Opinion
Case No. 01 C 8698
October 18, 2002
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a).
Plaintiff O'Keefe-Henry Direct provides catalog consulting services to companies which sell products through catalogs. Plaintiff Peter Henry is the President and sole shareholder of O'Keefe-Henry. Defendant O'Keefe Direct Marketing, now known as O'Keefe Marketing Group, Inc., also provides catalog consulting services to companies which sell products through catalogs. Defendant Jean O'Keefe is the President and sole shareholder of O'Keefe Marketing.
Henry and O'Keefe founded O'Keefe-Henry in 1993. Each owned 50% of the stock of the company and shared equally in its net income. In January 1999, Henry unexpectedly informed O'Keefe that he wanted to own his own company and thus either wanted to buy her out or split the company.
On January 18, 1999, Henry, O'Keefe, and O'Keefe-Henry entered into an Agreement by which O'Keefe agreed to sell to Henry all of her shares in O'Keefe-Henry in return for $1000 — the amount she had paid for the stock at the time the corporation was founded. The Agreement provided that O'Keefe would transfer all of her shares in O'Keefe-Henry on December 31, 2000. It also provided that O'Keefe was to work on a schedule "as defined by O'Keefe" until December 31, 2000, when her employment would terminate.
The Agreement also provided that through December 31, 2000, O'Keefe and Henry would each receive 50% of the corporation's net income and dividends and would equally divide the net accounts receivable as of December 31, 2000 (as was, of course, her entitlement as 50% owner of the corporation). The Agreement also provided that on December 31, 2000, O'Keefe would receive title to a BMW automobile owned by O'Keefe-Henry.
The Agreement also contained the following provision:
Restrictive covenant: For a period of two (2) years after the date of her termination of employment from North Shore Direct, Inc. and O'Keefe-Henry Direct, Inc., O-Keefe shall not (a) solicit customers or clients of either North Shore Direct, Inc. and O'Keefe-Henry Direct, Inc. existing at the time of her employment with North Shore Direct, Inc. and O'Keefe-Henry Direct, Inc. terminates (b) disclose, make known, or divulge to any person or entity, either directly or indirectly, the names or addresses of any customers, clients, suppliers or other confidential or proprietary information of either North Shore Direct, Inc. or O'Keefe-Henry Direct, Inc.
Pursuant to the Agreement, O'Keefe set her own work schedule following January 18, 1999, and in September, 2000, O'Keefe stopped working altogether, though her employment, as provided by the agreement, did not terminate until December 31, 2000. During the period from January 1999 through December 2000, O'Keefe-Henry paid O'Keefe a total of approximately $600,000, representing her share of the net income and accounts receivable as provided by the Agreement. O'Keefe-Henry also transferred title to the BMW to O'Keefe as the Agreement provided.
As of December 31, 2000, O'Keefe-Henry had 19 clients, including among other J-P Cycles, Dickson Company, Elvis Presley Enterprises, Inc., and Anheuser-Busch.
Since its inception, O'Keefe-Henry has used the name "O'Keefe-Henry Direct" (sometimes with a hyphen, sometimes without) in connection with its catalog consulting services.
• The name appears on the letterhead of all correspondence from the company.
• Each of the corporation's professionals (currently 4) has business cards that bear the name.
• O'Keefe-Henry sends out 2500 direct mail packages per year that contain materials prominently featuring the name.
• O'Keefe-Henry regularly attends or participates in industry conferences — including the catalog conference and the Direct Marketing Association Conference — at which it distributes promotional material prominently bearing the company's name.
• O'Keefe-Henry is a member of professional organizations, such as the Direct Marketing Association and the Chicago Association of Direct Marketing, which list the company by the name "O'Keefe-Henry Direct" in their directories, newsletters, and other publications.
• O'Keefe-Henry regularly issues press releases about its business successes which prominently display and feature the company's name.
• O'Keefe-Henry produces and distributes to clients and potential clients various "giveaways" bearing the company's name.
• O'Keefe-Henry has held golf outing for clients and prospects at which it displays a banner bearing the company's name.
Since its inception, O'Keefe-Henry has spent approximately $100,000 (or an average of about $11,000 per year) promoting, listing and advertising its services and doing business under the name "O'Keefe-Henry Direct." O'Keefe-Henry's sales have grown from approximately $175,000 in 1993 to $1.5 million in 2001. Defendants have admitted in their answer to the complaint that O'Keefe-Henry provides consistently high quality services and enjoys valuable and extensive good will and a very favorable reputation in the catalog consulting business, and that O'Keefe-Henry has long standing relationships with many of its customers.
O'Keefe remained retired until approximately mid-October 2001, when she decided to get back in to the catalog consulting business and formed her own catalog consulting company. She chose the name "O'Keefe Direct Marketing" for the company and began conducting business under that name. O'Keefe included the name "O'Keefe" in the company name because it was her last name and she wanted prospective clients to know the company was her company. She testified that she chose the name "O'Keefe Direct Marketing" to distinguish that company from "O'Keefe-Henry Direct."
In March 2002, O'Keefe changed the name of her company to "O'Keefe Marketing Group, Inc." O'Keefe Marketing Group has been conducting business under that name in catalog consulting since that time. On company literature and letterhead, the word "O'Keefe" is displayed in the name "O'Keefe Marketing Group" more prominently than the other words.
There are thousands of potential customers for the types of catalog consulting services offered by O'Keefe-Henry and O'Keefe Marketing. Catalog consulting companies procure new clients in a variety of ways, including referrals from existing or past clients and others, and direct contact of entities which may be interested in catalog consulting services. It can take up to two years or more after initially contacting a potential new client before a catalog consulting company like O'Keefe-Henry or O'Keefe Marketing gets business from that source.
Beginning in October, 2001, O'Keefe and O'Keefe Marketing (at that time under the name "O'Keefe Direct Marketing") contacted numerous companies about providing catalog consulting services to them. O'Keefe and O'Keefe Marketing sent letters to contacts at companies with whom she had worked previously and to persons at companies who were members of the Chicago Association of Direct Marketing.
O'Keefe and O'Keefe Marketing also contacted several companies that were among the 19 clients at the time O'Keefe's employment at O'Keefe-Henry ended, including J-P Cycles, Dickson Company, Elvis Presley Enterprises, and Anheuser-Busch. O'Keefe spoke by telephone with several of these representatives, e-mailed some of them, and met with two of them.
On October 29, 2001, O'Keefe sent an e-mail to John Parham of J-P Cycles after failing to reach him by phone which, after some personal pleasantries, stated the following:
I've decided to come out of full retirement for now and start up a new company O'Keefe Direct Marketing, Inc. I'll be doing the same work as before, but just on my own. Unfortunately, I can't work for you . . . in the same capacity for another year, but I can talk with you and go from there. I thought if you were going to be in Chicago any time soon, I'd love to buy you lunch or whatever. If that isn't possible, perhaps I could come out to Anamosa and meet with you directly.
O'Keefe testified that her contacts with all of the O'Keefe-Henry clients were similar; she inquired if she could use them as references, and she told each of them that she could not work for them for approximately a year because of her agreement with Henry and O'Keefe-Henry.
In March 2002, O'Keefe sent letters to contacts at O'Keefe-Henry clients J-P Cycles and Dickson Company, but different people than the individuals she had contacted by phone or e-mail in October 2001. The letters announced O'Keefe's new company, asked the recipients to "let me know when you come upon a company looking for help from someone like me," and invited the recipients to contact O'Keefe. O'Keefe testified that the purpose of these letters was not to solicit business from those companies, but rather to persuade them to promote her to other companies. However, the letters also attached a "statement of my firm's capabilities for your use," which was a one-page promotional piece on O'Keefe Marketing, which ends with the statement: "We would like the opportunity to hear about your marketing needs and to explore how our services will assist you in furthering your goals."
The Chicago Association of Direct Marketing is an association of persons and companies involved in direct marketing in the Chicago area. O'Keefe sent in a "2002 Membership Directory Update Form" to the Association on behalf of O'Keefe Direct Marketing, Inc. That update form included the company's name and address, but no phone number. On page 89 of the Association's 2002 Membership Directory which was subsequently published, "O'Keefe Direct Marketing, Inc." is listed immediately above "O'Keefe-Henry Direct, Inc." However, the entry for O'Keefe Direct Marketing, Inc. sets forth a phone number registered to O'Keefe-Henry. No evidence was presented regarding how this error was made.
Henry and O'Keefe filed this lawsuit against O'Keefe and O'Keefe Marketing for breach of contract (Count), statutory trademark infringement and unfair competition under the Lanham Act (Count 3), violation of the Illinois Deceptive Trade Practices Act (Count 4), violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (Count 5), and common law trademark and trade name infringement and unfair competition (Count 6). Count 2 of the complaint has been voluntarily dismissed.
Count 1. To recover for breach of contract, a plaintiff must prove the existence of a contract between the plaintiff and the defendant, performance by the plaintiff of the conditions imposed on him by the contract, breach of the contract by the defendant, and the existence of damages as a result of the breach. See, e.g., Payne v. Mill Race Inn, 504 N.E.2d 193, 196 (Ill.App. 1987). Defendants have not attacked the enforceability of the restrictive covenant.
The only disputed issue is whether O'Keefe breached the restrictive covenant through her contacts with O'Keefe-Henry clients in October 2001 and March 2002. O'Keefe contends that her contacts did not violate the restrictive covenant because she informed each of them that could not work with them for the term of the restrictive covenant and she, in fact, has done no work for them during that period. O'Keefe also testified that she contacted O'Keefe-Henry clients only for references. Plaintiffs contend that O'Keefe's contacts constituted solicitations, though not for immediate work.
The process of winning new business in the catalog consulting field can require a lengthy period, sometimes a period of years. It involves, among other things, "getting your name in front of" the prospective client and making sure that the prospect knows your capabilities and skills.
Though the Agreement perhaps could have been a bit clearer, the Court finds that it was intended to prohibit solicitation for business. That is how the term "solicit" is and would have been commonly understood in this context. The Court is not persuaded that the parties intended any special meaning of the term that differs from this common understanding — such as a prohibition on all contact, no matter what the contact involves. Henry obviously understood how one gets business in his field, and if he had wanted to prohibit all contact, he could have insisted on having such a provision in the Agreement.
There is, in fact, a difference between "solicitation" and "contact," and the Agreement's prohibition on solicitation does not prevent all contact. See Profile Products LLC v. Soil Management Technologies, Inc., 15 F. Supp.2d 880, 885 (N.D.Ill. 2001). On the other hand, if a so-called contact was part an effort to solicit the recipient for business, then it is prohibited by the Agreement. Put another way, the Agreement prohibits those contacts that were part of or are fairly construed as an attempt to solicit an O'Keefe-Henry client for business.
Under Illinois law, which the parties agree applies in this case, "[w]hether a particular client contact constitutes a solicitation, depends upon the method employed and the intent of the solicitor to target a specific client in need of his services." Tomei v. Tomei, 602 N.E.2d 23, 26 (Ill.App. 1992). The law does not require an express request for business in order for a solicitation to occur. See Merrill Lynch Pierce Fenner Smith, Inc. v. Cross, 1998 U.S. Dist. LEXIS 3188, at *4 (N.D.Ill. 1998), in which Judge Kocoras concluded that a former Merrill Lynch broker who claimed that he "merely advised these [former] customers that he had resigned from Merrill Lynch," violated a non-solicitation covenant because he personally contacted the former customers who he knew had a need for his financial services and he informed them that he had joined a competitor.
A solicitation that occurs during a period covered by a non-solicitation agreement violates that agreement even if the person is only soliciting the recipient to give him business after the non-solicitation period expires. Tomei, 602 N.E.2d at 26. As the court stated in Tomei, "To exempt the solicitation of future business from the covenant would virtually nullify its very purpose." Id. at 27-28.
Tomei requires a court to look at the intent of the accused party. But the Court must also analyze how a particular contact was reasonably understood by the recipient. The law generally deems a person to have intended the natural and probable consequences of her actions. Thus if a recipient would have understood a particular contact as a solicitation for business, that suffices to show solicitation even absent direct evidence of the party's intent and even in the face of a denial of an intent to solicit.
After reviewing the evidence, the Court finds that O'Keefe in fact made some contacts that constituted prohibited solicitation for business. Her initial contact with J-P Cycles, as reflected in the e-mail of October 25, 2001, constituted a solicitation for business even though it included a disclaimer. The e-mail was fairly understood, and the Court believes it was intended, as a solicitation for a business relationship that would take effect following the prohibited period in the Agreement — and thus was a prohibited solicitation whether or not O'Keefe subjectively intended to violate the Agreement's terms. This is, in the Court's view, the only fair construction of the e-mail's statement that "I can't work for you in the same capacity for another year, but I can talk with you and go from there."
O'Keefe argues that she was just looking for references, but there is no indication of that whatsoever in the e-mail, and that explanation did not surface until after Henry complained that O'Keefe was violating the agreement. O'Keefe, to her credit, quickly followed up Henry's complaint with a complete disclaimer of solicitation for business, but that was entirely sufficient to unring the bell.
There is no written record of O'Keefe's October 2001 contacts with the other three O'Keefe-Henry clients (Anheuser-Busch, Dickson Co., and Elvis Presley Enterprises), but it can be fairly and reasonably inferred that they were similar to her initial contact with J-P Cycles, which the Court has found was a prohibited solicitation for future business.
O'Keefe's March 2002 letters that were sent to Dickson and J-P present a slightly closer case, but these nonetheless were also prohibited solicitations. They were not sent to the same people she had contacted earlier who had knowledge of her disclaimer; they included no disclaimer in the body of the letter; and they included a brochure that was itself a solicitation for business from the recipient. Even though the thrust of the letter was to ask the recipient to promote O'Keefe's new company with third parties, I think it was fairly understood and intended as a form of solicitation for the recipient's business as well.
In sum, O'Keefe violated the non-solicitation agreement in her October 2001 contacts with J-P Cycles, Dickson Companies, Anheuser-Busch, and Elvis Presley Enterprises, and her March 2002 contacts with J-P and Dickson.
Plaintiffs have not sustained any current injury, and they do not seek damages for the breach. Indeed, any actual injury would not be expected to surface until some point in the future, as the solicitations were for future business. The Court concludes, however, that plaintiffs have made a case for entry of an injunction prohibiting further solicitation of prohibited O'Keefe-Henry clients for the remainder of the period of the covenant, plus an extension of the covenant for a reasonable period with regard to the four clients that O'Keefe improperly solicited. See Loewen Group Intl, Inc. v. Haberichter, 1998 U.S. App. LEXIS 28514, at *21-22. The Court will therefore enter such an injunction and extend by twelve months the period in which defendants cannot solicit J-P Cycles, Dickson Companies, Anheuser-Busch, and Elvis Presley Enterprises for business — that is, through December 31, 2003. An extension of that amount is reasonable and sufficient to remove any taint arising from O'Keefe's breach of the Agreement. Plaintiffs are not entitled to an extension of the covenant with regard to other customers, as that would constitute an unfair windfall to them.
Count 3. The Lanham Act provides as follows:
Any person who, on or in connection with any goods or services . . . uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which — (A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person . . . shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.15 U.S.C. § 1125(a)(1). To succeed in a claim under § 1125(a), the plaintiff has to show that it has a prior, protectable trademark, and that the defendant's use of the mark is likely to cause confusion.
"O'Keefe-Henry Direct" is a descriptive mark and thus is protectable if it has acquired secondary meaning. See Platinum Home Mortgage Corp. v. Platinum Fin. Group, Inc., 149 F.3d 722, 727 (7th Cir. 1998). "A mark acquires secondary meaning when it has been used so long and so exclusively by one company in association with its products or services in that particular industry that the `word, term, name, symbol or device' has come to mean that those products or services are the company's trademark." Id. at 728 (quoting Gimix, Inc. v. JS A Group, Inc., 699 F.2d 901, 907 (7th Cir. 1983)). "To establish secondary meaning, a court may consider several factors to decide whether secondary meaning has been acquired or established: (1) the amount and manner of advertising; (2) the sales volume; (3) the length and manner of use; (4) consumer testimony; and (5) consumer surveys." Id.
Plaintiffs have failed to establish secondary meaning. There is an utter absence of consumer evidence, and the evidence regarding advertising, length of use, and sales volume is not sufficient to show secondary meaning.
Even if, however, plaintiffs had shown secondary meaning, they have failed to prove likelihood of confusion by defendants' use of the name "O'Keefe Marketing Group." In determining whether there is a likelihood of confusion, the Seventh Circuit has considered several factors to be important: (1) similarity of the marks; (2) similarity of the products; (3) area and manner of advertising and use; (4) degree of care likely to be used by consumers; (5) strength of plaintiff's mark; (6) whether any actual confusion exists; and (7) defendant's intent to palm off its goods as those of plaintiff. See, e.g., Ty, Inc. v. The Jones Group, Inc., 98 F. Supp.2d 988, 998 (N.D.Ill. 2000).
The name "O'Keefe Direct Marketing" is facially similar to O'Keefe-Henry Direct, but the name O'Keefe Marketing Group is not. Even though the latter includes the name "O'Keefe," the mark must be examined as a whole, and when that is done the name used by defendants since March 2002 lacks any significant similarity to the plaintiffs' name. The services produced by O'Keefe-Henry and O'Keefe Marketing are identical, and the area and manner of advertising and use of the "O'Keefe-Henry Direct" and the "O'Keefe Direct Marketing" and "O'Keefe Marketing Group" names are also essentially identical.
The evidence shows, however, that customers and potential customers use, and are likely to use, a significant degree of care in contacting and dealing with catalog consulting companies. No evidence has been presented reflecting that "O'Keefe-Henry Direct" is a strong mark in the catalog consulting industry, and there is no evidence of actual confusion. The evidence regarding the CADM directory fails on this score, absent any explanation of how the error occurred. Finally, there is no evidence suggesting an intent by O'Keefe to palm off her services as those of O'Keefe-Henry Direct. The Court found defendant's testimony in this regard to be credible.
On balance, plaintiff has failed to prove a likelihood of confusion between "O'Keefe-Henry Direct" and "O'Keefe Marketing Group." The Court therefore finds in favor of defendants on Count 3.
Counts 4 5. Counts 4 and 5 are claims under the Illinois Uniform Deceptive Trade Practices Act and the Illinois Consumer Fraud and Deceptive Practices Act. Plaintiffs' theory is that defendants' conduct violates these statutes based on the same grounds they urged violated the Lanham Act, and because defendants engaged in deceptive acts or practices. They have failed to prove either aspect of these claims for the reasons previously stated, and they do not argue that a breach of the non-solicitation covenant violates either of these statutes.
For these reasons, the Court finds in favor of defendants on Counts 4 and 5.
Count 6. Under the Illinois common law of unfair competition, a plaintiff must prove the same elements to recover for trademark infringement as under the Lanham Act: (1) the existence of a protectable trademark; and (2) a likelihood of confusion. For the reasons stated with regard to Count 3, plaintiffs have failed to prove their common law claim. The Court finds in favor of defendants on Count 6.
Conclusion
In sum, judgment is entered in favor of plaintiffs on Count 1, Count 2 has been voluntarily dismissed, and judgment is entered in favor of defendants on Counts 3 through 6. The Court directs the parties to prepare a proposed form of injunction on Count 1 and sets the case for a status hearing for entry of the injunction on October 25, 2002 at 9:30 a.m. Finally, on Count 1, Plaintiffs will be entitled to their attorneys' fees under the fee-shifting provision of the Agreement. However, the Court expects the fee award to constitute a fraction of the fees for the entire case, as plaintiffs did not prevail on their other claims, which were clearly distinct from the breach of contract claims. The Court waives compliance with N.D. Ill. LR 54.3 and directs plaintiff to submit a fee petition on or before November 15, 2002, defendant to respond by December 6, 2002, and plaintiff to reply by December 13, 2002.
The Court will rule by mail.