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Republic Tobacco L.P. v. North Atlantic Trading Co.

May 10, 2007

REPUBLIC TOBACCO L.P., PLAINTIFF,
v.
NORTH ATLANTIC TRADING COMPANY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge

MEMORANDUM OPINION

This matter is before the court on Plaintiff Republic Tobacco, L.P.'s ("Republic") partial motion for summary judgment on Counts I, II, and IV of the complaint and motion for summary judgment on all the counterclaims. This matter is also before the court on Defendants North Atlantic Trading Company, Inc.'s, North Atlantic Operating Company, Inc.'s, and National Tobacco Company, L.P.'s (collectively referred to as "North Atlantic") motion for summary judgment. For the reasons stated below, we deny Republic's partial motion for summary judgment and grant Republic's motion for summary judgment on the counterclaims. In addition, we grant North Atlantic's motion for summary judgment.

BACKGROUND

Plaintiff Republic Tobacco, L.P. ("Republic") alleges that North Atlantic and Republic both import and sell roll-your-own tobacco papers and products. Both North Atlantic and Republic allegedly market their products through distributors and wholesalers that sell the products to retail stores. North Atlantic allegedly imports and distributes its papers under the ZIG-ZAG brand name and Republic allegedly imports and distributes its products under brand names such as the TOP and JOB brand names.

Republic further alleges that North Atlantic prepared and circulated to its buyers a "false and misleading presentation deck titled 'Cigarette Paper Review.'" (Compl. Par. 9). In the "Cigarette Paper Review" ("CPR"), North Atlantic allegedly criticized Republic for marketing "Look Alike Products" that Republic contends are similar to the ZIG-ZAG brand. (Compl. Par. 9). North Atlantic also allegedly criticized Republic in the Review for falsely saying Republic's product "is the same paper" as the ZIG-ZAG brand paper. (Compl. Par. 9). In the Review, North Atlantic also allegedly portrayed Republic's Chairman, Donald R. Levin ("Levin"), as a liar. According to Republic, North Atlantic contacted Republic's customers and informed the customers that Levin lied to the customers and that Levin lied under oath about the composition of Republic's cigarette papers. (Compl. Par. 8). Specifically, Republic alleges that North Atlantic's promotional materials falsely accuse Republic of making statements that directly contradict Levin's sworn testimony in a previous lawsuit between North Atlantic and Republic. (Compl. Par. 12). Republic alleges that North Atlantic is making such allegations in order to "interfere with Republic's customer relationships by causing customers to be concerned about the nature and quality of Republic's products and the integrity and veracity of Republic's top executive." (Compl. Par. 13). Republic contends that the Review constitutes false advertising that was used by North Atlantic to undermine Republic's relationships with its customers and the perceived integrity of Republic's products. Republic alleges that North Atlantic's alleged misconduct has adversely impacted Republic's sales and damaged its business relationships and reputation in the cigarette paper industry.

North Atlantic contends that it is a licensee as part of a distribution and licensing agreement ("Licensing Agreement") with Bollere Technologies, S.A. ("Bollore") under which North Atlantic is the exclusive trademark licensee and distributor of ZIG-ZAG brand cigarette papers in the United States. North Atlantic contends that it distributes the ZIG-ZAG brand 1 1/4 size cigarette papers and other cigarette papers in the United States pursuant to the agreement. North Atlantic claims that it sells the cigarette papers in an orange packaging, which is referred to as "French orange." (CC Par. 12). North Atlantic further contends that it sells its product to retailers, including specialty stores, convenience stores, and grocery stores, and that those retailers sell the product to consumers for approximately $2.00 per package. North Atlantic contends that Republic sells JOB 1.25 and JOB 1 1/4 Orange cigarette papers, which are in direct competition with North Atlantic's product. Republic allegedly sells its product to similar retailers as North Atlantic, the competing products are located in close proximity in retail locations and sold to consumers, and the JOB 1.25 cigarette papers are sold to consumers for approximately $1.00 to $2.00. Finally, North Atlantic contends that Republic has increased Republic's marketing efforts to increase its market share.

Republic brought the instant action and included in the complaint a false advertising claim alleging a violation of 15 U.S.C. § 1125(a) of the Lanham Act ("Lanham Act Section 43(a)"), 15 U.S.C. § 1051 et seq. (Count I), a claim alleging a violation of 815 ILCS 510/2 of the Illinois Uniform Deceptive Trade Practices Act ("IDTPA"), 815 ILCS 510/1 et seq. (Count II), a claim alleging a violation of 815 ILCS 515/2 of the Illinois Consumer Fraud and Deceptive Business Practices Act ("Fraud Act"), 815 ILCS 515/1 et seq. (Count III), a defamation claim (Count IV), and a common law unfair competition claim in the form of a tortious interference with prospective economic advantage ("TIPEA") claim (Count V). On June 30, 2006, North Atlantic moved, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss the Fraud Act claim (Count III) and the unfair competition claim (Count V). On October 18, 2006, we denied the partial motion to dismiss. On September 18, 2006, North Atlantic filed a motion to join necessary parties pursuant to Federal Rule of Civil Procedure 19(a), which we subsequently denied. On October 27, 2006, North Atlantic filed counterclaims and included a false advertising claim alleging a violation of Lanham Act Section 43(a) (Counterclaim I), a claim alleging TIPEA (Counterclaim II), and a claim alleging a violation of 815 ILCS 510/2 of the Fraud Act, 815 ILCS 515/1 et seq. (Counterclaim III). Republic moves for summary judgment on Counts I, II, and IV of the complaint. Republic also moves for summary judgment on all of North Atlantic's counterclaims. North Atlantic moves for summary judgment on all claims in the complaint.

LEGAL STANDARD

Summary judgment is appropriate when the record, viewed in the light most favorable to the non-moving party, reveals that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). In seeking a grant of summary judgment the moving party must identify "those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)(quoting Fed. R. Civ. P. 56(c)). This initial burden may be satisfied by presenting specific evidence on a particular issue or by pointing out "an absence of evidence to support the non-moving party's case." Id. at 325. Once the movant has met this burden, the non-moving party cannot simply rest on the allegations in the pleadings, but, "by affidavits or as otherwise provided for in [Rule 56], must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). A "genuine issue" in the context of a motion for summary judgment is not simply a "metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Rather, a genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Insolia v. Philip Morris, Inc., 216 F.3d 596, 599 (7th Cir. 2000). The court must consider the record as a whole, in a light most favorable to the non-moving party, and draw all reasonable inferences that favor the non-moving party. Anderson, 477 U.S. at 255; Bay v. Cassens Transport Co., 212 F.3d 969, 972 (7th Cir. 2000). When there are cross motions for summary judgment, the court should "construe the evidence and [draw] all reasonable inferences in favor of the party against whom the motion under consideration is made." Premcor USA, Inc. v. American Home Assurance Co., 400 F.3d 523, 526-27 (7th Cir. 2005).

DISCUSSION

I. Lanham Act Section 43(a) Claim (Count I), IDTPA Claim (Count II), and Fraud Act Claim (Count III)

Republic includes in its complaint false advertising claims based upon violations of Lanham Act Section 43(a) (Count I), an IDTPA claim (Count II), and a Fraud Act claim (Count III). The IDTPA was "designed to address conduct involving either misleading trade identification or false and deceptive advertising." Menasha Corp, v. News America Marketing In-Store, Inc., 238 F.Supp.2d 1024, 1035 (N.D. Ill. 2003). The Fraud Act prohibits "unfair methods of competition and unfair or deceptive acts or practices, including . . . the use or employment of any deception, fraud, false pretense, false promise, misrepresentation or the concealment, suppression or omission of any material fact, with intent that others rely upon the concealment, suppression or omission or such material fact, or the use or employment of any practice described in Section 2 of the 'Uniform Deceptive Practices Act' . . . in the conduct of any trade or commerce. . . ." 815 ILCS 505/2.

Republic moves for summary judgment on the Lanham Act Section 43(a) claim (Count I) and the IDTPA claim (Count II) and North Atlantic moves for summary judgment on the Lanham Act Section 43(a) claim (Count I), the IDTPA claim (Count II), and the Fraud Act claim (Count III). The IDTPA claim (Count II) and Fraud Act claim (Count III) are evaluated under the same analysis as the false advertising claim. Trans Union LLC v. Credit Research, Inc., 142 F. Supp.2d 1029, 1038 (N.D. Ill. 2001)(stating that unfair competition claims brought under Illinois law and IDTPA claims are reviewed under the same analysis that is employed for a Lanham Act claim); D 56, Inc. v. Berry's Inc., 955 F.Supp. 908, 920 (N.D. Ill. 1997)(stating that "[u]nder Illinois law, claims under the [Fraud Act] and the IDTPA are to be resolved according to principles set forth under the Lanham Act"). Section 43(a) of the Lanham Act provides that: any person who, on or in connection with any goods or services, or any container for goods, 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 . . . in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, 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)(B). To establish a claim for false advertising under Lanham Act Section 43(a), Republic must prove: "(1) a false statement of fact by the defendant in a commercial advertisement about its own or another's product; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused its false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement, either by direct diversion of sales from itself to defendant or by a loss of goodwill associated with its products." Hot Wax, Inc. v. Turtle Wax, Inc., 191 F.3d 813, 819 (7th Cir. 1999)(citing B. Sanfield, Inc. v. Finlay Fine Jewelry Corp., 168 F.3d 967, 971 (7th Cir. 1999)). If such a statement by a defendant is literally false, a plaintiff does not need to show actual deception or likelihood of deception. Id. at 820. If the statement is literally true or ambiguous, "a plaintiff must prove that the statement is misleading in context by demonstrate[ing] actual consumer confusion." Id. at 820 (citing B. Sanfield, 168 F.3d at 971-72). Actual confusion is shown by either direct evidence or survey evidence. Rust Environment & Infrastructure, Inc. v. Teunissen, 131 F.3d 1210, 1278 (7th Cir. 1997). The plaintiff bears the burden of showing that the defendant's advertisement contains a false statement of fact. Hot Wax, Inc., 191 F.3d at 819 (stating that to establish claim under false or deceptive advertising prong of § 43(a) of Lanham Act, plaintiff must prove false statement of fact); BASF Corp. v. Old World Trading Co., 41 F.3d 1081, 1091 (7th Cir. 1994)(stating that "a Lanham Act plaintiff bears the burden of proving literal falsity"). Thus, although during the summary judgment stage the defendant bears the burden of showing that the plaintiff cannot prove its claim as a matter of law, the plaintiff must show that it has sufficient evidence to put each issue into dispute.

A. Falsity of Statements in CPR

Republic includes in the complaint allegations concerning statements within the CPR, which may be categorized into four areas: (1) the CPR portrays Levin as a liar ("Levin Portrayal") ; (2) the CPR implies that JOB 1.25 and JOB 1 1/4 Orange cigarette papers are the same ("JOB 1.25 and JOB 1 1/4 Orange Similarity Portrayal"); (3) the CPR alleges that the JOB 1 1/4 Orange cigarette papers will confuse consumers ("JOB 1 1/4 Orange Confusion Portrayal"); and (4) the CPR falsely claims that North Atlantic's customers who refuse to sell JOB papers will make more money by excluding JOB papers from their product line ("Customer Financial Portrayal"). See (D SMF Par. 10); (P Resp. D SMF Par. 10).

The Levin Portrayal allegation includes a page entitled "Look Alike Product Situation," (D SMF Ex. A), which includes the following bullet points:

fl The similarities in packaging suggests consumer confusion will occur G Is this how you want to treat your consumers? fl Competitor is saying it is the same paper . . . it is not G Don Levin (Owner -- Republic Tobacco) testimony ("Look Alike Products Situation Slide"). (D SMF Ex. A). In addition, this allegation includes statements from the page entitled "The Facts: Mr. Don Levin Federal Court Testimony -- 06/30/2003," (D SMF Ex. A), which reads:

Q: (Attorney) Tell me about building the Job brand in America from the time you took over until currently; in other words, from the early 70's till now. How did you go about building up the Job brand?

A: (Mr. Levin) Well, first we had to make the Job brand what people wanted. Why it was so exciting for me to get a brand that was different and I could control was because I could make it the right way. All the brands up until then and still most of them are, are made for European type of cigarettes. And again, like beer or European beer and American beer, you know, the difference in the taste. Cigarette papers and tobacco are the same.

The Drum uses more of the European paper, more like (like) the ZIG-ZAG paper because it gives you that taste. So the first thing we did is change the composition of Job paper to be different from that of its competitors.

Q: (Attorney) And how did you make it different?

A: (Mr. Levin) Well, we -- if you took a Camel or Lucky Strike, which is what we tried to make, it has a certain kind of paper. And that has wood and hemp and flax are the combinations. So we made our paper the same as that. So when you rolled a Top tobacco with the Job cigarette paper, it would taste like a Lucky or a Camel, if you will.

If you took that same tobacco and rolled it with this Job, this particular paper, which is that one we used for European tobacco -- it's packaged like – the same color is used -- then you get the flavor like you get with a ZIG-ZAG, which is a more European Flavor. It's different. Not bad. It's different. ("Levin Testimony Slide"). (D SMF Ex. A)(emphasis in original).

The statements in the CPR regarding the JOB 1.25 and JOB 1 1/4 Orange Portrayal includes the page entitled "The Facts: Look Alike Product Similarities," (D SMF Ex. A), in which pictures of packaging for JOB 1.25, ZIG-ZAG French Orange 1 1/4 , and JOB 1 1/4 Orange are shown. In addition to the depictions of the packages, the page contains captions over the JOB products stating "JOB 1.25 (Original)" and " JOB 1 1/4 [Orange] (Look Alike)." (D SMF Ex. A). Finally, the JOB 1.25 and JOB 1 1/4 Orange Portrayal page ...


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