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Republic Tobacco, L.P. v. Commonwealth Brands

March 3, 2009

REPUBLIC TOBACCO, L.P., AN ILLINOIS LIMITED PARTNERSHIP, PLAINTIFF,
v.
COMMONWEALTH BRANDS, INC., A KENTUCKY CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Judge Rebecca R. Pallmeyer

MEMORANDUM OPINION AND ORDER

Plaintiff Republic Tobacco, L.P. ("Republic" or "Republic Tobacco") sells tobacco-related products, including roll-your-own cigarette papers. The cigarette paper comes in various sizes, and Republic uses the designations "1.25" and "1.5" on two different products. In 1977, Republic's predecessor, Adams Apple Distributing Co., brought a suit against the predecessor-in-interest to Defendant Commonwealth Brands, Inc. ("CBI"). The 1977 lawsuit alleged, among other things, false designation of origin and false description and sought to enjoin Defendant's use of the fractional designations "1 1/4 " and "1 1/2 " on cigarette paper produced by Defendant. The parties entered into a Settlement Agreement in 1979 ("Settlement Agreement" or "Agreement"), which allowed Defendant limited use of the fractional designations and, according to Plaintiff, prohibited Defendant from using decimal designations in its cigarette paper products. In 2008, CBI circulated an advertisement at a trade show that used decimal designations, and Republic brought this action. Republic now moves for summary judgment on its claim that CBI breached the Settlement Agreement. CBI has filed a cross-motion for summary judgment on the same claim. For the reasons given below, Plaintiff's motion is granted and Defendant's is denied.

FACTUAL BACKGROUND

Republic distributes cigarette papers under the brand name "JOB,"*fn1 and sells, among other products, JOB 1.25 and JOB 1.5 cigarette papers. (Pl.'s 56.1 ¶ 3.) According to the Chairman of Republic Tobacco, JOB 1.25 and JOB 1.5 are two of the five best-selling tobacco paper brands in the United States. (Levin Decl. ¶ 11, Ex. A to Pl.'s 56.1.) Until 2007, Defendant's predecessor, Robert Burton Associates, Ltd. ("RBA"), distributed cigarette papers under the brand names "JOKER" and "E-Z WIDER." (Pl.'s 56.1 ¶ 5-7.) Imperial Tobacco plc, a United Kingdom limited company, bought RBA in 1997 and CBI in 2007. (Id. ¶¶ 6-7.) Later in 2007, RBA was merged into CBI, which began distributing the JOKER and EZ-WIDER brands. (Id. ¶¶ 7-8.) CBI does not contest that it is the successor-in-interest to RBA as the importer and distributor of JOKER and EZ-WIDER papers in the United States. (Def.'s Resp. ¶ 10.)

In 1977, Republic's predecessor brought suit against RBA, seeking, among other things, a determination of the parties' rights to use the fractional designations "1 1/2 " and "1 1/4 " on packaging and other materials related to the sale of cigarette papers. (Pl.'s 56.1 ¶¶ 2, 11.) The litigation terminated when the parties entered into the 1979 Settlement Agreement. (Id. ¶ 12.) The Agreement allowed RBA to use the fractional designations provided that they were placed in "reasonable proximity" to the RBA brand name. (Settlement Agreement ¶¶ 1-2, Ex. C to Pl.'s 56.1.) The Agreement also provided that, "subject to" the provisions of the Agreement discussing permissible fractional use, RBA would not make "any proprietary use" of the decimal designations "on any packaging, advertising, or promotional materials." (Id. ¶ 3.) RBA also agreed not to oppose Plaintiff's then-pending trademark registration applications for the decimal designations. (Id. ¶ 4.) Paragraph 5 of the Agreement stated that nothing in the Agreement itself shall be construed to be or operate in derogation of or prejudicial to [sic] any rights, licenses or privileges which [RBA] may now or at any time hereafter enjoy as a member of the public, and [RBA] shall notwithstanding anything contained [above] to the contrary, have the right to exercise any rights, licenses or privileges as a member of the public as fully as though this agreement were not in existence. (Id. ¶ 5.) Paragraph 5 went on to state, "without limitation upon the generality" of the above quoted provision, that the limitations regarding RBA's use of either the fractional or decimal designations would be lifted if a third party began using those designations and Adams Apple were unable to prevent the unauthorized use. (Id.)

In 1985, Republic's 1.5 and 1.25 marks, written in a distinctive style with the word "POINT" written on the decimal, were registered as trademarks with the U.S. Patent and Trademark Office. (Ex. 2 & 3 to Def.'s 56.1.) Although the parties provide few details, it appears that in 2001, DRL Enterprises, an affiliate of Republic, sought registration for the non-stylized marks of "1.25" and "1.5" for cigarette rolling papers. (Ex. S to Pl.'s 56.1, at 1.) RBA opposed the registration in 2003, and the pending proceedings before the Trademark Trial and Appeal Board ("TTAB") were suspended pending resolution of Republic's case in this court.*fn2 (Ex. U to Pl.'s 56.1.)

At the National Association of Tobacco Outlets trade show in April 2008, CBI circulated a sales order form for its JOKER papers. (Pl.'s 56.1 ¶ 34.) "JOKER PAPERS" was written in large font at the top of the page. (Ex. M to Pl.'s 56.1.) Underneath pricing information and adjacent to a picture of the JOKER display, the form stated:

Display Contains 48 ea Regular Orange 24 ea Single Wide Double 24 ea 1.25 48 ea 1.50 (Id.) Weeks after the trade show, Republic brought this suit, alleging that CBI's use of "1.25" and "1.50" in its sales form breached the 1979 Settlement Agreement, among other claims. Plaintiff now seeks summary judgment only on the breach of contract claim, and Defendant has filed a cross-motion for summary judgment on the same claim.

DISCUSSION

When considering cross-motions for summary judgment, the court draws reasonable inferences "in favor of the party against whom the motion under consideration was made." McKinney v. Cadleway Props., Inc., 548 F.3d 496, 500 (7th Cir. 2008). Summary judgment will then be granted if "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). Here, the parties agree on the relevant facts; their disagreement is confined to the meaning of the contract, a question of law. Cherry v. Auburn Gear, Inc., 441 F.3d 476, 481 (7th Cir. 2006) ("[A] contract's meaning is a matter of law, and where there is no contractual ambiguity, there is no resort to extrinsic evidence, hence no factual dispute to preclude summary judgment." (citation omitted)).*fn3 Accordingly, the court only needs to decide "whether either party 'is entitled to judgment as a matter of law.'" Auto. Mechs. Local 701 Welfare & Pension Funds v. Vanguard Car Rental USA, Inc., 502 F.3d 740, 748 (7th Cir. 2007) (quoting FED. R. CIV. P. 56(c)). The parties do not dispute that Illinois law governs the interpretation of the contract, and the court agrees. See Pasant v. Jackson Nat'l Life Ins. Co. of Am., 751 F. Supp. 762, 764 (N.D. Ill. 1990) (under Illinois's "most significant contacts" test, interpretation of a settlement agreement was governed by the law of the state where the prior lawsuit was conducted and where one of the parties was domiciled).

As a preliminary matter, the court addresses an issue that, remarkably, appears to have escaped the parties' notice. The JOKER advertisement form at issue here referred to the sizes "1.25" and "1.50." (Ex. M to Pl.'s 56.1.) The Settlement Agreement, however, makes no reference to the designation "1.50." As set forth in Paragraph 3, the Agreement applies to a number of designations: "'ONE POINT FIVE', '1 POINT 5', 'ONE POINT TWO FIVE', '1 POINT 25', 'ONE POINT FIVE size', '1 POINT 5 size', 'ONE POINT TWO FIVE size', '1 POINT 25 size[',] '1.5', '1.25', '1.5 size' or '1.25 size'." (Settlement Agreement ¶ 3, Ex. C to Pl.'s 56.1.) The list in Paragraph 3 is exclusive; it contains no suggestion that the cited designations are merely examples of the type of designations that are prohibited. The size "1.50" does not appear on that list or anywhere else in the Agreement. While the mathematical equivalence of "1.50" and "1.5" is apparent, the issue is the appearance; indeed, if mere mathematical equivalence rather than appearance were all that mattered, the list provided in Paragraph 3 of the Agreement could have been substantially shorter. CBI's use of "1.50" does not violate the Settlement Agreement, and the proceeding discussion will therefore focus solely on whether CBI's use of "1.25" constitutes a breach.

For purposes of this motion, the central paragraph of the Agreement is Paragraph 3, which provides: "Subject to the provisions of Paragraphs 1 and 2 above, [Defendant] agrees that it will not make any proprietary use of the designation[]... '1.25'... on any packaging, advertising or promotional materials for its cigarette rolling papers." (Settlement Agreement ¶ 3, Ex. C to Pl.'s 56.1.) Although CBI considers its use of the numbers to be rather minor and insignificant, it does not seriously dispute that the materials it printed and distributed at the trade show contained the "1.25" mark and that these materials constituted promotional materials. CBI nevertheless maintains that Paragraph 3 does not bar its actions because, first, Paragraph 3 is made "subject to" Paragraphs 1 and 2, which would permit CBI's use; and second, CBI's use of the mark was a non-proprietary use that was not covered by Paragraph 3 and was explicitly permitted by Paragraph 5 of the Agreement. As explained below, both arguments fail.

I. Paragraph 3

Turning first to the argument concerning the plain language of Paragraph 3, CBI places great emphasis on the "subject to" clause of Paragraph 3. Like Paragraph 3, which prohibits use of decimals in referring to "1.5" and "1.25," Paragraphs 1 and 2 prohibit the use of the terms "1-1/2 Size" and "1-1/4 Size." Unlike Paragraph 3, however, Paragraphs 1 and 2 explicitly carve out two exceptions to the prohibition. First, Paragraphs 1 and 2 permit Defendant to sell off any unused inventory remaining in 1979 that had "1-1/2 Size" or "1-1/4 Size" marks. Second, the parties agreed that Defendant could continue to use the "1-1/2 Size" and "1-1/4 Size" marks provided that those terms were located "in reasonable proximity" to a separate brand name, such as "E-Z WIDER" or "JOKER." Paragraph 3, aimed at the use of decimals, is substantially shorter than Paragraphs 1 and 2 and contains neither of the carve-outs contained in the first two Paragraphs. CBI argues that the carve-outs nevertheless apply to Paragraph 3 because Paragraph 3 is made "subject ...


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