITT Continental Baking Co. Given this court’s abrupt departure from

the Supreme Court’s interpretative rules for consent decrees, and this court’s inconsistent

approach post-Sault Ste. Marie, I question whether Sault Ste. Marie was rightly decided.6

I respectfully submit that the better course for our court would be to return to the reasoning

offered by this court’s decisions pre-Sault Ste. Marie. In doing so, we would reconcile our

precedent with the Supreme Court’s approach to interpreting federal consent decrees, and we

would discontinue applying state law within an area it should not govern.

5I would also note that at least in one instance, this court has not applied state law to interpret the

underlying consent decree as Sault Ste. Marie requires. See Nat’l Ecological Found. v. Alexander, 496 F.3d 466,

477–81 (6th Cir. 2007).

6I do not question whether the Sault Ste. Marie court interpreted the consent decree in the underlying case

correctly. I only question its underlying conclusion that state law governs the interpretation of consent decrees.

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B.

I would also note that our court’s attention to this issue is warranted because there is a

divide among the majority of our sister circuits. Compare Doe v. Pataki, 481 F.3d 69, 76–77

(2d Cir. 2007) (no resort to state law); Pure Country, Inc. v. Sigma Chi Fraternity, 312 F.3d 952,

958–59 (8th Cir. 2002) (same); Sierra Club v. Meiburg, 296 F.3d 1021, 1029–32 (11th Cir.

2002) (same); United States v. W. Elec. Co., 12 F.3d 225, 230–31 (D.C. Cir. 1993) (same);

Fortin, 692 F.2d at 798–99 (same);7 Fox v. U.S. Dep’t of Hous. & Urban Dev., 680 F.2d 315,

319–20 (3d Cir. 1982) (same), with Frew v. Janek, 780 F.3d 320, 327–28 n.28 (5th Cir. 2015)8

(applying state contract law to resolve consent decree interpretation); Collins v. Thompson,

8 F.3d 657, 659 (9th Cir. 1993) (same); Sinclair Oil Corp. v. Scherer, 7 F.3d 191, 194 (10th Cir.

1993) (same); United States v. City of Northlake, 942 F.2d 1164, 1167 (7th Cir. 1991) (same).

Those circuits that apply state law to resolve an interpretative issue relating to consent

decrees have reasoned, like our court in Sault Ste. Marie, that state law applies because a

“judicially approved consent decree, like a settlement agreement, is essentially a contract for

purposes of construction.” City of Northlake, 942 F.2d at 1167 (citation omitted); see also Frew,

780 F.3d at 328 n.28. While that proposition might be true at its most basic level, these circuits

have not satisfactorily explained why state law supplies the rule of decision for a quintessential

act of the federal government—an Article III court’s final judgment—especially considering the

7It is important to highlight one aspect of the First Circuit’s reasoning in Fortin. There, the appellant

argued that the district court erred in failing to certify a question to the Massachusetts Supreme Court to address

whether the district court’s remedy was appropriate under the consent decree in light of state law. 692 F.2d at 798.

The First Circuit rejected the appellant’s argument, reasoning that “[i]t makes no difference if state law was unclear,

because the court was interpreting the consent decree, not the underlying law,” and “[t]here is no state court to

which the question of interpreting the decree could be certified or to whose authority and expertise the federal court

could defer by abstaining.” Id. In other words, state law did not supply a rule of decision regarding the district

court’s interpretation of its own consent decree. Considering this observation, it follows that the federal law of

interpretation, using the interpretive principles established by the Supreme Court, should apply.

8The Fifth Circuit has only recently joined those circuits that apply state law to interpret consent decrees.

Prior to its decision in Frew, there is no indication that the Fifth Circuit relied upon state-law contract principles to

interpret consent decrees. See, e.g., Dean v. City of Shreveport, 438 F.3d 448, 460–61 (5th Cir. 2006); United States

v. Chromalloy Am. Corp., 158 F.3d 345, 349 (5th Cir. 1998); N. Shore Labs. Corp. v. Cohen, 721 F.2d 514, 519–20

(5th Cir. 1983), overruled on other grounds as recognized by Pebble Beach Co. v. Tour 18 I Ltd., 155 F.3d 526, 549

n.17 (5th Cir. 1998).

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Supreme Court’s interpretation rules in Armour and ITT Continental Baking Co. that seem to

favor applying federal law in these circumstances. See supra, Part II.A.

IV.

If this court were to apply federal law to interpret the consent decree in this case, the

outcome would likely be different. Based upon the four corners of the consent decree before us,

it does not appear that the parties intended for U.S. Filter/JWI Inc.’s successors-in-interest and

assigns to enforce the consent decree.

Under Michigan contract law, a third-party beneficiary may sue under a breach-of-

contract theory “when the promisor undertakes an obligation ‘directly’ to or for the person.”

Koenig v. City of South Haven, 597 N.W.2d 99, 104 (Mich. 1999); accord Kammer Asphalt

Paving Co. v. E. China Twp. Schs., 504 N.W.2d 635, 642 (Mich. 1993); see also Ragnone v.

Charter Twp. of Fenton, No. 267530, 2006 WL 3103043, at *2 (Mich. Ct. App. Nov. 2, 2006)

(per curiam) (applying contract law’s third-party beneficiary doctrine to consent decrees issued

by Michigan trial courts). In essence, Michigan contract law authorizes third parties (i.e., those

lacking privity in contract), in limited circumstances, to enforce a contract between the original

bargaining parties (or their assignees), even if those beneficiaries are not explicitly referenced in

the contract (or, in the present case, the consent decree). In the context of federal consent

decrees, however, the Supreme Court, as noted, does not permit this. See Blue Chip Stamps,

421 U.S. at 750 (“[A] consent decree is not enforceable directly or in collateral proceedings by

those who are not parties to it even though they were intended to benefit by it.”); accord Vogel v.

City of Cincinnati, 959 F.2d 594, 598 (6th Cir. 1992).

Given the Supreme Court’s holding that the third-party beneficiary doctrine is

inapplicable to federal consent decrees, and the contrary rule that applies under Michigan

contract law, a critical choice must be made: does the Supreme Court’s precedent in Blue Chip

Stamps apply or does Michigan contract law apply? Because state law currently governs the

interpretation of federal consent decrees in our circuit, we must defer to state law (here,

Michigan’s law) in matters relating to the third-party beneficiary doctrine. This means that at

most, the Supreme Court’s decision in Blue Chip Stamps is persuasive authority. But as the

Nos. 18-2397/2398 Evoqua Water Techs. v. M.W. Watermark, et al. Page 32

Majority Opinion recognizes, the Supreme Court’s decision in Blue Chip Stamps is binding

authority. See Majority Op. at 8. As such, it is key evidence that federal district courts’

interpretation of consent decrees should be governed by federal common law and that the Blue

Chip Stamps rule—allowing enforcement of a consent decree by only a beneficiary that is

expressly identified—should apply here. See 421 U.S. at 750.

There also is a conflict between Michigan law and federal law regarding assignment of

contracts. Under Michigan law, contracts are freely assignable unless clearly restricted by the

language of the instrument. See Jawad A. Shah, M.D., PC v. State Farm Mut. Auto. Ins. Co.,

920 N.W.2d 148, 158 (Mich. Ct. App. 2018). Under federal law, consent decrees are not. See

Blue Chip Stamps, 421 U.S. at 750; Armour, 402 U.S. at 673. Similar to Michigan’s third-party

beneficiary doctrine, Michigan’s doctrine of assignability requires courts to construe the parties’

agreement beyond the four corners of the consent. As I explain above, the Supreme Court’s

interpretative rules do not permit this. See supra, Part II.A.

Both parties contemplated that M.W. Watermark LLC & Michael Gethin as well as their

successors-in-interest and assigns would be bound by the consent decree: the consent decree

permanently enjoined “M.W. Watermark LLC, and Michael Gethin and its, his or their

principals, agents, servants, employees, attorneys, successors and assigns” from using U.S.

Filter/JWI’s trademarks and other proprietary information. R. 1-7, PageID 358. However, there

is no such language regarding successors-in-interest and assigns regarding the enforcement rights

of U.S. Filter/JWI. Applying the federal common law rule of Blue Chip Stamps, the absence of

such language regarding U.S. Filter/JWI suggests that the parties did not intend for any

successors-in-interest or assigns of U.S. Filter/JWI, such as Evoqua, to enforce the consent

decree. This is because the question of “who” is subject to the consent decree is a term that is

expressly contemplated by the parties. See Armour, 402 U.S. at 680 (noting that a “successors

and assigns’ clause” would have aided the government’s argument that the company’s successors

and assigns were bound by the consent decree); see also Thatcher v. Kohl’s Dep’t Stores, Inc.,

397 F.3d 1370, 1375 (Fed. Cir. 2005) (holding that the absence of successors-in-interest or

assigns clause “is the functional equivalent of the parties’ express intent to exclude language of

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assignment” and “[e]qually as telling is that the consent judgment specifies successors and

assigns when listing” the defendant’s obligations).

Equally, the language used to describe M.W. Watermark LLC and Mark Gethin’s

obligations under the decree, further support the conclusion that, if federal common law applies,

the consent decree does not apply to U.S. Filter/JWI’s successors-in-interests or assigns. For

example, the decree states: “Defendants are ENJOINED, permanently, from using Plaintiff U.S.

Filter/JWI, Inc.’s (‘USF/JWI’s’) trademarks . . . and colorable imitations thereof and any other

designs, designations or indicia in a manner that is likely to cause confusion, mistake or

deception with respect to USF/JWI’s trademark rights.” R. 1-7. Even Evoqua concedes in its

reply brief: “The clear intention of the parties, evidenced by the fact that the consent decree was

characterized by the parties and the court as a Permanent Injunction, was to permanently and

forever enjoin Watermark from misusing the proprietary information, and infringing the

trademarks, of Evoqua’s predecessor.” Third Br. at 16 (emphasis added). In other words, the

obligations of M.W. Watermark, LLC and Mark Gethin are owed to U.S. Filter/JWI and not to

Evoqua.9

This reading of the consent decree—to limit the power of its enforcement to only the

entities that obtained and are explicitly identified or described in the decree—is not a far-fetched

reading in light of practical business considerations. M.W. Watermark LLC and Michael Gethin

may have agreed to the consent decree, in part, because they wanted it worded to ensure that

only the present parties against which they were litigating, U.S. Filter/JWI, had the power of

decree enforcement. As a practical, ex ante matter, there is a significant transactional reason for

a party subject to a consent decree to limit the scope of persons or entities that may enforce it.

As rightly observed by the district court:

9As indicated by the Majority Opinion, U.S. Filter/JWI has a long history of corporate mergers. See

Majority Op. at 2. For purposes of my analysis, I assume that the obligations of M.W. Watermark LLC and Mark

Gethin to U.S. Filter/JWI continue to its successors who originate by operation of a corporate merger: here, Siemens

Water Technologies Holding Corporation and Siemens Industry, Inc. Because Siemens Industry, Inc. sold its water

technologies business to Siemens Water Technologies LLC and Siemens Water Technologies was not a product

corporate merger, I do not consider the obligations of M.W. Watermark LLC and Mark Gethin under the consent to

decree to pass on to Siemens Water Technologies LLC.

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The party restrained by the injunction would likely be more inclined to impose

limits on who can enforce the injunction, and might try to negotiate a judgment

that limited enforcement to the original plaintiff. After all, a restrained party has

no control over who the original party selects as an assignee, and the restrained

party may be substantially more burdened by enforcement by an assignee than by

the original plaintiff.

R. 154, PageID 6979 n.7.

Therefore, for the purpose of avoiding the chilling of future parties’ willingness to enter

into transactions at the front-end, and in light of the importance of strongly favoring the

settlement of disputes with limited, or without, litigation at the back end, see Ford Motor Co. v.

Mustangs Unlimited, Inc., 487 F.3d 465, 469 (6th Cir. 2007), we should honor any parties’

bargain that sets a limit to the entities subject to the consent decree.

On the other hand, if there is a possibility that parties remain uncertain as to the precise

scope of the consent decree because of the underlying state contract law, as our current doctrine

compels, there is a risk that parties may avoid settlement activities out of fear that unknown

parties could arise out of the woodwork later to make claims under the consent decree. A certain

way to avoid this risk, and to promote uniformity in this area, would be through a consistently

applied federal rule. The consistent use of a federal rule of decision to interpret consent decrees

issued by federal courts would be the most pragmatic means in which to avoid this risk, and to

promote uniformity in this field of law. Thus, according to the Supreme Court’s interpretative

rules, we must look to the parties’ express language as used in the consent decree at issue to

settle the underlying controversy here: whether U.S. Filter/JWI’s successors-in-interest or

assignees may enforce this consent decree. This language seems to preclude enforcement by

such successors-in-interest and assigns because language giving them the right of enforcement

was not included in the consent decree.

Therefore, applying federal common law, the agreement would not be read to tether the

defendants’ obligations to the specific intellectual property regardless of who owns it. Instead,

the agreement, as written, reflects the parties’ intent to bind the defendants to the intellectual

property at issue when it is owned by U.S. Filter/JWI. To hold otherwise, would depart from the

parties’ intended arrangement. See Huguley, 67 F.3d at 133 (“A consent decree is a contractual

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agreement and, if the parties have agreed not to impose [enforcement by successors-in-interest or

assigns], the district court is not free to reform the contract to compensate one party for making a

bad bargain.”).

But, because we are bound by Sault Ste. Marie to apply state law to the consent decree

interpretation issues here, I agree with the Majority that Evoqua, as a successor-in-interest or an

assign of U.S. Filter/JWI, may enforce the consent decree, despite that there is no express

language in the decree giving Evoqua this right.

V.

This is a case whose outcome in part hinges on whether state law or federal law applies.

And although I would have applied federal law to resolve it, as that is the appropriate source of

law to supply the rule of decision for this case, our precedent requires us to apply state contract

law. Thus, I respectfully concur and further note that it may be prudent for the full court to

revisit this issue.