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Blue Cross and Blue Shield Association v. UHS of Delaware, Inc.

United States District Court, N.D. Illinois, Eastern Division

May 8, 2014

BLUE CROSS AND BLUE SHIELD ASSOCIATION, Plaintiff,
v.
UHS OF DELAWARE, INC., UNIVERSAL HEALTH SERVICES, INC., and WELLINGTON REGIONAL MEDICAL CENTER, INC., Defendants.

MEMORANDUM OPINION AND ORDER

GARY FEINERMAN, District Judge.

Blue Cross and Blue Shield Association ("BCBSA") brought this suit against UHS of Delaware, Inc., Universal Health Services, Inc., and Wellington Regional Medical Center, Inc., alleging trademark infringement under 15 U.S.C. § 1114, false designation of origin under 15 U.S.C. § 1125(a), dilution under 15 U.S.C. § 1125(c), and common law breach of contract, trademark infringement, and unfair competition. Doc. 27. Defendants counterclaimed for breach of contract, both written and oral. Doc. 34 at pp. 26-27. Now before the court are Defendants' motion under Federal Rule of Civil Procedure 12(b)(6) to dismiss BCBSA's contract claim, Doc. 35, and BCBSA's Rule 12(b)(6) motion to dismiss Defendants' oral contract counterclaim, Doc. 52. At the parties' request, briefing and consideration of the motions were deferred pending settlement discussions. Docs. 70, 73, 79, 86. After the settlement discussions terminated unsuccessfully, Doc. 92, the court set a briefing schedule, Doc. 93, and the parties briefed the motions. For the following reasons, Defendants' motion is denied and BCBSA's motion is granted, though Defendants will be given an opportunity to replead their oral contract counterclaim.

Background

In considering the motions to dismiss, the court assumes the truth of the operative complaint's and counterclaims' factual allegations, though not their legal conclusions. See Munson v. Gaetz, 673 F.3d 630, 632 (7th Cir. 2012). The court must consider "documents attached to the complaint [and counterclaims], documents that are critical to the complaint [and counterclaims] and referred to in [them], and information that is subject to proper judicial notice, " along with additional facts set forth in BCBSA's and Defendants' respective briefs opposing dismissal, so long as those facts "are consistent with the pleadings." Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir. 2012). The following facts are stated as favorably to BCBSA (with respect to its claims) and Defendants (with respect to their counterclaims) as these materials allow. See Gomez v. Randle, 680 F.3d 859, 864 (7th Cir. 2012).

BCBSA is a not-for-profit, national association of 38 independent and locally operated Blue Cross and Blue Shield companies ("BCBS Member Plans"). Doc. 27 at ¶ 10. BCBSA owns over 240 U.S. federal trademarks and service marks consisting of the image of a blue cross, blue shield, and the words "Blue Cross and Blue Shield" (collectively, the "Blue Marks"). Id. at ¶ 11; see Docs. 27-1, 27-2. The marks appear in a variety of blue hues. Doc. 27 at ¶ 13. One of BCBSA's most recognizable marks is a blue Greek cross with arms of equal thickness intersecting at right angles. Ibid. Here is an example:

Doc. 27-2 at 14. BCBSA licenses the Blue Marks to BCBS Member Plans and other licensees in the healthcare sector. Doc. 27 at ¶¶ 11, 14.

Defendants are engaged in healthcare services. Universal Health Services operates acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers, and radiation oncology centers throughout the United States. Id. at ¶ 15. UHS of Delaware, the management arm of Universal Health Services, owns, licenses, and manages all trademarks and service marks used within the Universal Health Services system of healthcare service providers. Ibid. Wellington Regional Medical Center is a healthcare service provider within the Universal Health Services system. Id. at ¶ 30. Defendants regularly communicate and share information with each other regarding the selection, adoption, and use of trademarks and service marks for their services and facilities. Id. at ¶ 16.

Between June 2003 and October 2009, BCBSA sent several letters to Defendants expressing concern over their use of and registration applications for marks in a cross design in a non-blue color, which BCBSA viewed as posing a risk of infringing on its rights in the Blue Marks. Id. at ¶¶ 17-23. In June 2003, BCBSA sent letters to Universal Health Services regarding its mark consisting of a cross design, which was accompanied by the words "Physician Management Services, " and asked if the mark was used in the color blue. Id. at ¶¶ 17-18. On or about September 30, 2003, Universal Health Services responded that, with respect to the "Physician Management Services" mark and another mark in a cross design with the words, "River Parishes, " "UHS does not now and does not intend in the future to use this Cross Design in the color blue or shade of blue." Ibid. An identical exchange occurred regarding Universal Health Services's use of a mark consisting of a cross design with the words, "Lakewood Ranch Medical Center, " and on or about January 9, 2004, Universal Health Services verbally assured BCBSA that the design was not being used in the color blue. Id. at ¶ 19. Between December 9, 2004 and April 2, 2008, BCBSA notified UHS of Delaware that BCBSA would have concerns if it were to use various marks consisting of a cross design in the color blue. Id. at ¶¶ 20-23 (referring to two red crosses with the words, "Desert Springs Hospital Medical Center" and "Desert Springs Dream Team Taking Care Above And Beyond, " and two white crosses with the words, "Wound Healing Institute Of Carolina At Aiken Regional" and "Service Excellence It Starts With Me").

On or about October 6, 2009, BCBSA sent a letter to UHS of Delaware regarding a mark consisting of a cross design with the words, "Texoma Medical Center, " to advise it of BCBSA's rights in the Blue Marks. Id. at ¶ 24. In follow-up correspondence, BCBSA learned that the cross design was in fact being used in the color blue. Ibid. On December 22, 2009, BCBSA sued UHS of Delaware and Universal Health Services, alleging trademark infringement, false designation of origin, dilution, and unfair competition. Id. at ¶ 25; see Blue Cross and Blue Shield Assoc. v. UHS of Delaware, Inc., No. 09 C 7935 (N.D. Ill. dismissed Aug. 1, 2011). Specifically, BCBSA complained of UHS of Delaware's and Universal Health Services's use and application for federal registration of the Texoma cross design in the color blue. Ibid.

The parties eventually reached a settlement, which was memorialized in a written agreement (the "Texoma Agreement"). Doc. 37-1.[*] At its core, the Texoma Agreement restricts UHS of Delaware, Universal Health Services, and all healthcare providers in the UHS system from using and seeking to register certain cross designs. The Texoma Agreement defines the following relevant terms:

(c) Color Blue. The term "Color Blue" means blue in color and any color with the commercial impression of blue, such as a shade of blue.
(d) Defendants and UHS. The terms "UHS" and "Defendants" mean the defendants, individually and collectively, UHS of Delaware, Inc....; UHS of Texoma, Inc....; TexomaCare...; and Universal Health Services, Inc....
...
(i) Texoma Cross. The term "Texoma Cross" means the design depicted below (including without limitation any ...

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