Summary
In R.J. Reynolds Tobacco Co. v. Premium Tobacco Stores, Inc., 99 C 1174, 2001 WL 526676 at *4-5 (N.D. Ill. Mar. 22, 2001) (Kocoras, J.), the court granted the plaintiff leave to amend its complaint two years after it had been filed because the "the facts supporting the proposed amendment overlapped with those supporting its existing claim."
Summary of this case from Clark v. Underwriters Management Corp.Opinion
99 C 1174
March 21, 2001
MEMORANDUM OPINION
This matter is before the Court on Plaintiffs' motion for leave to file a Third Amended Complaint. For the reasons set forth below, the motion is granted.
BACKGROUND
On February 23, 1999, Plaintiffs R.J. Reynolds Tobacco Company and GMB, Inc. (collectively, "Reynolds") filed this action against Defendant Cigarettes Cheaper! ("Cigarettes Cheaper") and other cigarette sellers and distributors (collectively, "Defendants") alleging violations of the Lanham Act and Illinois law in connection with Defendants' "grey market" sales of Salem, Winston, and Camel brand cigarettes manufactured by Reynolds for sale outside the United States. The original complaint included a claim for trademark dilution under § 43(c) of the Lanham Act, 15 U.S.C. § 1125(c). Paragraph 48 of the complaint set forth the specific allegations in support of the dilution claim:
48. By virtue of REYNOLDS's significant promotion and advertising of its WINSTON "new look" Trademark and packaging trade dress, and as evidenced by significant sales and distribution of cigarettes bearing the WINSTON "new look" Trademark and trade dress, said Trademark and trade dress are famous and became famous prior to the Defendants' acts complained of. Defendants' distribution and sale of "foreign sale only" WINSTON cigarettes in Trademarks and trade dress display that predated or does not correspond to the domestic WINSTON "new look" has caused, and is likely to cause, dilution of the distinctive quality of Plaintiffs' WINSTON "new look" Trademark and trade dress, and a diminishment of the advertising value of the "new look" Trademark and trade dress, in violation of Section 43(c) of the Lanham Act, 15 U.S.C. § 1125(c).
In October 1999, Cigarettes Cheaper served Reynolds with written discovery requests, including requests related to the Federal Trade Commission's investigations into the Joe Camel and "No Bull" advertising campaigns. When Reynolds objected to the request for documents related to the FTC investigations, Cigarettes Cheaper moved to compel on the basis that the documents were relevant to Reynolds' dilution claim. In lieu of producing the documents, Reynolds offered to dismiss its dilution claim with prejudice. Cigarettes Cheaper agreed, acknowledging that "RJR's agreement to formally dismiss the dilution claim would significantly narrow the scope of CC's requests for FTC materials and, thereby, limit RJR's obligations to produce these materials as well as our efforts to review them." See Exhibit B to Cigarettes Cheaper!'s Opposition to Plaintiff's Motion, at Exhibit 10. Count V was dismissed with prejudice, by stipulation of the parties, on September 1, 2000.
Reynolds now seeks leave to amend the complaint to add a new claim for trademark dilution under Section 43(c) of the Lanham Act. Unlike Count V of its original complaint, which alleged dilution of the Winston "new look" trademark and trade dress, the proposed Count VIII alleges dilution of the Winston, Camel, and Salem trademarks generally. Cigarettes Cheaper opposes the amendment on a variety of grounds.
LEGAL STANDARD
Pursuant to Rule 15(a) of the Federal Rules of Civil Procedure, leave to amend a complaint "shall be freely given when justice so requires." At the same time, amendment is "inappropriate where there is undue delay, bad faith, dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, or futility of the amendment." Perrian v. O'Grady, 958 F.2d 192 (7th Cir. 1992) (quoting Villa v. City of Chicago, 924 F.2d 629, 632 (7th Cir. 1991)). The decision whether to grant or deny a motion for leave to amend is committed to the sound discretion of the district court. Id.
DISCUSSION
I. FutilityCigarettes Cheaper argues that leave to amend must be denied because Reynolds' proposed new count fails to allege a valid theory of liability. See Rodgers v. Lincoln Towing Serv., Inc., 771 F.2d 194, 204 (7th Cir. 1985). To state a claim for trademark dilution under § 43(c) of the Lanham Act, a plaintiff must allege that the mark is famous; the alleged infringer adopted the mark after the mark became famous; the infringer diluted the mark; and the defendant's use of the mark is commercial and in commerce. Syndicate Sales, Inc. v. Hampshire Paper Corp., 192 F.3d 633, 639 (7th Cir. 1999). The complaint adequately alleges each of the above factors with respect to the Winston, Camel, and Salem trademarks. Cigarettes Cheaper argues, however, that the claim is barred because a trademark owner cannot allege dilution if the retailer is selling products made by the trademark owner or at the trademark owner's direction. In support of this theory Cigarettes Cheaper citesMinnesota Mining Mfg. Co. v. Rauh Rubber, Inc., 943 F. Supp. 1117, 1131-32 (D. Minn. 1996), aff'd, 130 F.3d 1305, 1308-09 (8th Cir. 1997). In Minnesota Mining, the district court denied 3M's request for a preliminary injunction barring a scrap material reseller from selling 3M's trademarked reflective materials. In discussing the likelihood of success on 3M's dilution claim, the district court noted that "Plaintiff has not cited any cases where a court has found trademark dilution from use of the trademark holder's own products." Id. at 1132. Yet the court did not expressly hold that such a claim was barred as a matter of law. Rather, the court declined to issue the injunction based on the fact that "[t]he only evidence plaintiff cites in support of its dilution claim is the fact that a 3M employee was `horrified' because customers had `lost confidence in 3M, or at a minimum, expressed doubt in 3M.'" Id. In affirming the district court's holding, the Eighth Circuit omitted any mention of the availability of dilution claims based on sales of a trademark holder's own products, relying instead on the dearth of evidence suggesting that 3M's mark had in fact been diluted. Minnesota Min. Mfg. Co. v. Rauh Rubber, Inc., 130 F.3d at 1308-09.
In our opinion, therefore, neither Minnesota Mining nor any other case of which this Court is aware establishes a general rule that a trademark holder cannot allege dilution from sales of its own products. And unlike the plaintiff in Minnesota Mining, Reynolds need not, at this stage, demonstrate a likelihood of success on the merits of its claim. It need only allege "the factual predicate to support the crux" of its claims.Rodgers, 771 F.2d at 204 (quoting Jafree v. Barber, 689 F.2d 640, 643 (7th Cir. 1982)). By alleging that the cigarettes sold by Defendants were materially different than those marketed under Reynolds' trademarks, and that these differences contributed to the dilution of the marks, Reynolds has adequately stated a claim for trademark dilution. We therefore reject Cigarettes Cheaper's argument that the amendment, if allowed, would be futile.
II. Res judicata
Cigarettes Cheaper next argues that the proposed amendment is barred by the doctrine of res judicata. "For res judicata to apply in federal court three requirements must be met: (1) an identity of the causes of actions; (2) an identity of the parties or their privies; and (3) a final judgment on the merits." Golden v. Barenborg, 53 F.3d 866, 869 (7th Cir. 1995) (citing Matter of Energy Co-op., Inc., 814 F.2d 1226, 1230 (7th Cir.), cert. denied, Energy Co-op., Inc. v. Phillips Petroleum Co., 484 U.S. 928, 108 S.Ct. 294 (1987). The parties involved in Reynolds' original dilution claim and its proposed amendment are identical, and the dismissal of the original claim constitutes a final judgment on the merits of the claim. The key question is therefore whether the original and proposed new dilution counts allege identical causes of action. For purposes of res judicata, two causes of action are identical if they involve a "single core of operative facts which give rise to a remedy."Golden, 53 F.3d at 869 (quotation marks omitted). Thus "a subsequent suit is barred if the claim on which it is based arises from the same incident, events, transaction, circumstances, or other factual nebula as a prior suit that had gone to final judgment." Okoro v. Bohman, 164 F.3d 1059, 1062 (7th Cir. 1999).
In our view, the original, dismissed dilution claim and the new, proposed dilution claim contain materially different allegations. The original Count V alleged in essence that by selling Winston cigarettes without the "new look" trademark and packaging, Defendants diluted the quality and advertising value of the "new look," a trademark and trade dress into which Reynolds had invested significant promotional and advertising resources. Count VIII of the proposed Third Amended Complaint, on the other hand, concerns Defendants' sale of "foreign sale only" Winston, Camel, and Salem products in the U.S. market. Because these "foreign sale only" cigarettes are "materially different" from those Reynolds sells domestically under the Winston, Camel, and Salem trademarks, Count VIII alleges, Defendants' conduct dilutes the distinctive quality and advertising value of those marks. Count VIII does not — and could not, under principles of claim preclusion — allege that the absence of the "new look" trademark and trade dress is a material difference supporting Reynolds' new dilution claim.
Cigarettes Cheaper contends that the original and proposed dilution claims are identical for res judicata purposes in that they both "focus on CC's purported unauthorized use of RJR's trademarks, including in each instance the use of WINSTON as a trademark," and both are based on "the distribution and sale in United States commerce of `foreign sale only' cigarettes." These arguments paint the relevant core of operative facts with too broad a brush. The "incident, events, transaction, circumstances, or other factual nebula" from which the original dilution claim arose was Defendants' sale of Winston cigarettes without the "new look" packaging that Reynolds was marketing at the time. The proposed new claim, by contrast, arises out of Defendants' sale of Winston, Camel, and Salem cigarettes that are materially different from those sold by Reynolds in the U.S. regardless of the presence or absence of any "new look" trademark or trade dress. The causes of action are therefore not identical, and the new claim is not barred by principles of res judicata.
III. Equitable and judicial estoppel
For reasons similar to those set forth in the preceding paragraphs, we must reject Cigarettes Cheaper's claim that the doctrines of judicial and equitable estoppel prevent Reynolds from pleading the proposed dilution claim. "[E]stoppel may be applied only where a clearly inconsistent position is taken." In re Cassidy, 892 F.2d 637, 641 (7th Cir. 1990). As discussed above, Reynolds' new dilution claim covers different ground than the one it voluntarily dismissed earlier in the litigation. This is therefore not a situation in which one party is using "intentional self-contradiction . . . as a means of obtaining unfair advantage in litigation." Diginet, Inc. v. Western Union ATS, Inc., 958 F.2d 1388, 1397 (7th Cir. 1992) (quoting Scarano v. Central R.R., 203 P.2d 510, 513 (3d Cir. 1953)). Accordingly, judicial and equitable estoppel do not apply.
IV. Rule 15(a)
Cigarettes Cheaper next argues that the amendment should be disallowed on grounds of undue delay, dilatory motive, and undue prejudice. This case is more than two years old, and discovery is currently scheduled to end on April 2, 2001. Cigarettes Cheaper asserts that Reynolds' unexplained delay of two years is unreasonably long and is indicative of dilatory motive. It also contends that it will be unduly prejudiced by the amendment, as it will have insufficient time to conduct additional discovery and will have to recall witnesses who have already been deposed.
While we are sympathetic to Cigarettes Cheaper's desire for the litigation to move forward, we are not convinced that Reynolds' delay in bringing the amendment is so lengthy or the prejudice to Defendants so severe as to override the policy in favor of permitting parties to amend their pleadings. While some additional discovery may be necessary, the scope of that discovery will likely be limited, since the fame and distinctiveness of the Winston, Camel, and Salem marks have always been in the case as part of Reynolds' infringement claims. See, e.g, Complaint and Second Amended Complaint at ¶¶ 15 and 16. As a result, Cigarettes Cheaper has already taken discovery on this issue. See, e.g., Request No. 47 of Cigarettes Cheaper's First Set of Document Requests (requesting all documents related to whether the Winston, Camel, and Salem trademarks "are instantly recognizable, have become famous to consumers, and are an important part of RJR's cigarette-marketing effort"). And while the close of discovery is in fact imminent, the cut-off date may be extended if necessary to accommodate Defendants' legitimate need for additional discovery relating to Reynolds' new claims.
Less than two months ago, Cigarettes Cheaper itself took advantage of Rule 15(a)'s liberal amendment policy when it sought leave to amend its counterclaim to add a claim under § 1 of the Sherman Act. In support of its motion, Cigarettes Cheaper argued that "the potential prejudice to RJR is nil" in light of the fact that the facts supporting the proposed amendment overlapped with those supporting its existing claims. We accepted this rationale, and granted Cigarettes Cheaper leave to amend its counterclaim nearly two years into the litigation. Under similar circumstances, we now grant leave to Reynolds to do the same.
CONCLUSION
For the foregoing reasons, Reynolds' motion for leave to file to file a Third Amended Complaint is granted.